Ramsey with Environmental Awareness

This paper speculates how Ramsey’s (1928) model of optimal consumption and saving would have been constructed had Sir Frank Ramsey lived in a period of greater awareness of the environmental damaged caused by production processes. The paper extends Ramsey’s model to the case where the instantaneous satisfaction of the representative agent from consumption is spoiled by the degradation of his physical environment and spending on cleaning up and greening operations are therefore engendered.