Fatma Safi: External Habits Formation and the Environment 1 External Habits Formation and the Environment Fatma Safi University of Sfax Faculty of Economics and Management, Department of Economics, Tunisia fatma_safi@yahoo.fr Abstract The present paper presents a standard overlapping generations model with external habits formation and environmental quality in the utility function. Our main objective is to study the impact of external habits on capital accumula- tion and environmental quality on the intertemporal competitive equilibrium. We notice that striving for status leads to environment worsening and capital increasing when the cohort size is large. Keywords: external habits, overlapping generations, environmental quality Introduction The economic theory states that an individual will buy a product once the intrin- sic satisfaction of the actual product surpasses the price of the product, although, this does not take into consideration the status a certain good will provide them with. Mostly, the behavior of the consumer is affected by much more than utility maximization. Consumers consider the price of the product, its quality, how it works, what it represents, and many other aspects that are not simple to deter- mine, and personal to each individual in order to evaluate a good and its utility. The consumer will also view, before making a purchasing decision, the con- sumption habits of his or her peers. The consumption reference levels generate a consumption externality. The consumer forms then external habits by driving for social position. External habit formation has long been considered an essential factor of hu- man behavior. Status concern is another characteristic feature of consumption decisions. It influences the analysis of the relationship between consumption decisions and their associated externalities regarding environmental quality. The concept of external habit formation postulates that if the agent’s utility is in- fluenced by either average current or average lagged consumption in the econ- omy, then the agent is “keeping up with the Joneses” or “catching up with the Joneses”, respectively and the agent is “outward-looking” (de la Croix, 1996; de la Croix & Michel, 1999). With external habit formation, the build-up lev- el of average past consumption in the economy at large influences the current utility of an individual consumer. The outward habit is a kind of intertemporal consumption externality, and the consumer does not internalize outward hab- its when making his optimal decision. Using household-level data, Hung et al. (2015) supports the presence of temptation features and self-control problems. NAŠE GOSPODARSTVO OUR ECONOMY Vol. 67 No. 1 ORIGINAL SCIENTIFIC PAPER RECEIVED: OCTOBER 2020 REVISED: FEBRUARY 2020 ACCEPTED: MARCH 2021 DOI: 10.2478/ngoe-2021-0001 UDK: 364.68:005.931 JEL: D62, D91, E21, Q50 Citation: Safi, F. (2021). External Hab- its Formation and the Environment. Naše gospodarstvo/Our Economy, 67(1), 1–12. DOI: 10.2478/ngoe-2021-0001 pp. 1 –12 2021 NAŠE GOSPODARSTVO / OUR ECONOMY Vol. 67 No. 1 / March 2021 2 For a long time, these kinds of “extended preferences”, following Becker’s (1997) terminology, have been cut off from environmental issues. However, recently, several au- thors have introduced habits in pollution or in environmen- tal quality. The importance of taking the own consump- tion position relative to the average past consumption in the economy into account when addressing the relation- ship between status and environmental externalities was already emphasized by Ng and Wang (1993), who discuss the relationship between relative income (status) and envi- ronmental deterioration generated from over-consumption. Howarth (1996, 2006) and Wendner (2003, 2005) examine the relationship between status impacts and the design of optimal environmental policies. These papers suggest that status desire causes environmental degradation. Brekke et al. (2002) estimate the Hirsch (1976) hypothesis, i. e. status desire enhances consumption at the cost of environmental deterioration. They show that this only remains true when status is represented as the difference between one’s agent consumption and the average consumption of society, and if status and non-status goods are poor substitutes. Long and Wang (2009) focus on renewable resource extraction by a finite number of status seeking individuals who inter- act strategically. They show that status seeking decreases society’s growth rate. Alvarez-Cuadrado and Long (2011) show that since status-seeking households overvalue con- sumption, their eagerness to gain further consumption is higher than the efficient level. Therefore, they over-exploit resources, generating a steady-state stock level that is low- er than the efficient level. Second, even when the effort is costless, consumption externalities might interfere with the enthusiasm to shift consumption through time, generating an inefficient path of extraction. This is dynamic distor- tion. Eckerstorfer and Wendner (2013) study optimal linear commodity taxation in a two-good economy, where one of the goods is positional and the other non-positional. Their main contribution is to explore tax policy consequences of non-atmospheric (agents differ in their contribution to the externality) and asymmetric consumption externalities and to examine the joint tax policy implications of relative con- sumption concerns and inequality-aversion. Aronsson and Johansson-Stenman (2014) examine the optimal provision of state variable public goods by taking global climate as an example in a setting where individuals are concerned by relative consumption. Goerke and Hellesheim (2013) con- clude that agents under certain conditions supply more la- bor if they are concerned with their status than they would in an undistorted economy without relative concerns. Bouché (2017) focuses on the analysis of the optimal allo- cation and its decentralization by means of an appropriate tax policy. She finds that a sufficiently high social discount factor is important to prevent possible local oscillations. Besides, investment should either be subsidized or taxed contingent on the magnitude of environmental degradation and aspirations while maintenance investment should al- ways be subsidized. Bouché and de Miguel (2019) explore the repercussions of assuming that the intensity of aspi- rations is endogenous. They show that such a change in the intensity of aspirations induce a U-shaped relationship between capital accumulation and environmental quality. Our paper can be linked to models that have brought in exter- nal habitimpacts in dynamic models in relation to environ- mental issues. We can refer to the works of Wendner (2003, 2005) and Brekke and Howarth (2003), who examine the consequences of environmental externalities when relative consumption is concerned. In the present paper, we choose to explore the consequence of environmental externalities when external habits are brought in the utility function such that the cohort size matters. We put into consideration the question of whether the status seeking behavior leads indi- viduals to “over-consume”, and thus to overuse the environ- ment relatively to a social optimum. Our main contribution is to formalize, in an overlapping generations framework of John and Pecchenino (1994), a model in which agents exhib- it external habits in consumption. The agents are subject to environmental constraints in which consumption from both young and old generations negatively influence the environ- mental quality which can be at least partially ameliorated by maintenance spending. We focus particularly on the impact of external habits on the capital and the environment on the laissez-faire equilibrium. This paper is organized as follows. In Section 2, we intro- duce the model. Section 3 outlines the optimization prob- lem. Section 4 characterizes the equilibrium. In Section 5, we sketch the steady state. In Section 6, we provide a nu- merical analysis. Section 7 concludes the study. The Model An overlapping generations model offers the framework for the analysis. The motivation for using this kind of model for analyzing an environmental externality follows from the fact that economic activities of a generation born at time t generate environmental damage not only in peri- odt, but also in all future periods t +1,t +2,....,t+n. Nevertheless, if a finitely-lived generation born at t is alive for only k0 and U ”<0. Preferences of each individual are defined by the log-lin- ear lifetime utilityU: U =Inc ~ t 1 +Inc ~ tt +1 2 + lnE t +lnE tt +1 . (4) Each variable of the utility functionc ~1 , c ~2 and E t is dis- cussed afterwards. In the present analysis, the economy is in front of two types of intergenerational externality. The first one is at- tributable to external habits as a frame of reference origi- nating in the consumption relative to the average one. The second is attributable to the effect of present consumption decisions on the level of environmental quality enjoyed by upcoming generations. Individuals derive utility not only from environmental quality. They also gain utility from status (external habit stock) which is obtained by a high consumption level relative to average consumption. Variable E denotes environmental quality, which is an in- tergenerational public good. As in John and Pecchenino (1994), the index of environmental quality evolves ac- cording to the equation: E t+1 = E t -β �∑ i =1 L (c t 1 ) i +∑ j =1 L (c t 2 ) j �+δ∑ i =1 L (m t ) i . (5) The superscripts i and j represent respectively a single in- dividual from young and old generations. E t is the environ- ment quality in period t, E t+1 is the environment quality in period t+1, β >0 stands for the degradation of the envi- ronment and δ>0 is the environmental improvement due to the actions of the young at t. This index may incorporate the inverse of the concentra- tion of chlorofluorocarbons in the atmosphere, the inverse of other greenhouse gases, the quality of groundwater, or an index of biodiversity. We introduce the external habits in consumption follow- ing the work of Wendner (2005). The variablec ~ t 1 defines effective consumption of a single individual in the first period of life: c ~ t 1 ≡ c t 1 -γC t , (6) where C t is the average consumption across all individuals 2 such that: C t ≡� ∑ i (c t 1 ) i + ∑ j (c t 2 ) j �/(L t + L t-1 ) = (∑ i (c t 1 ) i + ∑ j (c t 2 ) j ) . (7) 2L In aggregate, if all individuals behave the same way, C t ≡(L t c t 1 +L t -1 c t 2 )⁄(L t +L t -1 )=(c t 1 +c t 2 )⁄2 . (8) 1 John et al. (1995) set up a model with environmental externalities and population growth. They state that a higher population growth rate reduces environmental quality per capita but could increase the aggregate quality of the environment. 2 This formulation of status is equal to the keeping up with the Joneses formulation utilized in Ljungqvist and Uhlig (2000). NAŠE GOSPODARSTVO / OUR ECONOMY Vol. 67 No. 1 / March 2021 4 Individuals take C t as given. Each person’s status rises with his own consumption but reduces with the average consumption of society. The parameter 0<γ<1 expresses the desire of households for status. The higher γ is, the younger individuals care for status and for the consump- tion level of their peers. Variable c ~ tt +1 2 denotes effective consumption of an individ- ual born in t in the second period of life: c ~ tt +1 2 ≡ c t+1 2 -γC t+1 . (9) Substituting equation (8) into (6) gives c ~ t 1 = (2-γ) c t 1 -γc t 2 ) (10) 2 Similarly, substituting equation (8) into (9) gives c ~ t+1 1 = (2-γ) c t 2 -γc t 1 ) (11) 2 The law of motion of capital is given by the equilibrium relation between savings and investment. As we have as- sumed full depreciation of capital 3 , net savings determine the capital stock in the next period, as in Diamond (1965). In intensive terms the accumulation rule for capital can be written as k t+1 =s t . (12) The firms are perfectly competitive profit maximiz- ers that produce output using the production function: F(K t ,L t )=Y t . The capital stock in period t is K t . The employ- ment in period t is L t . The level of output in period t is Y t . The production function can be written in the intensive form: y t =f (k t ) , (13) where y t and k t are output and capital per worker respec- tively, and f (k) ≡ F (k,1). We suppose that the per capi- ta production function, f (k t ), satisfies the standard neo- classical properties. The production function f :R + ⟶R + has the following properties. It is twice continuously dif- ferentiable, increasing and strictly concave. In particular, f ’(k t )>0; f ’’(k t )<0; kf ’’(k)+f ’(k)>0 for every k>0. Moreover, we impose that lim k→∞ f ’(k t )=0, lim k→0 f ’(k t )=∞ and f (0)=0. At each time t, the output per unit labour y t =f (k t ) is allo- cated to maintenance expenditure, consumption, and cap- ital investment. The Optimization Problem Let t=1 be the initial period. Individuals from generation t face consumption externalities both when young at t and when old at t+1. The externality at t+1 is affected by the consumption of other old people at t+1, and it is also af- fected by consumption of the next generation of young people at t+1. This creates an intergenerational externali- ty, and it is a potential source of multiplicity of equilibria. The optimization problem for individuals i of generation t is (14) (15) where individual i takes as given C t -1i , C t+1 -2i and M t -i . In equi- librium we must have Use the budget constraint (14) to eliminate c t+1 2i in the ob- jective function, and use the environmental law of motion (15) to eliminate E tt +1 : For all t ≥1 , the first order conditions for interior solutions for c t 1i and m t i respectively are (16) (17) 3 In the overlapping generations model, since one period is set at least as 25 years long, the assumption of 100% capital depreciation is realistic. Fatma Safi: External Habits Formation and the Environment 5 Subtract (17) from (16) to get (18) Equations (17) and (18), together with the budget equation (14) and the environmental law of motion (15), character- ize individual behavior. We can substitute the expressions of C t -1i and C t+1 -2i into (17) and (18), then add ((δ+β)⁄E t+1 ) to both sides of (18) and (δ⁄E t+1 ) to both sides of (17). Since all individuals within each generation are identical, we can drop the superscripts i and j. The result is the following: (19) (20) Equation (19) shows that generation t chooses savings, equating the marginal rate of substitution between the ef- fective consumption in old age and environmental qual- ity in old age to the marginal rate of transformation, . At the utility maximum, a decrease in utility due to falling consumption during old age, , is equal to an increase in utility due to an in- crease in maintenance effort, δ. Equation (20) indicates that generation t chooses con- sumption when young, equating the marginal rate of sub- stitution between consumption in youth and environmental quality in old age to the marginal rate of transformation, . At the utility maximum, a decrease in util- ity due to falling consumption during youth is equal to an increase in utility due to the sum of an increase in main- tenance effort, , and a decrease in a consumption externality, . Assuming perfect competition in the factor markets, profit maximization in the choice of labor by firms implies that the marginal product of labor must be equated to the real wage. The marginal product of labor is obtained by noting that Y t = L t f (k t ) , so that . The optimum choice of labor therefore satisfies W t =f (k t ) - k t f'(k t ) , (21) Similarly, the optimum choice of capital equates the rate of interest to the net marginal product R t = f'(k t ). (22) Competitive Equilibrium A competitive equilibrium for the economy under analy- sis is a sequence such that, given the initial conditions of the state parameters k 0 andE 0 : i) firms maximize profits; ii) consumers maximize their utility function; iii) markets clear. Under the hypothesis that m>0 4 and by using equation (10), equation (19) can be rewritten as follows . (23) By substituting equations (12) and (22) into (2) we obtain . (24) Under the hypothesis that individuals are identical, we can rewrite (5) as . (25) Environmental quality is influenced by two economic ac- tivities: consumption and environmental expenditures. As (25) illustrates, the environmental quality at time t+1 is influenced by the consumption of the old individuals born in time t -1, i. e. the variable Lc t 2 , and by the consumption of the young individuals born in t, Lc t 1 5 . While young in- dividualstake into account the environmental deterioration when old, they do not considerthe degradation of the envi- ronment and its effect on the future generations’ utility in the periods afterwards. In other words, even though con- sumption of those now alive generates an environmental externality that affects future generations’ utility, this im- pact is disregarded by current generations. The environment is positively influenced by the environ- mental expenditures Lm t . Nevertheless, while households’ efforts decrease the existing stock of waste for themselves and for upcoming generations, the current generation cares only about its own welfare and disregards any benefits pro- vided to its descendants. The assumption δ>0 guarantees that investment in the environment has a positive impact 4 We focus on the case of m>0. Notice that there is nothing in the model that prevents the possibility that m t =0. For the case m t =0 see John and Pecchenino (1994). 5 We suppose that the pollution coefficient of c t 1 is the same as that of c t 2 since these consumption goods are homogeneous. NAŠE GOSPODARSTVO / OUR ECONOMY Vol. 67 No. 1 / March 2021 6 on environmental quality. The coeficients β and δ are sup- posed to be time invariant. By substituting equations (14), (12), (21), (22), (23), (24), and (24) lagged once into (25), we get (26) It reduces to (27) By plugging equation (11), equation (19) can be rewritten as follows . By simplifying and rearranging this equation, we obtain . Substituting equation (23) advanced once into the above equation leads to . Substituting equations (24) and (22) advanced once into the above equation yields . 28) Equations (27) and (28) represent the law of motion for the environment. Steady State Since all parameters are constant in the steady state, time subscripts are eliminated. Let ¯ k and ¯ E indicate steady state values. In steady state, equation (27) becomes (29) In steady state, equation (28) becomes . (30) The following analysis describes the comparative static be- havior of the steady state of this model. The differentiation of (29) and (30) taking β and δ as given yields Where: Ω 1 =1 . By deriving (29) with respect to ¯ k , we get By simplifying and rearranging Ω 2 , we obtain For our study we use a Cobb-Douglas function f(k)=Ak α , where 0<α<1 is the share of capital in the production pro- cess, A is a time-invariant productivity parameter. Under our assumptions on the parameters and based on the following cases we conclude that Ω 2 is positive for every ( ¯ k ,α). By deriving (30) with respect to ¯ E, we get . Ω 3 is positive given the assumptions on the parameters. Fatma Safi: External Habits Formation and the Environment 7 The expressions of Ω 4 , Ω 5 and Ω 6 may be calculated simi- larly. We obtain Ω 4 is negative given the assumptions on the parameters. . Under our assumptions on the parameters and based on the following cases we conclude that For γ→0 and from the numerical analysis of the following section, Ω 6 <0. For γ→1 and from the numerical analysis of the following section, Ω 6 <0. We conclude that Ω 6 is negative. Consequently, the determinant of the left-hand-side ma- trix|∆|=Ω 1 Ω 4 -Ω 2 Ω 3 is negative. The stability properties of the long-run equilibrium The stability of the fixed point of the long-run equilibri- um can be determined by examining the eigenvalues of the Jacobian matrix J. We first set up the Jacobian matrix of partial derivatives. Now, we evaluate the Jacobian matrix J at the steady state. . The eigenvalues are obtained by solving the characteristic polynomial P(λ)=det(A-λI)=0 (31) . (32) The eigenvalues are thenλ 1 andλ 2 . The stability properties of the long-run equilibrium can be studied by proving that the partial derivatives have moduli strictly less than one, that is λ i ≤1 for all i. In our case, we should be able to prove that Actually, we have λ 1 positive, hence we can write expres- sion (a) as , and we have λ 2 negative, hence we can write expression (b) as . Thus, we obtain the following system of inequalities . We have Ω 1 =1. The system reduces to and this is true if . Hence, we can conclude that the system converges to a long-run equilibrium which is asymptotically stable if . NAŠE GOSPODARSTVO / OUR ECONOMY Vol. 67 No. 1 / March 2021 8 We next study the effects of external habit formation on the steady state equilibrium level of capital accumulation and environmental quality. The conditions of the equilibrium characterize (a) two equation(s) system with two unknowns. The equilibrium condition system is a Cramer’s system. Let’s note and This gives and Proposition: Economies with higher external habit stock have worse environmental quality and accumulate more capital in steady state than economies with less external habit stock. To explicitly understand the results obtained, let us look at the marginal rates of substitution and determinate the status seeking impact on the environment. where . External habits formation increases MRS m,c 1. Thereby, has to rise becoming rational to move expenditures from maintenance to consumption in the first periodc 1 , i.e., earning a positive marginal utility of increased consump- tion early in life and also a positive marginal utility of the higher status while young: >0. This has a neg- ative effect on the environment. On the other hand, the increase in c 1 decreases savings resulting in a decline in consumption when old, which implies a positive effect on the environment, but a negative one on the capital. More- over, external habit formation increases MRS m,c 2. Thereby, has to rise becoming rational to move expenditures from maintenance to consumption in the second period c 2 i.e., earning a positive marginal utility of increased consump- tion in the second periodand also a positive marginal utility of the higher status while old: >0. This has a bad environmental effect but a good effect regarding the capital accumulation. Then again, the presence of external hab- its in the utility function leads MRS c 2 ,c 1 to decrease which raises the rate of consumption growth becoming rational to reduce consumption early in life since the marginal status utility when old exceeds the marginal status utility when young. This has a good environmental effect. The decline in c 1 though, increases savings, which enhances the capital accumulation. The characterization of the steady state shows that the bad effects of striving for status dominate the good effects, which explains the environment worsening. This result goes in the same direction of that obtained by Wendner (2003, 2005). As regards to the capital accumulation, the good effects dominate the bad ones which lead to cap- ital increasing. This result differs from that achieved by Bouché (2017). She states that the negative effect of as- pirations on the steady-state capital stock is due to the de- terring effect that aspirations play on savings, and hence on capital accumulation. As for Alonso-Carrera and Bouché (2019), they show that agents that are tempted to take the average consumption of individuals living in the same pe- riod as their own aspiration or consumption reference may either rise or reduce the accumulation of capital. The key point would be whether consumers take the consumption of the households belonging to the other living generations as a causal factor of their consumption reference. The economic intuition behind our result is that: individ- uals increase their first and second consumption possibil- ities in the pursuit of improved status, which in turn lead to overconsumption. It follows from the life-cycle budget constraint that the maintenance investment reduces. There- fore, the environment degrades as well according to the equation defining the index of environmental quality. To put it differently, individuals drive utility not only from their absolute consumption levels and from environmen- tal quality, but also from the status realized by consum- ing at above-average levels. Striving for status, therefore, causes higher consumption levels, and thus, the overuse of the environment relative to a social optimum. It is entirely possible then that one of the reasons behind environmental degradation is people over-consume to continuously keep up with the Jones. De la Croix (1996, p. 91) states that “… aspirations affect savings negatively. When aspirations are low, the adult generation has a sober lifestyle and sav- ings are high. When aspirations are high compared with wage income, adults spend much on consumption to main- Fatma Safi: External Habits Formation and the Environment 9 tain a life standard like the one of their parents and their propensity to save is low.” Numerical Analysis In this section, the proposition obtained is not general giv- en that its underlying hypotheses include some restrictive functional form assumptions. Thus, the results from the comparative static behavior of the steady state are com- plemented with some numerical exercises. That is why we choose some parameter values to illustrate visually the ef- fect of the parameters on the steady state equilibrium. We notice in Figure 1, which illustrates the effect of the cohort size L on the aggregate environmental quality ¯ E for differ- ent values of status desire γ, an identical behavior of ¯ E independently from γ which gradually decreases from L=2 and asymptotically approaches a limit value beyond L=20 when γ rises. The magnitude of E t is lower when the pa- rameter γ comes close to unity (γ=0.99). Figure 2. γ effects on E for different values of L(a), δ(b), and β(c) Figure 1. L effects on E for different values of γ Figure 2(a) shows the evolution of the environmental qual- ity ¯ E as a function of γ for different values ofL. We see that the curves fall off dramatically with increasing γ. This decrease starts from a common value of ¯ E equal to 79 for γ=0. When γ>0, the curves disperse, and the reduction gap becomes more and more important when γ approaches unity. In this situation, ¯ E is influenced by L and its lowest magnitude of 31.6 is obtained for a large value of L equal to 100. As for the impact of γ on ¯ E for various values of δ, we find that the economies have lower levels of E t as γ increases and this environment worsening is more import- ant when δ=0.6. The amplitude of ¯ E is wider for γ=0 and δ=0.6. Its value is 64. When γ=0, the difference between a) b) c) NAŠE GOSPODARSTVO / OUR ECONOMY Vol. 67 No. 1 / March 2021 10 the values of ¯ E for each δ is 17. When γ increases, this difference tends to decrease and becomes practically the same when γ comes near unity (as shown in Figure 2(b)). Figure 2(c) represents the influence of γ on ¯ E for different values of β. We note a similar behavior of ¯ E which quickly declines with increasing γ. ¯ E is large for γ=0 and β=0.11. Its value is 47.3. We also remark that for each specific value of γ, the difference between the values of ¯ E is practically the same. Inversely to the evolution of the environmental quality,an opposite behavior is detected as regards the repercussion of the cohort size on the capital accumulation ¯ k for differ- ent values of status desire. It gradually increases from L=2 and asymptotically approaches saturation beyondL=20. The large effect of ¯ k at saturation ( ¯ k=99) is obtained for γ=0.95 (Figure 3). Figure 3. L effects on k for different values ofγ Figure 4. γ effects on k for different values of L(a), δ(b), and β(c). a) b) c) Figure 4 (a), (b) and (c) contain information on how, for different values of L, δ and β respectively, influences ¯ k. We note an identical behavior in the evolutions which in- dicates the influence of γ beyond 0.8. The curves increase rapidly to reach their maximums when γ tends towards 1. The amplitude of k t becomes larger and larger by reducing the values of δ and β: ¯ k=93 for β=0.3 and ¯ k=97.4 for δ=0.3; and by increasing the value of L: a large value of L (L=100) gives the largest value of ¯ k of 94.4 when γ approaches unity. Fatma Safi: External Habits Formation and the Environment 11 Conclusion Since individuals are finitely lived agents in an OLG economy, their consumption has external environmental costs for other individuals. Furthermore, external habits impacts constitute another externality. We consider an overlapping generations model with external habits in consumption and the presence of environmental quali- ty. We focus particularly on the impact of the desire to “keeping up with the Jones” on the capital and the envi- ronmental quality in the laissez-faire equilibrium via a comparative statics’ analysis. We concluded that econo- mies characterized by a higher level of status desire accu- mulate more capital and have lower environmental quali- ty standards than economies with less status desire when the cohort size is large. References Alonso-Carrera, J., &Bouché, S. (2019). Capital accumulation when consumers are tempted by others consumption experience. Ox- ford Economic Papers, 72(3), 804–828. doi:10.1093/oep/gpz046 Alvarez-Cuadrado, F., & Long, N. V. (2011). Relative consumption and renewable resource extraction under alternative proper- ty-rights regimes. Resource and Energy Economics,33(4), 1028–1053. doi:10.1016/j.reseneeco.2010.09.003 Aronsson, T., & Johansson-Stenman, O. (2014). State-variable public goods and social comparisons. Journal of Environmental Eco- nomics and Management, 68(2), 390–410. doi:10.1016/j.jeem.2014.07.001 Becker, G., & Mulligan, C. (1997). The endogenous determination of time preference. Quarterly Journal of Economics, 112(3), 729– 758.Retrieved from http://www.jstor.org/stable/2951254 Bouché, S. (2017). Aspirations, environmental quality and optimal tax policy. ECOBAS Working Papers, 2016-21. Bouché, S., &de Miguel, C. (2019). Endogenous aspirations, growth and the rise of environmental concerns. Energy Economics, 84(S1). doi:10.1016/j.eneco.2019.104526 Brekke, K. A., & Howarth, R. B. (2003). Status, growth, and the environment: goods as symbols in applied welfare economics. Ed- ward Elgar Publishing, Cheltenham. Brekke, K. A., Howarth, R. B. & Nyborg, K. (2003). Status-seeking and material affluence: evaluating the Hirsch hypothesis. Ecological Economics, 45(1), 29–39. doi:10.1016/S0921-8009(02)00262-8 de la Croix, D. (1996). The dynamics of bequeathed tastes. Economics Letters,53(1), 89–96. doi:10.1016/S0165-1765(96)00888-9 de la Croix, D., & Michel, P. (1998). Optimal growth when tastes are inherited. Journal of Economic Dynamics and Control, 23(4), 519–537.doi:10.1016/S0165-1889(98)00028-1 Diamond, P. A. (1965). National debt in the neoclassical growth model. American Economic Review, 55, 279–293. Retrieved from: https://www.aeaweb.org/journals/aer Eckerstorfer, P., & Wendner, R. (2013). Asymmetric and non-atmospheric consumption externalities, and efficient consumption taxation. Journal of Public Economics, 106, 42–56. doi:10.1016/j.jpubeco.2013.07.003 Goerke, L., & Hellesheim, I. (2013). Relative consumption, working time, and trade unions. Labour Economics, 24, 170–179. doi:10.1016/j.labeco.2013.08.002 Hirsch, F. (1976). The social limits to growth. Cambridge, Mass.: Harvard University Press. Howarth, R. B. (1996). Status effects and environmental externalities. Ecological Economics, 16(1), 25–34. doi:10.1016/0921- 8009(95)00076-3 Howarth, R. B. (2006). Optimal environmental taxes under relative consumption effects. Ecological Economics, 58(1), 209–219. doi:10.1016/j.ecolecon.2005.07.007 Huang, K.X.D., Liu, Z. & Zhu, J.Q. (2015). Temptation and self-control: some evidence and applications. Journal of Money, Credit, and Banking, 47, 581-615. doi:10.1111/jmcb.12222 John, A., & Pecchenino, R. (1994). An overlapping generations model of growth and the environment. The Economic Journal, 104(427), 1393–1410. doi:10.2307/2235455 John, A., Pecchenino R., Schimmelpfennig, D & Schreft, S. (1995). Short-lived agents and the long-lived environment. Journal of Public Economics, 58(1), 127–141. doi:10.1016/0047-2727(94)01459-2 Ljungqvist, L., & Uhlig, H. (2000). Tax policy and aggregate demand management under catching up with the Joneses. American Economic Review, 90(3), 356–366. doi:10.1257/aer.90.3.356 Long, N. V., & Wang, S. (2009). Resource grabbing by status-conscious agents. Journal of Development Economics, 89(1), 39–50. doi:10.1016/j.jdeveco.2008.09.005 NAŠE GOSPODARSTVO / OUR ECONOMY Vol. 67 No. 1 / March 2021 12 Ng, Y. K., & Wang, J. (1993). Relative income, aspiration, environmental quality, individual and political myopia: why may the rat race for material growth be welfare reducing? Mathematical Social Sciences, 26(1), 3–23. doi:10.1016/0165-4896(93)90008-7 Wendner, R. (2003). Status, environmental externality, and optimal tax programs. Economics Bulletin, 8(5), 1–10. Retrieved from http:// www.accessecon.com/pubs/eb/ Wendner, R. (2005). Frames of reference, the environment, and efficient taxation. Economics of Governance, 6(1), 13–31. doi:10.1007/ s10101-004-0086-6 Zunanje oblikovanje navad in okolje Izvleček Pričujoči prispevek predstavlja standardni model prekrivajočih se generacij z zunanjim oblikovanjem navad in kakovostjo okolja v funkciji koristnosti. Glavni cilj prispevka je preučiti vpliv zunanje oblikovanih navad na akumulacijo kapitala in vpliv kakovosti okolja na medčasovno konkurenčno ravnovesje. Opazimo, da v primeru velike kohorte težnja po boljšem statusu privede do poslabšanja kakovosti okolja in povečanja kapitala. Ključne besede: zunanje oblikovane navade, prekrivajoče se generacije, kakovost okolja