Sustainable growth with environmental spillovers

In this paper, we apply the approach of Ramsey and Koopmans to the problem of optimal and sustainable growth. Under plausible assumptions, intertemporal neutrality implies that the optimal growth path is sustainable without the contrivance of a sustainability constraint. The model is extended to cases involving environmental disamenities. The solutions equivalently solve the problem of maximizing net national product adjusted for depreciation in natural capital and environmental effects. Green net national product in this framework is constant over time, thus avoiding the paradox of declining sustainable income.