Renewable Resource Stock, Relative Income, and Consumption Externalities in a Large Open Economy

Abstract

Renewable resource stock changes are determined by marginal consumption utility for future production. The expected utility is highly affected by the gap between different discount rates on individual’s utility maximization and various social welfare optimal level. In a large economy with big international trade, we show that sustainable development fails to be sustained without social production at a certain level dynamically. Only if the growth rate of theoretical innovation and capital accumulation is faster than the speed of renewable resource stock accumulation, the discounted value of renewable resource can be offset. In this dynamic process, when a share of environmental income exists, some renewable resource with distinguished regional characteristics cannot be perfectly substituted. Thus, the relationship between social subjective time preference of international consumers and the structural growth of economic production factors is argued by the fuzzy hypothesis of Environmental Kuznets Curve (EKC). If we consider international resource consumption utility is proportionally driven by the relative income due to the inertia of “conspicuous consumption”, we show that consumption choice on every unit of renewable resource is deterministically affected by relative capital income and premium of every unit of asset (that can be transferred from renewable resource); and spillover effect of consumption externality generated from saving or consuming every unit of renewable resource for social production determines the convergence of efficient capital accumulation to increase the total social production level if all individual utility is transferable from renewable resource consumption; in this case environmental taxation ultimately burdens on international consumption side.