On the Economic Growth and Environmental Trade-Off: a Multi-Objective Analysis

We develop a multicriteria approach, based on a scalarization technique, in order to analyze the trade off between economic growth and environmental outcomes in a framework in which the economy and environment relation is bidirectional. On the one hand, economic growth by stimulating production activities gives rise to emissions of pollutants which deteriorate the environment. On the other hand, the environment affects economic activities since pollution generates a production externality determining how much output the economy can produce and reducing welfare. In this setting we show that optimality dictates an initial overshooting followed by economic degrowth and rising pollution. This implies that independently of the relative importance of economic and environmental factors, it is paradoxically optimal for the economy to asymptotically reach the maximum pollution level that the environment is able to bear.