2.Sustainable Economy
1.Rules For Sustaining Closed Economy
Standard of living is moot point. SL as set or vektor of utility from:
Real income
Health status
Education
Spiritual well-being
Two functions of natural environment : (1) resources supplier and (2) waste assimilator.
These rules were:
1. Always use renewable resources in such a way that the harvest rate is not greater than natural regeneration rate (h<y)
2.Always keep waste flow in the environment at or below the assimilative capacity
environment (W<A)
If we observe rules (1) and (2) we know that stock of renewable resouces and stock of
assimilative capacity is not fall.
2.Complementarity and Trade offs
Two ways in which they can be integrated into the rules are as follows:
To ensure that exhaustible resources are
depleted, their reduced stock is compesnated for by increases in renewable resources.
To allow for the fact that given standard of living can be secured from reducing stock of resources.
The first modification allow for subtitutability between exhaustible and renewable resources.
Example, substution of fossil fuel energi by wind, tidal and wave energy resouces.
The second modification allow for increased efficiency of resources use. It use less energy to produce one unit of Gross Domistic Brutto.
There is a further factor which has a major
influence on the equation: population growth.
A given SOL may be supportable with less resources inputs over time, but if population grows rapidly the effect of the increased
demand for resources can quikly ‘swamp’ such efficiency gains.
SOL
KN - Kmin
+ W
Z
Trade off paradigms Sustainability
paradigms
A
B X
Y P
L
Q J
O
Figure 1 Paradigms of environment-standard of living relationship
3. Maintaining the natural capital stock
Km and Kn subtitution
Tecnological progress
Sustainability, uncertainty and irreversibility
Resilience
Intergenerational equity
Right in nature
4. Optimal Capital Stock
B,C
KN*(Optimal stock) Ke
Forgone development value
Total Economic Value C
B
O
Figure 2 The cost (C) and benefit (B) of environmental change
KN
Static and Dinamic Efficiency of Sustainable Yield
The maxsimum af sustainable yield synonimous with efficency?
The answer is no. The Effiency is associated with maximing the net benefit from thr use of the resources
The static of effeciency is the harvest level, would the produce the largest annual benefit. Where discountrate is zero.
The allocation of resources that maximum net benefit every period
The dinamic of effeciency is incorporete with discounting.
The Positve discount rate to its influence on allocation of depleted of resources.
The dinamic efficecy balances present and future uses of a depletable resources by maximizing the present value of the net benefits derived from its use
The allocation of an abundant resouces (a) period 1 and (b) period 2
Price
quantity quantity
Price
MC MC 8
2
20
2 8
15
15 20
The Dynimacally Efficient of Allocation
Quantity
in period 1 Quantity
period 2 0
Marginal Net Private
Benefit in periode 2 6
2
20 2 5,45
0 10
20 Marginal
Net Private Benefit in periode 1
Discount rate=10%
10