What Can Economic Analysis Contribute to the 'Sustainability' Debate?

By Lesser, Jonathan A.; Zerbe, Richard O., Jr. | Contemporary Economic Policy, July 1995 | Go to article overview

What Can Economic Analysis Contribute to the 'Sustainability' Debate?


Lesser, Jonathan A., Zerbe, Richard O., Jr., Contemporary Economic Policy


I. INTRODUCTION - EXISTING SUSTAINABILITY DEFINITIONS

Toman (1994) provides a useful discussion of dichotomies between existing definitions of sustainability, and Pezzey (1992) offers a good survey of the sustainability literature. The analysis here avoids any one definition of sustainability. As Toman notes, some aspects of these different definitions are mutually exclusive.

Discussions of sustainability have taken place largely apart from economic analysis and often with disdain for such analysis, supposedly either because economics does not incorporate "correct" societal values or ignores external effects. Karr (1993, p. 299), for example, argues that "financial indicators cannot adequately protect the long-term interests of society, because [these indicators] foster excessive consumption at the expense of future generations." Such value laden arguments are, at best, arguments against using economic analysis poorly, not arguments against the analysis itself.

The sustainability literature raises two broad concerns: (i) the nature of the current generation's responsibility to future generations, which may be termed intergenerational fairness (some suggest that sustainability advocates also value intra-generational fairness); and (ii) the possibility of a moral commitment to biological and institutional integrity. Instrumental to both of these concerns is the substitutability between "natural" and other forms of capital. Many of the important sustainability concerns focus on the ethical implications of the present value criterion, which some believe necessarily weighs preferences of the current generation more heavily than those of future generations (Howarth and Norgaard 1993; Norgaard and Howarth 1991; Pezzey 1992). In its simplest form, the present value criterion says that a project is worthwhile if its net present value is greater than zero.

Concerns over the present value criterion predate the current debate over sustainability. However, the findings of the World Commission on Environment and Development (1987) - also known as the "Bruntland Commission Report" - linked sustainability to these concerns. The report (p. 299) describes sustainable development as "development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs."

Karr (1993, p. 299) characterizes biological and ecological integrity as "stability, realization of inherent potential capacity for self-repair, and minimal need for external support." He argues (p. 306) that "our long-term success depends on an enlightened environmental revolution, a set of scientific, political, and ethical transitions similar to those experienced during the agricultural and industrial revolutions" and pleas (p. 305, see also Plater 1992) for a "new ethicaean ecological integrity ethic." Toman (1994) characterizes this stewardship view as the "organicist" definition of sustainability. Policy recommendations of subscribers to this theme are for less economic growth. However, such recommendations potentially create conflict between present and future generations, and raise debate over the concept of present value. Summers (1992, p. 1284) eloquently frames that debate: "I hold no greater grief for people who will die 100 years from now from global warming than for people who will die tomorrow from bad water."

II. INTERGENERATIONAL EQUITY

The broad concern for intergenerational equity has raised at least three specific concerns regarding the role of economic analysis: (i) the discount rate used to make policy choices and resource allocation decisions, (ii) the treatment of future environmental uncertainties, and (iii) the failure of standard economic analysis techniques, such as benefit-cost analysis, to impute values to equity goals, including intergenerational equity. All three concerns arise from misunderstandings as to the role of economic analysis.

A. …

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