Lecture 8 Sustainability Concepts

Question 1

Concepts of sustainability

Answer 1

Stock-based definitions
Strong Sustainability: Preserving the stock of natural capital
Weak Sustainability: Maintenance of aggregate productive capacity
Ecological thresholds
Keep safe and minimal standards for all species
Meet conditions for ecosystem resilience

Flow-based definitions
Obtaining constant yield of natural resources
Non-declining utility/consumption over time

Question 2

Strong sustainability

Answer 2

Constancy of natural capital stock = strong sustainability

Question 3

Critique of stock-based definition of sustainability

Answer 3

· In reality, some substitutions and compensation between capital and nature are possible. Where? How much?
· Is spatial substitution permitted?
· What exactly are the natural stocks? Habitats, species, genes?
· How about pests and germs?
· How to deal with minimum thresholds for certain ecological systems?

Question 4

Flow-based definition of sustainability

Answer 4

Obtaining constant yield of natural resources
Non-declining utility/consumption over time

Question 5

Ecological thresholds definition of sustainability

Answer 5

Keep safe and minimal standards for all species
Meet conditions for ecosystem resilience

Question 6

Weak sustainability

Answer 6

Constant productive capacity (= aggregated possibilities of production) = weak sustainability

Question 7

Sustainability indicators

Answer 7

1. Genuine Savings (Green Net Investment)
2. Environmental Performance Index (EPI)
3. ISEW (socio-economic indicator)
4. Ecological Footprint (bio-physical indicator)

Question 8

How is the traditional definition of savings expanded in genuine
savings?

Answer 8

Genuine saving: how much a country truly saves for future
1. Investment in other types of reproductive capital (human capital, R&D, social capital)
2. Extractions of natural resources and environmental pollution are offset (after deduction)

Question 9

Problems with non-negative Genuine Savings

Answer 9

Non-negative Genuine Savings = weak sustainability
1. No focus on future
2. Monetary estimation of natural goods and other types of capital without market price
3. Limited consideration of environmental pollution (only CO2-emissions), particularly with Adjusted Net Savings of the World Bank

Question 10

Environmental Performance Index (EPI)

Answer 10

Multidimensional index with focus on ecology
Main objectives:
1. Environmental Health
2. Ecosystem Vitality and Natural Resource Management

Question 11

Index of Sustainable Economic Welfare

Answer 11

= Personal consumption - inequality index - defensive expenditures (health+edu) + welfare improving contributions (…)

It is an economic indicator intended to replace GDP

Question 12

Problems with mutlidimensional indicators

Answer 12

1. Weighting
2. Conversion of different indicators in a single unit of measurement
3. Explanatory power of aggregated indicator with very heterogeneous sub-indicators

Question 13

Ecological footprint

Answer 13

EF attempts to translate ecological impact of human activities into the space necessary to produce the resources consumed and absorb the generated pollution.
Biocapacity (available space) - Footprint
’ sustainable if EF > 0

Question 14

Sustainable value of ecological footprint

Answer 14

EF > 0, SustainabilityRatio=EcologicalFootprint/Biocapacity

Question 15

Genuine Savings (= Green Net Investment)

Answer 15

Genuine Saving =
Gross Saving
- Depreciation of fixed capital
+ Educational expenses
- Depletion on natural resources
- Pollution damages

Question 16

Hartwick’s Rule (no tech progress)
Hartwick’s Rule (with tech progress)
Interpretation

Answer 16

Hartwick’s Rule (no tech progress)

Constant (non-declining) output or consumption requires reinvesting the entire “resource rent” into reproducible capital. In the simple Cobb-Douglas model, that translates to
𝑠=1−𝛼

Hartwick’s Rule (with tech progress)

The same rule
s=1−α now more than maintains output—it lets it grow at the rate of technical progress (i.e., (1−α)A).
In reality, if technology continuously improves and the resource is used efficiently, the economy can sustain (or even increase) output despite declining resource availability.

Interpretation

The “value of total capital” (physical + natural) must stay constant (or grow) for sustainability.
Investing resource rents into physical capital is the mechanism to offset depletion of the non-renewable resource.

Question 17

Hartwick’s Rule Assumptions

Answer 17

Underlying Assumptions

• No population growth.
• Elasticity of substitution between capital and resource = 1 (Cobb-Douglas).
• No other distortions or externalities.
• In the final slides, exogenous technical progress A.

Question 18

Hartwick’s Rule

Answer 18

Use all the rents from extracting a nonrenewable resource to build up reproducible capital if you want to keep consumption (or output) from falling in the future. In the simplest Cobb-Douglas model (without technical progress), the rule emerges mathematically as a constant savings rate s=1−α. When technical progress is present, that same rule not only maintains output but can raise it due to exogenous improvements in productivity.