Environmental and Resource Economics

, Volume 27, Issue 2, pp 187–200 | Cite as

Household Production and Environmental Kuznets Curves – Examining the Desirability and Feasibility of Substitution

  • Alexander S.P. Pfaff
  • Shubham Chaudhuri
  • Howard L.M. Nye

Abstract

This paper provides a theoretical explanation for the widely debatedempirical finding of “Environmental Kuznets Curves”, i.e., U-shaped relationships between per-capita income and indicators of environmentalquality. We present a household-production model in which the degradationof environmental quality is a by-product of household activities. Householdscan not directly purchase environmental quality, but can reduce degradation by substituting more expensive cleaner inputs to production for less costlydirty inputs. If environmental quality is a normal good, one expectssubstitution towards the less polluting inputs, so that increases in incomewill increase the quality of the environment. It is shown that this onlyholds for middle income households. Poorer households spend all income on dirty inputs. When they buy more, as income rises, the pollution also rises.they do not want to substitute, as this would reduce consumption ofnon-environmental services for environmental amenities that are alreadyabundant. Thus, as income rises from low to middle levels, a U shape can result. Yet an N shape might eventually result, as richer households spend all income on clean inputs. Further substitution possibilities are exhausted.Thus as income rises again pollution rises and environmental quality falls.

development environment growth substitution 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Andreoni, J. and A. Levinsonq (2001), ‘The Simple Analytics of the Environmental Kuznets Curve’, Journal of Public Economics 80, 269–286.Google Scholar
  2. Asako, K. (1980), ‘Economic Growth and Environmental Pollution under the Max-Min Principle’, Journal of Environmental Economics and Management 7, 157.Google Scholar
  3. Becker, G. (1965), ‘A Theory of the Allocation of Time',’ Economic Journal 75, 493–517.Google Scholar
  4. Becker, R.A. (1982), ‘Intergenerational Equity: The Capital-Environment Trade-Off’, Journal of Environmental Economics and Management 9, 165–185.Google Scholar
  5. Beltratti, A. (1996), Models of Economic Growth with Environmental Assets. Dordrecht: Kluwer Academic Publishers.Google Scholar
  6. Bovenberg, A.L. and S. Smulders (1995), ‘Environmental Quality and Pollution-augmenting Technological Change in a Two-Sector Endogenous Growth Model’, Journal of Public Economics 57, 369–391.Google Scholar
  7. Chaudhuri, S. and A.S.P. Pfaff (2002), ‘Fuel-choice and Indoor Air Quality: A Household-level Perspective on Economic Growth and the Environment’, Mimeo: Columbia University (an earlier version is SIPA Working Paper #1 (1998)).Google Scholar
  8. Copeland, B.R. and M.S. Taylor (1995), ‘Trade and Transboundary Pollution’, American Economic Review 85(4), 716–737.Google Scholar
  9. D'Arge, R.C. and K.C. Kogiku (1973), ‘Economic Growth and the Environment’, Review of Economic Studies 40, 61–77.Google Scholar
  10. Deaton, A. and J. Muelbauer (1980), Economics and Consumer Behavior. Cambridge: Cambridge University Press.Google Scholar
  11. Elbasha, E.H. and T.L. Roe (1996), ‘On Endogenous Growth: The Implications of Environmental Externalities’, Journal of Environmental Economics and Management 31, 240–268.Google Scholar
  12. Forster, B.A. (1973), ‘Optimal Capital Accumulation in a Polluted Environment’, Southern Economic Journal 39, 544–547.Google Scholar
  13. Gorman, W.M. (reprinted 1980), ‘A Possible Procedure for Analysing Quality Differentials in the Egg Market’, Review of Economic Studies 47.Google Scholar
  14. Gradus, R. and S. Smulders (1993), ‘The Trade-off Between Environmental Care and Long-term Grwoth-Pollution in Three Prototype Growth Models’, Journal of Economics 58(1), 25–51.Google Scholar
  15. Grossman, G. and A. Krueger (1995), ‘Economic Growth and the Environment’, Quarterly Journal of Economics 110(2), 353–377.Google Scholar
  16. Gruver, G.W. (1976), ‘Optimal Investment in Pollution Control in a Neoclassical Growth Context’, Journal of Environmental Economics and Management 3, 165–177.Google Scholar
  17. Hilton, F.G.H. and A. Levinson (1998), ‘Factoring the Environmental Kuznets Curve: Evidence from Automotive Lead Emissions’, Journal of Environmental Economics and Management 35(2) (March).Google Scholar
  18. Holtz-Eakin, D. and T. Selden (1995), ‘Stoking the Fires? CO2 Emissions and Economic Growth’, Journal of Public Economics 57(1), 85–101.Google Scholar
  19. Jaeger, W.K. (1998), ‘Growth and Environmental Resources: A Theoretical Basis for the U-shaped Path’, mimeo 10/14/98, Williams College.Google Scholar
  20. Kahn, M.E. (1998), ‘A Household Level Environmental Kuznets Curve’, Economics Letters.Google Scholar
  21. Keeler, E., M. Spence and R. Zeckhauser (1972), ‘The Optimal Control of Pollution’, Journal of Economic Theory 4, 19–34.Google Scholar
  22. Kuznets, S. (1955), ‘Economic Growth and Income Inequality’, American Economic Review 65, 1–28.Google Scholar
  23. Lancaster, K.J. (1966a), ‘A New Approach to Consumer Theory’, Journal of Political Economy 74, 132–157.Google Scholar
  24. Lancaster, K.J. (1966b), ‘Change and Innovation in the Technology of Consumption’, American Economic Review 56, 14–23.Google Scholar
  25. Lipsey, R.G. and G. Rosenbluth (1971), ‘A Contribution to the New Theory of Demand: A Rehabilitation of the Giffen Good’, Canadian Journal of Economics 4, 131–163.Google Scholar
  26. Lopez, R. (1994), ‘The Environment as a Factor of Production: The Effects of Economic Growth and Trade Liberalization’, Journal of Environmental Economics and Management 27, 163–184.Google Scholar
  27. Michel, P. and G. Rotillon (1995), ‘Disutility of Pollution and Endogenous Growth’, Environmental and Resource Economics 6, 279–300.Google Scholar
  28. Plourde, C.G. (1972), ‘A Model of Waste Accumulation and Disposal’, Canadian Journal of Economics 5(1), 119–125.Google Scholar
  29. Saint-Paul,G. (1995), ‘Discussion’, in I. Goldin and L. AlanWinters, eds., The Economics of Sustainable Development. Cambridge University Press for the OECD and Centre for Economic Policy Research, pp. 47-50.Google Scholar
  30. Seldon and Song (1995), ‘Neoclassical Growth, the J curve for Abatement and the Inverted U Curve for Pollution’, Journal of Environmental Economics and Management 29(2), 162–168.Google Scholar
  31. Seldon and Song (1994), ‘Environmental Quality and Development: Is There a U for Air Pollution Emissions?’, Journal of Environmental Economics and Management 27(2), 147–162.Google Scholar
  32. Shafik, N. (1994), ‘Economic Development and Environmental Quality: An Econometric Analysis’, Oxford Economic Papers, v.46.Google Scholar
  33. Stephens, J.K. (1976), ‘A Relatively Optimistic Analysis of Growth and Pollution in a Neoclassical Framework’, Journal of Environmental Economics and Management 3, 85–96.Google Scholar
  34. Stokey, N.L. (1998), ‘Are There Limits to Growth?’, International Economic Review 39(1), 1–31.Google Scholar
  35. Tahvonen, O. and J. Kuuluvainen (1993), ‘Economic Growth, Pollution, and Renewable Resources’, Journal of Environment Economics and Management 24, 101–118.Google Scholar
  36. Withagen, C. (1995), ‘Pollution, Abatement and Balanced Growth’, Environmental and Resource Economics 5, 1–8.Google Scholar
  37. World Bank (1992), World Development Report 1992: Development and the Environment. Oxford: Oxford University Press for the World Bank, 308 pp.Google Scholar

Copyright information

© Kluwer Academic Publishers 2004

Authors and Affiliations

  • Alexander S.P. Pfaff
    • 1
    • 2
    • 3
  • Shubham Chaudhuri
    • 1
    • 2
  • Howard L.M. Nye
    • 2
  1. 1.Department of International & Public AffairsUSA
  2. 2.Department of EconomicsUSA
  3. 3.Center for Environmental Research & ConservationColumbia University – SIPANew YorkUSA (author for correspondence, e-mail

Personalised recommendations