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Journal of Economic Interaction and Coordination

04-01-2023 | Original Article

How do you feel about going green? Modelling environmental sentiments in a growing open economy

Authors: Marwil J. Dávila-Fernández, Serena Sordi, Alessia Cafferata

Published in: Journal of Economic Interaction and Coordination

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Abstract

Contrary to the near-global consensus among the scientific community, public perceptions of climate change differ between nations and have fluctuated over time. This article develops a switching-strategies growth model to study such a stylised fact, allowing for feedback effects between sentiments, environmental regulation and macroeconomic outcomes in an open economy set-up. Conditional on the level of interaction between agents, two locally stable equilibrium points emerge: one with the majority of the population supporting climate change mitigation policies and another with most agents opposing environmental regulation. However, we demonstrate that a sufficiently robust response of sentiments to green house gas emissions may lead to the disappearance of the lower growth “bad” equilibrium, allowing for a unique “green” steady-state. Complex dynamics might occur via a sequence of period-doubling bifurcations. The model provides an endogenous mechanism to explain minor and large fluctuations in public opinion on global warming, in line with the evidence in surveys such as the World Risk Poll. Employment series are more persistent than sentiments, resulting in relatively high volatility in the latter and smooth long-waves in the labour market.

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As noted by one of the anonymous reviewers, our narrative shares some similarities with models of segregation a la Schelling (1969), where the population is divided into two general groups. In his analysis, which was mainly concerned with racial segregation in the United States, the interplay of individual choices is a complex system with collective results beyond the individual’s intent. By relying on a group effect, he showed that it is possible to obtain a stable mixed equilibrium coexisting with one in which each group prevails over the other. Our formalisation also finds echoes in recent models using social influence to reverse harmful traditions (e.g. Efferson et al. 2019).

As anticipated in the Introduction, information shocks are not sufficient to make the bad disequilibrium—in which most agents are deniers—to disappear. On the other hand, Eq. (27) that substitutes Eq. (7) becomes crucial to controlling multi-stability. A sufficiently strong response of agents to emissions can result in a unique equilibrium with higher growth and positive attitudes.

As kindly noted by one of the referees, the PH is also referred to as Directed Technological Change in more mainstream approaches (e.g. Acemoglu et al. 2012). The authors show that when there is enough substitutability between inputs, sustainable growth can be achieved with temporary taxes or subsidies that redirect innovation towards clean inputs. As it is frequently the case in models that use a neoclassical production function, its main results depend on the elasticity of substitution between factors.

One could think of Eq. (11) in more general terms as \(\gamma _{t}=\eta _{0}+\eta _{1}\Phi _{t}\), \(\eta _{0}\) stands for explanatory variables outside the model, while \(\eta _{1}\) corresponds to the respective marginal effects. However, doing that would only increase the number of parameters to be taken into consideration without changing our main narrative or results. Hence, to keep the model as parsimonious as possible, we are basically taking \(\eta _{0}=0\) and \(\eta _{1}=1\). Such a simplification is also convenient because, in this way, the index of environmental stringency, \(\gamma \), is constrained in the interval \([-1,1]\).

It is common practice in the macroeconomic literature to approximate \(\ln (1+x)\) as x, where the latter is the rate of growth of a generic variable. Notice that, from Eq. (12), it follows that \(X_{t}/X_{t-1}=(Y^{*}_{t}/Y^{*}_{t-1})^\phi (Z_{t}/Z_{t-1})^\psi \). Hence, \(\ln \left( 1+\frac{X_{t}-X_{t-1}}{X_{t-1}}\right) =\phi \ln \left( 1+\frac{Y^{*}_{t}-Y^{*}_{t-1}}{Y^{*}_{t-1}}\right) +\psi \ln \left( 1+\frac{Z_{t}-Z_{t-1}}{Z_{t-1}}\right) \), and Eq. (13) results as an approximation of the rate of growth of exports. Hereafter, we shall rely on such an approximation to obtain the expressions in growth rates of variables initially defined in levels.

In the real world, the energy-output ratio does not have to be constant over time. For an analysis that formally assesses the case in which \(\vartheta \) adjusts to the difference in the rate of growth of energy requirements and output, see Cafferata et al. (2021). For our purposes, the assumption should be somehow similar to the stylised fact of a constant capital-output ratio.

A boundary crisis leads to a sudden appearance or disappearance of a chaotic attractor along with its basin of attraction. It occurs when the mediating unstable periodic orbit lies on the boundary between the basins of attraction of two attractors. An interior crisis leads to a sudden expansion or contraction of the chaotic attractor when its collision with the mediating unstable periodic orbit takes place in the interior of the basin of attraction. An attractor merging crisis appears in many systems with symmetries, whereby two or more chaotic attractors merge to form a single one. For a comprehensive assessment of the topic with an application to economics, see Chian et al. (2005).

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Title: How do you feel about going green? Modelling environmental sentiments in a growing open economy
Authors: Marwil J. Dávila-Fernández
Serena Sordi
Alessia Cafferata
Publication date: 04-01-2023
Publisher: Springer Berlin Heidelberg
Published in: Journal of Economic Interaction and Coordination
Print ISSN: 1860-711X
Electronic ISSN: 1860-7128
DOI: https://doi.org/10.1007/s11403-022-00376-3