An Overlapping Generations Model of Growth and the Environment

TLDR

The study examines how economic growth may conflict with environmental quality within an overlapping generations framework. The model assumes short‑lived agents whose choices influence long‑term productivity and environmental outcomes. The model accounts for the empirical link between income and environmental quality, predicts an initial decline followed by improvement, allows multiple Pareto‑ranked equilibria with concurrent growth of capital and environment, and warns of overmaintenance analogous to capital overaccumulation.

Abstract

This article analyses the potential conflict between economic growth and the maintenance of environmental quality in an overlapping generations model. Short-lived individuals make decisions which have long-lasting effects on both factor productivity and the environment. The model provides a theoretical explanation of observed correlations between environmental quality and income, whereby economic growth is associated first with declines, then improvements, in environmental quality. It suggests circumstances in which multiple Pareto-ranked steady-state equilibria may arise, and in which sustained growth of both capital and environmental quality may occur. Overmaintenance of the environment, analogous to dynamically inefficient over-accumulation of capital, may emerge.