Living in an uncertain world : environment substitution, local and global indeterminacy
Journal of Economic Dynamics and Control, 2020, Vol. 126. OnlineOnly
ANTOCI, Angelo, BORGHESI, Simone, GALEOTTI, Marcello, SODINI, Mauro, Living in an uncertain world : environment substitution, local and global indeterminacy, Journal of Economic Dynamics and Control, 2020, Vol. 126. OnlineOnly - https://hdl.handle.net/1814/71024
Retrieved from Cadmus, EUI Research Repository
Environmental problems are increasingly frequent, intensive and unpredictable. To protect from the observed environmental depletion, economic agents increasingly react by substituting previously free public environmental goods with costly private goods. This substitution mechanism, however, can contribute to enhance the indeterminacy of the possible consequences of mankind activity, further increasing the uncertainty on the future environmental trajectories. To investigate this issue, the paper proposes an intertemporal optimization problem in which agents derive utility from three goods: leisure, a public environmental good and/or private consumption that can be used as a substitute for the environment. The analysis shows that the economy may end up being trapped in the Pareto-dominated steady state and that both local and global indeterminacy may arise in the model. No indeterminacy, however, emerges if green technologies are used so that production has no negative effects on the environment.
Cadmus permanent link: https://hdl.handle.net/1814/71024
Full-text via DOI: 10.1016/j.jedc.2020.103929
Files associated with this item
There are no files associated with this item.