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Title:Economic growth and the environment with clean and dirty consumption PDF Logo
Authors:Orecchia, Carlo
Tessitore, Maria Elisabetta
Issue Date:2011
Series/Report no.:Nota di lavoro // Fondazione Eni Enrico Mattei: Climate Change and Sustainable Development Series 57.2011
Abstract:This paper aims to verify the existence of the Environmental Kuznets Curve (EKC) or inverted U-shaped relationship between economic growth and environmental degradation in the context of endogenous growth. An important feature of this study is that the EKC is examined in the presence of pollution as a by product of consumption activities; also, pollution is a stock variable rather than a flow and tends to accumulate over time. In order to highlight the role of consumption on the environment, consumers do not consider directly pollution in the maximization problem and are assumed to choose between two different consumption types, characterized by a different impact on the environment (i.e. dirty and clean consumption). We find that substitution of dirty consumption with clean consumption alone is not sufficient to reduce environmental pollution. The result depends on the product differentiation and the cost to achieve it. From a social welfare perspective, more environmental awareness is unambiguously desirable when it generates less pollution. However, it could be that more environmental awareness leads to a lower level of social welfare depending on the costs of product differentiation and social marginal damage of pollution.
Subjects:Environmental Kuznets Curve
Economic Growth
Pollution
Consumption
Consumption behaviour
JEL:C61
Q56
O44
Document Type:Working Paper
Appears in Collections:FEEM Working Papers, Fondazione Eni Enrico Mattei

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