A Simple Model of Optimal Sustainable Growth
This paper presents a simple model of optimal sustainable growth in which the environmental stock enters consumers’ preferences and production possibilities depend upon the use of produced physical capital and the use of a flow of productive services provided through the exploitation of the environmental stock. Endogenous growth is obtained by making the productivity growth of the environmental resources dependent on past capital accumulation. Both the effect of the environmental preservation on the consumers’ utility function and the effect of past accumulation on the productivity of the environmental services are considered as externalities which are internalized along an optimal growth path. Optimal growth is sustainable when the use of the environmental asset for production is equal to the regeneration capacity of the environment. We demonstrate that the optimal balanced-growth path, whenever it exists, is always a saddle point and that the optimal trajectories converging to the asymptotic growth rate are always locally unique.