An overlapping generations model of growth and the environment

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. Over-maintenance of the environment, analogous to dynamically inefficient over accumulation of capital, may emerge.