Abstract:-

Can cooperation and trust be a means to sustainable development without compromising on economic growth? This paper develops a discrete-time Ramsey model where cooperative culture in the form of trust reduces waste. Waste can be defined as the fraction of gross output lost due to transaction costs, monitoring, coordination failures, and corruption. Trust induces cooperation which reduces waste, simultaneously freeing resources for productive use and reducing environmental damage. We derive closed-form steady-state solutions and establish a theory to explain an Environment Kuznets Curve- like relation between environmental degradation and trust.  We also show that output and welfare are both increasing in the level of trust. We further analyse the transitional dynamics and show that the speed of convergence to the steady state is independent of the level of trust. We also show the possibility of overshooting of the output and pollution levels in certain economies in the short run.