When is Frugality Optimal?

Abstract

We consider an optimal growth model in wich the decision maker chooses the consumption path that maximizes her utility over a nite planning horizon. At each instant of time, she can opt for a regular product that pollutes the environment, or a non-polluting frugal product, which procures, however, lower utility. Depending on the parameter values, di⁄erent optimal paths can materialize, including some where a frugal lifestyle is on the rise, and others where polluting persists during the planning horizon.

Keywords: Optimal Consumption, Optimal growth, Frugality, Environment, Dynamic Optimization