Beyond additive preferences: Economic behavior and the income pollution path

•We propose a theoretical model to explain the environmental Kuznets curve (EKC).•The model does not rely on additive preferences.•The elasticity of substitution and relative scarcity explain the EKC.•Substitution relates to two concepts of elasticity of marginal utility.•This model has behavioral c...

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Bibliographic Details
Published in:Resource and energy economics 2015-08, Vol.41, p.91-102
Main Authors: Figueroa, Eugenio, Pastén, Roberto
Format: Article
Language:English
Subjects:
Consumption
Economic models
Elasticity
Environment Kuznets curve
Environmental economics
Environmental Kuznets curve
Non-additive preferences
Relative correlation aversion
Relative scarcity of the environment
Studies
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Summary:•We propose a theoretical model to explain the environmental Kuznets curve (EKC).•The model does not rely on additive preferences.•The elasticity of substitution and relative scarcity explain the EKC.•Substitution relates to two concepts of elasticity of marginal utility.•This model has behavioral content. Theoretical models of the environmental Kuznets curve (EKC) almost universally assume additive preferences; we demonstrate that under non-additive preferences the sufficient condition to sign the economy's income-pollution path depends on the elasticity of substitution between consumption and environment (and not on the elasticity of marginal utility of consumption). The proposed model provides behavioral content that has been missed in the existing literature. In the model, and also departing from the previous literature, preferences change and evolve (through a variable elasticity of substitution) according to the relative scarcity of the environment.
ISSN:0928-7655
1873-0221
DOI:10.1016/j.reseneeco.2015.04.004