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Transcript of Happy Degrowth vs Unhappy Growth
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Outline
aHappy Degrowth vs Unhappy Growth
Ennio Bilancini(Universita di Modena e Reggio Emilia, Italy)
Simone D’Alessandro(Universita di Pisa, Italy)
still . . . work in progress
Degrowth Conference Barcelona 2010March 26-29, 2010
Barcelona
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Outline
Outline
1 Introduction
2 The model
3 Concluding Remarks
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Outline
Outline
1 Introduction
2 The model
3 Concluding Remarks
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Outline
Outline
1 Introduction
2 The model
3 Concluding Remarks
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
Outline
1 Introduction
2 The model
3 Concluding Remarks
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
Introduction
I The importance of economic growth to fuel well-being inrich countries is challenged by different perspectives. In thispresentation we will consider the insights from happinesseconomics.
I Recent developments in endogenous growth theory includethe effect of jealousy and keeping up with Joneses. Clearly,the outcome of the decentralized equilibrium is sub-optimal(e.g. Liu and Turnovsky, 2005).
I Antoci et al. (2004) present an endogenous growth modelwhere individual utility depends on consumption ofrelational goods.
I The present paper seeks to contribute to this debate includingboth the aspects: de-growth towards a steady statecharacterized by low or zero growth rate is an option, strictlypreferred to others.
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
Introduction
I The importance of economic growth to fuel well-being inrich countries is challenged by different perspectives. In thispresentation we will consider the insights from happinesseconomics.
I Recent developments in endogenous growth theory includethe effect of jealousy and keeping up with Joneses. Clearly,the outcome of the decentralized equilibrium is sub-optimal(e.g. Liu and Turnovsky, 2005).
I Antoci et al. (2004) present an endogenous growth modelwhere individual utility depends on consumption ofrelational goods.
I The present paper seeks to contribute to this debate includingboth the aspects: de-growth towards a steady statecharacterized by low or zero growth rate is an option, strictlypreferred to others.
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
Introduction
I The importance of economic growth to fuel well-being inrich countries is challenged by different perspectives. In thispresentation we will consider the insights from happinesseconomics.
I Recent developments in endogenous growth theory includethe effect of jealousy and keeping up with Joneses. Clearly,the outcome of the decentralized equilibrium is sub-optimal(e.g. Liu and Turnovsky, 2005).
I Antoci et al. (2004) present an endogenous growth modelwhere individual utility depends on consumption ofrelational goods.
I The present paper seeks to contribute to this debate includingboth the aspects: de-growth towards a steady statecharacterized by low or zero growth rate is an option, strictlypreferred to others.
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
Introduction
I The importance of economic growth to fuel well-being inrich countries is challenged by different perspectives. In thispresentation we will consider the insights from happinesseconomics.
I Recent developments in endogenous growth theory includethe effect of jealousy and keeping up with Joneses. Clearly,the outcome of the decentralized equilibrium is sub-optimal(e.g. Liu and Turnovsky, 2005).
I Antoci et al. (2004) present an endogenous growth modelwhere individual utility depends on consumption ofrelational goods.
I The present paper seeks to contribute to this debate includingboth the aspects: de-growth towards a steady statecharacterized by low or zero growth rate is an option, strictlypreferred to others.
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
Ingredients and results
I More precisely, we present an endogenous growth modelwhere individuals beyond private consumption and leisure,obtain their utility from:
i. the comparison of their current material situation with theiraspiration and status, and
ii. the consumption of relational goods.I We compare three different kinds of equilibria:
i. decentralized economy;ii. myopically planned economy;
iii. centrally planned economy.
I We show that the optimal balanced growth path ischaracterized by high levels of leisure and low or zero rate ofgrowth, and this cannot be obtained with laissez-faire.
I The path from the actual state to the optimal trajectory caneasily require a transition with negative rate of growth.
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
Ingredients and results
I More precisely, we present an endogenous growth modelwhere individuals beyond private consumption and leisure,obtain their utility from:
i. the comparison of their current material situation with theiraspiration and status, and
ii. the consumption of relational goods.I We compare three different kinds of equilibria:
i. decentralized economy;ii. myopically planned economy;
iii. centrally planned economy.
I We show that the optimal balanced growth path ischaracterized by high levels of leisure and low or zero rate ofgrowth, and this cannot be obtained with laissez-faire.
I The path from the actual state to the optimal trajectory caneasily require a transition with negative rate of growth.
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
Ingredients and results
I More precisely, we present an endogenous growth modelwhere individuals beyond private consumption and leisure,obtain their utility from:
i. the comparison of their current material situation with theiraspiration and status, and
ii. the consumption of relational goods.I We compare three different kinds of equilibria:
i. decentralized economy;ii. myopically planned economy;
iii. centrally planned economy.
I We show that the optimal balanced growth path ischaracterized by high levels of leisure and low or zero rate ofgrowth, and this cannot be obtained with laissez-faire.
I The path from the actual state to the optimal trajectory caneasily require a transition with negative rate of growth.
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
Ingredients and results
I More precisely, we present an endogenous growth modelwhere individuals beyond private consumption and leisure,obtain their utility from:
i. the comparison of their current material situation with theiraspiration and status, and
ii. the consumption of relational goods.I We compare three different kinds of equilibria:
i. decentralized economy;ii. myopically planned economy;
iii. centrally planned economy.
I We show that the optimal balanced growth path ischaracterized by high levels of leisure and low or zero rate ofgrowth, and this cannot be obtained with laissez-faire.
I The path from the actual state to the optimal trajectory caneasily require a transition with negative rate of growth.
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
Outline
1 Introduction
2 The model
3 Concluding Remarks
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
The utility functionI We add to the basic leisure consumption trade-off, the fact
that individuals can obtain utility from the consumption ofrelational goods:
ui = f (ci, c, li, xi) =(ci c−γ lφi xηi )1−σ
1− σ, (1)
where, c is private consumption, c is average consumption, lis leisure, x is consumption of relational goods, φ, η > 0 andσ 6= 1.
I Jealousy =⇒ γ > 0,I Keeping up with Joneses (KUJ) =⇒ σ > 1.I Relational goods x are given by:
xi = g(li,V) = liV, (2)
where, V is defined as the stock of social capital.
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
The utility functionI We add to the basic leisure consumption trade-off, the fact
that individuals can obtain utility from the consumption ofrelational goods:
ui = f (ci, c, li, xi) =(ci c−γ lφi xηi )1−σ
1− σ, (1)
where, c is private consumption, c is average consumption, lis leisure, x is consumption of relational goods, φ, η > 0 andσ 6= 1.
I Jealousy =⇒ γ > 0,I Keeping up with Joneses (KUJ) =⇒ σ > 1.I Relational goods x are given by:
xi = g(li,V) = liV, (2)
where, V is defined as the stock of social capital.
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
The utility functionI We add to the basic leisure consumption trade-off, the fact
that individuals can obtain utility from the consumption ofrelational goods:
ui = f (ci, c, li, xi) =(ci c−γ lφi xηi )1−σ
1− σ, (1)
where, c is private consumption, c is average consumption, lis leisure, x is consumption of relational goods, φ, η > 0 andσ 6= 1.
I Jealousy =⇒ γ > 0,I Keeping up with Joneses (KUJ) =⇒ σ > 1.I Relational goods x are given by:
xi = g(li,V) = liV, (2)
where, V is defined as the stock of social capital.
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
Social CapitalI Social capital changes in time.I Its dynamics depends on the average level of leisure in the
society l. The simplest way to include this complementarityin leisure is:
V = B l− δV, (3)
where B, δ > 0.I We started with this simple form, but we include
non-linearity in the “productivity” of average leisure whichdepends on the current level of social capital (networks):
V = l f (V)− δV, (4)
where f (V) takes a logistic form:
f (V) = β +θ
1 + eψ−ξV . (5)
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
Social CapitalI Social capital changes in time.I Its dynamics depends on the average level of leisure in the
society l. The simplest way to include this complementarityin leisure is:
V = B l− δV, (3)
where B, δ > 0.I We started with this simple form, but we include
non-linearity in the “productivity” of average leisure whichdepends on the current level of social capital (networks):
V = l f (V)− δV, (4)
where f (V) takes a logistic form:
f (V) = β +θ
1 + eψ−ξV . (5)
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
Social CapitalI Social capital changes in time.I Its dynamics depends on the average level of leisure in the
society l. The simplest way to include this complementarityin leisure is:
V = B l− δV, (3)
where B, δ > 0.I We started with this simple form, but we include
non-linearity in the “productivity” of average leisure whichdepends on the current level of social capital (networks):
V = l f (V)− δV, (4)
where f (V) takes a logistic form:
f (V) = β +θ
1 + eψ−ξV . (5)
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
Social CapitalI Social capital changes in time.I Its dynamics depends on the average level of leisure in the
society l. The simplest way to include this complementarityin leisure is:
V = B l− δV, (3)
where B, δ > 0.I We started with this simple form, but we include
non-linearity in the “productivity” of average leisure whichdepends on the current level of social capital (networks):
V = l f (V)− δV, (4)
where f (V) takes a logistic form:
f (V) = β +θ
1 + eψ−ξV . (5)
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
Decentralized economy
The problem
max∫ ∞
0
(ci c−γ lφi xηi )1−σ
1− σe−ρt dt (6)
s.t. ki = rki + w(1− li)− ci, (7)
ki(0) > 0 and V(0) > 0, (8)
where r and w are the “price” of capital and labour. Productionfollow a simple Romer (1986) production function:
yi = A(k)kαi (1− li)β, (9)
with A(k) = Ak1−α
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
Decentralized economy
Main outcome
I The level of social capital does not affect the equilibriumallocation of time between labour and leisure.
I If we allow for the non-linear dynamics in the accumulationof social capital, two locally stable levels of V can besustained on the balanced growth path.
I Jealousy deeply affects the rate of growth and the allocationof time: γ ↑ =⇒ g ↑ =⇒ li ↓
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
Decentralized economy
Main outcome
I The level of social capital does not affect the equilibriumallocation of time between labour and leisure.
I If we allow for the non-linear dynamics in the accumulationof social capital, two locally stable levels of V can besustained on the balanced growth path.
I Jealousy deeply affects the rate of growth and the allocationof time: γ ↑ =⇒ g ↑ =⇒ li ↓
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
Myopically Planned Economy(MPE)
The problem
max∫ ∞
0
(c1−γi lφi xηi )1−σ
1− σe−ρt dt (10)
s.t. ki = Aki(1− li)β − ci, (11)
ki(0) > 0 and V(0) > 0, (12)
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
MPE vs Decentralized
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
Centrally Planned Economy (CPE)
The problem
max∫ ∞
0
(c1−γi lφi xηi )1−σ
1− σe−ρt dt (13)
s.t. ki = Aki(1− li)β − ci, (14)
V = l f (V)− δV, (15)
ki(0) > 0 and V(0) > 0, (16)
f (V) = β +θ
1 + eψ−ξV . (17)
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
CPE vs Decentralized
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
Outline
1 Introduction
2 The model
3 Concluding Remarks
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
Comments
I If social planner considers the effect of average leisure on thedynamics of social capital accumulation the results change.In order to maximize the individual utility function a highershare of leisure is needed.
I Growth looses importance.
I Social planner should shift from a regime based on work forgrowth to that based on work for social capital accumulation.
I Social planner who implements public policy for growthdoes not include aspects of human life which are crucial forwell-being.
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
Transition
I How to change from a work for growth regime to a work forsocial capital one?
I preliminary results highlight that:• High-income countries =⇒ the level of physical capital must
decline, since it cannot be sustained in the other regime.• Low-income countries =⇒ the level of physical capital still
increases, while the working time should start decreasing.
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
Transition
I How to change from a work for growth regime to a work forsocial capital one?
I preliminary results highlight that:• High-income countries =⇒ the level of physical capital must
decline, since it cannot be sustained in the other regime.• Low-income countries =⇒ the level of physical capital still
increases, while the working time should start decreasing.
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
Final Remarks
I We obtain this result without negative externalities of growthon social capital.
I We do not include an effect of social capital on Jealousy andKUJ.
I We do not take into account the natural environment.I All these elements and many others should be included and
would work in our direction: growth cannot be happy.I Only myopically social planners (i.e. economists) can believe
it!
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
Final Remarks
I We obtain this result without negative externalities of growthon social capital.
I We do not include an effect of social capital on Jealousy andKUJ.
I We do not take into account the natural environment.I All these elements and many others should be included and
would work in our direction: growth cannot be happy.I Only myopically social planners (i.e. economists) can believe
it!
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
Final Remarks
I We obtain this result without negative externalities of growthon social capital.
I We do not include an effect of social capital on Jealousy andKUJ.
I We do not take into account the natural environment.I All these elements and many others should be included and
would work in our direction: growth cannot be happy.I Only myopically social planners (i.e. economists) can believe
it!
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
Final Remarks
I We obtain this result without negative externalities of growthon social capital.
I We do not include an effect of social capital on Jealousy andKUJ.
I We do not take into account the natural environment.I All these elements and many others should be included and
would work in our direction: growth cannot be happy.I Only myopically social planners (i.e. economists) can believe
it!
HappyDegrowth vs
UnhappyGrowth
E. BilanciniS. D’Alessandro
Introduction
The model
ConcludingRemarks
Final Remarks
I We obtain this result without negative externalities of growthon social capital.
I We do not include an effect of social capital on Jealousy andKUJ.
I We do not take into account the natural environment.I All these elements and many others should be included and
would work in our direction: growth cannot be happy.I Only myopically social planners (i.e. economists) can believe
it!