entitlements missing markets and environmental policy abstract it is argued that while environmental damage may impose a cost on future generations this is not due to failure of entitlements nor due entirely to missing markets environmental damage may be viewed as nonconvexities which result in intertemporal externalities one such nonconvexity is missing markets and the implications of incorporating these are considered three simple models identify the essential policy issues namely the problem of incentives legal liability and the divergence between private and social costs

intergenerational equity and sustainability abstract this paper explores the limitations of conventional economic analysis of intergenerational problems and examines some of the alternatives suggested in the literature it is argued that proper consideration of future generations has at least three requirements first when future costs and benefits are considered it should be taken into account that they are to be enjoyed by different generations second the sustainability requirement should be adopted this represents an equity commitment to the future and implies the recognition that future generations have the right to nondeteriorated ecological and economic capacity the paper studies the ways in which the recognition of these rights might be incorporated into economic evaluation and management third an appropriate institutional network to enforce the recognition of these rights in decision making processes should be constituted its design and necessary functions are also analyzed

sustainability and externalities is the internalization of externalities a sufficient condition for sustainability in an important contribution in ecological economics van de bergh 2010 correctly concludes that sustainability does not imply zero externalities however he continues with the delphic statement delphic statements were uttered by the renowned oracle of ancient greece at delphi they were phrased in such a way as to be self fulfilling because alternative interpretations covered every possibility without externalities the problem of sustainability vanishes if this statement refers to an impossible economic process that produces no externalities then he is right however it might be interpreted as stating that whenever environmental policy internalizes environmental externalities then sustainability will be ensured in this note i assert that in the real world where externalities prevail their internalization or neutralization in the traditional way cannot lead to sustainability only if internalization takes a very specific form that results in the inviolable preservation of environmental rights of future generations in pure biological terms can sustainability be ensured after revised the original commentary i resubmit it the issues raised by the editor have been carefully considered

hedging production risk with options the expected utility maximization problem is solved for producers with both price and production uncertainty who have access to both futures and options markets introduction of production uncertainty alters the optimal futures and options position and almost always makes it optimal for the producer to purchase put options and to underhedge on the futures market simulation results lend support to the practice of hedging the minimum expected yield on the futures market and hedging remaining expected production against downside price risk using put options the results are strengthened if the producer expects local production to influence national prices and if risk aversion is higher at low income levels

ecosystem services from eye opening metaphor to complexity blinder abstract what started as a humble metaphor to help us think about our relation to nature has become integral to how we are addressing the future of humanity and the course of biological evolution the metaphor of nature as a stock that provides a flow of services is insufficient for the difficulties we are in or the task ahead indeed combined with the mistaken presumption that we can analyze a global problem within a partial equilibrium economic framework and reach a new economy project by project without major institutional change the simplicity of the stock flow framework blinds us to the complexity of the human predicament the ecosystem services approach can be a part of a larger solution but its dominance in our characterization of our situation and the solution is blinding us to the ecological economic and political complexities of the challenges we actually face

towards an operational sustainability criterion abstract this paper examines the concept of sustainability and its implications for environmental policy analysis it builds on the premise that present society holds a moral obligation to pass on a world of undiminished life opportunities to members of future generations maintaining life opportunities in turn can be achieved by maintaining or improving a diverse set of resources and capabilities that support a person s freedom to define and pursue her own conception of the good life on an operational level this framework points to the following guideline for environmental policy protecting the rights of future generations requires either the conservation of environmental resources or compensatory measures including the provision of substitute technologies that ensure the fair and proportionate sharing of net benefits over intergenerational time scales in this framework resource depletion is permissible only if with reasonable certainty it would generate a pareto improvement relative to a baseline scenario involving strict resource conservation

double co2 and beyond benefits costs and compensation abstract economic decisions over what action if any to take concerning the greenhouse effect tend to revolve around the social discount rate implicitly the debate concerns how to attribute intertemporal weights to welfare and implies a moral stance that is rarely given explicit recognition refocusing on the outcomes of current actions emphasises the role of compensation a conflict is apparent between the view that the current generation need be unconcerned over the loss or injury caused to future generations because they will benefit from advances in technology investments in both man made and natural capital and direct bequests and the requirement to avoid harming the innocent changes in units of welfare cannot be viewed as equivalent regardless of their direction in general doing harm is not cancelled out by doing good the result is a rejection of the potential compensation principle which underlies the current economic stance and a reconsideration of the acceptability of compensation altogether the concept of human rights and a non utilitarian perspective are used to show how cost benefit analysis denies the existence of inalienable rights and economics limits the moral considerability of harm

sustainability and the intergenerational distribution of natural resource entitlements abstract the paper describes an olg economy with a single exhaustible resource that has amenity value the steady states of this economy form a continuum implying path dependency we compare three policy scenarios first a zero extraction policy of enforced conservation that avoids environmental degradation possibly at the expense of intertemporal efficiency second a grandfathering policy that endows the present generations with all resources and that ensures efficiency but cannot prevent a persistent decline in lifetime utility from one generation to the next third a trust fund policy where future generations receive claims for the natural resource of the three only the trust fund ensures efficiency and protects welfare of all generations

sustainability as opportunity this paper explores the relationship between sustainability concepts and contractarian principles of distributional fairness a commitment to equality of opportunity between contemporaries entails that life opportunities should be nondiminishing from generation to generation defining sustainability as nondeclining utility is analytically suggestive but practically problematic given the uncertainties that surround future preferences and technologies life opportunities may be sustained however by providing future generations with specific endowments of reproduced capital technological capacity natural resources and environmental quality in this setting capital resource substitutions are defensible only if there is compelling evidence that they would benefit both present and future generations

the value and applicability of bargaining in an intergenerational setting abstract this paper considers the effectiveness of a variation of coasian bargaining as a policy instrument for internalizing one or multiple intergenerational externalities the variation involves appointing a contemporary party to represent the interests of the affected parties who are currently unable to represent themselves potential criticisms of such a policy are considered and addressed and precedents to such a policy are put forth to test the value of such a policy a two period model in which two externalities exist in the production consumption decisions and with representative agents is used to compare the welfare effects of four scenarios 1 agents in each period optimize their period specific utility 2 a benevolent social planner chooses allocations in both periods to maximize a social welfare function 3 the externalities are internalized using a bargaining policy and 4 the externalities are internalized using a tax and subsidy policy i find that contrary to general consensus in the literature coasian bargaining can be adapted in such a way as to make it applicable in an intergenerational framework

bivariate garch estimation of the optimal commodity futures hedge six different commodities are examined using daily data over two futures contract periods cash and futures prices for all six commodities are found to be well described as martingales with near integrated garch innovations bivariate garch models of cash and futures prices are estimated for the same six commodities the optimal hedge ratio ohr is then calculated as a ratio of the conditional covariance between cash and futures to the conditional variance of futures the estimated ohrs reveal that the standard assumption of a time invariant ohr is inappropriate for each commodity the estimated ohr path appears non stationary which has important implications for hedging strategies

resource use institutions and sustainability a tale of two pacific island cultures this paper examines two pacific island cultures easter island and tikopia and the relationship between natural resource systems human made capital population growth and institutional change easter island followed a preindustrial society pattern of overshoot and collapse however tikopia evolved cultural practices leading to zero population growth and sustainable resource use using a modified lotka volterra predator prey model we find 1 investment in human made capital does not necessarily eliminate the boom and bust cycles of economic activity and population observed in many past societies and 2 institutional adaptation and resource conservation can be critical in achieving population stability

economics and sustainability balancing trade offs and imperatives the concept of sustainability has been increasingly invoked in scholarly and public policy debates discussion has been hampered however by uncertainty and lack of uniformity in the meaning of sustainability this paper seeks to identify some common ground among economists ecologists and environmen tal ethicists two issues seem salient require ments for intergenerational and the defi nition of social capital to be provided to future generations a concept of safe minimum standard which has received at least some recognition in the ecology philosophy and eco nomics literatures may provide the beginnings of a common ground for debate about sus tainability jel q2

equilibrium pricing and portfolio composition in the presence of uncertain parameters abstract we analyze the effect of parameter uncertainty on equilibrium asset prices for the symmetric case when the amount of estimation risk is the same for all securities the existing literature argues that parameter uncertainty is largely irrelevant for equilibrium our results differ we find that symmetric estimation risk affects equilibrium values of relative asset prices expected returns market weights and betas

the demand for energy using assets among the world s rising middle classes we study household decisions to acquire energy using assets in the presence of rising incomes we develop a theoretical framework to characterize the effect of income growth on asset purchases when consumers face credit constraints we use large and plausibly exogenous shocks to household income generated by the conditional cash transfer program in mexico oportunidades to show that asset acquisition is nonlinear depends as predicted in the presence of credit constraints on the pace of income growth and both effects are economically large among beneficiaries our results may help explain important worldwide trends in the relationship between energy use and income growth

geographies of energy transition space place and the low carbon economy this paper makes a case for examining energy transition as a geographical process involving the reconfiguration of current patterns and scales of economic and social activity the paper draws on a seminar series on the geographies of energy transition security climate governance hosted by the authors between 2009 and 2011 which initiated a dialogue between energy studies and the discipline of human geography focussing on the uk government s policy for a low carbon transition the paper provides a conceptual language with which to describe and assess the geographical implications of a transition towards low carbon energy six concepts are introduced and explained location landscape territoriality spatial differentiation scaling and spatial embeddedness examples illustrate how the geographies of a future low carbon economy are not yet determined and that a range of divergent and contending potential geographical futures are in play more attention to the spaces and places that transition to a low carbon economy will produce can help better understand what living in a low carbon economy will be like it also provides a way to help evaluate the choices and pathways available

how will energy demand develop in the developing world most of the medium run growth in energy demand is forecast to come from the developing world which consumed more total units of energy than the developed world in 2007 we argue that the main driver of the growth is likely to be increased incomes among the poor and near poor we document that as households come out of poverty and join the middle class they acquire appliances such as refrigerators and vehicles for the first time these new goods require energy to use and energy to manufacture the current forecasts for energy demand in the developing world may be understated because they do not accurately capture the dramatic increase in demand associated with poverty reduction

managing food price risks and instability in a liberalizing market environment overview and policy options abstract managing food price risks and instability is a major challenge in the midst of ongoing food market reforms key findings from the papers in this special volume revolve around five broad areas i the sources and magnitudes of food price instability in different country contexts ii the economic and social costs stemming from price instability iii the lessons from food market reforms to date iv the design of policy reforms in ways that promote efficient and stable market development and protect the interests of the poor and v potential policy responses to food price instability in a liberalizing market environment

environmental issues and economic decisions in developing countries abstract this paper explains the key role of environmental economics in incorporating environmental concerns into decision making and in facilitating the more efficient management of natural resources as a step toward sustainable development it reviews concepts and techniques for valuation of environmental impacts for use in conventional cost benefits analysis as well as key related aspects including environmental impacts of economywide policies multicriteria analysis risk and uncertainty and discount rate issues several developing country case studies are summarized which cover a range of practical valuation methods the evidence presented suggests that the valuation techniques for determining use values may be applied successfully in appropriate cases but examples involving nonuse values are rare the use of multiobjective desicion methods also needs to be explored where economic valuation is not feasible

the ideology of efficiency searching for a theory of policy analysis the potential pareto improvement criterion and other measures of economic efficiency do not pass the test of consistency and coherence within economic theory nor do such measures accord with what public decision makers seek in policy advice from economists such efficiency measures are nonetheless durable components of the ideology of economics in general and benefit cost analysis in particular the objectivity of the policy scientist has been confused with the objectivity of the science while economic efficiency has no claim to objectivity the policy scientist can be an objective analyst of policy choices

investigation of the environmental kuznets curve for carbon emissions in malaysia do foreign direct investment and trade matter abstract environmental degradation has become a central issue of discussion among the economists and environmentalists in view of malaysia s position as one of the main contributors to co2 emissions in asia and its status as a fast growing economy it is vital therefore to conduct a study to identify the relationship between economic growth and co2 emissions for malaysia this study attempts to examine empirically the environmental kuznets curve hypothesis for malaysia in the presence of foreign direct investment and trade openness both in the short and long run for the period 1970 to 2008 the bounds testing approach and granger causality methodology are applied to test the interrelationships of the variables the results of our study indicate that the inverted u shaped relationship does exist between economic growth and co2 emission in both the short and long run for malaysia after controlling for two additional explanatory variables namely fdi and trade importantly the results of the study also provide some crucial policy recommendations to the policy makers

distributional impacts of investment subsidies for residential energy technologies abstract this study analyses the distributional impacts of investment subsidies paid to households that install residential energy technologies based on renewable energy sources the subsidies covering a significant part of the total investment play a considerable role in households energy decisions depending on their design support measures may provide the most benefits to certain groups of society and thus may cause increasing inequality the potential distributional impacts of the investment subsidies are determined by the combination of technologies targeted and their costs household income support intensity subsidy design restrictions and the availability of additional measures this study examines the support system for residential renewable energy technologies in the lithuanian case by employing a microsimulation model this analysis of existing measures provides more general results and highlights the policy features that cause distributional impacts therefore the results are applicable in other countries as well the analysis shows that although the support is efficient from an energy point of view it provides the most benefits to households with higher income and thus increases inequality moreover the subsidies fail to reduce energy poverty due to the poorest households low capacity to invest to obtain a flatter distribution of benefits the design of support measures should consider the current situation of lower income households and affordability issues

policies for sustainability lessons from an overlapping generations model discounting is often considered inimical to sustainability reliance on the assumption that endowments regulate the transfer of assets to the future in standard growth models interprets the interest rate in the intergenerational context as a partial reflection of myopia a more complete market model that allows agents from different generations to engage in long term contracts with one another severs the movement of capital to the future from the endowment assumption adherence to the endowment assumption as a de facto market structure not simply a modeling convenience endorses sustainability policies that injure the future

comparing futures a positional approach to population ethics abstract major questions in environmental economics concern choices about the future sensible decisions thus require rules for comparing the well being of potentially different sets of people in terms of both numbers and identities under different futures the central problem of normative population theory is that basic ethical principles that individually claim widespread acceptance yield unpalatable conclusions when combined no approach currently on offer is able to overcome all theoretical objections but decision making goes on and needs ethical guidance this paper proposes a practical approach to the welfare comparison of competing futures as a matter of expedience it accepts that some choices may be incommensurable and therefore unrankable but its defining characteristic is its recognition that the evaluation of well being is typically a momentary phenomenon dependent on an individual s position or reference frame a critical positional change arises from the very act of being brought into existence social welfare thus has to be continually re evaluated and the welfare basis for new decisions is subject to a ratchet effect although this approach abandons time consistency it does so without apology and since time flows in one direction without inconsistency in decision making

the value of biodiversity markets society and ecosystems the value of biodiversity is discussed at different levels including market value non market values to humans and the value of biodi versity to ecosystems the main conclusion is that although market exchange values of environmental services may be used to justify biodiversity protec tion measures it must be stressed that exchange value constitutes a small portion of total biodiver sity value the total value of existing biodiversity is largely unknown but indications are that it is essen tial to human existence the various levels of biodi versity value point to the need for a hierarchical and pluralistic methodology to determine appropri ate policies for its preservation jel q21 i introduction among ecologists there is a general con sensus that biodiversity1 is of critical impor tance to the health of ecosystems and even for the long term survival of the human species there is also a consensus that bio diversity is being lost at a rate which is a cause for concern 2 economists on the other hand generally view biodiversity as just an other good which is to be placed in the basket of market choices just as any other the discussion of the specifics of biodiver sity policy has been unsatisfactory partly because of the different meanings of the word value used by economists and ecolo gists many ecologists fail to understand the logic of market allocation and why biologi cal resources are used in seemingly irra tional ways many economists fail to ap preciate the narrowness of the concept of economic value as indicated by relative prices determined by market exchange fol lowing anderson 1966 and brown 1984 the discussion below considers economic measures of value to be species of the genus assigned value which belongs to the family value many biologists and paleontologists be lieve that we are at a critical point in the history of the human species and perhaps even in the 600 million year history of com plex multicelled life on earth if the paleon tologists and biologists who study the phe nomenon of mass extinction are correct the current human induced mass extinction may be of the same order of magnitude as the five other major extinction episodes which destroyed between 20 and 96 percent of existing species on the planet ehrlich and ehrlich 1992 ward 1994 wilson 1992 we are living in a truly remarkable period in earth s 41 billion year history the valua tion decisions our species has made in the recent past and will make during the next few decades will determine the fate of life on earth for the next tens of millions of years it is critical to clarify the language and concepts we use to estimate the value of biodiversity and thus policies leading to its destruction or preservation the importance attached to the issue of biodiversity preservation necessarily in volves ethical judgments about duty to fu ture generations and responsibility toward the nonhuman natural world although in dividuals hold a variety of conflicting beliefs about human responsibility to the natural world this does not mean that policy choices

hedging grain price risk in the sadc case studies of malawi and zambia abstract we use simulation methods to examine the results of hedging maize food security imports into malawi and zambia on the south african exchange safex results show that hedging using either futures or options can spread import costs over time thereby reducing variability and also possibly generating lower average costs these benefits are increased if hedging only takes place when local prices are at less than import parity and also if the hedge is levered however problems will remain so long as intra regional transport costs remain high

powering up china income distributions and residential electricity consumption current forecasts suggest that the vast majority of growth in energy demand will come from the developing world and that china will play a major part in that growth this paper presents evidence suggesting that the shape of the income distribution which is typically omitted from forecasting models plays a major role in driving household acquisition of energy using durable goods in rural china we use province level data for rural households to show that the share of the population living above the poverty line is an important determinant of household appliance holdings even controlling for average household income

generalized optimal hedge ratio estimation a generalized approach to estimating optimal hedge ratios on futures markets is developed the generalized approach is not difficult to apply and provides a framework for evaluating the appropriateness of conventional simple regression approaches to optimal hedge ratio estimation in an application to storage hedging of corn soybeans and wheat it is found that simple regression using price levels or returns leads to errors in optimal hedge ratio estimation but that simple regression using price changes provides reasonably accurate estimates

entitlements missing markets and environmental uncertainty reply abstract at one level dore and ward seem intent on immunizing received doctrine they say that i did not prove that rights violated nozick s principles of justice and that i did not prove that missing markets were the problem more telling they allege i did not prove that my story was better than the particular story favored by dore and ward that is they argue that there is an alternative approach based on the theory of public economics which is indeed operational 3 they then use the bulk of their comment to explain and defend this alternative model they hope to convince the reader that the model of public economics survives intact in the face of my alternative model to the extent that their model allows one to define the problem away it is not difficult to see why they find it so compelling more seriously dore and ward fail to make a coherent argument about the concept of rights and duties and the logic of a particular rights structure that happens to prevail they seem concerned that my article was tampering with some sacred social construct the status quo rights structure and that my article threatened the received wisdom of both public economics and paretian walrasian bliss indeed theirs seems to be a genuine fear that if economists release their grip on the certitude of received orthodoxy the floodgates will be open to all manner of bumbling regulators seeking to shift rights and wealth positions across generations my article is apparently threatening because it seems to suggest that the received wisdom may at times be misleading

the use of organized commodity markets to manage food import price instability and risk the article explores the possibility of insuring the price risks of wheat and maize imports of low income food deficit countries lifdcs optimal strategies for an importing agent who hedges with futures and options are derived based on the objective of minimizing the unpredictability of import bills ex post simulations for a set of lifdcs are run on wheat and maize imports hedged with futures and options in the chicago board of trade to explore the extent to which hedging reduces the unpredictability in import bills simulations encompass both periods of normal price behavior as well as the period of global upheaval that occurred in 2007 and 2008 results show that hedging with futures alone affords agents considerable opportunities for reducing import cost unpredictability and the same holds with options albeit to a lesser extent however during the recent price spike of 2007 2008 hedging with options would have increased the unpredictability of some countries maize import bills due to the combination of erratic import patterns and pronounced market uncertainty

global changes in residential energy consumption abstract the residential energy sector is crucial to achieving co2 emission reductions as it has an important energy saving potential and its environmental controls are difficult to displace to other countries using the latest available data this short paper provides a concise analysis of residential energy consumption trends for the period 1993 2013 in a double perspective by main world regions and by per capita gross national income levels in 2013 residential energy has been divided into three types non renewable direct renewable and indirect renewable annual rates of change energy intensity energy in per capita terms and some ratios have been analyzed notable regional differences and trends were observed in the studied variables therefore different energy policies are recommended for the regions eastern and southern asian countries the eu15 and other developed countries are the regions which should make the greatest effort to reduce residential energy consumption the promotion of direct and indirect renewable energies is recommended

residential energy consumption in urban china a decomposition analysis abstract residential energy consumption rec is the second largest energy use category 10 in china and urban residents account for 63 of the rec understanding the underlying drivers of variations of urban rec thus helps to identify challenges and opportunities and provide advices for future policy measures this paper applies the lmdi method to a decomposition of china s urban rec during the period of 1998 2007 at disaggregated product activity level using data collected from a wide range of sources our results have shown an extensive structure change towards a more energy intensive household consumption structure as well as an intensive structure change towards high quality and cleaner energy such as electricity oil and natural gas which reflects a changing lifestyle and consumption mode in pursuit of a higher level of comfort convenience and environmental protection we have also found that china s price reforms in the energy sector have contributed to a reduction of rec while scale factors including increased urban population and income levels have played a key role in the rapid growth of rec we suggest that further deregulation in energy prices and regulatory as well as voluntary energy efficiency and conservation policies in the residential sector should be promoted

sustainability as intergenerational fairness efficiency uncertainty and numerical methods this paper presents an economic model of sustainability defined as intergenerational fairness assuming that intergenerational fairness is an obligation of each generation a recursive optimization problem is obtained the problem has the advantage that uncertainty can readily be incorporated in the model and it can be solved numerically for a wide range of specifications the possibility of trade offs between efficiency and sustainability are discussed under plausible conditions it is shown that a sustainability obligation is met only if there is the expectation of economic growth

efficiency sustainability and global warming abstract economic analyses of global warming have typically been grounded in the theory of economic efficiency such analyses may be inappropriate because many of the underlying concerns about climate change are rooted not in efficiency but in the intergenerational allocation of economic endowments a simple economic model is developed which demonstrates that an efficient economy is not necessarily a sustainable economy this result leads directly to questions about the policy relevance of several economic studies of the issue we then consider policy alternatives to address global warming in the context of economies with the dual objectives of efficiency and sustainability with particular attention to carbon based taxes

land allocation under uncertainty for alternative specifications of return distributions using the expected utility moment generating function approach a land allocation rule is derived which is both independent of the nature of the underlying distribution of each element in the choice set and accounts for all moments of that distribution this decision rule is applied to the choice between cotton and corn in the mississippi delta to demonstrate that consideration of just the first two moments of the distribution can often be unjustified and damaging empirically theoretically and in terms of the utility of the decision maker

an investigation of renewable and non renewable energy consumption and economic growth nexus using industrial and residential energy consumption abstract our study shows that links between economic growth and energy consumption both expressed in per capita terms differed for renewables and non renewables for income panels over the period 1971 to 2011 renewables are mainly found to support the neutrality hypothesis only renewable totals in low and lower middle income llmi countries are found to drive economic growth the feedback growth and conservative hypotheses strongly feature with non renewables total and industrial our results are derived by linking different definitions of energy consumption with economic growth for 89 countries divided into llmi upper middle income umi and high income hi panels

production hedging and speculative decisions with options and futures markets this paper analyzes production hedging and speculative decisions when both futures and options can be used in an expected utility model of price and basis uncertainty when futures and option prices are unbiased optimal hedging requires only futures options are redundant options are used together with futures as speculative tools when market prices are perceived as biased straddles are used to speculate on beliefs about price volatility and to hedge the futures position used to speculate on beliefs about the expected value of the futures price mean variance analysis in general is not consistent with expected utility when options are allowed one extension of sandmo s expected utility model of the competitive firm under price uncertainty considers the use of futures or forward contracts danthine holthausen and feder just and schmitz show that without basis uncertainty the optimal output level is not affected by price risk also with an unbiased futures price the optimal hedging level of the competitive firm is the full hedge while a biased futures price will result in a partly speculative hedge related works include batlin who allows for basis risk in the form of imperfect time hedging paroush and wolf and antonovitz and nelson who consider basis risk with the simultaneous availability of futures and forward contracts grant honda losq newbery and stiglitz and rolfo who allow for production uncertainty chavas and pope who allow for production uncertainty and hedging costs and karp who considers the problem in a dynamic setting this paper provides a further extension of this analysis by allowing options as a means of coping with price risk with the introduction of commodity options on futures for many commodities in the 1980s this problem appears relevant to a number of production settings especially in agriculture specifically this paper considers the simultaneous choice of a production level and of hedging levels of futures and options within the general expected utility model the model allows for basis uncertainty but the production process is assumed to be nonstochastic

entitling the pollutee liability versus standard under private information this paper considers and compares two different legal means full liability and standard to reduce and to regulate pollution at a local level accounting for private information about benefits and costs the familiar polluter pays principle makes the polluter liable for any damage since the courts lack information about the true damage the pollutee can and presumably will overstate this damage nevertheless voluntary arrangements bypassing the courts exist e g for coasean reasons however such out of court arrangements fail to improve in many cases the inefficient allocation of pollution due to agency costs given these unsatisfactory consequences of the polluter pays principle even after allowing for contracts around the law we propose a modification of standards the pollutee is entitled that a certain standard is satisfied yet can trade this right for financial compensations contracts induced by this legal rule are countervailing the optimal mechanism switches between subsidies and payments and first best efficiency holds at both ends and this characteristic allows such a privatized standard to track the first best quite well and often better than the polluter pays principle this relative ranking under private information is the opposite of the one that holds under uncertainty here liability dominates the standard

environmental regulations and the problem of sustainability moving beyond market failure abstract the standard metaphor of market failure is an impediment to the crafting of environmental policy that can escape policy lock in sustainability requires a policy process that can avoid this lock in sustainability concerns the creation of dynamic human processes that can respond to indeed anticipate unanticipated feedback from biological processes

what drive the changes in china s energy consumption and intensity during 12th five year plan period abstract during the 12th five year plan period 2011 2015 the chinese government has released a series of energy conservation plans to launch and deepen the transition in the energy use particularly the dual control of the energy consumption and energy intensity was firstly emphasized this paper intends to explore the targeted and effective energy policy implications through investigating the drivers of changes in energy consumption intensity of china during the 12th five year plan period under the input output framework the embodied energy consumptions intensities by final demand category were estimated at aggregate sector level and the total energy consumption intensity was decomposed using the additive multiplicative structural decomposition analysis among the final demand categories china s energy consumption intensity was mainly contributed by the investment followed by the household consumption according to the sda results china s total energy consumption increased by 28 8 of which the energy intensity effect and the investment effect were the most retardant and accelerator respectively at the same time china s total aggregate energy intensity decreased by 16 0 of which the energy intensity effect and the household consumption effect were the most retardant and accelerator respectively in detail the key sectors with respect to the critical effects were picked out above all policy implications are discussed for achieving the energy goals during the 13th five year plan period and launching the energy revolution during the 14th five year plan period

impact of energy policy instruments on the estimated level of underlying energy efficiency in the eu residential sector the promotion of energy efficiency is seen as one of the top priorities of eu energy policy ec 2010 in order to design and implement effective energy policy instruments it is necessary to have information on energy demand price and income elasticities in addition to sound indicators of energy efficiency this research combines the approaches taken in energy demand modelling and frontier analysis in order to econometrically estimate the level of energy efficiency for the residential sector in the eu 27 member states for the period 1996 to 2009 the estimates for the energy efficiency confirm that the eu residential sector indeed holds a relatively high potential for energy savings from reduced inefficiency therefore despite the common objective to decrease wasteful energy consumption considerable variation in energy efficiency between the eu member states is established furthermore an attempt is made to evaluate the impact of energy efficiency measures undertaken in the eu residential sector by introducing an additional set of variables into the model and the results suggest that financial incentives and energy performance standards play an important role in promoting energy efficiency improvements whereas informative measures do not have a significant impact

trust law sustainability and responsible action abstract the problem of managing for sustainability is marked by the need to make decisions on behalf of others and by the uncertainties that attend such decisions however the economic literature on sustainability has paid scant attention to how decisions on behalf of others might differ from decisions on behalf of oneself and when risk has been modeled explicitly the expected utility hypothesis has generally been used a generation acts sustainably if the expected value of the next generation s utility is not less than the present s this paper investigates how we think about responsibly acting on another s behalf by looking to the united states law of trusts because in important respects the current generation views its responsibility to the future as a trust relationship trust law illuminates responsible decision making under both risk and uncertainty even under conditions of risk more conservative action than would be suggested by the expected utility hypothesis is warranted because it emphasizes preservation of trust principal and disavows profit maximization trust doctrine indicates that special caution should be exercised in conditions of uncertainty finally resource economic concepts of strong sustainability the precautionary principle and the safe minimum standard of conservation are interpreted according to trust principles

reformulating the foundations of consumer choice theory and environmental valuation abstract the burgeoning field of environmental valuation has raised serious doubts about the fundamental axioms of consumer choice theory the general validity of the walrasian system and methodological individualism this paper examines these aspects of consumer choice theory paying particular attention to the pioneering contributions of georgescu roegen we argue that evidence from psychology game theory anthropology and contingent valuation surveys reveals a more complex pattern of decision making than that described by neoclassical utility theory we discuss the notions of the invariance of preferences non satiation the principle of complementarity lexicographic preferences and the hierarchy of wants with reference to environmental valuation we also discuss the notion of marginal utility of money the validity of the walrasian system and methodological individualism using scaling concept in hierarchy theory we then address the conflict between theory and reality by introducing a probabilistic binary choice scheme under uncertainty about environmental attributes we argue that these extensions are necessary to account for consumer choices revealed in environmental valuation surveys we conclude with the hope that a reformulation of consumer choice theory based on realistic models of human behavior can be the basis for a viable alternative to neoclassical welfare economics

differential information and security market equilibrium we propose a simple model of equilibrium asset pricing in which there are differences in the amounts of information available for developing inferences about the returns parame ters of alternative securities in contrast with earlier work we show that parameter uncer tainty or estimation risk can have an effect upon market equilibrium under reasonable conditions securities for which there is relatively little information are shown to have relatively higher systematic risk when that risk is properly measured ceteris paribus the initially very limited model is shown to be robust with respect to relaxation of a number of its principal assumptions we provide theoretical support for the empirical examination of at least three proxies for relative information period of listing number of security returns observations available and divergence of analyst opinion

the empirical minimum variance hedge decision making under unknown true parameters estimation risk is discussed along with bayes and parameter certainty equivalent pce criteria bayes criterion incorporates estimation risk in a manner consistent with expected utility maximization the pce method which is the most commonly used is not consistent with expected utility maximization bayes criterion is employed to solve for the minimum variance hedge ratio empirical application of bayes minimum variance hedge ratio is addressed and illustrated simulations shoe that discrepancies between prior and sample parameters may lead to substantial differences between bayesian and pce minimum variance hedges

searching for sustainability the poverty of spontaneous order abstract traditional approaches to sustainability rely on models that depend upon judgments of welfare across future generations right prices and some sense as to what future persons will find giving of utility these models both accept the spontaneous order of market processes and rely on that order to derive optimal consumption paths into the future sustainability is however not a problem of divining optimal paths predicated upon right prices rather sustainability to be operational requires a prior constructed order predicated upon rights for future persons and duties for those now living who sit in a position as dictator over the settings and circumstances that will be passed on to future persons rights based approaches to sustainability do not rely upon unknowable preferences of future persons but rather upon an environmental regency in which those now living agree to preserve settings and circumstances for the future this reminds us that the issue of sustainability concerns not how much to preserve but what to preserve

walking away from a low carbon economy recent and historical trends using a regional decomposition analysis using the latest available data this brief article attempts to provide the first regional decomposition analysis of co2 emissions from fuel combustion covering eight regions of the world determinants are estimated in relative and absolute terms for the period 1971 2010 we take the 2010 global surge in co2 emissions as an entry point for the analysis overall results show that most regions have recently performed worse than their historical trends and lack of meaningful progress is identified whereas specific drivers for certain regions suggest some level of continuous improvement e g reduced energy intensity in asia they are incapable of offsetting the effects of economic growth and energy use with the exception of africa most regions appear to have missed the low carbon economy opportunity provided by the 2008 2009 global financial crisis results suggest a lack of serious environmental effectiveness of regional policy portfolios aiming at reducing co2 emissions highly ambitious energy efficiency and renewable energy policies across all regions are immediately needed additionally absolute reductions in co2 emissions and energy use from fossil fuels are urgently required in rich regions if we are to align production and consumption patterns with maintaining global warming below the 2 c threshold

governance of the commons a role for the state the paper examines property regimes and common pool resources using examples and case studies the relative merits of private community and state based rights are detailed the insights from the case studies and an analysis of institution costs provide a tentative framework for understanding the role of the state in the governance of the commons

the vermont common assets trust an institution for sustainable just and efficient resource allocation both private and public sectors have failed to adequately provide critical ecosystem goods and services or an equitable distribution of wealth and income to address this problem the vermont legislature is considering the creation of a vermont common assets trust vcat that would make the state s atmosphere aquifers and other resources created by nature or by society as a whole the common property of all vermonters present and future under the trust a board of trustees would have the legal obligation to manage these assets for the benefit of all vermonters including future generations this paper first explains why certain resources are likely to be managed more sustainably fairly and efficiently as common property than as private property it then discusses mechanisms for integrating assets into the trust estimates of potential revenue from a vcat suggest that it could eliminate the state budget deficit contribute to a better distribution of wealth and resources and help address critical ecological problems survey results suggest that a vcat is politically feasible the vcat promises to be an important pilot project that could later be scaled up to a national or global level

international portfolio diversification with estimation risk international portfolio diversification has long been advocated as a way of enhancing average returns while reducing portfolio risk for the investor who considers diversifying into foreign securities this proposition however relies on the assumption that the required inputs to the classical mean variance analysis are known with certainty typically expected returns variances and covariances are simply replaced by their ex post sample values and the optimal portfolio is derived without mentioning the uncertainty inherent in these parameter values but the rational investor should take this uncertainty into account when forming expectations and probably will consider estimators that are less subject to estimation error than the classical sample mean this paper investigates alternative estimators of expected returns and their implications for the alleged gains from diversification an important observation is the crucial influence that errors in estimating expected returns have on portfolio analysis a closer examiprevious studies of international portfolio diversification have relied on ex post meanvariance analysis without considering the problem of estimation risk typically past averages are substituted for expected returns and no allowance is made for the uncertainty inherent in these parameter values first i demonstrate the shortcomings of such an approach and second i investigate another method of estimating expected returns initially proposed by stein by shrinking the sample averages toward a common mean i find that the out of sample performance of the optimal portfolio is substantially increased one of the implications of this method is that the classical conclusions vastly overestimate the possible gains in average returns instead benefits from diversification are more likely to accrue from a reduction in risk this paper draws on part of my dissertation at the university of chicago i am grateful to arnold zellner michael mussa george constantinides and especially john bilson for useful discussions and comments numerous improvements were also suggested by the referee this research received the generous financial support of the college interuniversitaire d etudes doctorales dans les sciences du management

the mean and variance of the mean variance decision rule the widely used mean variance approach to decisions under uncertainty requires estimates of the parameters of the joint distribution of returns when optimal behavior is determined using estimates rather than the true values the decision is a random variable we consider the reliability of mean variance analysis by examining the bias and variance covariance matrix for the decision vector the latter shows that decisions based on estimated parameters can have a large variance around the true optimum the results show that optimal decisions can differ substantially from those based on meanvariance analysis

willingness to pay and compensation demanded experimental evidence of an unexpected disparity in measures of value aside from possible income effects measures of the maximum amounts people will pay to avoid a loss and the minimum compensation necessary for them to accept it are generally assumed to be equivalent unexpectedly wide variations between these sums however have been noted in survey responses to hypothetical options this paper reports the results of a series of experiments that confronted people with actual money payments and cash compensations the results indicate that the compensation measure of value seems to exceed significantly the willingness to pay measure which would appear to call into some question various rules of entitlement damage assessments and interpretations of indifference curves

the paretian liberal paradox and ecological economics abstract two of the most basic considerations in collective choice are the pareto principle and some minimal protection of individual rights in his impossibility theorem sen 1970 shows that there is a potential inconsistency between preference sovereignty as expressed by the pareto condition and the protection of minimal rights a liberal or liberty condition the paretian liberal paradox plp and the extensive debate surrounding it prompts serious reconsideration of the traditional welfare economics approach the critique of welfarism made by the plp is of central importance for environmental issues given pervasive externalities missing markets uncertainty and potential irreversibilities making collective choice decisions on these issues may require using explicit non utility information and restricting individual preference sovereignty we explore the implications of the plp for long term environmental policy and the transdisciplinary field of ecological economics as a simple pedagogical device relying on sparse principles the plp stimulates an increased awareness of the potential conflict between preferences and rights recognition of the plp focuses attention on what counts as admissible information in collective choice rules for example consideration of the plp illuminates differences in the informational requirements of alternative sustainability concepts

intergenerational resource rights efficiency and social optimality the discipline of economics is generally defined as the science of the allocation of scarce resources between competing social objectives given an initial distribution of resources between economic agents how would they behave so as to improve their welfare according to the pareto criterion the agents would exchange commodities until the opportunities for fruitful exchange were fully exhausted and no agent could be made better off without rendering at least one other agent worse off pareto efficiency is a powerful concept in microeconomic analysis provided that the initial distribution of property rights is equitable allocative efficiency gives rise to the best of all possible worlds acknowledging that the assumptions of perfect competition are often violated firms are monopolistic information is incomplete and externalities exist economists have argued for the modification of institutions so that economic reality will conform more closely to the assumptions of the model that yields such gratifying results but microeconomic theory has always maintained that allocative efficiency is in itself insufficient to maximize social welfare bator 1957 a social welfare function is required to discriminate a social optimum among the array of efficient allocations that correspond to alternative assignments of property rights though economists have posited alternative functional forms for the sake of pursuing conceptual arguments welfare functions have remained elusive constructs for well known theoretical and practical reasons consequently a sharp line of demarcation has been drawn between questions of efficiency the province of economics and equity the principal focus of ethical and political discourse in resource economics however the line demarcating efficiency and equity is often crossed the term optimal depletion appears regularly where only efficient depletion is meant while political debates about resource exploitation over time are laden with questions of the proper distribution of our natural patrimony between generations resource economists have predominantly espoused particular use rules that guarantee efficiency but overlook potential improvements in social welfare achievable through the reassignment of property rights across generations we document the evolution and current status of the misuse of the term optimal depletion in section ii we develop a simple two generation three period general equilibrium model in section iii to illustrate how alternative distributions of resource rights between generations relate to alternative pareto efficient solutions in section iv we demonstrate how different social welfare functions affect the optimal solution and associated assignment of resource rights between generations

sector level decisions in a sustainability constrained economy despite two decades of debate there remains little consensus about what sustainability is and how it should be achieved economists primarily portray sustainability as a macro level concern but there has been less attention on the implications of this social objective for policies related to the management of individual resources this paper derives guidance for sector level planning and project analysis from a macro level norm of intergenerational fairness optimal sustainable management involves making tradeoffs between sectors we derive a criteria for sector level planning and project analysis that help make those tradeoffs without losing site of the sustainability goal