Undesirable growth via environmental depletion and self-protective expenditures

Our model analyzes the effects of the interplay between environmental degradation and consumption choices on economic growth dynamics and on economic agents’ welfare. We show that, if private goods can be consumed as substitutes for environmental goods, then economic growth may be fueled by environmental deterioration. In this context, undesirable economic growth may occur, characterized by an inverse correlation between aggregate capital accumulation and economic agents’ welfare.