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

one market one number a composite indicator assessment of eu internal market dynamics we consider the lack of consensus about an appropriate theoretical framework linking sub indicators as a defining characteristic of composite indicators this intrinsic feature implies uncertainties about the appropriate normalization and aggregation of the raw data the two are related index theory offers some valuable guidelines about their connection yet these do not fully solve the basic problem of expert disagreement we embed such residual disagreement in the aggregation method itself specifically we apply an impartial benefit of the doubt weighting procedure where weight restrictions incorporate the available information on experts opinions we apply this procedure to the dynamic performance assessment of eu internal market effects thereby highlighting its capacity to disaggregate member states observed performance shifts into changes relative to benchmarks and performance changes of the benchmarks i e catching up versus genuine progress our results indicate that the latter factor is more important in explaining the observed progress

getting the safe minimum standard to work in the real world a case study in moral pragmatism abstract there is growing endorsement of local stake holder conventions to resolve unusual environmental disputes the conventions are separate decision making bodies designed to by pass conventional institutions the hazards of a stake holder convention which is overly detached from conventional decision making leads to a discourse that never successfully confronts the value controversies which the stake holder convention is charged to resolve a case study uncovers obvious and robust strategic manipulations of stake holder conventions that intrude on value dialogue an appeal to the safe minimum standard rules of ciriacy wantrup updated to engage this question successfully corrects some of the more egregious stumbling blocks to good faith dialogue in local discourse the proposed constraints on the stake holder convention can be quite directive authoritative and bureaucratic yet the constraints are necessary to preserve good faith conduct within the dialogue

on welfare frameworks and catastrophic climate risks recent theoretical work in the economics of climate change has suggested that climate policy is highly sensitive to fat tailed risks of catastrophic outcomes weitzman 2009 68 such risks are suggested to be an inevitable consequence of scientific uncertainty about the effects of increased greenhouse gas concentrations on climate criticisms of this controversial result fall into three categories the first suggests that it may be irrelevant to cost benefit analysis of climate policy the second challenges the fat tails assumption and the third questions the behavior of the utility function assumed in the result this paper analyses these critiques and suggests that those in the first two categories have formal validity but that they apply only to the restricted setup of the original result which may be extended to address their concerns they are thus ultimately unconvincing critiques in the third category are shown to be robust however they open up new ethical and empirical challenges for climate economics that have thus far been neglected how should we value catastrophes as a society i demonstrate that applying results from social choice to this problem can lead to counterintuitive results in which society values catastrophes as infinitely bad even though each individual s utility function is bounded finally i suggest that the welfare functions traditionally used in climate economics are ill equipped to deal with climate catastrophes in which population size changes drawing on recent work in population ethics i propose an alternative welfare framework with normatively desirable properties which has the effect of dampening the contribution of catastrophes to welfare

some economics of global warming the greenhouse effect itself is simple enough to understand and is not in any real dispute what is in dispute is its magnitude over the coming century its translation into changes in climates around the globe and the impacts of those climate changes on human welfare and the natural environment these are beyond the professional understanding of any single person the sciences involved are too numerous and diverse demography economics biology and the technology sciences are needed to project emissions atmospheric chemistry oceanography biology and meteorology are needed to translate emissions into climates biology agronomy health sciences economics sociology and glaciology are needed to identify and assess impacts on human societies and natural ecosystems and those are not all there are expert judgments on large pieces of the subject but no single person clothed in this panoply of disciplines has shown up or is likely to this article makes an attempt to forecast the economic and social consequences of global warming due to anthropogenic greenhouse gases and attempting to prevent it

how to decide when experts disagree uncertainty based choice rules in environmental policy environmental economists have traditionally addressed the issue of choice under uncertainty by applying the expected utility hypothesis when policymakers face a panel of experts with widely divergent beliefs the problem may more accurately be described as a case of choice under pure uncertainty arrow and hurwicz 1972 demonstrate that rational choice criteria under pure uncertainty will focus on the extremes of the state space not the midpoint as is typically assumed using nordhaus s dice model uncertainty based choices about global warming policies are evaluated linkages to the safe minimum standard and the precautionary principle are also discussed

the political economy of global carbon emissions reductions abstract the discussion about what reductions in greenhouse gas emissions are required and how the emissions rights might be distributed globally has fostered the belief that there is a fundamental conflict between the rich nations of the north and the poor but populous nations of the south the argument is that grandfathering the rights will only reinforce existing global inequalities while per capita distribution of the rights would lead to such huge transfers of wealth to the south as to be unacceptable to the north however a very simple general equilibrium model highlighting key elements of the global economy shows that this perception is incorrect under a plausible interpretation of the goal of the united nations framework convention on climate change to avoid dangerous anthropogenic interference with the climate system instead of using an economic damage function to determine the optimal level of emissions reductions the model s utility functions are calibrated to reflect scientific understanding of what would be required to stabilize the atmosphere at safe concentrations of greenhouse gases among policy options that would accomplish this the united states has a preference for grandfathering the allocation of emissions rights over a per capita allocation but this preference is not strong and could be offset by other geopolitical considerations

global warming discounting is not the issue but substitutability is the cost benefit study of nordhaus 1994 is representative for the neoclassical approach towards global warming nordhaus found that no substantial emission cuts are warranted most of his critics have concentrated on the issue of discounting and demanded that a lower discount rate should be applied these criticisms first miss the point and second lead to ethically dubious inconsistent conclusions and inefficient policy choices they miss the point because the real problem of nordhaus s methodology is his implicit underlying assumption of perfect substitutability between natural and other forms of capital given the validity of this assumption lowering the rate of discount is inconsistent with current savings behaviour is ethically dubious because future generations will be much richer than the current one anyway and is inefficient because scarce financial resources are channelled into emissions abatement that exhibits rates of return far inferior to alternative public investments any call for aggressive emission abatement must therefore directly attack the perfect substitutability assumption of neoclassical economics the real disagreement is about whether consumption growth can compensate for environmental degradation caused by global warming discounting is not the issue but substitutability is

theories of choice under ignorance and uncertainty abstract in this paper knight s distinction between risk and uncertainty and its significance for economic analysis are examined the paper consists of a survey of some recent developments on the theory of choice under uncertainty and some applications of these theories to problems for which bayesian decision theory has not proved entirely satisfactory two problems are examined in detail the first is that of finance and insurance and the second is that of risktaking behaviour with special emphasis on lotteries

monetary valuation of the social cost of co2 emissions a critical survey an expanding branch of research has estimated the potential costs of climate change which are often expressed as the social cost of carbon scc or the costs of an additional ton of co2 emissions estimates of the scc can be used by policy makers to evaluate climate change policies and greenhouse gas emission reduction projects by means of cost benefit analyses cbas such analyses are complicated by the wide range of scc values that have been reported in the literature and the large uncertainties involved in estimating the potential economic impacts and related costs of climate change this study presents a critical review of the reported scc estimates by examining some neglected consequences of climate change uncertain and extreme scenarios of climate change the discounting of future climate change effects the treatment of individual risk aversion and assumptions about social welfare in view of the many uncertainties and omissions in conventional cost benefit analyses of climate impacts and the scc alternative approaches to decision making should be considered for climate policy

setting environmental policy when experts disagree how can a decision maker assess the potential of environmental policies when a group of experts provides divergent estimates on their effectiveness to address this question we propose and analyze a variant of the well studied alpha maxmin model in decision theory in our framework and consistent to the paper s empirical focus on renewable energy r d investment experts subjective probability distributions are allowed to be action dependent in addition the decision maker constrains the sets of priors to be considered via a parsimonious measure of their distance to a benchmark average distribution that grants equal weight to all experts while our model is formally rooted in the decision theoretic framework of olszewski rev econ stud 74 567 595 2007 it may also be viewed as a structured form of sensitivity analysis we apply our framework to original data from a recent expert elicitation survey on solar energy the analysis suggests that more aggressive investment in solar energy r d is likely to yield significant dividends even or rather especially after taking expert ambiguity into account

incorporating distributional considerations in the safe minimum standard approach endangered species and local impacts abstract explicitly incorporating current distributional concerns into the safe minimum standard sms approach is the objective of this study the sms approach is a collective choice process that prescribes protecting a minimum level of a renewable natural resource unless the social costs of doing so are somehow excessive or intolerably high more complete implementation of an sms approach if it is to be a pragmatic policy tool requires that distributional considerations be included in determining whether the economic consequences of preservation actions are intolerable two case studies involving the us endangered species act are used to illustrate how distributional concerns might be incorporated into the sms approach

allocating resources in an uncertain world water management and endangered species instream flows may be essential in protecting aquatic species that are threatened or endangered an economic model of the optimal allocation of water under pure uncertainty is developed with particular attention paid to the situation when a species characterized by critical depensation is affected by instream flows we adopt the notion of pure uncertainty that frank knight and daniel ellsberg intended which applies when decision makers cannot reduce their uncertainty to a unique probability distribution following recent work by hansen sargent and others we employ robust control as a way to deal with this problem copyright 2008 oxford university press

climate policies under climate model uncertainty max min and min max regret temperature responses and optimal climate policies depend crucially on the choice of a particular climate model to illustrate the temperature responses to given emission reduction paths implied by the climate modules of the well known integrated assessments models dice fund and page are described and compared a dummy temperature module based on the climate denialists view is added using a simple welfare maximising growth model of the global economy the sensitivity of the optimal carbon price renewable energy subsidy and energy transition to each of these climate models is discussed the paper then derives max min max max and min max regret policies to deal with this particular form of climate model uncertainty and with climate scepticism the max min or min max regret climate policies rely on a non sceptic view of global warming and lead to a substantial and moderate amount of caution respectively the max max leads to no climate policies in line with the view of climate sceptics

optimal portfolio selection with life insurance under inflation risk abstract this paper investigates a continuous time optimal consumption investment and life insurance decision problem of a family under inflation risk in the financial market there is a liquid inflation linked index bond market which can be utilized to hedge the inflation risk the explicit solutions are derived for constant relative risk aversion crra utility case by using martingale approach the roles of index bond are investigated and it is verified that the index bond may have different roles depending on the market parameters we analyze the effects of parameters on the optimal strategies with focus on the optimal demand for index bond and the optimal life insurance premium especially the changes of expected inflation rate and volatility of inflation rate can have both positive and negative impacts on the life insurance premium and their quantitative impacts are considerable

trends in inventory management abstract inventory management is one of the success stories of recent years and it is changing rapidly in response to international competition and new technology this paper examines some of these developments inventory is a major investment in most companies it strongly influences the internal flexibility of a company e g by allowing production levels to change easily and by providing good delivery performance to customers yet inventory ties up working capital and space and it can suffer from obsolescence deterioration and shrinkage it can also add to administrative complexity in recent years attention in manufacturing industry has concentrated on an inventory is waste philosophy using jit production usually accompanied by visible pull or consumer demand driven systems the approach is also very effective in supermarket retailing and at its best provides very high stock turn and high profits to the company at the same time as providing good service and fresh items to customers at low cost current changes in inventory management consider the total logistics chain under the term logistics management place a greater emphasis on purchasing rather than producing in house and use more international sourcing changes to recording methods include the use of different methods of information collection and processing e g bar coding in retailing and manufacture and electronic exchange of information control methods are more computer based and are becoming part of increasingly integrated systems there are some obvious problems still to be solved procedures are needed to bring one off analyses of inventory to become part of routine systems work needs to be done to produce performance measures which are consistent between different levels of the organisation and the modelling of dynamic performance needs to become part of the design of our production inventory systems more fundamentally we still do not know how to classify companies let alone how to determine the best approach to inventory planning and control for a particular kind of company

species preservation versus development an experimental investigation under uncertainty the safe minimum standard sms is a decision rule to preserve renewable resources unless the social costs of doing so are intolerable while unpersuasive to many support for the sms has been advocated by some economists for settings involving irreversibility and a high degree of uncertainty the objective of this paper is to explore decision making involving species preservation versus development within an experimental laboratory setting and involving uncertainty the experimental design implements a number of prior game theoretic investigations of the sms bishop 1978 ready and bishop 1991 palmini 1999 involving insurance and lottery or combined games against nature the choices are between species preservation which possibly provides a cure for a disease or developing habitat leading to irreversible depletion econometric results from a random parameters logit model using responses from 117 participants across both u s and mexican university student samples and 9 treatment choices indicate that support for the sms varies across the type of game the imposed maximum regret condition concerning the relative magnitude of the costs of disease and net benefits of development a constructed measure of respondents risk aversion and other factors there is also strong evidence of unobservable heterogeneous preferences for preservation within our sample

sustainability under uncertainty a deontological approach a deontological or kantian approach to intergenerational fairness suggests that sustainability criteria should be imposed as prior constraints on the maximization of social preferences concerning the distribution of welfare between present and future generations in particular it is plausible to assert that each successive generation holds a duty to ensure that the expected welfare of its offspring is no less than its own perceived well being this moral rule implies a bias against actions that generate present benefits but impose the risk of irreversible future losses if the preservation of options would allow for improved decisions as new information became available

communicating trade offs amid controversial science decision support for climate policy abstract the paper considers the decision that arises in climate policy where there is expert disagreement about the correct scientific model and where a group of stakeholders needs to agree on a common policy target policy choice is posed as a decision under knightian uncertainty where decision makers lack grounds for assigning a particular probability distribution across contending forecasting models the decision is then framed as one of balancing two competing objectives that plausibly align with the dominant concern of stakeholders from each side in the policy debate a decision criterion is proposed to identify options for compromise that balance these objectives in different ways the criterion spans three standard non bayesian decision criteria policies generated by the criterion are combined with visual tools to communicate what s at stake in an environmental policy decision in which stakeholders disagree both about scientific models and about the relative importance of risks to the environment versus risks to economic growth the approach summarizes information that could be useful to policy makers tasked with negotiating a compromise the framework is applied to climate policy using dice 2007 nordhaus 2008 the results highlight a basic asymmetry between the mistake of doing too little and that of doing too much that suggests a strong argument for avoiding the current status quo of global inaction

justifying precautionary policies incommensurability and uncertainty abstract when decisions are taken in conditions of keynesian or knightian uncertainty and when there is a threat of serious or irreversible environmental damage the precautionary principle is often recommended to guide decision making however the precautionary principle has been widely criticised in response to these criticisms a qualitative version of the precautionary principle is developed which draws its normative content from a blend of formal decision theory and political philosophy it is argued that precautionary action can be justified by some flexible combination of uncertainty and incommensurability the greater the uncertainty the less incommensurability is required to justify precautionary action and vice versa throughout the paper the arguments are explored using the example of climate change decision problems

a quantitative minimax regret approach to climate change does discounting still matter abstract using cost benefit analysis to determine an optimal climate mitigation target is criticised especially because i it fails to sufficiently take into account low probability high impact events and ii results strongly depend on the discount rate used one of the alternative suggestions to inform policymakers about the right mitigation target that does take the risks associated with low probability high impact events explicitly into account is the minimax regret criterion we apply the minimax regret criterion quantitatively using an integrated assessment model with extreme values for climate sensitivity damage estimates and mitigation costs the goal is to analyse whether such a method leads to different results compared to standard cost benefit analysis and whether the results are still sensitive to the discount rate used we find that the minimax regret approach leads to more stringent and robust climate targets for relatively low discount rates and if both a high climate sensitivity and high damage estimates are assumed if one of these assumptions does not hold the difference between the minimax regret approach and standard cost benefit analysis is much smaller therefore we conclude that the discount rate used can still be of vital importance even when applying a minimax regret approach

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

accounting for the risk of extreme outcomes in an integrated assessment of climate change abstract the potential for climate catastrophes represented by fat tailed distributions on consequences has attracted much attention recently to date however most integrated assessment models have either been largely deterministic or deterministic with ex post sensitivity analysis the conclusions of such analyses are likely to differ from those employing models that accurately characterize society s joint preferences concerning time and risk especially when distributions are fat tailed using a dynamic stochastic general equilibrium model adapted from nordhaus s dice model we show that failing to accurately account for risk can lead to substantial underestimation of the net benefits of greenhouse gas abatement a robust finding of our analysis is that a lenient policy ramp emissions reduction strategy is preferable over a more aggressive strategy such as that advocated by the stern review only if the model does not account for uncertainty about the climate system the carbon cycle and economic damages and specifies a consumption discount rate that is counterfactually higher than the historical global weighted average cost of capital of 4 0 in the debate over uncertainty and time discounting our results imply that what matters most in climate change assessment is the inclusion and particular specification of uncertainty rather than the precise choice of discount rate

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