Endogenous aspirations, growth and the rise of environmental concerns

In this paper, we analyze the implications of assuming that the intensity of aspirations is endogenous. In accordance with empirical evidence, consumption aspirations decrease with capital accumulation while environmental ones increase. We show that such a change in the intensity of aspirations gives rise to a U-shaped relationship between capital accumulation and environmental quality. We also study the implications of our assumption concerning the optimal allocation and show that the steady-state capital stock can be larger or smaller than the one corresponding to the modified golden rule. In addition, for realistic parameter values, the decentralization of the optimal allocation requires the implementation of a maintenance investment subsidy and a lump-sum transfer from the old to the young generation.