Preference constraint for sustainable development

This paper defines a sustainable development path as a balanced growth path with environmental conservation. In the framework of endogenous growth theory, it is known that a sustainable development path is optimal only if the following three conditions are satisfied: (1) the engine of economic growth is clean; (2) the assimilation capacity of the environment is high enough to endure the increasing environmental load with economic growth; and (3) the population has an egalitarian propensity with the elasticity of the marginal utility of consumption that is greater than or equal to one. While all of these three conditions are intuitively plausible, there are distinctions between the first two and the last one: the former can be obtained by our endeavors, whereas the latter concerns preference that is endowed rather than obtained. We show that this preference constraint can be relaxed if the production technology satisfies the condition that the elasticity of transformation to the production factor and the environmental service, after appropriate monotone transformation, is greater than one. Copyright Springer Japan 2014