Environmental degradation and indeterminacy of equilibrium selection

This paper analyzes an intertemporal optimization problem in which agents derive utility from three goods: leisure, a public environmental good and the consumption of a produced good. The global analysis of the dynamic system generated by the optimization problem shows that global indeterminacy may arise: given the initial values of the state variables, the economy may converge to different steady states, by choosing different initial values of the control variable

Mathematical analysis of an economic growth model with perfect-substitution technologies

The purpose of this paper is to highlight certain features of a dynamic optimisation problem in an economic growth model with environmental negative externalities that gives rise to a two-dimensional dynamical system. In particular, it is demonstrated that the dynamics of the model, which is based on a production function with perfect substitutability (perfect substitution technologies), admits a locally attracting equilibrium with a basin of attraction that may be considerably large, as it can extend up to the boundary of the system phase plane. Moreover, this model exhibits global indeterminacy because either equilibrium of the system can be selected according to agent expectation. Formulas for the calculation of the bifurcation coefficients of the system are derived, and a result on the existence of limit cycles is obtained. A numerical example is given to illustrate the results

Explaining Threshold Effects of Globalization on Poverty: An Institutional Perspective

institutions, poverty, globalization, social norms

Nonlinear Dynamics in Coevolution of Economic and Environmental Systems

The goal of this paper is to review some of the works on the dynamics of economic models in which the environmental variable is introduced. In particular, we will focus on models that in addition to giving some analytical insights into the coevolution of economic and environmental systems, they can give rise to nonlinear dynamic effects as the emergence of chaotic dynamics, multistability and (local and global) indeterminacy. However, several questions on this issue remain open and we hope that our paper may attract researchers to contribute to this topic

Pollution, fertility and public policies

This work extends the existing OLG literature on pollution to include endogenous fertility and endogenous mortality thus allowing the model to belong to the uniÖed growth theory narrative (Galor and Weil, 2000; Kalemli-Ozcan, 2002). With speciÖc regard to the theoretical analysis, we assume that individuals are not aware of the e§ects of their choices on environmental quality (Antoci et al., 2011, 2016). Environmental quality also a§ects individual mortality, which - as several empirical works pinpoint (see Ra¢ n and Seegmuller, 2014, and the literature cited therein) -, is strongly related to level of pollution. In this context, we analyse the role of public policies (financed at a balanced budget) on health and environmental quality. The main aim of the work is to analyse, on the one hand, the dynamics of the transition of the economy from a phase of underdevelopment to a phase of sustained development and, on the other hand, how public policies can favour the take o§ within an environmentally sustainable trajector

Periodic solutions in the dynamics of an optimal resource extraction model

The model presented in this paper studies the presence of closed orbits that signal economic fluctuations and periodic solutions around the steady state. The problem is to understand the mechanism that leads to an indeterminate equilibrium in presence of natural resource use, and therefore suggest the emergence of a poverty-environment trap

endogenous discounting and global indeterminacy

This paper innovates the literature on endogenous discounting in environmental economics, by studying the global properties of the equilibrium outside the small neighborhood of the steady state. The internalization of individual consumption in the social discount rate is rich of powerful consequences from the economic point of view, for it leads to a qualitative change in the steady state and its transitional dynamics, so that the perfect foresight equilibrium may not be unique, and thus both local and global indeterminacy can eventually emerge. The main implication for decision making is that if indeterminacy occurs, public policies become not sufficient to drive the economy towards the long-run equilibrium. In particular, we show that the onset of parametric restrictions for which both global indeterminacy in the full R3 vector field, and a quasi-periodic dynamics with trajectories wrapped around an invariant torus, may eventually emerge

Maladaptation to environmental degradation and the interplay between negative and positive externalities

Available online 14 January 2022, Version of Record 2 February 2022. Part of special issue: SI: Advances in Sustainability Economics Edited by Lucas Bretschger, Simone Valente. The Full special issue is available in Open Access until 24 March 2022 on the Publisher's site - via the DOI link.This paper investigates the possible dynamics that may emerge in an economy in which agents adapt to environmental degradation by increasing the produced output to repair the damages of environmental degradation. The analyzed economy is characterized by both positive and negative externalities. On the one hand, an increase in production-related environmental degradation lowers the net income left at disposal for consumption and investment; on the other hand, it induces an increase in labor and capital to repair environmental damages from production, which enhances the positive externalities occurring in the production process. From the analysis of the model we show that there can be two steady states but only the one with lower capital level can be locally attractive. Both local and global indeterminacy may arise in the model, even with decreasing returns to scale. It follows that one cannot predict a priori which path the economy will follow when converging to an equilibrium, nor the equilibrium the dynamics will eventually converge to. In particular, the trajectories emerging from the model may eventually lead the economy to be trapped in a Pareto-dominated equilibrium with lower capital and higher environmental degradation levels. Moreover, the interplay between positive and negative externalities generates a rich set of possible trajectories that may lead to opposite extreme outcomes, namely, either infinite growth or the collapse of the economy

Incomplete Markets, Growth, and the Business Cycle

We introduce a Ramsey growth model with incomplete markets, decentralized production, and idiosyncratic technological risk. The combination of uninsurable shocks with the precautionary motive can slow down capital accumulation or give rise to persistent fluctuations even when agents are very patient and technology is strictly convex. The model generates closed-form expressions for the equilibrium dynamics under a finite or infinite horizon. Multiple steady states and poverty traps can arise from the endogeneity of the interest rate instead of the usual wealth effect. Depending on the economy's parameters, the local dynamics around a steady state are locally unique, totally unstable or locally undetermined, and the equilibrium path can be attracted to a limit cycle. In calibrated examples, financial incompleteness substantially slows down convergence to the steady state and thus increases the persistence of aggregate shocks.