Topic 3 - Sustainable Development

Question 1

Outline the dynamic efficiency criterion

Answer 1

Efficient allocation is the one that maximises the present value of the net benefit

PV of the marginal net benefit from the last unit in P1 =O the PV of the marginal net benefit in P2

Question 2

Outline the marginal user cost (MUC)

Answer 2

Intertemporal scrcity imposes an opportunity cost

MUC is the PV of the foregone opportunities by using the resource today rather than tomorrow

Question 3

What does the use of discounting do?

Answer 3

Tends to skew consumption toward the present day because tomorrow’s utility is valued less - discount rate is v important

Question 4

Outline the veil of ignorance

Answer 4

….

Question 5

Define the sustainability criterion

Answer 5

At a minimum, future generations should be left no worse off than the present ones

Question 6

Outline the Hartwick Rule

Answer 6

A constant level of consumption can be maintained perpetually from an environmental endowment if all of the scarcity rent is invested in capital. That level of investment would be sufficient to assure that the value of the total capital stock would not decline

Question 7

Define: weak sustainability

Answer 7

Maintaining the sum of physical + natural capital

Question 8

Define: strong sustainability

Answer 8

Maintaining the physical and natural capital separately

Question 9

Define: Environmental sustainability

Answer 9

Physical flows of certain key individual resources maintained and the benefits they provide; so aggregates are not enough