Sustainability with Risky Growth

We investigate the fundamental determinants of sustainability in general equilibrium. We adopt a definition of sustainability that requires that the welfare of future generations is not expected to decrease on average. We then use a stochastic growth model to explore the conditions under which an economy is sustainable, considering different types of risk. In general equilibrium, sustainability boils down to supply-side factors, with increased growth, decreased consumption risk, and greater financial depth making sustainability more likely. Our results have policy implications regarding endogenous investment, catastrophic risk management, investments in clean and dirty technologies, and the importance of risk-sharing assets