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Interpreting Sustainability in Economic Terms: Dynamic Efficiency Plus Intergenerational Equity

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  • Stavins, Robert
  • Wagner, Alexander
  • 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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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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Handle: RePEc:rff:dpaper:dp-02-29

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  1. 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.
  2. Asheim,G.B. & Buchholz,W. & Tungodden,B., 1999. "Justifying sustainability," Memorandum 08/1999, Oslo University, Department of Economics.
  3. 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.
  4. Pezzey, J., 1992. "Sustainable Development Concepts; An Economic Analysis," Papers 2, World Bank - The World Bank Environment Paper.
  5. Heal, G., 1998. "Valuing the Future: Economic Theory and Sustainability," Papers 98-10, Columbia - Graduate School of Business.
  6. Farrow, Scott, 1998. "Environmental equity and sustainability: rejecting the Kaldor-Hicks criteria," Ecological Economics, Elsevier, vol. 27(2), pages 183-188, November.
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Cited by:
  1. Knapp, Keith C., 2006. "Recursive Sustainability: Intertemporal Efficiency and Equity," 2006 Annual meeting, July 23-26, Long Beach, CA 21472, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  2. James Roumasset & Christopher Wada, 2011. "Ordering Renewables: Groundwater, Recycling, and Desalination," Working Papers 201105, University of Hawaii at Manoa, Department of Economics.
  3. John M. Gowdy, 2004. "Toward a New Welfare Foundation for Sustainability," Rensselaer Working Papers in Economics 0401, Rensselaer Polytechnic Institute, Department of Economics.
  4. John Creedy & Ross Guest, 2008. "Sustainable Preferences and Damage Abatement:Value Judgments and Implications for Consumption Streams," Department of Economics - Working Papers Series 1026, The University of Melbourne.
  5. Hellwig, Klaus, 2005. "Sustainability revisited," Economics Letters, Elsevier, vol. 87(2), pages 193-197, May.
  6. Gowdy, John, 2005. "Toward a new welfare economics for sustainability," Ecological Economics, Elsevier, vol. 53(2), pages 211-222, April.
  7. John M. Gowdy, 2010. "Behavioral economics, neuroeconomics, and climate change policy: baseline review for the garrison institute initiative on climate change," Rensselaer Working Papers in Economics 1010, Rensselaer Polytechnic Institute, Department of Economics.
  8. BRECHET, Thierry & LAMBRECHT, Stéphane, 2005. "Puzzling over sustainability: an equilibrium analysis," CORE Discussion Papers 2005001, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Petterson Molina Vale, 2011. "Acodição Estável Da Economia: Teoria Eprática," Anais do XXXVII Encontro Nacional de Economia [Proceedings of the 37th Brazilian Economics Meeting] 193, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  10. Sirje Pädam & Üllas Ehrlich & Koidu Tenno, 2010. "The impact of EU Cohesion policy on environmental sector sustainability in the Baltic states," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 10(1), pages 23-42, June.
  11. Aparna Sawhney, . "Environmental Sustainability and the Account of Genuine Wealth in India," Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi Discussion Papers 10-03, Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi, India.
  12. Pulido San Román, A., 2003. "Desarrollo sostenible: un reto central para el pensamiento económico," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 21, pages 203-220, Agosto.
  13. Knapp, Keith C. & Franklin, Bradley, 2012. "Sustainability Economics of Groundwater Usage and Management," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124959, Agricultural and Applied Economics Association.
  14. Majah-Leah Ravago & James Roumasset, 2009. "Economic Policy for Sustainable Growth and Development vs. Greedy Growth and Preservationism," Working Papers 200909, University of Hawaii at Manoa, Department of Economics.
  15. Martinet, Vincent & Rotillon, Gilles, 2007. "Invariance in growth theory and sustainable development," Journal of Economic Dynamics and Control, Elsevier, vol. 31(8), pages 2827-2846, August.
  16. Majah-Leah Ravago & James Roumasset & Kimberly Burnett, 2008. "Resource management for Sustainable Development of Island Economies," Working Papers 200804, University of Hawaii at Manoa, Department of Economics.
  17. Rizov, Marian, 2004. "Rural development and welfare implications of CAP reforms," Journal of Policy Modeling, Elsevier, vol. 26(2), pages 209-222, February.
  18. Richard M. Bird, 2003. "Fiscal Flows, Fiscal Balance, and Fiscal Sustainability," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0302, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  19. Scarborough, Helen & Bennett, Jeff, 2008. "Estimating intergenerational distribution preferences," Ecological Economics, Elsevier, vol. 66(4), pages 575-583, July.

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