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Interpreting sustainability in economic terms: dynamic efficiency plus intergenerational equity

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  • Stavins, Robert N.
  • Wagner, Alexander F.
  • Wagner, Gernot

Abstract

Economists have expended considerable effort to develop economically meaningful definitions of the somewhat elusive concept of "sustainability." We relate such a definition of sustainability to well known concepts from neoclassical economics, in particular, potential Pareto improvements (in the Kaldor-Hicks sense) and inter-personal compensation. In the inter-temporal realm, we find that dynamic efficiency is a necessary but not sufficient condition for a notion of sustainability that has normative standing as a goal for public policy. We define sustainability as dynamic efficiency plus intergenerational equity. Further, we argue that it is not unreasonable for economists to focus on the efficiency element, leaving equity considerations to the political process. The analogy to the relationship between potential Pareto improvements and (intragenerational) transfers can facilitate discussions about sustainability, both within the economics community and as part of an interdisciplinary discourse, and makes the basic concepts easier to operationalize.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 79 (2003)
Issue (Month): 3 (June)
Pages: 339-343

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Handle: RePEc:eee:ecolet:v:79:y:2003:i:3:p:339-343

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Web page: http://www.elsevier.com/locate/ecolet

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  1. Farrow, Scott, 1998. "Environmental equity and sustainability: rejecting the Kaldor-Hicks criteria," Ecological Economics, Elsevier, vol. 27(2), pages 183-188, November.
  2. Asheim,G.B. & Buchholz,W., 2000. "The Hartwick rule : myths and facts," Memorandum 11/2000, Oslo University, Department of Economics.
  3. Asheim, Geir B. & Buchholz, Wolfgang & Tungodden, Bertil, 2001. "Justifying Sustainability," Journal of Environmental Economics and Management, Elsevier, vol. 41(3), pages 252-268, May.
  4. Heal, G., 1998. "Valuing the Future: Economic Theory and Sustainability," Papers 98-10, Columbia - Graduate School of Business.
  5. Kenneth Arrow & Partha Dasgupta & Lawrence Goulder & Gretchen Daily & Paul Ehrlich & Geoffrey Heal & Simon Levin & Karl-Göran Mäler & Stephen Schneider & David Starrett & Brian Walker, 2004. "Are We Consuming Too Much?," Journal of Economic Perspectives, American Economic Association, vol. 18(3), pages 147-172, Summer.
  6. Pezzey, J., 1992. "Sustainable Development Concepts; An Economic Analysis," Papers 2, World Bank - The World Bank Environment Paper.
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