Article

Status effects and environmental externalities

Environmental Studies Program, University of California, Santa Cruz, CA 95064, USA
Ecological Economics (Impact Factor: 2.52). 02/1996; 16(1):25-34. DOI: 10.1016/0921-8009(95)00076-3
Source: RePEc

ABSTRACT This paper examines a static, competitive economy where the production of a consumption good generates pollution that adversely affects human welfare. Preferences are defined over consumption, leisure, pollution, and economic status. Each person's status increases with her own consumption, but decreases with the average consumption of society. The achievement of a Pareto efficient resource allocation requires a consumption tax to offset the incentive to overconsume in the pursuit of enhanced status. In contrast with standard prescriptions, the efficient pollution tax generally exceeds the sum of individuals' marginal willingness to pay for pollution abatement. These findings remain unaltered when preferences are modified to incorporate altruistic concern for others' well-being. Altruism, however, suggests a potential role for government intervention to achieve a desirable (i.e., Pareto efficient) distribution of welfare between individuals.

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Available from: Richard B. Howarth, Aug 29, 2015
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    • "1 The problem of characterizing the optimal provision of public goods under relative consumption concerns is not new in itself; it has been analyzed in a static setting with lumpsum taxes by Ng (1987), Brekke and Howarth (2002), and Aronsson and Johansson-Stenman (2014), and in a static setting with second best taxation by Wendner and Goulder (2008), Aronsson and Johansson-Stenman (2008, 2013a), and Wendner (forthcoming). Howarth (1996, 2006) analyzed the related problem of dealing with environmental externalities under relative consumption concerns. "
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    ABSTRACT: The optimal provision of a state-variable public good, where the global climate is the prime example, is analyzed in a model where people care about their relative consumption. We consider both keeping-up-with-the-Joneses preferences (where people compare their own current consumption with others’ current consumption) and catching-up-with-the-Joneses preferences (where people compare their own current consumption with others’ past consumption) in an economy with two productivity types, overlapping generations, and optimal nonlinear income taxation. The extent to which the conventional rules for provision of state-variable public goods (a dynamic analog of the Samuelson rule) ought to be modified is shown to clearly depend on the strength of the relative concerns of both kinds, but also on the preference elicitation format.
    Journal of Environmental Economics and Management 09/2014; 68(2). DOI:10.1016/j.jeem.2014.07.001 · 2.17 Impact Factor
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    • "From economic theory, goods that create negative externalities should be taxed. Thus, taxes on consumption should be increased if high consumption creates status, see, e.g., Howarth (1996). However, the policy implications when status is created by health are different for two reasons not included in our model. "
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    ABSTRACT: Abstract This paper proposes several ways to extend the standard model for health and health services. Psychological aspects such as status seeking, identity seeking and health adaptation are modelled within the framework,of the Grossman model. While the two first aspects may be important psychological mechanisms, the adaptation process seems to be the most relevant process to model within a theoretical dynamic framework. As far as we know, there are no formal analyses of this process in the economic,literature.
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    • "A few papers address the relationship between status and environmental externalities. Howarth [6] discusses the relationship between status effects and the design of optimal environmental policies. Ng and Wang [12] discuss the relationship between relative income (status) and environmental degradation due to over-consumption. "
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    ABSTRACT: This paper analyses the effects of both the desire for status and habit for-mation on a competitive equilibrium allocation in the context of an OLG model with short-lived households and a long-lived public good, environmen-tal quality. Households raise consumption and thereby lower environmental quality in the pursuit of enhanced status, and habits require households to raise consumption even further. As consumption affects the environment be-yond the lifespan of a consumer, optimal tax programs are also developed and described. In a social optimum, status seeking and habits are shown to raise optimal consumption tax rates and optimal maintenance subsidy, and to lower optimal savings tax rates. Abstract. This paper analyses the effects of both the desire for status and habit formation on a competitive equilibrium allocation in the context of an OLG model with short-lived households and a long-lived public good, environmental quality. Households raise consumption and thereby lower en-vironmental quality in the pursuit of enhanced status, and habits require households to raise consumption even further. As consumption affects the environment beyond the lifespan of a consumer, optimal tax programs are also developed and described. In a social optimum, status seeking and habits are shown to raise optimal consumption tax rates and optimal maintenance subsidy, and to lower optimal savings tax rates.
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