Another Approach at Immiserizing Gowth


#1

As discussed in class, we’ve seen there exist cases (particularly those in which goods are poor substitutes) in which endowment growth can lead to less desirable bundles at equilibrium.

However, this also means that there would also exist cases in which an agent could improve his/her utility levels by destroying part of the endowments (similar to when monopolies choose to produce less to increase their earnings).

How could one model this sort of economic environment? More specifically, what modifications and assumptions should one add to the general equilibrium model seen in class in an attempt to explain this sort of behaviour?
Would the “u-properties” needed to reach an equilibrium change?

(I’d like to keep u-monotonicity so that the model is still based on desired goods)


#2

After reflecting over the precious question, I’ve come up with four basic observations regarding the model that could simulate the behavior described above.

  1. Utility functions require of no modifications in order to reach an equilibrium. The properties of u-continuity, u-monotonicity and u-concavity are still sufficient to reach some equilibrium when provided of an endowments vector for each agent. Since the ability of “destroying” endowments would’t change the starting point of the model (endowments and u-function), the properties required remain unchanged.

  2. Similar to the way monopolistic behavior is modeled, it would be preferable to limit the amount of “endowment-altering” agents to one, or else the model would seriously complicate itself into a game where agents simultaneously choose to destroy endowments and hope for the outcome to be optimal.

  3. The agent that is given the ability to destroy the endowments now has an additional variable to decide upon for each good whose endowment may be modified. If “n” goods meant “n” demand functions, now one must add “n-f” more functions that output the amount of the initial endowment to survive and remain within the market (“f” being the amount of goods whose endowment cannot be altered).

  4. For any changes in decision-making to be even possible, this agent must represent a significant amount of wealth in the economy. In addition, he/she cannot be price-accepting, but rather must understand that the price levels will be inversely proportional to each endowment’s relative availability versus other goods in the economy. Then the agent will be able to internalize the positive relation between a good´s price and the amount of he/she destroys of the endowment possessed.


#3

Hello Esteban !

Interesting topic! I just wanted to add a mere reference/comment on the topic you write about (not so closey related to the general equilibrium seen in class, but the topic you adress)
how coulld we model this sort of Economics of the Environment and more generally Sustainable Development?

A lot of literature has been written recently aiming to start a discussion whereas the neoclassical growth models are compatible with sustainability. Sustainaility defined as “the economic development activity that meets the needs of the present wothout compromising the ability of future generations to meet their own needs”.

What I wanted to share with you is how researches have approached this problem you present:
Higher endowments translate to higher depletion of natural resources., for example.

Eminencies Kenneth Arrow and Partha Dasgupta present a measurement of “Intergenerational Comprehensive Wealth” as the object of interest. Their presumption being wellbeing is not only social wellbeing today but also the potential welfare for the generations to follow.The point is to model whether the society is functioning in ways that would enable future generations to achieve a level of wellbeing at least as high as the current one. The determinants of the intergenerational well being are a multitude of stocks of capital (reproducible, human, natural, technological).

Of course everyone wants to do better that their parents, but can this be sustained?
What or who (and how) is contributing to ** intergenerational wealth** and not just income or GDP growth?
Is there such a thing as the steady state? Is it conceivable following our consumption patterns?

Was this interesting?
I think it is an amazing topic!
Thanks