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Household Production and Environmental Kuznets Curves

Alexander Pfaff, Shubham Chaudhuri, Howard L.M. Nye
Environmental and Resource Economics 27: 187–200, 2004.

PDF link iconThis paper provides a theoretical explanation for the widely debated empirical finding of “Environmental Kuznets Curves”, i.e., U-shaped relationships between per-capita income and indicators of environmental quality. We present a household-production model in which the degradation of environmental quality is a by-product of household activities. Households can not directly purchase environmental quality, but can reduce degradation by substituting more expensive cleaner inputs to production for less costly dirty inputs. If environmental quality is a normal good, one expects substitution towards the less polluting inputs, so that increases in income will increase the quality of the environment. It is shown that this only holds for middle income households. Poorer households spend all income on dirty inputs. When they buy more, as income rises, the pollution also rises. they do not want to substitute, as this would reduce consumption of non-environmental services for environmental amenities that are already abundant. Thus, as income rises from low to middle levels, a U shape can result. Yet an N shape might eventually result, as richer households spend all income on clean inputs. Further substitution possibilities are exhausted. Thus as income rises again pollution rises and environmental quality falls.

 

Endowments, preferences, technologies and abatement: growth-environment microfoundations

Alexander Pfaff, Shubham Chaudhuri, Howard L.M. Nye
Int. J. Global Environmental Issues (2004) volume 4 number 4: 209-228

PDF link iconWill economic growth inevitably degrade the environment, throughout development? We present a household-level framework emphasising the trade-off between consumption that causes pollution and pollution-reducing abatement. Our model provides a simple explanation for upward-turning, non-monotonic paths of environmental quality during economic growth. Its innovation yields sufficient conditions that simultaneously address preferences and technologies. With standard preferences, an asymmetric endowment (i.e., at zero income, consumption is also zero but environmental quality is positive) leads low-income households not to abate, and further this condition is sufficient for an environmental Kuznets curve (EKC) for a wide range of abatement technologies. Without such an endowment, however, even strong economies of scale in abatement are, on their own, insufficient for an EKC

 

Aid, economic growth and environmental sustainability: rich-poor interactions and environmental choices in developing countries

Alexander Pfaff, Paulo Barelli, Shubham Chaudhuri
Int. J. Global Environmental Issues (2004) volume 4 numbers 1/2/3: 139-159

PDF link iconRich-poor interactions complicate the search for a stable Environmental Kuznets Curve (an ‘inverted U’ relationship between income per-capita and environmental degradation). We show that aid from richer to poorer countries to support investments in environment, in either of two forms, alters the income-environment relationships that otherwise exist, lowering levels of degradation in the poorer countries conditional upon their incomes. Yet even with environmental aid, in our model environmental quality eventually falls as economic growth continues, although ongoing innovation could change that conclusion. In light of this result, we show that subsidies to clean goods, one form of technological-transfer aid programme, dominate income transfers as environmental aid policy by the rich. Given that aid matters, we then show that when rich countries degrade the environment, a perverse effect exists: when an aid-giving country becomes richer, it gives less aid to the poor country. This is stronger when that degradation is durable, that is, when consumption and degradation by the rich country in the past has durable effects upon the environment.

 

Big Field, Small Potatoes: an empirical assessment of EPA’s Self-Audit Policy

Alexander Pfaff, Chris William Sanchirico
Journal of Policy Analysis and Management (2004) volume 23 number 3: 415–432

PDF link iconEnvironmental self-auditing is said to deserve and require encouragement. Although firms can audit themselves more cheaply and effectively than regulators, they are deterred for fear that information they uncover will be used against them. To reduce this disincentive, the Environmental Protection Agency’s (EPA’s) Audit Policy lowers punitive fines when firms promptly disclose and correct self-discovered violations. While some contend that the Audit Policy is inadequate, EPA touts its success based on the policy’s track record. Our examination of that track record leads us to question EPA’s claim. Comparing the violations in these cases with those detected by standard EPA enforcement suggests that the typical self-audited violation is relatively minor. Cases arising under the Policy are more likely to concern reporting violations and less likely to concern emissions. The relative insignificance of self-audited violations raises a number of policy questions, including whether the Audit Policy should be revised to play a larger role in enforcement.