Capital exploitation and environmental awareness: How they affect the economy and the environment in a dynamic framework

Abstract

AbstractWe present a model in which capital and environmental quality co-evolve over time. To improve the environmental quality, the government intervenes by means of a limitation of the capital use and awareness campaigns. In case of severe degradation of the environment, a restriction on capital use is introduced that is proportional to the damage caused by human activity; at the same time, awareness campaigns are used to increase the public concern about sustainability. By means of a discrete-time dynamical system and considering homogeneous agents, we found that multiple equilibria may exist and that awareness campaigns are a useful tool to push an economy toward sustainable levels of production. The limitation in the use of available capital, however, might be useless or even harmful, deteriorating the level of capital disposable for those countries that are trapped in an equilibrium in which the environmental quality is low.