Sustainability and intertemporal equity: a multicriteria approach

In (macro)economics literature, the need to consider sustainability and intertemporal equity issues leads to propose different criteria (discounted utilitarianism, green golden rule, Chichilnisky criterion) in order to define social welfare. We compare and assess the outcomes associated to such alternative criteria in a simple macroeconomic model with natural resources and environmental concern (Chichilnisky et al. in Econ Lett 49:174-179, 1995), by relying on a multicriteria approach. We show that among these three criteria, the green golden rule (discounted utilitarianism) yields the highest (lowest) welfare level, while the Chichilnisky criterion leads to an intermediate welfare level which turns out to be increasing in the weight attached to the asymptotic utility. These results suggest that completely neglecting finite-time utilities and focusing only on the asymptotic utility is not only more sensible from a sustainability point of view but also from a social welfare maximization standpoint

Pollution diffusion and abatement activities across space and over time

We analyze the spatio-temporal dynamics of capital and pollution in an economic growth model with purposive environmental protection activities. The production process of a unique homogeneous good generates pollution, thus the increases in output associated with economic growth tend to rise the stock of pollution. Pollution is a negative production externality which thus feeds back on the economy lowering the level of output; in order to compensate for such a negative effect associated with economic development, pollution is reduced by publicly funded abatement activities. We firstly consider a Solow-type framework in which economic and environmental policies are completely exogenous, and then we move to a Ramsey-type context in which they are endogenously determined. We analyze the spatio-temporal dynamics of the model economy through numerical simulations, and we consider two different specifications of the production function (a globally concave and a convex-concave technology) in order to stress the role that eventual poverty traps might play on both economic and environmental outcomes. We show that in the convex-concave technology framework, whenever rich regions are substantially rich diffusion can help poor regions to escape their poverty traps; if however they are not rich enough diffusion might condemn also rich regions to collapse. However, even if rich regions are particularly rich whenever the pollution externality is strong, the whole spatial economy might be doomed to collapse

Pollution-induced poverty traps via Hopf bifurcation in a minimal integrated economic-environment model

In this paper we present a minimal integrated environment-economic growth model. The accumulations of capital and pollution are connected by reciprocal feedbacks. Pollution is an undesirable but inevitable by-product of production, whose efficiency is hindered by pollution. The nexus between pollution and production is embodied in a damage function. The evolution of capital is enriched by the specific technology adopted here, an S-shaped production function. The model dynamics is represented by a couple of nonlinear differ- ential equations, whose long run behavior gives rise to multiple stationary points. A global analysis underlines the importance of a meditated choice of the relevant policy parameters. Pollution induced poverty traps emerge for low level of saving ratio and share of abated emission. Periodic behaviour of the economic and environmental variables represents an early signal of the imminent risk of being trapped in an unsatisfactory level of economic performance. Numerical examples corroborate the theoretical results of the paper

Fast traders and slow price adjustments: an artificial market with strategic interaction and transaction costs

In this paper, we propose an artificial market to model high-frequency trading where fast traders use threshold rules strategically to issue orders based on a signal reflecting the level of stochastic liquidity prevailing on the market. A market maker is in charge of adjusting prices (on a fast scale) and of setting closing prices and transaction costs on a daily basis, controlling for the volatility of returns and market activity. We first show that a baseline version of the model with no frictions is able to generate returns endowed with several stylized facts. This achievement suggests that the two time scales used in the model are one (possibly novel) way to obtain realistic market outcomes and that high-frequency trading can amplify liquidity shocks. We then explore whether transaction costs can be used to control excess volatility and improve market quality. While properly implemented taxation schemes may help in reducing volatility, care is needed to avoid excessively curbing activity in the market and intensifying the occurrence of abnormal peaks in returns

Optimality of a Two-Tier Rate Structure for a Transaction Tax in an Artificial Market

In this paper we discuss the effects of a Transaction Tax on an artificial market with varying liquidity where a large number of agents can trade a share of a risky asset. A market maker is in charge to optimally set the level of taxation in order to obtain a desired mixture of activity and volatility. We show that, depending on the liquidity of the market, two possible regimes of optimal taxation emerge: a non-negligible level of taxation for highly liquid markets and low (close to zero) levels of taxation for low liquidity markets. This outcome resembles the two-tier rate structure discussed by Spahn in his famous contributions Spahn (1995)

Population and Pollution Interactions in a Spatial Economic Model

We analyze the spatio-temporal dynamics of a simple model of economic geography in which population and pollution dynamics are mutually interdependent. Pollution by reducing the carrying capacity of the natural environment, which determines the maximum amount of people a given location can effectively bear, affects labor force dynamics which in turn alter pollution emissions. Such mutual links determine the development path followed by different locations, and spatial interactions further complicate the picture. We show that neglecting the existence of spatial externalities can lead to misleading predictions about the development path followed by different locations in the spatial economy

Transboundary pollution externalities: think globally, act locally?

We analyze the implications of transboundary pollution externalities on environmental policymaking in a spatial setting, in which pollution diffuses across the global spatial economy independently of the specific location in which it is originally generated. This framework gives rise to a simple regional optimal pollution control problem allowing us to compare the global and local solutions in which, respectively, the transboundary externality is and is not taken into account in the determination of the optimal policy by individual local policymakers. {We show that it is not obvious that transboundary externalities are a source of inefficiency per se since this is strictly related to the spatial features of the initial distribution of pollution.} If the initial pollution distribution is spatially homogeneous then the local and global solutions will coincide and thus no efficiency loss will arise from transboundary externalities, but if it is spatially heterogeneous the local solution will be suboptimal and thus a global approach to environmental problems will be needed to achieve efficiency. From a normative perspective, in this latter {(and most realistic)} case we also quantify the amount of policy intervention needed at local level in order to achieve the globally desirable goal of pollution eradication in the long run. Our conclusions hold true in a number of different settings, including situations in which the spatial domain is either bounded or unbounded, and situations in which macroeconomic-environmental feedback effects are taken into account