Testing transitions: A new model to explore how producer- and consumer-led sustainability strategies could affect macroeconomic stability

The Stockholm Environment Institute has developed a post-Keynesian macroeconomic model to test sustainability strategies in high-income economies. Initial tests indicate that while simply reducing consumption levels can trigger recessions, 'downshifting' (reducing working hours/workforce participation) can temporarily halt GDP growth and environmentally damaging consumption without causing economic instability.

• The Stockholm Environment Institute's P2CS seed project has developed a macroeconomic model for high-income economies to test the systemic impacts of sustainability strategies, specifically those focused on consumption patterns. Unlike many existing models that assume smooth adjustments or optimal choices based on future knowledge, this model is based on post-Keynesian economic theory and assumes people anticipate the future using rules derived from past experience. It is designed to realistically recreate business cycles, including deep slumps with persistent underemployment and the abandonment of capital stocks.
• Initial experiments using the model compared two strategies for reducing consumption: reducing consumption levels while keeping the workforce unchanged, and 'downshifting' where people reduce working hours or leave the workforce. Reducing consumption levels without reducing workforce participation led to economic instability, resulting in a classic recession characterized by a savings glut, sluggish investment, falling wages, and further declines in consumption. In contrast, voluntary downshifting allowed the economy to slow considerably without causing instability or involuntary job loss, although a 'rebound' effect of higher wages for remaining workers occurred, which was outweighed by the overall drop in consumption.
• The project's findings suggest that voluntary downshifting in a high-income capitalist economy can temporarily halt GDP growth and the associated growth in environmentally damaging consumption. However, the duration of this effect without government intervention remains unclear. The researchers are currently conducting a new experiment to test 'degrowth' strategies to determine if a good quality of life can be achieved within planetary boundaries, despite general economic skepticism that degrowth would lead to economic collapse.

APA

Stockholm Environment Institute (2019). Testing transitions: A new model to explore how producer- and consumer-led sustainability strategies could affect macroeconomic stability. https://www.sei.org/wp-content/uploads/2019/03/sei-2019-p2cs-summary-economic-model.pdf

Chicago

Stockholm Environment Institute. Testing transitions: A new model to explore how producer- and consumer-led sustainability strategies could affect macroeconomic stability. 2019. https://www.sei.org/wp-content/uploads/2019/03/sei-2019-p2cs-summary-economic-model.pdf.

Wikipedia

{{cite report |author=Stockholm Environment Institute |title=Testing transitions: A new model to explore how producer- and consumer-led sustainability strategies could affect macroeconomic stability |date=March 2019 |url=https://www.sei.org/wp-content/uploads/2019/03/sei-2019-p2cs-summary-economic-model.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{stockholmenvironmentinstitute2019testing, author = {{Stockholm Environment Institute}}, title = {{Testing transitions: A new model to explore how producer- and consumer-led sustainability strategies could affect macroeconomic stability}}, institution = {Stockholm Environment Institute}, year = {2019}, month = mar, url = {https://www.sei.org/wp-content/uploads/2019/03/sei-2019-p2cs-summary-economic-model.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }