Abrupt damages and sustainability
Résumé
In this paper, I show that the amount of the environmental damage due to abrupt events can be important for the sustainability of an economy. When the economy faces endogenous limit cycles or unstable behavior for a large parameter region for environmental damage, the Sustainable Development criterion, implying a non-decreasing path for utility is compromised. In addition, total factor productivity improvements are shown to help an economy respecting the Sustainable Development Criterion by avoiding limit cycles and unstable behavior in the long run.