Sustainable Development

A Jaundiced View and Ramble

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Outline

• Definitions of Sustainable• Sustainable and National Income

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Define Sustain

• Over time, there is not less of the object that is being sustained.– Example from Forestry: A non declining flow of

timber.– Example for Clean Air: No further deterioration in

air quality in a critical air-shed– From theory: Future generations shall be as well

off as current generations

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What to Sustain

• Capital Stock, x– Human Made Capital (xk)

– Natural capital (xn)• exhaustible resources not “sustainable”

• product flows, h ( a vector of goods)– h(x, labor, tech. Progress, ….)– allows substitution of two types of capital– Breathing and Cars still separate goods

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What to sustain...

• Utility( h)– that’s human happiness in mathematical form– can substitute Cars for Breathing– only human welfare matters• animals matter in so far as people feel bad and are

willing to pay for their non-existence

– Utility per capita? Or per Generation?

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How to sustain…

• Man made capital depreciates and must be renewed through investment.– So sustainable requires that rate of depreciation x

capital stock = investment.

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Not Possible ?

• Can’t Sustain Exhaustibles?– recycling means minerals not exhausted– energy in great supply– carbon dioxide level

• Probably can’t sustain some product flow– Car services eat Air– fossil fuels = home heating= limited

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Can We Really Sustain U?

• Not even U in very long run– people are not good at population control– earth has so much air– Thermodynamics: only solar energy can be used

to reverse entropy– Sun will blow up

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Sustain or Overtake or ...?

• Path c* overtakes path c• From T forward, U(c*) > U(c).• Could be very poor for a very long while• But eventually c* is better

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Useable Quite Strong Definition:

• in 100 years • have no less natural capital than

today(required for strong sustainability)• have no less physical capital than today• And no more people than today...• Which should produce no less utility than

today per capita (also required for strong sustainability)

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Sustain and National Income

• Does Economy acts as if it maximizes discounted (at small rate) utility.– c(t) = argmax U(c(t) (1+r)-t

– Social rate of discount v. market rate– Bequest motive to transfer wealth– per capita income vs. per generation– infinite, non-decreasing plan is feasible?

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Assume So...

• Without exhaustible resource,– economies path may have a steady state for

consumption: it is sustainable– With high initial capital stock/capita would have

high consumption and then lower consumption, but forever.

• With exhaustible, – could still be sustainable– could have model where consumption declines over

time.

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NNP and Sustain

• If – 1. Economy maxs welfare – 2. Resulting consumption profile is flat– 3. Enough investment (of both kinds) is actually

undertaken• Then…Green NNP is the sustainable level of

consumption.– Are 1,2 and 3 facts in evidence?– (Asheim and Pezzey challenge 2.)

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Forestry and Sustainable

• Old Idea Multiple Use Sustained Yield Act– Don’t Impair Productivity of Land

• National Forest Management Act– Nondeclining Flow of Timber

• Endangered Species Act– Must Save Habitat for Owls and Murrulets

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Sustainable Plan for a Watershed

• Project Evaluation for Sustainable Rural Development: Plan Sierra in the Dominican Republic– de-Janvry,-Alain; Sadoulet,-Elisabeth; Santos,-Blas– Journal-of-Environmental-Economics-and-

Management; 28(2), March 1995, pages 135-54.

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Setup

• A project generates income both now and later

• Two generations are affected• Income y and present value of the project – NPV1 = present value for both generations• is also present value of project

– NPV2 = present value for only the second generation• is present value over last half of time period of project

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Planning Criterion

• I. Feasible– Traditional NPV test. • NPV =Present Value of Benefits - Cost of Project• Benefits= Value of agricultural output, y(t)• PV = y(t) (1+r)-t

• Cost is assume to be at time zero• NPV1 > 0 is traditional test for efficiency.

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Planning Criterion continued

• II. Acceptable to project households– Also called Individual Rationality– For first generation households, income, y, must

increase because of the project• III. Sustainable– NPV2 > NPV1

• IV. Environmental Benefit--Downstream users

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Plan….

• watershed development project in the Dominican Republic.

• watershed was already cut over and there was already severe soil erosion

• soil erosion was filling and making useless downstream dams

• the farmers were quite poor.• new less erosive farming practices– managed forest, less pasture, mulching, etc on other crops

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Sustainability through Financial Transfers ?

– These three criteria may be achieved by schemes of tax and subsidy between project and non-project households and between present and future generations.

– For instance, planted forests instead of pasture, require a subsidy to the current generation accomplished through loans that future generations have to pay off

– Moving from Slash and Burn Coffee to Managed Forest makes both generations better off, but adds more to current than to future income. Current users should pay tax for future users benefit to be sustainable.

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Sustainable Fish

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Quick Fishery...

• Fish, xt, growth F(xt)– harvest, h– xt+1 = xt + F(xt) - ht

• Steady state when h = F(x)• Biggest steady state when x is chosen to make

F as large as possible, called maximum sustainable yield

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Without costs…

• Leaving one more fish in the sea is an investment.

• Get the fish + increased growth– growth increase = F(x+1) – F(x) = dF/dx= F’– If price is constant holding 1 fish more in the sea is

worth (1+F’)/(1+r) in present value.• So economic optimum is where F’(x) = r; and

in steady state F = h again

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So there are many

• Ways to have a sustainable (in the sense of stock) fishery.

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George’s Bank

• Ruined• Regulated

• Blame Foreigners• Blame Tech Progress• True blame is fish

industry that wanted the money now and didn’t care about later.

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Some conventional views of sustainability

© 2011 Pearson Addison-Wesley. All rights reserved.

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Figure 19.4: Percent of Land Area in Forest.

© 2011 Pearson Addison-Wesley. All rights reserved.

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Figure 19.5: Percent of Threatened Mammals, Fishes, and Plants in the World Compared with the Number Threatened in 1997.

© 2011 Pearson Addison-Wesley. All rights reserved.

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Figure 19.6: Carbon Dioxide Emissions in the United States, China, Brazil, India, and Sweden.

© 2011 Pearson Addison-Wesley. All rights reserved.

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Figure 19.6 (cont.): Carbon Dioxide Emissions in the United States, China, Brazil, India, and Sweden.

© 2011 Pearson Addison-Wesley. All rights reserved.

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Figure 19.7: Per-Capita CO2 Emissions.

© 2011 Pearson Addison-Wesley. All rights reserved.

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Figure 19.7 (cont.): Per-Capita CO2 Emissions.

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Choose Your Banner Carefully

• Sustainable– More Stuff in Future– Permanent Poverty OK

• Economist– Utility of stuff– Future utility

• Equal important to today• Discounted from today

• Environmental– Save Warm and Furry

Creatures– Save Trees– Maybe even Save Creepy

Crawlies– Less Pollution– People count, but so do

other life forms