The Micro-foundations of the Environmental Kuznets Curve

This paper presents a simple and straight-forward static model of the micro-foundations of the environmental Kuznets curve, in which the relationship between income and pollution depends on the relative magnitudes of the diminishing income-compensated price elasticity of environmental amenity and increasing marginal propensity to earn environmental amenity out of non-environment income. The smaller the income-compensated price elasticity and the larger the marginal propensity to earn out of non-environment income, the earlier the turning point emerges. This key feature of our model generalizes the specific features of many existing models and generates many of their implications. © 2014, Fudan University.