Maladaptation and global indeterminacy

This article analyses a general equilibrium growth model with overlapping generations and (production-induced) environmental degradation. Individuals react to environmental damages through mitigation or adaptation. In the former case, they reduce production and its environmental impact. In the latter, they do not tackle the causes of the problem but its consequences (i.e., the well-being loss due to environmental degradation) by increasing defensive expenditures. Despite its simplicity, the model can generate di¤erent long-term outcomes: convergence to a stationary state following a unique trajectory or local/global indeterminacy. In the last scenario, initial conditions (history) and individual expectations matter and the model can generate coordination failures and endogenous fluctuations. Results cast doubt on solutions to environmental problems relying on the role of individual behaviour change or adaptation.