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Interpreting Sustainability in Economic Terms: Dynamic Efficiency Plus Intergenerational Equity

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  • Stavins, Robert

    (Harvard U)

  • Wagner, Alexander

    (Harvard U)

  • Wagner, Gernot

    (Harvard U)

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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Paper provided by Harvard University, John F. Kennedy School of Government in its series Working Paper Series with number rwp02-018.

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Date of creation: May 2002
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Handle: RePEc:ecl:harjfk:rwp02-018

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  1. 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.
  2. Pezzey, J., 1992. "Sustainable Development Concepts; An Economic Analysis," Papers 2, World Bank - The World Bank Environment Paper.
  3. Heal, G., 1998. "Valuing the Future: Economic Theory and Sustainability," Papers 98-10, Columbia - Graduate School of Business.
  4. Farrow, Scott, 1998. "Environmental equity and sustainability: rejecting the Kaldor-Hicks criteria," Ecological Economics, Elsevier, vol. 27(2), pages 183-188, November.
  5. Asheim,G.B. & Buchholz,W. & Tungodden,B., 1999. "Justifying sustainability," Memorandum 08/1999, Oslo University, Department of Economics.
  6. Asheim, G.B. & Buchholz, W. & Withagen, C.A.A.M., 2002. "The Hartwick Rule: Myths and Facts," Discussion Paper 2002-52, Tilburg University, Center for Economic Research.
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