March 28, 2003
Interpreting Sustainability in Economic Terms: Dynamic Efficiency Plus Intergenerational Equity
Economics Letters 79 (2003): 339-343. With Robert N. Stavins and Alexander F. Wagner.
This paper tries to lay out the possible contributions of economics to the interdisciplinary debate on sustainability. Economists have long confined the concept of sustainability to allocation decisions across generations. Instead, we argue that any reasonable definition of sustainability should also include the idea of optimality. We cannot use sustainability as the sole policy criterion, if it does not also imply efficiency.
This definition has another advantage. It would enable economists to be humble and play to their main strength. Economics is much better equipped for dealing with efficiency than equity. This, of course, is not a value judgement about the importance of efficiency versus equity. Equity is at least as important as efficiency, but it is best left to the political process.
Abstract: Economists have confined the concept of "sustainability" to intertemporal distributional equity. We propose a broader definition, combining dynamic efficiency and intergenerational equity, and relate it to two concepts from neoclassical economics: potential Pareto-improvements and inter-personal compensation.
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Posted by Gernot Wagner on Friday, March 28, 2003.