UBC Theses and Dissertations

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UBC Theses and Dissertations

Sustainability and economic policy analysis von Amsberg, Joachim


The purpose of this dissertation is to provide a better economic basis for the discussion on how much natural capital the current generation should be allowed to deplete. Chapter I uses overlapping-generations models to show the effects of different assumptions about which generation owns the stock of a natural resource on the distribution of intergenerational welfare. An increase in the share of the resource stock that is owned by the first generation, reduces welfare of later generations. If the first generation owns the full resource stock, intermediate generations have to be sufficiently wealthy to buy the resource from the first generation and sell it to later generations. This channelling effect can lead to a situation of resource abundance followed by rapidly increasing resource prices and scarcity. Chapter II show that the incompleteness of intergenerational insurance markets constitutes a market failure that leads to inefficient intergenerational investment decisions. Risks that increase from generation to generation would be under-insured by the current generation. Examples of excessive reduction of biodiversity, excessive natural resource depletion, and inefficiently low protection against global warming are provided. Chapter III analyzes the decision theoretical foundation of environmental choices under uncertainty. Since ambiguity and ignorance are important aspects of many environmental problems, subjective expected utility theory (SEU) has significant limitations as a normative decision making model. The use of SEU leads to a systematic bias against the conservation of natural capital. An alternative decision model is suggested based on the Dempster-Shafer belief-function theory and Choquet expected utility. The synthesis in chapter IV suggests that the costs of natural capital depletion are systematically underestimated in conventional analysis. To remedy the biases against future generations and the complete valuation of natural capital, a sustainability constraint on the economic activities of the current generation is proposed. This constraint requires compensation for natural capital depletion through functional substitutes. From this sustainability constraint, an operational sustainable supply rule is derived for determining shadow prices of natural capital depletion.

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