the ethics of intergenerational distribution reply and response to john e roemer recent concerns among economists over global climate change have given rise to an uneven literature on intergenerational welfare economics environmental resource economics in its march 2011 issue published a paper by the political philosopher john e roemer that contains not only errors of interpretation of what others have written but also misunderstandings of settled matters i respond and reply to roemer by re exploring the foundations of intergenerational welfare economics i show that ethical pluralism gives rise to a very different framework for thinking about the subject than the one roemer presents in his paper moreover his dismissal of much of what welfare economists write on such concepts as social discount rates has as its source an utterly narrow view of the contexts in which economic evaluation is undertaken in the contemporary world

any non welfarist method of policy assessment violates the pareto principle reply the public at large many policymakers and a number of economists hold views of social welfare that are non welfarist that is they attach some importance to factors other than the effects of policies on individuals utilities we show however that any non welfarist method of policy assessment violates the pareto principle

predicting how people play games a simple dynamic model of choice we use the simple dynamic model developed in sarin and vahid 1999 games and economic behavior 28 294 309 to explain the experiments reported in erev and roth 1998 american economic review 88 848 881 in an earlier paper sarin and vahid 1998 mimeo texas a m university and monash university we showed that the model predicted behavior in repeated coordination games remarkably well and better than equilibrium theory or reinforcement learning models in this paper we show that the same one parameter model can also explain behavior in games with a unique mixed strategy nash equilibrium better than alternative models hence we obtain further support for the simple dynamic model journal of economic literature classification numbers c7 d8

the ethics of intertemporal distribution in a warming planet this paper evaluates from the ethical viewpoint current work by economists on intergenerational resource allocation in the presence of global warming we begin by attempting to elucidate the debate that has recently occurred on the appropriate choice of the discountrate weofferthreejustificationsformaximizingthediscountedsumofgenerational utilities and find only one of these to be a satisfactory justification of that practice the pos sibility that the human species may become extinct this implies that a very small discount rate large discount factor should be used we argue that the justification for discounting inherent in the approaches taken by many economists is that of the present generation of hegemon which is unacceptable the role of the ramsey equation in deducing the discount rate in these theories is explained as an alternative to discounted utilitarianism we propose a principle of sustainability we describe optimal paths that have been calculated for the sus tainabilitiarian rawlsian objectivefunction andpathsthatwillsustaingrowthinwelfare at a positive rate we report results concerning optimal paths when the uncertainty of existence of future generations is taken into account in sharp contrast to the utilitarian model it turns out that under some conditions the sustainabilitarian can ignore the uncertainty regarding thedateatwhichhumansbecomeextinct thereisastrikingdifferencebetweenthesolutions of the discounted utilitarian program and the sustainabilitarian program under uncertainty

the economic consequences of federal deficits an examination of the net wealth and instability issues there is currently disagreement over the economic consequences of federal deficits some economists argue that deficits put upward pressure on real interest rates and thereby crowd out interest sensitive private spending others argue that deficits stemming from lump sum tax cuts do not raise interest rates because the response of individuals will be to increase their saving by the full amount of the resulting deficit to enable future generations to service i e make interest and principal payments on the additional debt without curtailing their consumption in other words individuals view debt and taxes as perfect substitutes because debt financed tax cuts imply higher taxes in the future to service that debt this effectively means that there really is no permanent tax cut so there is no increase in private net wealth current consumption or interest rates stated another way the debt that is issued to finance a tax cut does not add to private net wealth because it implies an offsetting future tax liability but if debt is not viewed as implying future tax increases then debt and taxes are not perfect substitutes and increases in debt resulting from tax cuts will indeed add to private net wealth stimulate consumption and raise interest rates 2

games with unique mixed strategy equilibria an experimental study abstract the results of an experiment studying the choices of subjects playing mixed extensions of three variants of simple 2 2 non constant sum strictly competitive games of the same form matching pennies are presented subjects exhibited a variety of behavioral adaptive learning strategies this heterogeneity of individual behavior produced aggregate dynamics whose estimated steady states are quite different from those predicted by the nash equilibria of those stage games with asymmetrical payoff functions the observed aggregative dynamics are well accounted for both by a quantal equilibrium model of mckelvey and palfrey and by a learning model of roth and erev journal of economic literature classification number c72

does information matter in the commons experimental evidence abstract common pool resources cprs typically involve interaction where precise information about payoffs is absent however all experimental studies of cprs we are aware of study environments where the payoff structure is known in this paper we address the behavioral consequences of two degrees of information on the mapping between decisions and payoffs we run two treatments one with complete information on the payoff structure and one with none remarkably aggregate behavior is not significantly different between the two treatments in both cases the aggregate tendencies converge to the nash equilibrium furthermore the best reply dynamics organize individual behavior in both treatments remarkably well

a theory of intergenerational altruism modeling intergenerational altruism is crucial to evaluate the long term consequences of current decisions and requires a set of principles guiding such altruism we axiomatically develop a theory of pure direct altruism altruism is pure if it concerns the total utility rather than the mere consumption utility of future generations and direct if it directly incorporates the utility of all future generations our axioms deliver a new class of altruistic forward looking preferences whose weight put on the consumption of a future generation generally depends on the consumption of other generations the only preferences lacking this dependence correspond to the quasi hyperbolic discounting model which our theory characterizes our approach provides a framework to analyze welfare in the presence of altruistic preferences and addresses technical challenges stemming from the interdependent nature of such preferences

resource egalitarianism with a dash of efficiency abstract we study the problem of defining inequality averse social orderings over allocations of commodities when individuals have different preferences we formulate a notion of egalitarianism based on the axiom that any dominance between consumption bundles should be reduced this dominance aversion requirement is compatible with consensus a version of the pareto principle saying that an allocation y is better than x whenever everybody finds that everyone s bundle at y is better than at x we characterize a family of multidimensional leximin orderings satisfying dominance aversion and consensus

welfare egalitarianism in non rival environments we study equity in economies where a set of agents commonly own a technology producing a non rival good from their private contributions a social ordering function associates to each economy a complete ranking of the allocations we build social ordering functions satisfying the property that individual welfare levels exceeding a legitimate upper bound should be reduced combining that property with efficiency and robustness properties with respect to changes in the set of agents we obtain a kind of welfare egalitarianism based on a constructed numerical representation of individual preferences

intertemporal distribution sufficiency and the social cost of carbon abstract we explore how the intertemporal distribution of well being affects the social cost of carbon in contrast to the literature that studies parameters of a particular social welfare function such as the discount rate we shift the focus and directly assume a parametric form for the intertemporal distribution of well being this has the advantage of avoiding explicit discounting choices which has initiated much debate specifically we consider a set of intertemporal distributions that reach a steady state at a pre specified level of sufficient well being or equivalently after a pre specified end of growth horizon we numerically illustrate our results in dice and find that the social cost of carbon increases over proportionally with the sufficiency level of well being while the social cost of carbon in 2015 is us 7 if the sufficiency level is four fold the present level it is us 30 if the sufficiency level is 15 fold and us 100 if the sufficiency level is 26 fold the present level this shows in a transparent way how conceptions of intergenerational distributive justice drive the social cost of carbon

a panel data analysis of the fungibility of foreign aid the donor community has been increasingly concerned that development assistance intended for crucial social and economic sectors might be used directly or indirectly to fund unproductive military and other expenditures the link between foreign aid and public spending is not straightforward because some aid may be fungible this article empirically examines the impact of foreign aid on the recipient s public expenditures using cross country samples of annual observations for 1971 90 for the base sample of 14 developing countries it finds that aid is not fungible at the aggregate level and there is no associated tax relief increasing the number of countries however makes aid fungible moreover results based on the main sample indicate that aid is fungible in three out of five sectors examined developing country governments receiving earmarked concessionary loans for agriculture education and energy reduce their own resources going to these sectors and use them elsewhere only loans to the transport and communication sector are fully spent on the purposes intended by donors because most aid appears to be fungible the rate of return on a specific donor funded project tells little about the impact of that assistance a better approach may be to tie foreign aid to an overall public expenditure program that provides adequate resources to crucial sectors

pay the farmer or buy the land cost effectiveness of payments for ecosystem services versus land purchases or easements in central kenya abstract payments for ecosystem services pes have emerged as a popular conservation tool yet evaluation alongside other direct conservation strategies remains piecemeal we prospectively compared cost effectiveness of pes to land purchases or easements lpe in central kenya we spatially predicted opportunity costs and land prices using household survey and literature data and sampled conservation management costs from four regional conservation organizations we simulated a fixed budget spatial ecological economic site selection process for conservation intervention pes or lpe over 30 years we included effects of land markets property value fluctuations rising agricultural productivity and climate change depending on the scenario the lpe strategy led to larger reserves by 26 610 better representation of mammal species ranges by 47 112 and lower unit costs by 26 48 adding a yearly egalitarian social development payment to the lpe strategy did not increase costs beyond the basic pes model our findings were robust to discount rate choice but cost savings of lpe only materialized after about a decade furthermore kenyan law restricts foreign land ownership and the use of land easements thus simpler institutional requirements make pes a more immediate if less effective property based tool

fair allocation of disputed properties we model problems of allocating disputed properties as generalized exchange economies in which agents have preferences and claims over multiple goods and the social endowment of each good may not be sufficient to satisfy all individual claims in this context we investigate procedural and end state principles of fairness their implications and relations to do so we explore procedural allocation rules represented by a composition of a rights assignment mechanism to assign each profile of claims individual property rights over the endowment and walrasian or other individually rational exchange rule using variants of fairness based on no envy as end state principles we provide axiomatic characterizations of the three focal egalitarian mechanisms known in the literature on rationing problems as constrained equal awards constrained equal losses and proportional mechanisms our results are connected to focal contributions in political philosophy and also provide rationale for market based environ mental policy instruments such as cap and trade schemes and personal carbon trading and moral foundation for the three proposals to allocate ghg emission rights known as the equal per capita sharing the polluter pays principle and the equal burden sharing the victims pay principle

fair production and allocation of an excludable nonrival good we study fairness in economies with one private good and one partially excludable nonrival good a social ordering function determines for each profile of preferences an ordering of all conceivable allocations we propose the following free lunch aversion condition if the private good contributions of two agents consuming the same quantity of the nonrival good have opposite signs reducing that gap improves social welfare this condition combined with the more standard requirements of unanimous indifference and responsiveness delivers a form of welfare egalitarianism in which an agent s welfare at an allocation is measured by the quantity of the nonrival good that consumed at no cost would leave her indifferent to the bundle she is assigned

a mixed bentham rawls criterion for intergenerational equity theory and implications abstract this paper proposes a welfare criterion that balances the need for development and the concern for the least advantaged generations and explores its implications this criterion called the mixed bentham rawls criterion moderates the effect of discounting yet permits some degree of intertemporal trade off it is a weighted average of two terms a the sum of discounted utilities and b the utility level of the least advantaged generation we derive necessary conditions to characterize growth paths that satisfy our criterion and show that in some models with familiar dynamic specifications an optimal path exists and displays appealing characteristics

payoff assessments without probabilities a simple dynamic model of choice abstract we develop a model which reflects the tendency of people to simplify the decision problems they face the decision maker chooses among alternate strategies only on the basis of the payoff she assesses she would obtain from them and these assessments do not explicitly take into account her subjective judgements regarding the likelihood of alternate states of the world at each stage the decision maker chooses the strategy that she assesses to give the highest payoff she updates her assessments adaptively we show that such behavior leads to maxmin choices we also consider the decision maker who experiences shocks journal of economic literature classification numbers c7 d8

social orderings for the assignment of indivisible objects in the assignment problem of indivisible objects with money we study social ordering functions which satisfy the requirement that social orderings should be independent of changes in preferences over infeasible bundles we combine this axiom with efficiency consistency and equity axioms our result is that the only social ordering function satisfying those axioms is the leximin function in money utility

the effect of piracy on the market penetration of subscription software software piracy is not necessarily harmful to a software firm seeking to launch a new product when strategically managed through the use of price and protection measures piracy establishes the initial adopters of the software who in turn influence other users to buy the product we examine the role of piracy in affecting the adoption of subscription software products we present an individual level model in an adaptive population setting intended to determine the price protection mix that maximizes the discounted profit stream over the life of the software an extension for nonsubscription software is also discussed

taxation pension and saving in a small open economy an overlapping generations model of a small open economy is used to explore several policy options aimed at reducing the burden of income taxes and pay as you go payg contributions on labor income so as to improve the incentives to supply labor including the return of funded collective fc pension plans in the tax base turns out to be counterproductive cutting payg benefits in contrast succeeds in improving efficiency in general and labor market incentives in particular under specific variants of the fc plan reducing payg benefits even proves to be pareto welfare improving

inequality averse criteria for evaluating infinite utility streams the impossibility of weak pareto abstract this paper investigates ethical aggregation of infinite utility streams by representable social welfare relations we prove that the hammond equity postulate and other variations of it like the pigou dalton transfer principle are incompatible with positive responsiveness to welfare improvements by every generation the case of hammond equity for the future is investigated too

distributional biases in the analysis of climate change abstract the economic analysis of global warming is dominated by models based on optimal growth theory these representative agent models have an intrinsic distributional bias in favor of the rich the bias is compounded by the use of revenue neutrality in the allocation of emission permits the result is mitigation recommendations that are biased downwards

on the equity efficiency trade off in aggregating infinite utility streams abstract we compare two different approaches to aggregating infinite utility streams following some principles of equity and efficiency we find that the consequentialist equity axiom hammond equity for the future is more demanding than its procedural equity counterpart anonymity

characterizing sustainability the converse of hartwick s rule this note offers a general proof of the converse of hartwick s rule namely that in an economy with stationary instantaneous preferences and a stationary technology an efficient constant utility path is characterized by the value of net investments being zero at each point in time in a one consumption economy with two stocks a stock of a natural resource and a stock of man made capital this means that if consumption remains constant at the maximum sustainable level then the accumulation of man made capital always exactly compensates in value for the depletion of the natural resource

fair income tax fairness is a key concept in redistribution issues in this paper we study how particular requirements of fairness can shed light on the design of the optimal income tax schedule we consider a population of heterogeneous individuals or households who differ in two respects first they have unequal skills and therefore unequal earning abilities second they differ in terms of their preferences about consumption and leisure and as a consequence typically make different labour time choices both kinds of differences generate income inequalities we study how to justify and compute a redistribution income tax in this context redistribution through an income tax usually entails distortions of incentives but the resulting efficiency loss has to be weighed against potential improvements in the fairness of the distribution of resources we address this efficiency equity trade off here by constructing social preferences which obey the standard pareto principle in addition to fairness conditions

two criteria for social decisions abstract this paper studies the ethical underpinnings of two social criteria which are prominent in the literature dealing with the problem of evaluating allocations of several consumption goods in a population with heterogenous preferences the pazner schmeidler criterion pazner schmeidler egalitarian equivalent allocations a new concept of economic equity quart j econ 92 1978 671 687 and the egalitarian walras criterion fleurbaey and maniquet utilitarianism versus fairness in welfare economics in m salles j a weymark eds justice political liberalism and utilitarianism themes from harsanyi and rawls cambridge university press cambridge 1996 forthcoming are prima facie quite different but it is shown here that these criteria are related to close variants of the fairness condition that an allocation is better when every individual bundle in it dominates the average consumption in another allocation in addition the results suggest that the pazner schmeidler criterion can be viewed as the best extension of the walrasian criterion to non convex economies

the fungibility of aid earmarked for hiv aids control programs summary this paper investigates fungibility of official development assistance oda for hiv aids control adding to the debate regarding consequences of scaling up this type of oda a theoretical model yields two estimable equations in public health spending and non health spending with oda for hiv aids as the key regressor the equations are estimated using data for 52 countries from 2003 to 2009 results suggest oda for hiv aids is not fungible across the 52 countries fungibility and other constraints to effective use of increased oda in health sectors are country specific issues oda for hiv aids must be delivered via mechanisms specific to country contexts

provision of a public good with multiple dynasties carbon emissions create externalities across countries and generations these externalities depend on the degree of contemporaneous cooperation and intergenerational altruism i study the relative importance of these features in determining equilibrium climate policy by imbedding an olg framework with intergenerational altruism into a differential game among dynasties each representing a coalition of nations there is an isomorphism between pure and paternalistic altruism i illustrate the multiplicity of equilibria using an analytic linear in state model equilibrium steady states are more sensitive to small changes in cooperation than altruism consideration of large changes in altruism and cooperation can reverse this ranking

strategy similarity and coordination in the payoff assessment model of choice sarin and vahid 1999 only the assessment of the chosen strategy is updated we extend that model to allow the agent to also update the assessments of strategies that the agent thinks are similar to the chosen strategy we use this model to explain observed behaviour in a recent experiment statistical tests cannot distinguish between the payoff distributions generated by the model and the observed payoff distributions in almost every period

equilibrium play and adaptive learning in a three person centipede game the two person centipede game is one of the most celebrated paradoxes of backward induction in complete information extensive form games an experimental investigation of a three person centipede game shows that the paradoxical results are strongly affected by the size of the stakes when the number of players in the game is increased from two to three and the game is played for unusually high stakes with group composition being randomly changed from trial to trial the paradox is considerably weakened as players approach equilibrium play with multiple iterations of the stage game when the game is played with low stakes there is no evidence for equilibrium play or learning across iterations of the stage game an adaptive learning model that assumes updating of the individual probabilities of choice outperforms alternative static and dynamic models in accounting for the major results observed in the high stake experiment

aggregating infinite utility streams with intergenerational equity the impossibility of being paretian it has been known that in aggregating infinite utility streams there does not exist any social welfare function which satisfies the axioms of pareto intergenerational equity and continuity we show that the impossibility result persists even without imposing the continuity axiom and in frameworks allowing for more general domains of utilities than those used in the existing literature

paretian evaluation of infinite utility streams an egalitarian criterion this paper contributes to qualifying the basu mitra approach to the problem of intergenerational social choice by analyzing the impact of the structure of the feasible set of utilities on banerjee s 2006 impossibility theorem we prove that if the utilities that each generation can possess lie in nn cup 0 then an explicit expression for a paretian social welfare function that accounts for a strengthened form of hammond equity for the future can be given

pareto principles from inch to ell abstract under mild conditions including the possibility of compensation by monetary transfer this paper shows that all versions of the pareto principle viz the pareto indifference the weak pareto the strong pareto and the full pareto are in fact mutually equivalent

naive reinforcement learning with endogenous aspirations this article considers a simple model of reinforcement learning all behavior change derives from the reinforcing or deterring effect of instantaneous payoff experiences payoff experiences are reinforcing or deterring depending on whether the payoff exceeds an aspiration level or falls short of it over time the aspiration level is adjusted toward the actually experienced payoffs this article shows that aspiration level adjustments may improve the decision maker s long run performance by preventing him or her from feeling dissatisfied with even the best available strategies however such movements also lead to persistent deviations from expected payoff maximization by creating probability matching effects

group rationality utilitarianism and escher s waterfall abstract consider a game in which each player chooses between two strategies h and s and all players have the same payoff function this could be for instance because all players are moral creatures committed to enhancing a common cause is it possible that in this game if each player chooses s instead of h with other players strategy choices held constant he hence everybody is better off but he is worse off if everybody chooses s it is shown that the answer to this is yes if the number of players is infinite even if only countably so this is demonstrated by constructing a paradoxical game referred to here as the waterfall paradox some implications of the paradox for models of economics are discussed journal of economic literature classification numbers c70 d71

between ostrom and nordhaus the research landscape of sustainability economics abstract we survey the emerging research area of sustainability economics through a quantitative full text analysis of peer reviewed journal publications from 1987 to 2013 to identify relevant contributions we draw on existing definitions of sustainability economics for a keyword based identification strategy a combined focus on a the human nature relationship b the long term uncertain future c normative orientation towards sustainability and d economic analysis our analysis of a random subsample of 343 relevant papers reveals that i sustainability economics is a rapidly developing research area ii while theoretical contributions shaped the area in earlier years applied work now constitutes the largest share of contributions iii the research landscape can be clustered into eleven research clusters these range from participatory governance of social ecological systems associated with the work of elinor ostrom to questions of intertemporal allocation and distribution applied to climate economics associated with the work of william nordhaus iv the research area is broad in scope and heterogeneous and there is relatively little interaction between important clusters v relevant contributions are published in more than 100 journals ten journals publish half of all contributions led by ecological economics and 40 appear in non economics journals underscoring the importance of interdisciplinary dialogue

a review of the stern review on the economics of climate change the stern review calls for immediate decisive action to stabilize greenhouse gases because the benefits of strong early action on climate change outweighs the costs the economic analysis supporting this conclusion consists mostly of two basic strands the first strand is a formal aggregative model that relies for its conclusions primari ly upon imposing a very low discount rate concerning this discount rate aspect i am skeptical of the review s formal analysis but this essay points out that we are actual ly a lot less sure about what interest rate should be used for discounting climate change than is commonly acknowledged the review s second basic strand is a more intuitive argument that it might be very important to avoid possibly large uncertain ties that are difficult to quantify concerning this uncertainty aspect i argue that it might be recast into sound analytical reasoning that might justify some of the review s conclusions the basic issue here is that spending money to slow global warming should perhaps not be conceptualized primarily as being about consump tion smoothing as much as being about how much insurance to buy to offset the small change of a ruinous catastrophe that is difficult to compensate by ordinary savings

prioritarianism and climate change prioritarianism is the ethical view that gives greater weight to well being changes affecting individuals at lower well being levels this view is influential both in moral philosophy and in theoretical work on social choice where it is captured by a social welfare function swf summing a concave transformation of individual well being numbers however prioritarianism has largely been ignored by scholarship on climate change this article compares utilitarianism and prioritarianism as frameworks for evaluating climate policy it reviews the distinctive normative choices that are required for the prioritarian approach specifying a ratio scale for well being if the prioritarian swf takes the standard atkinson form determining the degree of concavity of the transformation function i e the degree of social inequality aversion and choosing between ex ante and ex post prioritarianism under conditions of risk the article also sketches some of salient implications of a prioritarian swf for climate policy with respect to the social cost of carbon the social discount rate optimal mitigation and the dismal theorem finally it discusses the issue of variable population

a dynamic analysis of human welfare in a warming planet anthropogenic greenhouse gas ghg emissions have caused atmospheric concentrations with no precedents in the last half a million years inducing serious uncertainties about future climates and their effects on human welfare recent climate science supports the view that the climate stabilization will require very low ghg emissions in the future we ask is a path of low emissions compatible with sustainable levels of human welfare with steady growth in human quality of life addressing these questions requires both defining welfare criteria and empirically estimating the possible paths of the economy we specify and calibrate a dynamic model with four intertemporal links education physical capital knowledge and the environment in line with nordhaus 2008a and with the stern review 2007 we assume that ghg emissions allow increased production while a higher stock of atmospheric carbon decreases production our index of human welfare which we call quality of life quol emphasizes education knowledge and the environment affected by greenhouse gas emissions in addition to consumption and leisure thus we avoid a consumptionist fallacy that welfare depends only on commodity consumption and perhaps leisure we reject discounted utilitarianism as a normative criterion and consider two alternatives the first is an intergenerational maximin criterion which maximizes the quality of life of the first generation subject to maintaining at least that level for all successive generations the second is human development optimization that seeks the maximization of the quol of the first generation subject to achieving a given constant rate of growth in all subsequent generations hence our analysis focuses on a human notion of sustainability as opposed to the conventional green sustainability limited to keeping the quality of the environment constant because our dynamic optimization programs defy explicit analytical solutions our approach has been computational as a benchmark we consider a simple model with physical and human capital for which we prove a turnpike theorem we then devise a computational algorithm inspired by the turnpike property to construct feasible although not necessarily optimal paths in the more complex and realistic model our analysis indicates that with ghg emission paths entailing very low emissions in the future positive rates of growth in quol are possible while the first generation experiences a quol higher than the historical reference level we also observe a tradeoff between the quality of life of the first generation and the rate of growth in the quality of life yet generation 1 s sacrifice for the sake of a higher growth rate appears to be small the paths that we compute involve investments in knowledge at noticeably higher levels than in the past

any non welfarist method of policy assessment violates the pareto principle a comment in a recent article kaplow and shavell 2001 claim that any methodof policy assessment that is not purely welfarist violates the pareto prin ciple kaplow and shavell use the term welfarism to describe notionsof social welfare under which assessment of policies depends exclusivelyon their effects on individuals utilities p 281 a welfarist policy as sessment uses a social welfare function from the set

simple play in the prisoner s dilemma abstract players do not have knowledge of the objective game they know the available strategies and have scalar valued non probabilistic payoff assessments they act myopically always choosing the strategy they consider best they update these assessments in the direction of the received payoff it is shown that such players converge to choose their maxmin strategies when facing a game against nature in the prisoner s dilemma however the players need not converge to their maxmin strategy and often end up cooperating

the possibility of social choice the subject of social choice includes within its capacious frame various problems with the common feature of relating social judgments and group decisions to the views and interests of the individuals who make up the society or the group some challenges and foundational problems faced by social choice theory as a discipline are discussed social choice theory is a subject in which formal and mathematical techniques have been very extensively used voting based procedures are entirely natural for some kinds of social choice problems such as elections referendums or committee decisions they are however altogether unsuitable for many other problems of social choice impossibility results in social choice theory led by the pioneering work of arrow 1951 have often been interpreted as being thoroughly destructive of the possibility of reasoned and democratic social choice including welfare economics that view is argued against

liberal egalitarianism and the harm principle this paper analyses the implications of classical liberal and libertarian approaches for distributive justice in the context of social welfare orderings an axiom capturing a liberal non interfering view of society named the weak harm principle is studied whose roots can be traced back to john stuart mill s essay on liberty it is shown that liberal views of individual autonomy and freedom can provide consistent foundations for social welfare judgements in both the finite and the infinite context in particular a liberal non interfering approach can help to adjudicate some fundamental distributive issues relative to intergenerational justice however a surprisingly strong and general relation is established between liberal views of individual autonomy and non interference and egalitarian principles in the rawlsian tradition

once more on intergenerational discounting in climate change analysis reply to partha dasgupta discounting the utilities of future generations in many problems such as climate change analysis has several justifications only one of which can be supported by ethics which postulate that every individual no matter when born has an equal right to well being that justification is that future generations may not exist in an earlier article published here i explained this view and criticized economists who deviate from it the practical aspect of this deviation is to choose discount rates which are far too high thus relegating future generations to lower utility than they a priori have a right to as well many economists continue to rely upon a utilitarian ethic a reliance which is independent of the discounting issue but which i also criticize dasgupta responded to my article the present article is a response to dasgupta

case based decision theory this paper suggests that decision making under uncertainty is at least partly case based we propose a model in which cases are primitive and provide a simple axiomatization of a decision rule that chooses a best act based on its past performance in similar cases each act is evaluated by the sum of the utility levels that resulted from using this act in past cases each weighted by the similarity of that past case to the problem at hand the formal model of case based decision theory naturally gives rise to the notions of satisficing decisions and aspiration levels

aid infrastructure and fdi assessing the transmission channel with a new index of infrastructure official development assistance oda and foreign direct investment fdi are widely perceived to be alternative means of supplementing domestic savings and promoting economic development in low and middle income countries however possible complementarities of aid and fdi have received limited attention so far it remains open to debate whether aid could render recipient countries more attractive to fdi by removing specific bottlenecks that prevent higher fdi inflows in particular we raise the hypothesis that aid specifically targeted at economic infrastructure helps developing countries attract higher fdi inflows through improving their endowment with infrastructure in transportation communication energy and finance by performing 3sls estimations we explicitly account for dependencies between three structural equations on the allocation of sector specific aid the determinants of infrastructure and the determinants of fdi we find strong and robust evidence that aid in infrastructure is effective in improving the recipient countries endowment with infrastructure in sharp contrast other aid is not effective in improving infrastructure infrastructure consistently proves to be an important determinant of developing countries attractiveness to fdi consequently only targeted aid promotes fdi indirectly through the infrastructure channel in addition aid in infrastructure has direct effects on fdi it appears that foreign investors anticipate longer term effects of aid on the country s endowment with infrastructure and expect aid financed infrastructure to serve them particularly well

efficiency first or equity first two principles and rationality of social choice abstract this paper formalizes two different principles to socially rank allocations under efficiency equity trade off the efficiency first social preference relation ranks an allocation x higher than an allocation y if and only if i x is pareto superior to y or ii x and y are pareto noncomparable and x is equity superior to y the equity first social preference relation reverses the order of application of the two criteria we show that the efficiency first relation may have a cycle whereas the equity first relation is transitive we also characterize and compare the sets of maximal elements for these social preference relations in the edgeworth box and examine the nonemptiness of the sets journal of economic literature classification numbers d71 d63 d61

are we consuming too much this paper articulates and applies frameworks for examining whether consumption is excessive we consider two criteria for the possible excessiveness or insufficiency of current consumption one is an intertemporal utility maximization criterion actual current consumption is deemed excessive if it is higher than the level of current consumption on the consumption path that maximizes the present discounted value of utility the other is a sustainability criterion which requires that current consumption be consistent with non declining living standards over time we extend previous theoretical approaches by offering a formula for the sustainability criterion that accounts for population growth and technological change in applying this formula we find that some poor regions of the world are failing to meet the sustainability criterion in these regions genuine wealth per capita is falling as investments in human and manufactured capital are not sufficient to offset the depletion of natural capital

sustainable management of fossil fuels a dynamic stochastic optimization approach with jump diffusion abstract this paper deals with a relevant aspect of energy modeling i e fossil fuels management the issue is faced by using purely operational research techniques which are suitable in this context in particular a dynamic stochastic optimization model is developed to optimally determine use and stock of resources to be employed in consumption and investments in a wide economic sense human and physical capital r d etc it is assumed that a sustainability criterion drives the optimality rules i e decisions are also grounded on the well being of future generations the policymaker maximizes an aggregated intergenerational expected utility under the dilemma of present consumption conservation of natural resources for the future in reference to standard environmental economic theory jump diffusion dynamics for the stock of natural resources and infinite time horizon are assumed extensive numerical experiments complete the analysis and contribute to determine fossil fuels management policies showing that long term investments make the difference for the well being of present and future generations

sustainability of an economy relying on two reproducible assets evaluating the sustainability of a society requires a system of shadow or accounting values derived from the sustainability objective as a first step toward the derivation of such shadow values for a maximin objective this paper studies an economy composed of two reproducible assets each producing one of two consumption goods the effect of the substitutability between goods in utility is studied by postulating in turn neoclassical diminishing marginal substitutability perfect substitutability and perfect complementarity the degree of substitutability has strong effects on the maximin solution affecting the regularity or non regularity of the program and on the accounting values this has important consequences for the computation of genuine savings and the sustainability prospects of future generations

measuring beliefs and rewards a neuroeconomic approach the neurotransmitter dopamine is central to the emerging discipline of neuroeconomics it is hypothesized to encode the difference between expected and realized rewards and thereby to mediate belief formation and choice we develop the first formal test of this theory of dopaminergic function based on a recent axiomatization by caplin and dean 2008a these tests are satisfied by neural activity in the nucleus accumbens an area rich in dopamine receptors we find evidence for separate positive and negative reward prediction error signals suggesting that behavioral asymmetries in response to losses and gains may parallel asymmetries in nucleus accumbens activity

specifications of social welfare in economic studies of climate policy overview of criteria and related policy insights an important assumption in economic studies of climate policy is the social welfare function this paper shows that applying distinct decision or social welfare criteria can result in different optimal policies of climate control notably if climate change impacts are uncertain first decision criteria in current climate economic studies are reviewed next the most important alternatives are discussed including their mathematical formalization and incorporation in economy climate models most of these alternative criteria suggest more stringent climate policies to be optimal than the standard discounted utilitarianism approach however several important welfare criteria have not or hardly seen any application in the economic analysis of climate policy we conclude that there is clear need for systematic research on this theme for which the current review provides a solid basis

justifying social discounting the rank discounted utilitarian approach the popular discounted utilitarian criterion for infinite horizon social choice has been criticized on the ground that it treats successive generations unfairly i propose to evaluate intergenerational welfare with a rank discounted utilitarian rdu criterion instead the criterion amounts to discounted utilitarianism on non decreasing paths but it treats all generations impartially discounting becomes the mere expression of intergenerational inequality aversion i show that more inequality averse rdu societies have higher social discount rates when future generations are better off i apply the rdu approach in two benchmark economic growth models and i prove that it promotes sustainable policies maximizing discounted utility

modelling cognitively bounded rationality an evaluative taxonomy abstract since its origins in the 1950s the notion of bounded rationality has been incorporated into economic theory using an array of methodological approaches this paper presents a taxonomy by which these approaches can be categorized and understood evaluating each approach against a range of important criteria at a time when the foundations of economic theory are being re examined this paper should be viewed as a first step towards an assessment of the appropriate role that this more realistic view of cognition should take in different areas of economic theory and also of the desirable characteristics of models that incorporate it

on sustainability and social welfare abstract this paper proposes to define sustainability in terms of leaving it possible for future generations to sustain certain defined targets it is shown that variants of genuine savings and the ecological footprint can then serve as indicators of sustainability the link between sustainability and intergenerational welfare is examined and it is shown how to incorporate indicators of sustainability into a social welfare measure including risk in the analysis

long term substitutability between environmental and man made goods abstract substitutability between environmental and man made goods plays a major role in the sustainability debate the notion of substitutability covers a continuous spectrum with perfect substitutability at one end and poor substitutability at the other in this paper it is shown that if economic growth sustains a sharp distinction emerges between perfect and poor substitutability without any intermediate interpretation of substitutability if poor substitutability prevails environmental resources will eventually constitute the major part of total consumption value we relate our results to baumol s disease and assess the implications of this phenomenon for the compensation of environmental losses

a review of the stern review on the economics of climate change how much and how fast should we react to the threat of global warming the stern review argues that the damages from climate change are large and that nations should undertake sharp and immediate reductions in greenhouse gas emissions an examination of the review s radical revision of the economics of climate change finds however that it depends decisively on the assumption of a near zero time discount rate combined with a specific utility function the review s unambiguous conclusions about the need for extreme immediate action will not survive the substitution of assumptions that are consistent with today s marketplace real interest rates and savings rates

planning for the long run programming with patient pareto responsive preferences ethical social welfare functions treat generations equally and respect pareto improvements to non null sets of generations there are perfect optima for such preferences generations facing the same circumstances choose the same actions and all circumstances are treated as possible if each stationary policy determines a unique long run distribution that is independent of the starting point then there is a recursive formulation of policies that are simultaneously optimal for all of the preferences studied here when the ergodic distribution can depend on early events hysteresis the curvature of the social welfare function determines the risks that society is willing to undertake and leads to a variant of the precautionary principle

on modeling and interpreting the economics of catastrophic climate change with climate change as prototype example this paper analyzes the implications of structural uncertainty for the economics of low probability high impact catastrophes even when updated by bayesian learning uncertain structural parameters induce a critical tail fattening of posterior predictive distributions such fattened tails have strong im plications for situations like climate change where a catastrophe is theoretically possible because prior knowledge cannot place sufficiently narrow bounds on overall damages this paper shows that the economic consequences of fat tailed structural uncertainty along with unsureness about high temperature damages can readily outweigh the effects of discounting in climate change policy analysis

foreign aid and the question of fungibility this paper analyzes whether the foreign assistance provided for specific categories of expenditure is shifted among them contrary to the wishes of donors it also considers whether aid reduces the tax effort of recipient governments econometric results are presented for the dominican republic that show that the fungibility of aid has resulted in a thwarting of the intentions of donors an attempt is made to account for the observed differences in behavior of individual countries in altering expenditures copyright 1993 by mit press

capital market effects of the ageing population abstract the present article aims at showing the influences of the ageing of the population on the capital market supply of the pension funds in the long run the analysis covers the period 1990 2025 and makes use of an extended version of an economic and demographic computational model published in huijser and van loo 1986 the calculated scenarios show the relation between a number of assumptions about economic variables and the future development of the pension funds operations

on the impossibility of complete non interference in paretian social judgements abstract we study a principle of non interference in social welfare judgements non interference captures aspects of liberal approaches particularly a millian approach to social decision making in its full generality non interference produces an impossibility result together with weak pareto optimality it implies that a social welfare ordering must be dictatorial however interesting restricted versions of non interference are compatible with standard social welfare orderings

a review article the case against the use of the sum of compensating variations in cost benefit analysis this paper presents a case against the use of the sum of compensating varia tions as a cost benefit test we argue that 1 the ethical judginents implied by the test are not defensible 2 positive sums of compensating variations occur without potential pareto improvements resulting in social preference reversals without simultaneous scitovsky re versals 3 when lump sum transfers are feasible a positive sum of compensating variations is necessary but not sufficient for a potential pareto improvement 4 in order to eliminate preference reversals and intransitivities all households must have almost identical quasi homothetic preferences a condition that is not satisfied in real economies