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Irreversibility, ignorance, and the intergenerational equity-efficiency trade-off

  • Nikolai Hoberg


    (Sustainability Economics Group, Leuphana University of Lüneburg, Germany)

  • Stefan Baumgärtner


    (Sustainability Economics Group, Leuphana University of Lüneburg, Germany)

Two important policy goals in intergenerational problems are Pareto-efficiency and sustainability, i.e. intergenerational equity. We demonstrate that the pursuit of these goals is subject to an intergenerational equity-efficiency trade-off. Our analysis highlights two salient characteristics of sustainability problems and policy: (i) temporal irreversibility, i.e. the inability to revise one’s past actions; and (ii) unawareness of future consequences of present actions in human-environment systems (“unknown unknowns”). If initially unknown sustainability problems become apparent and policy is enacted after irreversible actions were taken, policy-making faces a fundamental trade-off between Pareto-efficiency and sustainability.

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Paper provided by University of Lüneburg, Institute of Economics in its series Working Paper Series in Economics with number 198.

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Length: 30 pages
Date of creation: Feb 2011
Date of revision:
Handle: RePEc:lue:wpaper:198
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  1. Malte Faber & Reiner Manstetten & John L.R. Proops, 1992. "Humankind and the environment: an anatomy of surprise and ignorance," Environmental Values, White Horse Press, vol. 1(3), pages 217-241, August.
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  3. Katz, Lawrence F. & Meyer, Bruce D., 1990. "The impact of the potential duration of unemployment benefits on the duration of unemployment," Journal of Public Economics, Elsevier, vol. 41(1), pages 45-72, February.
  4. Stefan Baumgärtner, 2005. "Temporal and thermodynamic irreversibility in production theory," Economic Theory, Springer, vol. 26(3), pages 725-728, October.
  5. Hanemann, W. Michael, 1989. "Information and the concept of option value," Journal of Environmental Economics and Management, Elsevier, vol. 16(1), pages 23-37, January.
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  7. Henry, Claude, 1974. "Investment Decisions Under Uncertainty: The "Irreversibility Effect."," American Economic Review, American Economic Association, vol. 64(6), pages 1006-12, December.
  8. Frank Krysiak, 2009. "Sustainability and its relation to efficiency under uncertainty," Economic Theory, Springer, vol. 41(2), pages 297-315, November.
  9. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  10. Howarth, Richard B & Norgaard, Richard B, 1992. "Environmental Valuation under Sustainable Development," American Economic Review, American Economic Association, vol. 82(2), pages 473-77, May.
  11. Richard B. Howarth, 1995. "Sustainability under Uncertainty: A Deontological Approach," Land Economics, University of Wisconsin Press, vol. 71(4), pages 417-427.
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