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Capital Substitutability and Weak Sustainability Revisited: The Conditions for Capital Substitution in the Presence of Risk

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  • Frank Figge

Abstract

The capital approach is frequently used to model sustainability. A development is deemed to be sustainable when capital is not reduced. There are different definitions of sustainability, based on whether or not they allow that different forms of capital may be substituted for each other. A development that allows for the substitution of different forms of capital is called weakly sustainable. This article shows that in a risky world and a risk-averse society even under the assumptions of weak sustainability the circumstances under which different forms of capital may be substituted are limited. This is due to the risk-reducing effect of diversification. Using Modern Portfolio Theory this article shows under which conditions substitution of different forms of capital increases risk for future generations.

Suggested Citation

  • Frank Figge, 2005. "Capital Substitutability and Weak Sustainability Revisited: The Conditions for Capital Substitution in the Presence of Risk," Environmental Values, , vol. 14(2), pages 185-201, May.
    • Handle: RePEc:sae:envval:v:14:y:2005:i:2:p:185-201
    DOI: 10.1177/096327190501400204
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    References listed on IDEAS

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    1. Hartwick, John M., 1978. "Investing returns from depleting renewable resource stocks and intergenerational equity," Economics Letters, Elsevier, vol. 1(1), pages 85-88.
    2. David I. Stern, 1997. "The Capital Theory Approach to Sustainability: A Critical Appraisal," Journal of Economic Issues, Taylor & Francis Journals, vol. 31(1), pages 145-174, March.
    3. Franklin M. Fisher, 1983. "On the Simultaneous Existence of Full and Partial Capital Aggregates," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 50(1), pages 197-208.
    4. Figge, Frank & Hahn, Tobias, 2004. "Sustainable Value Added--measuring corporate contributions to sustainability beyond eco-efficiency," Ecological Economics, Elsevier, vol. 48(2), pages 173-187, February.
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