Economic Growth and the Environment with Clean and Dirty Consumption

23 Pages Posted: 24 Aug 2011

See all articles by Carlo Orecchia

Carlo Orecchia

Fondazione Eni Enrico Mattei (FEEM); CMCC - Centro Euro-Mediterraneo sui Cambiamenti Climatici

Maria Elisabetta Tessitore

University of Rome Tor Vergata

Date Written: August 24, 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.

Keywords: Environmental Kuznets Curve, economic growth, pollution, consumption, consumption behaviour

JEL Classification: C61, Q56, O44

Suggested Citation

Orecchia, Carlo and Tessitore, Maria Elisabetta, Economic Growth and the Environment with Clean and Dirty Consumption (August 24, 2011). FEEM Working Paper No. 57.2011. Available at SSRN: https://ssrn.com/abstract=1915838 or http://dx.doi.org/10.2139/ssrn.1915838

Carlo Orecchia (Contact Author)

Fondazione Eni Enrico Mattei (FEEM) ( email )

C.so Magenta 63
Milano, 20123
Italy

CMCC - Centro Euro-Mediterraneo sui Cambiamenti Climatici ( email )

via Augusto Imperatore, 16
Lecce, I-73100
Italy

Maria Elisabetta Tessitore

University of Rome Tor Vergata ( email )

Via di Tor Vergata
Rome, Lazio 00133
Italy

Register to save articles to
your library

Register

Paper statistics

Downloads
80
Abstract Views
891
rank
311,626
PlumX Metrics