Reflections About the Food–Energy–Water Nexus in a World …
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one of these factors develops positively, the other two factors, or at least one of them,
would have to develop negatively to compensate for the positive development [41].
Lange has shown [41] that the Solow growth model based on the neoclassical
theory can produce a stable zero-growth scenario of the Solow-styled economy.
He defines the necessary assumptions for this scenario [41]:
1. an unchanged technological level of the economy,
2. no unemployment because wages are completely flexible and if the demand for
labour declines, wages can also fall to allow the demand for labour to rise again
but this assumption has severe social implications,
3. the capital stock of the Solow economy is unaltered. The investments of the
economy are only necessary to compensate for depreciation of the existing
capital. The savings rate of the model economy should correspond with the
depreciation rate and the necessary investments to even the depreciation of the
capital stock [41].
3.2 The Relation of Interest Rate and Time Preference
The previous discussion has shown that savings are important for economic growth.
Hence, we will discuss the nature of the interest rate and its relation to the time
preference [14, 15, 25, 26].
Starting point of this analysis are the economic decisions of the households. The
household has to decide based on its preference order which part of its income (I) the
household uses for consumption (C) today and which part of its income is saved (S)
for further consumption. The saved income can be used by the household for future
consumption so that an intertemporal benefit can be achieved [90]. If households
renounce current consumption (C 0 ), the interest on savings (S 0 ) increases the possible
future consumption (C 1 ). The interest rate (r) is the price for the current consumption
renunciation and the postponement of consumption into the future [67, 90].
These assumptions result in the following income equation
3 :
I 0 = C 0 + S 0
(6)
For the next period, the interest on savings is available to the household as
additional consumption (C 1 ):
S 0 (1 + r ) = C 1
(7)
If one solves the above equation S 0 and then inserts this into the income equation
(I), the intertemporal budget restriction of the households results in Eq. (8).
3 The following analysis is based also on [90].
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one of these factors develops positively, the other two factors, or at least one of them,
would have to develop negatively to compensate for the positive development [41].
Lange has shown [41] that the Solow growth model based on the neoclassical
theory can produce a stable zero-growth scenario of the Solow-styled economy.
He defines the necessary assumptions for this scenario [41]:
1. an unchanged technological level of the economy,
2. no unemployment because wages are completely flexible and if the demand for
labour declines, wages can also fall to allow the demand for labour to rise again
but this assumption has severe social implications,
3. the capital stock of the Solow economy is unaltered. The investments of the
economy are only necessary to compensate for depreciation of the existing
capital. The savings rate of the model economy should correspond with the
depreciation rate and the necessary investments to even the depreciation of the
capital stock [41].
3.2 The Relation of Interest Rate and Time Preference
The previous discussion has shown that savings are important for economic growth.
Hence, we will discuss the nature of the interest rate and its relation to the time
preference [14, 15, 25, 26].
Starting point of this analysis are the economic decisions of the households. The
household has to decide based on its preference order which part of its income (I) the
household uses for consumption (C) today and which part of its income is saved (S)
for further consumption. The saved income can be used by the household for future
consumption so that an intertemporal benefit can be achieved [90]. If households
renounce current consumption (C 0 ), the interest on savings (S 0 ) increases the possible
future consumption (C 1 ). The interest rate (r) is the price for the current consumption
renunciation and the postponement of consumption into the future [67, 90].
These assumptions result in the following income equation
3 :
I 0 = C 0 + S 0
(6)
For the next period, the interest on savings is available to the household as
additional consumption (C 1 ):
S 0 (1 + r ) = C 1
(7)
If one solves the above equation S 0 and then inserts this into the income equation
(I), the intertemporal budget restriction of the households results in Eq. (8).
3 The following analysis is based also on [90].