Environmental offsets and production externalities under monopolistic competition

Area of Science:

• Environmental Economics
• Environmental Economics and Policy
• Behavioral Economics

Background:

• Monopolistic competition models often overlook production externalities and voluntary environmental offsets.
• Understanding population impacts on environmental quality is crucial for sustainable development.
• Voluntary offsets play a role in mitigating environmental degradation from economic activities.

Purpose of the Study:

• To analyze the effect of population size on environmental quality, offsets, and net contributions in a monopolistically competitive model.
• To investigate the validity of the carbon neutrality theorem under increasing population.
• To determine if results are contingent on utility function specifications or labor supply constraints.

Main Methods:

• The study employs a monopolistically competitive economic model.
• It incorporates production externalities and voluntary offset provision.
• The analysis examines equilibrium dynamics with increasing population size.

Main Results:

• Environmental quality decreases and approaches zero as population size increases.
• Voluntary offsets increase and converge to the environmental degradation rate.
• Net contributions remain zero, supporting the carbon neutrality theorem, irrespective of utility function or labor supply constraints.

Conclusions:

• Population growth significantly degrades environmental quality in this model.
• Voluntary offsets effectively neutralize the net impact on environmental contributions, upholding carbon neutrality.
• The findings highlight the robustness of the carbon neutrality theorem in the face of population changes and varying economic conditions.