ABSTRACT We study paths which involve optimal use of a renewable resource under several alternati... more ABSTRACT We study paths which involve optimal use of a renewable resource under several alternative definitions of optimality, including the discounted utilitarian, Chichilnisky's, the Rawlsian and the green golden rule. Initially we consider an economy where the only good is the resource: subsequently, we embed the resource in a productive economy with capital accumulation. Our aim is to investigate how the alternative approaches contribute to the understanding of the issues underlying concerns about sustainable use of the earth's resources. We show that Chichilnisky's criterion has several interesting characteristics: it leads the economy to asymptote to the green golden rule (the configuration giving the highest sustainable utility level) and requires that the discount rate fall asymptotically to zero, which can be interpreted as an application to intertemporal preferences of the well-known Weber-Fechner law of physics and physiology.
This book focuses on the main issues of trade and development, and on the attainment of the major... more This book focuses on the main issues of trade and development, and on the attainment of the major development goals generally espoused in the international community: rapid development in the Third World, sustained economic expansion in the industrial countries and the eradication of deep inequalities and of extreme poverty. It consists of four parts. The first three give an overall analysis of the world economy, with commentary and conclusions on major issues of trade and development. The fourth part provides the intuitive basis for the main results within the context of the formal models, and rigorous proofs are found in the references given to the technical literature. The analysis is descriptive, focusing on the particulars of market behaviour and tracing the ways in which markets respond to policies, in the belief that policies cannot be viewed in a vacuum, but must be confronted with the responses of the market. The interplay of domestic policies and international markets is a main feature of the authors' analysis.
I acknowledge support from Columbia Business School. I am grateful to Caroline Flammer, Bruce Ush... more I acknowledge support from Columbia Business School. I am grateful to Caroline Flammer, Bruce Usher and Gernot Wagner for valuable comments on an earlier draft. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
I acknowledge support from Columbia Business School. The views expressed herein are those of the ... more I acknowledge support from Columbia Business School. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
We are grateful to Maya Eden, Marc Fleurbaey, and Christian Gollier for helpful comments. The vie... more We are grateful to Maya Eden, Marc Fleurbaey, and Christian Gollier for helpful comments. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
The natural world matters greatly to economic performance: the economy and the natural world are ... more The natural world matters greatly to economic performance: the economy and the natural world are strongly interdependent, and improving the natural environment improves economic performance directly. But nonetheless economic activity is seriously damaging the environment. There are four reasons for this, all connected with clearly identifiable shortcomings of our economic system – failure to charge for external costs, failure to manage common property, failure to recognize and value natural capital, and failure to properly evaluate economic performance. Subsequent chapters develop these points.
Do markets lead us to make sustainable choices? If not, why not? And what would we need to do to ... more Do markets lead us to make sustainable choices? If not, why not? And what would we need to do to remedy this? This paper takes a preliminary look at these questions. It identifies three categories of reasons why market choices may not be sustainable, related to valuation of the future, recognition of the benefits provided by environmental assets, and incorrect incentives. It gives examples of cases in which these problems have been corrected, and considers the scope for a more positive relation between market forces and conservation of the environment.
We study the risks associated with the prospect of global climate change, and review the mechanis... more We study the risks associated with the prospect of global climate change, and review the mechanisms available for their efficient allocation in market economies. Risks in this field are typically unknown and often unknowable ex ante; their probabilities are endogenous and determined by economic actions; they have both collective and individual components, and they are about processes that may be irreversible. The theory of how to allocate such risks is still being developed, but a certain amount is known about insurance with unknown risks and about uncertainty and irreversibility. We indicate what is known and set out its policy implications, and provide a challenging but realistic research agenda. We show that existing theories provide a framework for evaluating policies for mitigating global climate change. How much a society should pay to mitigate global change depends on a society's discount rate, degree of risk aversion, and assessment of the relevant probabilities. As these may differ from society to society, what societies are willing to pay will vary. These differences may provide a basis for international trade in global climate risks. We argue that there is a real value to international institutional arrangements and financial markets that encourage countries to back words by deeds by making them liable to buy and sell risks associated with global climate change at the prices that their economic policies implicitly put on these risks. Contents 1 Pervasive Uncertainty 2 2 The Nature of Environmental Uncertainty 3 *To appear in Journal of Economic Perspectives. * Financial support from the Fondazione Eni Enrico Mattei is gratefully acknowledged by both authors, as are valuable comments on the papers on which this is based from Ken Arrow, Andrea Beltratti and Bob Solow.
Sustainability is unimportant, influential but elusive concept. I review concepts related to sust... more Sustainability is unimportant, influential but elusive concept. I review concepts related to sustainability in earlier literature, and then summarize and synthesize recent work on sustainability by Chichilnisky [9], Beltratti Chichilnisky and Heal [6], [5], and Heal [24]. This provides a basis for formalizing the concept and operationalizing it via shadow prices and associated accounting practices.
ABSTRACT We study paths which involve optimal use of a renewable resource under several alternati... more ABSTRACT We study paths which involve optimal use of a renewable resource under several alternative definitions of optimality, including the discounted utilitarian, Chichilnisky's, the Rawlsian and the green golden rule. Initially we consider an economy where the only good is the resource: subsequently, we embed the resource in a productive economy with capital accumulation. Our aim is to investigate how the alternative approaches contribute to the understanding of the issues underlying concerns about sustainable use of the earth's resources. We show that Chichilnisky's criterion has several interesting characteristics: it leads the economy to asymptote to the green golden rule (the configuration giving the highest sustainable utility level) and requires that the discount rate fall asymptotically to zero, which can be interpreted as an application to intertemporal preferences of the well-known Weber-Fechner law of physics and physiology.
This book focuses on the main issues of trade and development, and on the attainment of the major... more This book focuses on the main issues of trade and development, and on the attainment of the major development goals generally espoused in the international community: rapid development in the Third World, sustained economic expansion in the industrial countries and the eradication of deep inequalities and of extreme poverty. It consists of four parts. The first three give an overall analysis of the world economy, with commentary and conclusions on major issues of trade and development. The fourth part provides the intuitive basis for the main results within the context of the formal models, and rigorous proofs are found in the references given to the technical literature. The analysis is descriptive, focusing on the particulars of market behaviour and tracing the ways in which markets respond to policies, in the belief that policies cannot be viewed in a vacuum, but must be confronted with the responses of the market. The interplay of domestic policies and international markets is a main feature of the authors' analysis.
I acknowledge support from Columbia Business School. I am grateful to Caroline Flammer, Bruce Ush... more I acknowledge support from Columbia Business School. I am grateful to Caroline Flammer, Bruce Usher and Gernot Wagner for valuable comments on an earlier draft. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
I acknowledge support from Columbia Business School. The views expressed herein are those of the ... more I acknowledge support from Columbia Business School. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
We are grateful to Maya Eden, Marc Fleurbaey, and Christian Gollier for helpful comments. The vie... more We are grateful to Maya Eden, Marc Fleurbaey, and Christian Gollier for helpful comments. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
The natural world matters greatly to economic performance: the economy and the natural world are ... more The natural world matters greatly to economic performance: the economy and the natural world are strongly interdependent, and improving the natural environment improves economic performance directly. But nonetheless economic activity is seriously damaging the environment. There are four reasons for this, all connected with clearly identifiable shortcomings of our economic system – failure to charge for external costs, failure to manage common property, failure to recognize and value natural capital, and failure to properly evaluate economic performance. Subsequent chapters develop these points.
Do markets lead us to make sustainable choices? If not, why not? And what would we need to do to ... more Do markets lead us to make sustainable choices? If not, why not? And what would we need to do to remedy this? This paper takes a preliminary look at these questions. It identifies three categories of reasons why market choices may not be sustainable, related to valuation of the future, recognition of the benefits provided by environmental assets, and incorrect incentives. It gives examples of cases in which these problems have been corrected, and considers the scope for a more positive relation between market forces and conservation of the environment.
We study the risks associated with the prospect of global climate change, and review the mechanis... more We study the risks associated with the prospect of global climate change, and review the mechanisms available for their efficient allocation in market economies. Risks in this field are typically unknown and often unknowable ex ante; their probabilities are endogenous and determined by economic actions; they have both collective and individual components, and they are about processes that may be irreversible. The theory of how to allocate such risks is still being developed, but a certain amount is known about insurance with unknown risks and about uncertainty and irreversibility. We indicate what is known and set out its policy implications, and provide a challenging but realistic research agenda. We show that existing theories provide a framework for evaluating policies for mitigating global climate change. How much a society should pay to mitigate global change depends on a society's discount rate, degree of risk aversion, and assessment of the relevant probabilities. As these may differ from society to society, what societies are willing to pay will vary. These differences may provide a basis for international trade in global climate risks. We argue that there is a real value to international institutional arrangements and financial markets that encourage countries to back words by deeds by making them liable to buy and sell risks associated with global climate change at the prices that their economic policies implicitly put on these risks. Contents 1 Pervasive Uncertainty 2 2 The Nature of Environmental Uncertainty 3 *To appear in Journal of Economic Perspectives. * Financial support from the Fondazione Eni Enrico Mattei is gratefully acknowledged by both authors, as are valuable comments on the papers on which this is based from Ken Arrow, Andrea Beltratti and Bob Solow.
Sustainability is unimportant, influential but elusive concept. I review concepts related to sust... more Sustainability is unimportant, influential but elusive concept. I review concepts related to sustainability in earlier literature, and then summarize and synthesize recent work on sustainability by Chichilnisky [9], Beltratti Chichilnisky and Heal [6], [5], and Heal [24]. This provides a basis for formalizing the concept and operationalizing it via shadow prices and associated accounting practices.
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Papers by Geoffrey Heal