Transcript Sustainable Development - University of California, Berkeley

Sustainable Development
A Jaundiced View and Ramble
Outline
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Definitions of Sustainable
Sustainable and National Income
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Define Sustain
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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 airshed
– From theory: Future generations shall be
as well off as current generations
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What to Sustain
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Capital Stock, x
– Human Made Capital (xk)
– Natural capital (xn)
• exhaustible resources not “sustainable”
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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...
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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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Not Possible ?
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Can’t Sustain Exhaustibles?
– recycling means minerals not exhausted
– energy in great supply
– carbon dioxide level
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Probably can’t sustain product flow
– Car services eat Air
– fossil fuels = home heating= limited
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Can We Really Sustain U?
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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 ...?
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Path c* overtakes path c
From T forward, U(c*) > U(c).
Could be very poor for a very long while
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Useable Definition:
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in 100 years
have no less natural capital than today
have no less physical capital than
today..
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National Income Accounting
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(Value of Output) is GDP
Output - Net Investment = NNP
Conventional NNP doesn’t measure
resource consumption
Green NNP = NNP - resource
consumption
– need value of resources; cost of discovery
– not cost of extraction
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– minerals might be zero value.
Green NNP
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Less important than Leisure for US
Should make big difference for Brazil,
Saudi Arabia, etc.
NNP or GDP aren’t decision variables,
so who cares anyway?
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Sustain and National Income
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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...
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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.
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With exhaustible,
– could still be sustainable
– could have model where consumption
declines over time.
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NNP and Sustain
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If
– 1. Economy maxs welfare
– 2. Resulting consumption profile is flat
– 3. Enough investment (of both kinds) is
actually undertaken
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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
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Old Idea Multiple Use Sustained Yield
Act
– Don’t Impair Productivity of Land
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National Forest Management Act
– Nondeclining Flow of Timber
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Endangered Species Act
– Must Save Habitat for Owls and Murrulets
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Sustainable Plan for a Watershed
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Project Evaluation for Sustainable Rural
Development: Plan Sierra in the
Dominican Republic
– de-Janvry,-Alain; Sadoulet,-Elisabeth;
Santos,-Blas
– Journal-of-Environmental-Economics-andManagement; 28(2), March 1995, pages
135-54.
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Setup
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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
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Planning Criterion
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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
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II. Acceptable to project households
– Also called Individual Rationality
– For first generation households, income, y,
must increase because of the project
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III. Sustainable
– NPV2 > NPV1
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IV. Environmental Benefit--Downstream
users
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Plan….
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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 nonproject 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 be21
Fisheries and Sustainable
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Will open access or regulation kill off a
fishery?
Shutdown point
Critical Depensation
Random element to growth
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Shopping Center + Swamp
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(A Berck and Ligon Original)
Sustainable, More Natural Capital, Low
Interest Rates
Low Interest Rates implies more natural
capital. See next slide
Low Interest Rates means more other
investment
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Quick Fishery...
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Fish, xt, growth F(xt)
– harvest, h
– xt+1 = xt + F(xt) - ht
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Steady state when h = F(x)
Biggest steady state when x is chosen
to make F as large as possible
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Growth
Fishery
Long run optimal economic
exploitation where interest
rate = slope of growth curve
MSY
Population
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Present Value Max. Fishery
– (might be a goal of a management agency)
– assume constant price
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A fish not caught yields 1 + F’ fish
– F’ is the marginal product of a fish today in
producing a fish tomorrow
– Good deal if (1+ F’)/(1+r) > 0
• present value of the uncaught fish and its
offspring.
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Capitalist Fishery
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Max Present value
– tp ht (1+r)-t
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s.t. biology
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– xt+1 = xt+ f(xt) - ht
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Write L() =
Get at steady state,
if one exists: x*
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After some algebra
f’(x*) = r
Max sustainable
Yield is f’() = 0
Both may or may
not be likely to
cause extinction
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The swamp
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Low Interest means a Shopping Center
gets built on the swamp.
Low interest means higher Capitalist
managed stock of fish in remaining
water.
Also means international financial
chaos...
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George’s Bank
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Ruined
Regulated
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Blame Foreigners
Blame Tech
Progress
True blame is fish
industry to wanted
the money now and
didn’t care about
later.
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Choose Your Banner Carefully
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Sustainable
– More Stuff in Future
– Permanent Poverty
OK
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Environmental
– Save Warm and
Furry Creatures
– Save Trees
– Maybe even Save
Creepy Crawlies
– Less Pollution
– People count, but so
do other life forms
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