Growth and Accumulation as Coordination Failures

Abstract

We show that accumulation and growth can be fed by negative externalities. We modify a growth model a la Solow-Ramsey, in which the labor\leisure choice has been included, in three ways: i) the welfare of agents also depends on a common; ii) the latter is deteriorated by the production of the output; iii) the output can be used as a substitute for the common besides satisfying needs different from those satisfied by the common. We show that the reaction of agents to negative externalities is an increase in their labor supply and accumulation aimed at raising their (present and future) production and consumption of the output, in order to off-set the decline of their well-being. By doing so they feed back the deterioration of the common, generating a self-reinforcing mechanism in which growth causes negative externalities and negative externalities cause growth. The main motivation behind the construction of a model based on this mechanism is to provide a formal structure for the enormous quantity of literature and knowledge (a) on the environmental, social and cultural fractures generated by growth, and (b) on the fact that these cleavages are, paradoxically a necessary condition for growth. By interpreting the resource as the capacity of the natural and social environment to provide welfare to the agents, we refer to a knowledge that has traversed two centuries of industrial history.

JEL Classification: O40, Q20