How do you feel about going green? Modelling environmental sentiments in a growing open economy

Abstract

Contrary to the near-global consensus among the scientific community, public perceptions of climate change differ between nations and have fluctuated over time. This article develops a switching-strategies growth model to study such a stylised fact, allowing for feedback effects between sentiments, environmental regulation and macroeconomic outcomes in an open economy set-up. Conditional on the level of interaction between agents, two locally stable equilibrium points emerge: one with the majority of the population supporting climate change mitigation policies and another with most agents opposing environmental regulation. However, we demonstrate that a sufficiently robust response of sentiments to green house gas emissions may lead to the disappearance of the lower growth “bad” equilibrium, allowing for a unique “green” steady-state. Complex dynamics might occur via a sequence of period-doubling bifurcations. The model provides an endogenous mechanism to explain minor and large fluctuations in public opinion on global warming, in line with the evidence in surveys such as the World Risk Poll. Employment series are more persistent than sentiments, resulting in relatively high volatility in the latter and smooth long-waves in the labour market.