Interpreting Sustainability in Economic Terms: Dynamic Efficiency Plus Intergenerational Equity

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Interpreting Sustainability in Economic Terms: Dynamic Efficiency Plus Intergenerational Equity

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Stavins, Robert
Wagner, Alexander
Wagner, Gernot

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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 Resources For the Future in its series Discussion Papers with number dp-02-29.

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Date of creation: 01 Aug 2002
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Article
- Stavins, Robert N. & Wagner, Alexander F. & Wagner, Gernot, 2003. "Interpreting sustainability in economic terms: dynamic efficiency plus intergenerational equity," Economics Letters, Elsevier, vol. 79(3), pages 339-343, June. [Downloadable!] (restricted)

This paper has been announced in the following NEP Reports:

NEP-ALL-2006-01-24 (All new papers)
NEP-ENV-2006-01-24 (Environmental Economics)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Pezzey, J., 1992. "Sustainable Development Concepts; An Economic Analysis," Papers 2, World Bank - The World Bank Environment Paper.
Heal, G., 1998. "Valuing the Future: Economic Theory and Sustainability," Papers 98-10, Columbia - Graduate School of Business.
Asheim, Geir B. & Buchholz, Wolfgang, 2000. "The Hartwick Rule: Myths and Facts," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
Other versions:
- Asheim,G.B. & Buchholz,W., 2000. "The Hartwick rule : myths and facts," Memorandum 11/2000, Oslo University, Department of Economics. [Downloadable!]
- Asheim, G.B. & Buchholz, W. & Withagen, C., 2002. "The Hartwick rule : myths and facts," Discussion Paper 52, Tilburg University, Center for Economic Research. [Downloadable!]
- Geir Asheim & Wolfgang Buchholz & Cees Withagen, 2003. "The Hartwick Rule: Myths and Facts," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 25(2), pages 129-150, June. [Downloadable!] (restricted)
Kenneth Arrow et al., 2004. "Are We Consuming Too Much?," Journal of Economic Perspectives, American Economic Association, vol. 18(3), pages 147-172, Summer. [Downloadable!] (restricted)
Asheim, Geir B. & Buchholz, Wolfgang & Tungodden, Bertil, 2001. "Justifying Sustainability," Journal of Environmental Economics and Management, Elsevier, vol. 41(3), pages 252-268, May. [Downloadable!] (restricted)
Other versions:
- Asheim,G.B. & Buchholz,W. & Tungodden,B., 1999. "Justifying sustainability," Memorandum 08/1999, Oslo University, Department of Economics. [Downloadable!]
- Asheim, G.B. & Buchholz, W. & Tungodden, B., 1999. "Justifying Sustainability," Papers 5/99, Norwegian School of Economics and Business Administration-.

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

John M. Gowdy, 2004. "Toward a New Welfare Foundation for Sustainability," Rensselaer Working Papers in Economics 0401, Rensselaer Polytechnic Institute, Department of Economics. [Downloadable!]
Vincent Martinet, 2007. "Maximizing minimal rights for sustainability: a viability approach," EconomiX Working Papers 2007-20, University of Paris West - Nanterre la Défense, EconomiX. [Downloadable!]
Richard M. Bird, 2003. "Fiscal Flows, Fiscal Balance, and Fiscal Sustainability," International Studies Program Working Paper Series, at AYSPS, GSU paper0302, International Studies Program, Andrew Young School of Policy Studies, Georgia State University. [Downloadable!]

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