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Possible Causes of the Environmental Kuznets Curve

A Theoretical Analysis


Christoph Martin Lieb

The environmental Kuznets curve (EKC) is a hypothesis stating that pollution rises with income at low levels of income but falls at higher income levels. If this hypothesis were true, economic growth would finally be good for the environment. But is this hypothesis correct? For which pollutants does the EKC exist and for which pollutants is the pollution-income relationship monotonically rising? Why does the EKC hypothesis apply to some, but not to other pollutants?
The author first surveys the empirical and theoretical literature. He also analyses which theoretical causes of the EKC are empirically validated. After introducing a method for solving static models with milder assumptions about the ordinal, instead of the cardinal utility function, the author offers further explanations of the EKC. In one static and in two dynamic models he analyses the (intertemporal) choice between consumption and abatement. He also explores an overlapping generations model with two pollutants. From this analysis conclusions about the pollution-income relationship for different types of pollutants are drawn. These conclusions are especially important for policy-makers.
Contents: The Environmental Kuznets Curve: A Survey of the Empirical and Theoretical Literature – The Environmental Kuznets Curve and Satiation – Cardinal Utility in Static and Dynamic Optimization Problems – A Simple Static Model: Reconsidering the Model of McConnell – A Dynamic Extension to McConnell’s Model – The Elasticity of Intertemporal Substitution: Reconsidering the Model of Selden and Song – The Environmental Kuznets Curve and Flow versus Stock Pollution – The Neglect of Future Damages: Myopic Governments – When Abatement Increases Pollution: Far-sighted Governments.