A Microeconomics Explanation of the Environmental Kuznets Curve (EKC) and an Empirical Investigation

This paper attempts to give a microeconomic explanation of the environmental Kuznets curve (EKC) hypothesis according to marginal cost and marginal revenue. The interpretation about the shape and inflection point of EKC is based on the comparison between marginal cost and marginal revenue. The emissions of carbon dioxide (CO2), nitrous oxide (N2O) and methane are used as the environmental indicators and GDP per person is used as the economic indicator. Through the analysis of U.S. data from 1960 to 2010, we investigated the EKC hypothesis using the co-integration and correlation methods. The curve of CO2 versus GDP per person in the U.S. is a wave shape in a different time scale. The relationship between N2O and GDP per person showed the same trend with CO2. The EKC curve between the methane and the GDP per person from 1990 to 2009 is a U-shape. Thus, we analyzed the relationship according to the microeconomic explanation of the EKC.