A note on sustainability and habit formation

Abstract

The link with subjective well-being has not been addressed in the literature of sustainability, the latter defined by social well-being improvement. We explicitly derive genuine savings as an indicator of sustainability inclusive of one form of subjective well-being, namely habit formation, building on the work of Aronsson and Lofgren (Econ Lett 98:84–88, 2008). We show that, along an optimal path, the effect of habits on well-being improvement is negative, as long as the current output is larger than the current habit stock. Moreover, a numerical example for an optimal balanced growth path hints that this adjustment is potentially large in the case of a large weight parameter on habits.