The environmental Kuznets curve and satiation: a simple static model a
The environmental Kuznets curve (EKC) is a hypothesis stating that pollution rises with income at low income levels but falls at higher ones. We analyse the EKC in a representative consumer model in which pollution is generated by consumption and can be abated. We show that at low income levels no abatement is optimal and pollution increases with income. Once abatement expenditures are positive, we demonstrate that satiation in consumption is not only sufficient to find an EKC, but a tendency to satiation—or in other words the condition that environmental quality is a normal good—is even necessary if we assume a standard functional form for the pollution function. Finally, we reconsider the results of two related models of the literature: We verify that the relationship between the income elasticity of demand for environmental quality and the EKC is ambiguous.
(JEL: D62, O40, Q20)
Key Words: Environmental Kuznets curve; satiation; pollution; abatement; normal goods.
a I am grateful to Till Requate, Bouwe Dijkstra, Clive Bell, Sander de Bruyn and three anonymous referees for extremely helpful comments on earlier drafts of this paper. I also thank the ‘Graduiertenkolleg Environmental and Resource Economics' which is sponsored by the ‘Deutsche Forschungsgemeinschaft’ for financial support.