Income and the pollution path: Update and extensions

Abstract

Searching for a behavioural explanation of the empirical occurrence of Environmental Kuznets Curve (EKC) the literature has usually assumed additive preferences, i.e. that the marginal utility of consumption does not depend on pollution levels. We update and extend previous literature on the EKC and show that the signing of the slope of the elasticity of substitution between consumption and environmental quality determines the occurrence of the EKC. This novel result does not require imposing restrictions on the sign of the cross-partial derivative of utility with respect to consumption and environmental quality. Under the assumption of a decreasing elasticity of substitution we derive a closed form of the EKC and show that this more general model encompasses as special cases most of the relevant EKC-generating models described in earlier literature.