April 13, 2007
Green Accounting in a Ramsey Model: Undesirable Growth Fueled by Environmental Degradation
Abstract: Green accounting can take on various forms of adjustments to standard output measures. In a Ramsey model it highlights the importance of defensive expenditures and their role in output and welfare calculations. If both labor and environmental quality are included in a standard Ramsey growth model with two kinds of consumption goods, negative externalities increase the steady-state path of per capita output. At the same time, per capita utility – as well as societal welfare – decline. Economy-wide technological progress and population growth further widen this discrepancy between per capita output and utility. Accounting for defensive expenditures in this context enables an accurate description of welfare in that economy.
Full paper
Posted by Gernot Wagner on Friday, April 13, 2007. 
