Lecture 2: Weak vs. Strong Sustainability Flashcards
Weak Sustainability
relative scarcity, mainstream economics
(environmental economics)
Strong Sustainability
absolute scarcity, non-mainstream economics and pluralism
(ecological economics
Most important vision in economics
weak sustainability, because it is more implemented in the governmental policies. It is related to neo-classical economics, the most important school in economics (mainstream economics)
neo-classical economics
weak sustainability
mainstream economics
neoclassical economists
mainstream economics explanations
- Maximization of profits and utility
- Self-interest also implies societal interest
- Price mechanism prevents exhaustion (scarcity is relative)
- Rational people; homo economicus
- Small government, markets are efficient, competition is central
homo economicus
rational people
rational people / homo economicus
-Everyone has their own choices –> actors have sets of preferences
- Try to optimize their satisfaction by looking at all the options (when it is made to optimize satisfaction then it is rational)
- Respond to incentives
- Act in their self-interest
- Make decisions at the margin
- invisible hand
making decisions ‘at the margin’
is the change in satisfaction from the
increase of the consumption of the product or service. The more you take, the more you think about it. People take decision taking into account the satisfaction they gain according to the amount of the product
Invisible Hand
without any external intervention, if all individuals in the economy act in their self-interest, the result is automatically leading to the best interest of the collective
(self-interest –> public interest) (a free economy)
which two distinctions are there in the typology of goods and services
rivalry in consumption and excludable from consumption
rivalry in consumption
if you consume a good, it won’t be available for other people
Excludable from consumption
preventing people from getting access to a product
high rivalry in consumption, high excludability from consumption
individual (private) goods
high rivalry in consumption, low excludability from consumption
common pool resources
low rivalry in consumption, high excludability from consumption
club goods
low rivalry in consumption, low excludability from consumption
collective (public) goods
individual (private) goods
high rivalry, high excludability
food, clothing, car, house
common pool resources
high rivalry, low excludability
water, energy, nature, environment
(Mostly natural resources, there is a limited amount)
club goods
low rivalry, high excludability
swimming pool, cinema’s, union (subscription for access needed)
collective (public) goods
low rivalry, low excludability
defense, dykes, protection, sunshine
Natural capital
refers to things like the stock of raw materials and energy reserves, biodiversity and water and air quality (for example land)
Physical capital
everything coming from technology supporting labor, includes machinery, buildings and infrastructure (everything that is manmade)
Human capital
includes the level of development and the health of the population (everything that is related to the development of the population, the productivity and thus labor)
Social capital
includes the social relations, mutual trust, standards and values (has a strong impact on environmental sustainability)
Institutional capital
measures the quality of the formal institutions, such as reliability of case-law (for example the quality of the government) (institutional capital can support the human capital by f.e. education guidelines)
Financial capital
money
externalities
negative externalities in Marchallian cross
negative effect on other people
pollution / smoking
what makes the external cost?
Difference in private and social cost
freeriding problem
tragedy of the commons
When people take advantage of a public good without paying for it
two types of market failures
- externalities
- free-riding problem
why don’t you get the most efficient market situations?
Markets do not always enable individuals to achieve the highest level of satisfaction even when you have a self-regulated market
weak sustainability and compensation / substitution
Compensation/substitution possible
o So, trees grow back themselves
o Even if we depleted natural resources and we produce more physical capital we can compensate the loss of natural resources
strong sustainability and compensation / substitution
No or limited compensation / substitution possible (absolute scarcity)
o We have a specific environment with limited resources, and consider what is possible in the environment and base the economy on this
why is scarcity relative in weak sustainability
thanks to price mechanisms and focus on technology and innovation
limited rationality
o Can be very inconsistent. Most people don’t know what they actually prefer, because you don’t have all the information to know all the options
o You don’t always know the consequences of everything
o We should not rely too much on rational choices
non-substitutability
you can’t substitute natural capital by physical capital
why is there non-substitutability in the case of natural capital
Manufactured capital is reproducible and its destruction is rarely irreversible, whereas the consumption of natural capital is usually irreversible
contribution natural capital to human-well being
the contribution of natural capital through the delivery of services to human wellbeing is multidimensional: security, basic materials for a good life, health, and good social relations
- trees for air quality, natural resources against floods = security
- need for air quality = health
- peace needed for accessing natural resources = social relations
complementarity natural capital
Natural capital is complementary to manufactured capital and other forms of capital (human and social capital, etc.) (you can’t substitute)
intergenerational justice
justice between individuals and communities but also between generations
3 interrelated goals of ecological economics
- sustainable scale
- fair distribution
- efficient allocation
fair distribution
relative of the resource flow, as embodied in final goods and services, among alternative people –> justice
regulation
In weak sustainability it is a lot about competition, for strong sustainability it is a problem, it is more about cooperation.
It is thus not about the market mechanism but the regulation in strong sustainability.
