Acceptable logotype

ECO 3620. Environmental Economics

Sustainability

United Nations defined sustainability in 1987: "Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs."

Environmental Economics

  1. Dynamic efficiency: non-declining intertemporal social welfare
  2. SW(X(Q,K,L),Q;T); X is market goods, K is physical capital, L is labor, Q is natural capital, T is technology
  3. Measurement of social welfare:
    • Net national welfare = GDP + nonmarket output - externality costs - pollution abatement and cleanup costs - depreciation of created capital - depreciation of natural capital
    • e.g., Genuine Progress Indicator, Table 6.3
  4. Technological optimism: natural capital and physical capital are subsitutes
  5. Sustainability via benefit-cost analysis and markets:
    • "Get the prices right": internalize negative externalities with cost-effective environmental regulation
    • Nonrenewable resources: market prices rise with scarcity, competitive markets with a backstop fuel lead to sustainability
    • Renewable resources: regulation is required for sustainability of fisheries (e.g., open access problem), forestry (e.g., enforce property rights, internalize externalities)
    • A social discount rate equal to the growth rate of NNW is dynamically efficient

Ecological Economics

  1. Distrust of mainstream economics: rejects market efficiency, NNW as a measure of well-being,
  2. Technological pessimism: natural capital and physical capital are not complements
  3. Prefers physical measures of sustainability; eg, IPAT: Impact = Population � Affluence � Technology = N � [X � N] � [D � X]; where N is population, X is consumption and D is degradation of natural capital
  4. Sustainability via the Precautionary Principle:
    • Decreases in Q must be replaced with K that generates a comparable flow of services (not comparable utility)
    • Unique resources with irreversible development and uncertain future value requires a "safe minimum standard."
    • A focus on equity
  5. May advocate a steady-state economy:
    • Impact (i.e., GDP) = N � [GDP per N]
    • Stabilization of population and GDP per capita is necessary to avoid negative impacts
    • Assumes D per X is constant (i.e., technological pessimism)

    Economic Growth and Fish Conservation: F3108p404-409Policy.pdf