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NONHOMOTHETIC GROWTH MODELS FOR THE ENVIRONMENTAL KUZNETS CURVE
Author(s) -
Shibayama Katsuyuki,
Fraser Iain
Publication year - 2014
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12076
Subject(s) - kuznets curve , economics , elasticity of substitution , consumption (sociology) , environmental quality , substitution (logic) , econometrics , exponential function , environmental degradation , elasticity (physics) , income elasticity of demand , exponential utility , microeconomics , mathematics , production (economics) , thermodynamics , computer science , ecology , physics , social science , mathematical analysis , sociology , programming language , biology
We show the role of the elasticity of substitution between general consumption and the environment in environmental degradation. Specifically, our numerical experiments demonstrate, for a wide range of models, exponential utility generates the environmental Kuznets curve without adding any special assumptions. With exponential utility, the elasticity of substitution and hence the substitution effect between consumption and the environment are both decreasing in income. Hence, when income is low, society (the government) readily gives up environmental quality in return for more consumption, but it does not want to substitute consumption for the environment anymore, once it becomes wealthy enough.