Environmental Resources Depletion and Interplay between Negative and Positive Externalities in a Growth Model

47 Pages Posted: 2 Feb 2005

Date Written: January 2005

Abstract

We analyse growth dynamics in an economy where the well-being of economic agents depends on three goods: leisure, a free access environmental good and a private good which can be produced by each agent through his own labour input. The private good can be consumed as a substitute for the environmental resource. The production process of the private good by each agent generates negative externalities on the other agents, by depleting the free access natural resource; but it also produces positive externalities by increasing the productivity of labour via a learning-by-doing mechanism of accumulation of knowledge [which is a pure public good]. In this context, we show that attracting steady states may exist which are Pareto-dominated by others where aggregate private consumption and labour productivity are lower. However, negative externalities can also be an engine of desirable growth: the deterioration of the environmental good can play the role of a coordination device leading economic agents to a wider exploitation of positive externalities.

Keywords: Self-protection choices, Consumption patterns, Negative externalities

JEL Classification: D62, O11, O13, O40, Q20

Suggested Citation

Antoci, Angelo, Environmental Resources Depletion and Interplay between Negative and Positive Externalities in a Growth Model (January 2005). Available at SSRN: https://ssrn.com/abstract=654402 or http://dx.doi.org/10.2139/ssrn.654402

Angelo Antoci (Contact Author)

University of Sassari ( email )

Piazza Universita
Sassari, 07100
Italy

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