Sustainability Policy and Environmental Policy

A theoretical, representative agent economy with a depletable resource stock, polluting emissions and productive capital is used to contrast environmental policy, which internalises externalised environmental values, with sustainability policy, which achieves some form of intergenerational equity. The obvious environmental policy comprises an emissions tax and a resource stock subsidy, each equal to the respective external cost or benefit. Sustainability policy comprises an incentive affecting the choice between consumption and investment, and can be a consumption tax, capital subsidy or investment subsidy, or combination thereof. Environmental policy can reduce the strength of sustainability policy needed. More specialised results are derived in a closed economy with a non-renewable resource, and in a small open economy with no environmental effects on utility.sustainability, optimality, externalities, tax, policy

Exact Measures of Income in a Hyperbolic Economy

Exact optimal paths are calculated for a closed economy with human-made capital, non-renewable resource depletion and exogenous technical progress in production, hyperbolic utility discounting, and (possibly) hyperbolic technical progress. On its optimal path, generally, welfare-equivalent income > wealth-equivalent income > Sefton-Weale income > NNP, with possibly dramatic differences among these measures; and sustainable income can be greater, equal or less than NNP. This supports the view that there can be no best, exact definition of income. For low enough discounting, growth is optimal even when technical progress is zero. A particular discount rate makes all income measures and consumption constant and (except NNP) equal; and zero technical progress then gives the Solow (1974) maximin as a special case. General problems with calculating sustainable income when there is technical progress are discussed, and the optimal path is time-consistent if the discount rate can depend on the economy's stocks and absolute time.national income, discounting, hyperbolic, accounting, sustainability

One-sided Unsustainability Tests and NNP Measurement with Multiple Consumption Goods

In an economy with multiple consumption goods (including environmental amenities) that uniquely maximises the present value of utility with constant or falling augmented green net national product, or zero or negative augmented investment, at any time implies that the economy is unsustainable then. "Augmented" means that time is included as a productive stock, which incorporates future exogenous technical progress and changes in world prices in a unified accounting framework. Examples are given of calculating accounting prices for multiple goods. The practical and philosophical rationale for testing sustainability in a present-value maximising, and therefore fully prescribed, development path is discussed.sustainability, net investment,net national product, optimality,green accounting

A One-sided Sustainability Test With Multiple Consumption Goods

In an economy with multiple consumption goods (including environmental amenities) that uniquely maximises the present value of utility with constant discounting, constant or falling augmented green net national product, or zero or negative augmented net investment, at any time implies that the economy is unsustainable then. "Augmented" means that time is treated as a productive stock, so augmented net investment includes the value of time. This allows future exogenous technical progress and changes in world prices to be included in a unified accounting framework, along with features such as resource depletion, pollution and foreign investment. The practical and philosophical rationale for testing sustainability in a present-value maximising, and therefore fully prescribed, development path are discussed.

Exact measures of income in two capital-resource-time economies

Exact optimal paths are calculated for two closed, continuous-time economies with explicit functional forms for utility from consumption, and for production from human-made capital and a non-renewable resource. Features of the first economy are non-linear utility, hyperbolic utility discounting and (possibly) hyperbolic technical progress. In it: (a) welfare-equivalent income > wealth-equivalent income > Sefton-Weale income > Net National Product, confirming that even if income is viewed only as a measure of prosperity, there is no point in trying to define it uniquely; (b) the Solow (1974) constant consumption path is a special case for a particular discount rate; (c) for a low enough discount rate, sustained growth is optimal even when technical progress is zero. The second economy has linear utility, a non-linear output split between consumption and investment, and exponential technical progress. In it, (a) Weitzman's (1997) technological progress premium works only if an upwards correction factor is first applied to the rate of progress in production, to convert it to a rate of progress in Net National Product; (b) Hartwick's rule has an unfamiliar form.

Sustainability Policy and Environmental Policy

A representative agent economy with a resource stock, polluting emissions, productive, abatement and foreign capital, trade, and technical progress, is used to contrast environmental policy, which internalises amenity and productivity values, with sustainability policy, which achieves some form of intergenerational equity. Environmental policy comprises a tax on emissions and a subsidy on the resource stock equal to the respective externalised costs or benefits. Sustainability policy comprises a capital and/or consumption tax to change the effective utility discount rate. Environmental policy can reduce the strength of sustainability policy needed. More specialised results are derived in a closed economy with a non-renewable resource and no technical progress, and in a small open economy with few environmental effects.

Measuring Technical Progress in Gross and Net Products

On the optimal path of an economy with capital and non-renewable resource inputs, and constant returns output of consumption and investment, the rate of exogenous technical progress in net national product equals the rate of progress in (gross) production, divided by one minus the production elasticity of the resource flow.exogenous technical progress, net national product, non-renewable resources

EmissionTaxes and Tradable Permits: A Comparison of views on Long Run Efficiency

We compare three different views on the long run efficiencies of emission taxes which include thresholds, and of tradable emission permits where some permits are initially free. The differences are caused by different assumptions about whether thresholds and free permits should be subsidies given only to firms that produce, or full property rights. Treating tax thresholds, as well as free permits, as property rights would depart from the conventional view, but would allow greater flexibility in making economic instruments both efficient and acceptable. Such flexibility could be very important in achieving efficent control of greenhouse gas emissions.emission taxes, tradable permits, thresholds,exemptions, efficiency

Some Further Economics of Easter Island: Adding Subsistence and Resource Conservation

We extend Brander-Taylor's model of development on Easter Island by adding a resource subsistence requirement to people's preferences, and a conservation incentive in the form of a revenue-neutral, ad valorem tax on resource consumption. Adding subsistence improves plausibility; makes overshoot and collapse of population more extreme, and the steady state less stable; and allows for the possibility that statue building and erection will suddenly stop, in line with the archaeological evidence. We find a tax rate path which almost completely prevents overshoot, and conjecture that the overall strength of this path must rise when the subsistence level rises.

The Economics of Sustainability: A Review of Journal Articles

Concern about sustainability helped to launch a new agenda for development and environmental economics and challenged many of the fundamental goals and assumptions of the conventional, neoclassical economics of growth and development. We review 25 years’ of refereed journal articles on the economics of sustainability, with emphasis on analyses that involve concern for intergenerational equity in the long-term decisionmaking of a society; recognition of the role of finite environmental resources in long-term decisionmaking; and recognizable, if perhaps unconventional, use of economic concepts, such as instantaneous utility, cost, or intertemporal welfare. Taken as a whole, the articles reviewed here indicate that several areas must be addressed in future investigation: improving the clarity of sustainability criteria, maintaining distinctions between economic efficiency and equity, more thoroughly investigating many common assumptions in the literature about prospects for resource substitution and resource-enhancing technical change, and encouraging the empirical investigation of sustainability issues.economic efficiency, intergenerational equity, social optimality, sustainable development