Wednesday, September 16, 2009

The Costs of Economic Growth

In a similar vein to some recent posts about the interaction of economic factors with social well-being, Stanford's Chad Jones has a working paper that takes a more theoretical approach:
The benefits of economic growth are widely touted in the literature. But what about the costs? Pollution, nuclear accidents, global warming, the rapid global transmission of disease, and bioengineered viruses are just some of the dangers created by technological change. How should these be weighed against the benefits, and in particular, how does the recognition of these costs affect the theory of economic growth? This paper shows that taking these costs into account has first order consequences. Under standard preferences, the value of life may rise faster than consumption, leading society to value safety over economic growth. As a result, the optimal rate of growth may be substantially lower than what is feasible, in some cases falling all the way to zero.
This approach to optimal growth seems more consistent with the thrust of the behavioural literature on smoothing.


Liam Delaney said...

have only skimmed this but a journal club paper if i ever saw one.

Martin Ryan said...

Very interesting...