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Economics and "Sustainability": Balancing Trade-Offs and ImperativesAuthor(s): Michael A. TomanSource: Land Economics, Vol. 70, No. 4 (Nov., 1994), pp. 399-413Published by: University of Wisconsin PressStable URL: http://www.jstor.org/stable/3146637 .Accessed: 21/04/2011 10:10

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Economics and "Sustainability": Balancing Trade-offsand ImperativesMichaelA. Toman

ABSTRACT. The concept of "sustainability"has been increasingly nvoked in scholarlyandpublic policy debates. Discussion has beenhampered,however,by uncertaintyand lack ofuniformityn the meaningof sustainability.Thispaper seeks to identifysome common groundamongeconomists,ecologists, and environmen-tal ethicists. Two issues seem salient: require-ments or intergenerational quityand the defi-nition of "social capital" to be provided tofuturegenerations.A concept of "safeminimumstandard," which has received at least somerecognition n theecology, philosophy,andeco-nomicsliteratures,mayprovidethe beginningsof a common ground for debate about sus-tainability. JELQ2)I. INTRODUCTION

The concept that use of natural re-sources, environmentalservices, and eco-logical systems somehow should be "sus-tainable" has become one of the mostwidely invoked and debated ideas in thearea of resource and environmentalman-agement. It was a basic theme in the 1992"EarthSummit,"the United Nations Con-ference on Environmentand Development(UNCED), and in the World Bank's 1992WorldDevelopment Report on environmentand development. It is an issue discussednotjust in professional ournalsbut also innewspaperarticles and in basic textbooks(see, e.g., Pearce andTurner1990and Tie-tenberg 1992). It is a principlebehind thefoundingof a professionalorganization, heInternationalSociety for Ecological Eco-nomics, manyof whose membersquestionthe sufficiencyor even the validityof con-ventionaleconomicapproaches o resourceandenvironmentalmanagementproblems.Despite the frequency with which thetermis invoked, the concept of sustainabil-ity remains surprisinglyambiguous. It isclearfromexaminingvarioususages of thetermthatwritershave very differentmean-

ings in mind.' For example, the use of theterm in the 1992 WorldDevelopmentRe-port seems to referprimarily o the applica-tion of existing neoclassical principles ofefficient resource and environmentalman-agement in developing countries. This isvery different than the ideas expressed byHermanDaly (see, e.g., Daly 1990, 1991),who argues that use ("throughput") ofenergy and materials must be sharplycur-tailed to avoid ecological catastrophe.Sus-tainabilityalso is interpretedvery differ-ently by many economists, who see thenaturalenvironmentas one of manyfungi-ble assets thatcan be deployedin satisfyinghumandemands, and by many ecologistsandethicists, who express greaterconcernfor both ecological integrityand the inter-ests of futuregenerations compareEhrlich1989andSolow 1993a, 1993b, orexample).Thegoal of thispaper s to providesomevocabularyandgrammarhatmaybe usefulfor this ongoingdebateamongeconomists,ecologists, and ethicists. We begin, as domanyothers, with the statementaboutsus-tainability rom the reportof the "Brundt-

SeniorFellow,Resourcesfor the Future.Earlier versions of this paperwere presentedatmeetingsof the InternationalSociety for EcologicalEconomics andthe AmericanEconomicAssociation,and at seminarsat the WorldBank, the Agency forInternationalDevelopment, and the University ofMaryland. owe a largedebt to PierreCrosson,BryanNorton, and John Pezzey, whose insights played asubstantial ole in clarifyingmy understandingf theissues raised in the paper. I also appreciatehelpfulconversationswith Geir Asheim, Doug Bohi, AllenKneese, and Jeff Krautkraemer,ndperceptivecom-ments by TomTietenberg,Scott Gordon,Tim Bren-nan, andan anonymousreferee on earlierdrafts.'See also Pezzey (1989)and Pearce, Markandya,and Barbier(1989),who cataloguescores of some-times vague andconflictingsustainabilitydefinitions.Dixon andFallon(1989)discusshow sustainabilityasbeen transformed rom a condition on steady-statemanagement f specificresourcesto an expressionofbroadecologicalconcerns.Land Economics * November 1994 * 70(4): 399-413

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400 Land Economics November1994

land Commission," the World Commis-sion on Environment and Development(WCED).Thatreportdescribedsustainabledevelopmentas "developmentthat meetsthe needs of the present without compro-mising the ability of future generationstomeet their own needs" (WCED 1987,43).The threat to futuregenerationsperceivedin the reportarise from potentially large-scale and irreversibledegradationof natu-ral systems in the course of global eco-nomic development, particularly n poorercountries.The Brundtlandstatement thus focusesattention on two issues that seem to becentral themes in any conception of sus-tainability:henatureof the currentgenera-tion's responsibilityto future generations,and the degree of substitutabilitybetween"naturalcapital"and other forms of socialcapital-physical investment and invest-ment in knowledgeand institutionsas em-bodied in human capital.2The next twosections of the paper examine alternativeviews on these two issues to showhowtheylead to different conceptions of sustain-ability. In the fourth section of the paperthese alternativeconceptionsare relatedtoeach other througha "two-tier" model ofresourcemanagementbased on the idea of"safe minimum standard." The fifth andlast section of the papercontains conclud-ing remarks.II. INTERGENERATIONALAIRNESS

There is an enormous literature,span-ningover two millennia,on conceptsof dis-tributivejustice includingfairness acrossgenerations.Unfortunately, hereis not yeta conception of distributivejustice thatcommandswide intellectualsupport.Nev-ertheless, there are several points of viewthat have attractedconsiderableattentionin discussions of sustainability.3The dis-cussion that follows emphasizes issues ofintergenerational fairness even thoughthese issues cannot be entirely divorcedfrom the subjectof the next section, substi-tution possibilities among components ofsociety's wealth endowment.One fundamentalpartitioningof justice

concepts separatestheoriesbased on max-imizationof an independentlydefinedgood(teleological theories) from theories basedmore on innate rights and obligations(de-ontologicaltheories). A furthercategoriza-tion can be madebasedon theories thatem-phasize the current generation and itsimmediatedescendants-"presentist" the-ories-and theories thatputgreaterempha-sis on the "furtherfuture." Yet anotherdistinction, particularly in nonpresentisttheories of justice, concerns justice con-cepts that emphasizeindividualsand more"organicist"conceptions that put greaterweighton community nterests.Thetypicalcriterionof discounted nter-temporalwelfare maximization in appliedwelfare economics occupies one point inthe continuum of alternativejustice con-ceptions. This criterion not only empha-sizes preferencesatisfaction over rights;italso is highlypresentist,since withanypos-itive intergenerationaldiscount rate thewelfare of individuals ivingone generationin the future is scarcelyrelevantto currentdecision making. Many writers have sug-gested that the presentist focus of thepresent-value (PV) criterion implies aninfluence of the current generation overthe circumstances of its more distant de-scendants that seems, at least intuitively,to be ethically questionable (Kneese and

2In emphasizinghese themes we are placingour-selves within the anthropocentric tream of debateaboutsustainability,n which the needs andwants ofpeoplearecentral,as opposedto an"ecocentric"per-spectivethatasserts the intrinsicworth of thenaturalenvironment.Wealso aresidestepping,without nanyway minimizing,he issue of howthe stateof the envi-ronmentmay be connected to income distributionwithin generations-in particular,connections be-tween poverty and environmentaldegradation.SeePearce, Barbier, and Markandya 1990)and WorldBank (1992)for discussion of these issues. Finally,we considersustainabilityprimarilyn the contextofresourcemanagemento meetidentifiedhumanneeds,as opposed o the broader"co-evolutionary"perspec-tive discussed in Norgaard 1988),whichemphasizesthe mutual interactionsbetween social actions andgoals.3See PearceandTurner 1990,chap. 15) ora com-pact summary;Pezzey (1992)providesa wide-rangingsurveyof motivations or considering ustainability.

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70(4) Toman:Economics and "Sustainability" 401

Schulze 1985; Norton 1982, 1984, 1989;Parfit1983b;Page 1977, 1983, 1988).The debate over the ethical implicationsof the PV criterion s long-standingand in-volves a number of considerationsthat of-ten seem to be misunderstood. One basicissue in this debate is the relationshipbe-tween the PV criterion and the broaderconcept of intergenerational conomic ef-ficiency as definedby the Paretocriterion,which requires only that it be impossibleto improvethe welfare of members of onegenerationwithoutreducingthe welfareofmembers of some other generation. Thisnotion of "no waste" seems desirable inany intergenerationalwelfare criterion, atleast to those who give some weight to theimportanceof individualpreference satis-faction. The difficultywith the PV criterionthus is not thatit requiresParetoefficiency,butrather hat it putsweighton the welfareof the currentgeneration n the social wel-farefunctionthatsomeregardas excessive.As Page (1977, 1988) points out, thereare infinitelymany intergenerational ocialorderingsconsistent with the Pareto prin-ciple that allow for differentsets of inter-generational welfare weights without the"dictatorship" of the current generationembodiedin the presentvalue criterion. Anumberof analystshave exploredotherso-cial welfarecriteria hatpreservetheParetoprinciplewithout imposingthe preferencesof the currentgenerationon futuregenera-tions.4This issue has been carefullyconsideredin a series of papers by HowarthandNor-gaard (see Howarth and Norgaard 1990,1992,1993andHowarth1991a,1991b).Us-ing an overlappinggenerationsframework,they arguethat the problemof intergenera-tionalequity must be viewed as a problemof ethics that is distinct from economicefficiency in the Pareto sense. They fur-therarguethat the intergenerational quityproblemshould be approachedas one thatinvolves a fair distribution of propertyrights between current and future genera-tions. This argument is a simple but power-ful intergenerational extension of a stan-dard result in welfare economics: "Thechoice of distribution of income is the same

as the choice of an allocation of endow-ments, and this in turn is equivalent tochoosing a particular welfare function"(Varian 1984,209; see also Bromley 1989).In particular,HowarthandNorgaardshowthat while purely "egoistic" utility con-cerns will motivatesome savingsto benefitthe (short-term)future (since people livemore than one period and may also haveconcerns for their own immediatedescen-dants), purely egoistic savings will not ingeneral be adequate to optimize a socialwelfarefunctionthat includes morealtruis-tic concerns(e.g., the well-beingof the en-tire next generationor individualsfurtherinto the future).Howarth's andNorgaard'sargumentsalso haveimportantmplicationsfor analyses of environmentalvaluation,discountrates, andpolicy design(e.g., pol-lution taxation), since all of these are af-fected by the income distribution.Howarth and Norgaarddo not investi-gate the range of intergenerational ocialwelfarefunctionsthatmightplausiblybe in-voked in connection with intergenerationalequity. In theiranalysisthey areconcernedprimarilywith the egalitarian"maximin"criteriondiscussed below as an alternativeto maximizingthe present value of utilitystreams.5 In addition, trying to achieveintergenerational equity solely throughsavings that transfer endowments across

'See in particularPage (1977),Pearce(1983),andBurton 1993) ordiscussions of intergenerationalis-counting.These analyses suggestthat a positivedis-count rateto reflect hegrowthof theeconomy s com-patiblewith a zero rate of puretimepreferencen thesocial welfarefunctionon ethicalgrounds.The argu-ments nSandierand Smith 1976, 1977,1982),Bishop(1977),and Cabe (1982)indicate that the assumptionof a uniformdiscount ratemaynot be consistent withintertemporalParetoefficiency, particularlywith in-tertemporalpublic goods.5Howarth 1992)derives this social welfare crite-rion roma morerestrictedmaximin thicbetween ustparentsand theirchildren. He shows that if parentalaltruism xtendsonlyto the directconsumption f thenext generation, hereis no assurance hatutility ev-els will be maintained r increaseover time;butif thecurrentgenerations concernedaboutthe capacityofits descendants to exercise their bequest motive aswell, the result is concernabout the equityof welfareacross all generations.

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generationsmay not always be effective.Randalland Farmer 1993)arguethat whenthe two-generation analyses of HowarthandNorgaardare extendedto a settingwiththree or more generations,a kind of Coa-sianresult obtains:the ultimateequilibriumallocation s not that sensitive to the initialdistributionof propertyrights.RandallandFarmerargue for an approachto sustain-abilitybased on preservationrules like thesafe minimum standarddiscussed subse-quentlyin this paper.The problemof intergenerational quityhas received considerableattentionin theeconomics literaturethrough the applica-tion of a Rawlsian(1971)"maximin"con-cept of intergenerational ights (see, e.g.,Solow 1974, 1986 and Norton 1989,as wellas the work by Howarth and Norgaardcited above). The Rawlsian approachhasbeen criticized as posingtoo harsha trade-off between equity and welfare maximiza-tion, since a strictapplicationof the Rawl-sian criterion eads to the outcome that allgenerationsmust be equallywell (orbadly)off-that is, there is no scope for the cur-rentgeneration o pursue improvements nfuture conditions. However, more recentanalyses of the Rawlsian social welfareproblemsuggestthat this trade-offneed notbe so harshlydrawn. In particular,Asheim(1988, 1991) shows that when individualpreferences nclude some altruisticconcernfor immediate descendants, but there isalso a social agreementto follow a Rawl-sian ethic involvingconcernfor the indefi-nitefuture,it is possible within the contextof social welfare maximization o haveeco-nomic growthcoupled with a requirementthat futuregenerationsbe no worse off thanthe present.As Pezzey (1989, 1994a) points out,there are a number of alternativesto themaximincriterionfor social welfare order-ingsthat couldbe usedto reflect ntergener-ational equity concerns. Pezzey (1994b)analyzes in some detail the implicationsofa criterionbasedon the maximization f thepresent value of per-capita utility subject toan ethical constraint that per-capita utilitynot decline over time. Like Asheim, Pezzeyfinds that this criterion allows for concern

forfuturewelfare withoutnecessarilysacri-ficing all growth possibilities. A weakerversionof this criterionwouldaccord inter-generational quity (as indicatedby nonde-cliningutilityover time) somefinite weightin the social welfarefunction, allowingforwell-defined trade-offs between maximumpresent value and fairness (see, e.g.,Broome 1992).The discussion thus far has concernedmainlyindividualisticconceptions of whatis good or right. Even the individualisticpoint of view gives rise to deep contro-versy. On the one hand,criticsraise objec-tions to the capacity of utilitarianism,oreven the concept of humanpreferences,toadequatelydescribe humaninterests (see,e.g., Sen 1982;Parfit 1983b;Sagoff 1988;andNorton 1992).6Defendersof deontolog-ical theory, on the other hand, point outthe difficulties n assigningrightsto futuregenerations (e.g., Broome 1991). Eventhose who do not necessarilyespouse utili-tarianismagree that there are some deeplogical difficultiesin assigning standingto"potential"futurepersons whose circum-stancesnot only arelargelyunknown o thepresentgenerationbutalso areendogenousto the set of choices made by the currentgeneration (see, e.g., Baier 1984; Barry1977; Golding 1972; Passmore 1974; andParfit1983a).One approachto this problemhas beenthe development of organicist argumentsthat invoke an obligation o the entire con-text of future human life-the species asa whole, and the ecological systems thatsurround t-rather than just to potentialfutureindividuals see, e.g., Leopold 1949;Lovelock 1988; Callicott 1989; Norton

6Somecriticsargue hattheconventionalapproachto specifyingpreferenceorderingsn economicsis de-ficienton both empiricaland moralgrounds,since itdoes not distinguish"lower" or "higher"impulses,or "self-interest"and "community-motivated"nter-ests. The solution,it is argued,is some hierarchicalrepresentationof preferences. However, Brennan(1989)arguesthat this approachdoes not reallysolveany problemsassociatedwithconventionalpreferencereasoning n economics;andin particular,hatmoraldeficienciesassociatedwith the outcomesof economiclogic should be directly confrontedas such, ratherthanattemptingo reframe hatlogic.

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1982, 1986, 1989; Page 1983, 1991; Nash1989;Weiss 1989).This "stewardship"per-spectiveemphasizesthe safeguarding f thelarge-scale ecological processes that sup-portall facets of human ife, frombiologicalsurvivalto culturalexistence. The steward-ship perspective does not deny the rele-vance of humanpreferences,but it assertsthe existence of larger societal concernsthat membersof society will feel (in vary-ing degrees) beyond individualisticprefer-ences.The organicistposition raises the inter-esting and as-yet unansweredquestion ofwhether there are importantsocial valuesthat simply cannot be capturedin an indi-vidualistic resource valuation, no matterhow broadand sophisticatedthe valuationmethods are. The difficulty in addressingthis issue is that the two perspectives arebased on different fundamental axioms.The organicist position seems to avoidsome of the difficulties in extending indi-vidualistic airnessconcepts to intergenera-tionalcircumstances. On the otherhand,anonindividualistic perspective is a two-edged sword in that many of humankind'smost cherished economic, political, andother social institutionsderive fundamen-tally from givinghigh respect to individualrights. Organicism without constraintsleads to supremacyof the group over theindividual,a form of social orderthat his-tory shows to be very dangerousand de-structive. The two-tier system describedsubsequently n the paperseeks to providea venue for considering the balance be-tween individual trade-offs and social im-peratives.

III. RESOURCE SUBSTITUTABILITYAssuming one accepts some obligationto considerthe well-beingof futuregenera-tions, what bundlesof social capitalshouldsucceeding generations make available totheirdescendants?The answer to thisques-tion depends critically on one's assump-tions regarding the degree of substitu-tability between the services provided bynatural capital (material resources, wasteabsorption, other ecological functions, aes-

thetic and culturalvalues) and other formsof capital (plant, equipment, knowledge,skills, social institutions).One view, to which many economistswould be inclined, is that all resourcesarerelatively fungible sources of well-being.This view appearsto be influencedheavilyby a numberof classic and more recentap-plicationsof aggregategrowthmodels withnatural resources. A number of familiartheorems come out of this literature.In thestandardgrowthmodel withoutnaturalre-source constraints, the modified GoldenRule indicatesthatper-capitaconsumptionandutilitywill growover timeprovidedtheeconomy is not alreadysaturatedwith ca-pital. Clearly, sustainability presents nochallengein this world, even with positivediscounting of future utilities. The sameoutcome obtains with natural resourcesprovidedthese resources arein some sense''augmentable"capable of beingrenewedor of having damagesoffset by compensa-tory investments(fora recentexpositionofthis see van Geldropand Withagen1993).Even with exhaustible resources or someother irreversibledegradationof the ser-vices providedby the naturalenvironment(suchas accumulativepollution), t is possi-ble for consumptionandwelfareto grow ifthere is sufficient substitutabilitybetweennatural esourcesandcapitalaccumulation,or technicalprogresssufficient o offset thedepletion/degradationof naturalresourceservices (Dasguptaand Heal 1974; Solow1974, 1986; Stiglitz 1974; Baumol 1986;Dasguptaand Mdler1991;see also the sur-veys in Asheim 1989,Pezzey 1992,andTo-man, Pezzey, and Krautkraemer forth-coming).From this point of view, then, large-scale damages o ecosystems suchas degra-dation of environmentalquality, loss ofspecies diversity, or destabilization fromglobal warmingare not intrinsicallyunac-ceptable.The questionis whethercompen-satoryinvestments or futuregenerations nother forms of capitalare feasible and areundertaken.This is the essence of the argu-ment advancedby Solow (1986)and Miler(1991), based on previous work by Hart-wick (1977), that investments of resource

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404 LandEconomics November1994

rents in other forms of capitalprovidethemeans to sustain consumption possibili-ties over time. Investments in humanknowledge, techniques of productionandsocial organizationare especially pertinentin humankind'sefforts to outrace any in-creases in the scarcityof services providedby the naturalenvironment.7An alternativeview, embracedby manyecologists and some economists, is thatsuch compensatoryinvestments often areinfeasible as well as ethically indefensible.Physical aws are seen as limiting heextentto whichotherresourcescanbe substitutedfor scarce natural resources or ecologicaldegradation. n particular,physical capitalcannot be substituted for scarce energywithout limit because there are minimumenergyrequirementsor accomplishinganytransformationof matter. In addition, be-cause matter is conserved, waste is an in-herentpart of any economic activity; andnatural imitsmayconstrain he capacityofthe environment o process these wastes.8Healthy ecosystems, includingthose thatprovide genetic diversity in relatively un-managed environments, offer resilienceagainst unexpected changes that preserveoptionsfor futuregenerations.9For naturallife-support systems no practical substi-tutes are possible, and degradationmay beirreversible.In such cases (andperhapsinothers as well), compensation cannot bemeaningfully pecified.'0The questionof physical scale is centralto this debate. If substitutability s rela-tively easy, then the total scale of humanactivityrelative to the naturalenvironmentis of limitedsignificancerelative to efficientuse of resources and, dependingon one'sethical perspective, the adequacy of soci-ety's total savings for the future. The no-tion of "carrying capacity," so often in-vokedin sustainabilitydebates, then wouldbe at most ephemeraland at worst mean-ingless outside its traditional cologicalus-age. Criticsof this view turnthe entire ar-gument around by claiming that physicallimits cannot be ignored and then puttingmuch more emphasis on scale issues (see,e.g., Goodland, Daly, and El Serafy 1991and Costanza 1991).

A related issue that sometimes is over-looked is the distinctionbetween local andglobal impacts when consideringsubstitu-tion possibilities. Local resourcedepletionand ecological degradation, while oftenhavingseriousconsequences, maybe moreeasily compensated or by trade,economicdiversification,and migration hanregional

7As pointed out recently by Asheim (1994) andPezzey (1994b), Hartwick's reinvestment rule hasbeen widely misinterpreted s an instant test of thefuture sustainabilityof an arbitrary economy. Al-thoughan economy with constant utility over timemustsatisfythe HartwickRule(as Hartwickproved),observingthat investment currently happens to begreater han or equalto the resourcerentmeasuredatmarketpricesdoes not implythat at least the currentlevel of utilitycan be maintainedby imposingHart-wick's Rule from now onwards.The intuitionbehindthis result is that an economy which is depleting tsnatural esourcestoo fast for sustainabilitywill driveresourcepricesand hence resourcerents too low, andinvestmentat sucha level does notensure sustainabil-ity. The correctindicatorof permanent ustainabilitywouldbe resourcerentsas measuredby shadowpriceswhich reflect the sustainabilityconstraint whichin-cludes the constraintof the currentresourcestock).This poses a challengefor those interested n devel-opingempiricalndicators f sustainabledevelopment.sConcernoverthese issues intheeconomics itera-ture has been expressedby Ayres and Kneese (1969),Kneese, Ayres, and d'Arge(1971),Ayres and Miller(1980),Perrings 1986),Anderson 1987),BarbierandMarkandya1990),GrossandVeendorp 1990),Victor(1991),Daly (1992), Townsend(1992),and Commonand Perrings(1992); see also the survey in Toman,Pezzey andKrautkraemerforthcoming).9Arelatedargument t the macro evel is thatenvi-ronmentalquality may complementcapitalgrowthasa sourceof economicprogress,particularlyorpoorercountries Pearce,Barbier,andMarkandya 990).'0The mportanceof the substitutabilityssue canbe illustratedn connectionwith the debateover allo-catingresponsibilityorgreenhousegascontrol.If oneacceptsthe view that investments n adaptationo cli-matechangehave limitedscopeforeffectiveness,thentheatmosphere's apacity o absorbgreenhousegasesalso is a depletableresource with limitedsubstitutionpotential. n this case cumulativepastgreenhousegasemissionscan be a simplemetricfor assessinga fairdistribution f controlobligation:greatercumulativeemissionsby industrializedountries mplygreater e-sponsibility.However, if one sees the investment neconomicproductive apacityand thusinglobaladap-tive capacityby industrialnations as havingprovided

significantbenefitsthat do compensatefor depletionof the atmosphere's capacity for greenhouse gasabsorption,then the responsibilityof industrializedcountries s less clear-cut.

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70(4) Toman: conomics nd"Sustainability" 405or global adversities. On the other hand,trade distortions (e.g., discriminationagainst manufacturedexports by devel-opingcountries)may limit nationalcapaci-ties to develop sustainably,and individualcountries may appear to develop sus-tainably by "exporting" unsustainablere-sourceuse to othernations thatsupplyma-terials.The discussion in this section and theprevious one suggests that, at the risk ofsome caricature, three alternative polarconceptions of sustainabilitycan be iden-tified:

1. Neoclassical presentism. This posi-tiondoes notplacemuchemphasisonsustainabilityas an issue distinct romefficient resource use. The standardpresentvalue criterion s adoptedforintergenerational welfare compari-sons, and naturalcapital scarcity isassumed to be remediable(given ap-propriateprice signalsandincentives)throughsubstitutionandtechnicalad-vance.2. Neoclassical egalitarianism. Thisview is the sameas (1)withrespecttoassumptionsabout managingnaturalcapital scarcity, but it also maintainsa concern about a potential shortfallin total savings for the future that isnot encompassedin the presentvaluecriterion.3. Ecological organicism.In contrast to(1) and (2), this view emphasizeslim-its on substitution between naturalcapitaland other assets. Like (2), thisview includes a concern for intergen-erational airness, but thatconcernisnot entirelyindividualistic;t also en-compasses concerns for ecologicalsystems and the human species as awhole."To be sure, views on sustainability hatare composites of these positions also canbe defined. The model discussed in the nextsection allows for a continuum of viewsabout intergenerationalfairness and re-source substitutability.

IV. AN EXTENDED"SAFEMINIMUMSTANDARD"In this section a simple conceptualframework s outlinedthat can be used inconsidering how individualistic resourcetrade-offsmightbe balancedagainstsocialimperativesfor safeguardingagainst large-scale, irreversible degradationof naturalcapital. The framework s not intendedtoimply a specific decision rule. Instead, itspurpose is to indicate the implicationsofdifferentsustainabilityconceptions and toprovidesomecommonground orconsider-ation of differences in conceptions amongeconomists, ecologists, and ethicists. Inbroadoutline, the framework s a two-tiersystem in which standardeconomic trade-offs (marketandnonmarket) uideresourceassessment and managementwhen the po-tentialconsequences are small and revers-ible, but these trade-offs increasinglyarecomplementedor even supersededby so-cially determined imits for ecologicalpres-ervation as the potential consequencesbecome largerand more irreversible.The

framework s an extension of the logic ofsafe minimum tandardpromulgatedby Ci-riacy-Wantrup 1952) and Bishop (1978).Variants of this two-tier approach havebeensuggestedby a numberof writers romdifferent disciplines (see, e.g., Norton1982, 1992;Page 1983, 1991;and Randall1986).To begin the discussion, suppose forsimplicitythat all potentialhuman mpactson the naturalenvironmentcan be charac-terizedby theirprospective"cost" and"ir-reversibility."Prospective cost can be in-terpreted n severalways. It can be thoughtof as an (individualistic) conomicmeasureof expectedopportunity ost, as anecologi-cal measureof predictedphysical impact,or as some hybridof individualisticor or-ganicist concerns including social valueslike political freedom and justice. The

"It would be possibleto identifya fourthposition,ecologicalpresentism,but this view could be inter-nallycontradictory ndin any event it seems to holdlittleinterest.

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406 LandEconomics November1994frameworkdoes not require a particulardefinitionof cost, thoughsome precisiononwhat is counted as a cost is needed in prac-tice when interpretingalternativeconcep-tions of the safe minimumstandard.Similarly, irreversibilitycan be seen interms of an ecological assessment of sys-tem function or as an economic constructinvolving the feasibility of restorative orcompensatinginvestment. Economic irre-versibilityhere is taken to be the same asnonsubstitutability.Of course, consider-able uncertaintyexists regardingboth thecost and irreversibilityof particularhumanimpacts.This uncertainty s in fact centralto the concept of safe minimumstandard.Onequestionthat needs to be addressedis why two metrics are needed for gaugingimpactsand determiningsocial responses.Economistsare accustomedto valuingcon-sequences of irreversibility n an uncertainsetting (see, e.g., Krutilla 1967; Krutillaand Fisher1985;andFisherandHanemann1987), so this dimensionto some extent isredundant. Indeed, the prospective costmeasure could be thought of as includingpremiums eflectingrisksthatcanbe mone-tized. The conceptof systemic scale in eco-logical research also may forge links be-tween the severity and irreversibilityofimpacts(NortonandUlanowicz 1992).Thisresearchsuggests that damagesto ecologi-cal systems that are largerin spatial scaleor higherupin the hierarchyof naturalpro-cesses-more complex, consistingof morecomponent subsystems-is both moreharmfuland harder to reverse because ofthe complexity and slower time of adapta-tion in these systems.Nevertheless, there are reasons for dis-tinguishingthe metrics. Monetizingall ir-reversibility suggests that compensatoryinvestment for any environmentaldegra-dationis feasible and ethical.'2This seemsdebatable, as already noted. Analytically,it rules out by assumptionthe ecologicalorganicistpositionon sustainabilitydefinedabove. To avoid this, we must retain boththe cost and irreversibilitydimensions.The cost and irreversibilitydimensionscan be brought ogether n a single "sampleuniverse"as shownin Figure1.13Individu-

als can, in this theory, locate different m-pacts on the naturalenvironment(e.g., a5-degree global mean temperaturerise ora 50 percent loss of tropicalforest) in thesquare, depending on their own assess-ments of cost and irreversibility.Becauseof uncertainties, hese assessmentswill re-flect subjective judgments including atti-tudes toward known or potentialrisks (inotherwords, the cost andirreversibility s-sessments generally will not reflect justsubjectivemeanormedianvalues). Individ-ualjudgments nherentlywill reflectnotjustfactual nformationbutalso personalvaluesabout the nature of the obligation o futuregenerations.A varietyof social institutions,notably the political process, education,and mass communication,presumablygen-erate some synthesis of individual mpactassessments at the societal level. The syn-thesis is dynamic n that it reflects a varietyof forms of social learning (e.g., improve-ments in production technique and socialorganization).We cannow combine this constructwithan extensionof the safe minimum tandardlogic to indicate how individualistic rade-offs and social imperatives regardingthenatural environment might be balanced.The safe minimumstandardoriginallywasdeveloped in the context of individualspe-cies preservation see Bishop 1978andCiri-acy-Wantrup1952).Thelogic in this settingis that standardbenefit-cost comparisonsmay be inadequate f the long-termcost ofspecies loss is highly uncertain (in theKnightian ense of havingprobabilitieshatare difficult to gauge) but possibly quitesubstantial.Proponentsof a safe minimumstandardargue that with low informationbut high potential asymmetry in the lossfunction, the evenhanded assessment ofbenefit-costanalysis should give way to agreater presumption in favor of species

12Thisdiscussion leaves aside importantpracticalproblemsof measurement hat arise in any approachto irreversibility.'3Thisdiagrammatic pproachwasoriginallydevel-oped by BryanNorton(see Norton 1992).The figureshown here is an adaptation f Norton's schema.

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Ecologicalandhuman atastropheMoralmperativesorresource ndecosystemprotection

Increasingimpact/cost Freeplayofof ecological individualncentivesdamages andresourceradeoffs

., Increasingonsubstitutability/ Low-cost, asilyirreversibilityf ecological reversed ffectsdamagesFIGURE1

ILLUSTRATIONF THE SAFE MINIMUMSTANDARDFORBALANCINGNATURALRESOURCE RADE-OFFS

AND IMPERATIVESORPRESERVATION

preservationunless society judges that thecost of preservation s "intolerable."14In Figure1we extend this logic to a con-tinuum of potential impacts on the naturalenvironmentin the following way. First,impacts in the lower-right portion of thebox involve both modest cost and a highdegreeof reversibility.In this area there islittle threat of substantial astingdamagetothe interestsof futuregenerations,and it isreasonable o rely uponindividualistic alu-ations and trade-offs as reflected in ben-efit-cost analysis. Individual incentivesfor efficient resource use can be achievedthroughmarketsand incentive-basedpoli-cies to correct "conventional" external-ities.Toward heupper-rightornerof the boxthe costs become higherbut still are rela-tively reversible.Herethe primaryconcernin additionto efficient resource use mightbe to ensure that the current generationmeetsobligations o the futurethroughgen-eralcompensation or environmentaldegra-dation.On the otherhand, impactslocatedtowardthe lower-left corner of the box arerelatively irreversible but low in cost, so

they presumablycan be absorbed withouttoo much detrimentaleffect on the future.It is in considering impacts toward theupper-leftcorner of Figure 1 that the safeminimum standard assumes prominence.Here the long-termcosts are likely to behigh and substitution options likely tobe low, making the impacts irreversible.Moreover,uncertainty s likely to be sub-stantial since the impacts in question in-volve large-scale ecological systems andfunctionsthat remainpoorly understood.Under these conditions even individual-istic, presentist valuations can provide aconsiderable impetus toward resourcepreservation. However, the logic of thesafe minimumstandardsuggests that thisimpetusalone may not fully satisfy reason-able obligationsto futuregenerations,par-ticularlywhen the negative effects involve

'4See Bishop (1979) and Smith and Krutilla (1979),as well as Castle and Berrens (1993) for further discus-sion of the distinction between the safe minimum stan-dard and benefit-cost analysis. This reasoning is an-other way of highlighting the need for considering costand irreversibility as distinct metrics of impact.

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large-scale ecological systems and longgestationperiods.Onecan imaginethatthecloser one moves to the northwestcornerof the box, the more entirely individualis-tic valuation ciriteriaare supplementedbyotherexpressionsof community nterest intheform of a priorisocial rulesof a "consti-tutional" nature for preserving naturalcapital. This is illustrated by the fuzzydemarcationine in Figure 1. Such sociallydeterminedcriteriacould be changed f themembers of society deem the cost of pre-servingnaturalcapitalto be excessive, buta higherburden of proof would be placedon arguments avoringacceptanceof high-cost, irreversibleimpacts than on accep-tance of smaller mpacts.As alreadynoted, individualperceptionsof natural mpacts and thus individualas-sessments of where the fuzzy line shouldbe located depend strongly on individualvalues andknowledge.Figure1can be usedto illustrate the differentpositions on sus-tainability ummarizedn the previoussec-tion of the paper.Generallyspeaking,ecol-ogists with a primaryconcern for naturalfunction and resilience might be more in-clined than economists to emphasize theirreversibilitydimension and to draw amore vertical fuzzy line, limiting evenlower-cost irreversibleeffects; economistswithgreaterconcern for cost andmore con-fidencein substitutabilitymightbe morein-clined towarda horizontal ine. Neoclassi-cal presentistsmightput little or no areatothe northwest of the dividing ine (or evendismiss the wholeconstruct),whileecologi-cal organicistswould take a contraryview.Neoclassical egalitariansmighttake a mid-dle ground, drawinga close to horizontalline but placingmore areaabove it to limithigh-costburdenson futuregenerations.It should be emphasizedagainthatthereis a distinct difference between the safeminimumstandardapproachand the stan-dardprescriptionsof resource and environ-mental economics, which involve gettingaccurate valuations of resources in bene-fit-costassessments andusingeconomic in-centives to achieve efficient allocations ofresourcesgiven these valuations. Whethera resource-protectioncriterion is estab-

lished throughapplicationof the safe mini-mum standard onceptor entirely by trade-offs through cost-benefit analyses, thatcriterioncan be achieved cost-effectivelyby using economic incentives. However,for impactson the naturalenvironment hatare uncertainbutmaybe largeandirrevers-ible, the safe minimumstandardposits analternativeto relying just on comparisonsof expectedeconomic benefitsandcosts fordevelopingresource-protection riteria."Itplaces greateremphasison scale issues in-volving potential damages to the naturalsystem than on the sacrifices experiencedfromcurbingecological impacts,which areseen as likely to be smaller and morereadilyreversible. On the other hand, theargumentsin this section do not requirethat either the safe minimum tandardas asocial decision rule, or individualprefer-ences for environmentalpreservation, berigidly hierarchical. The safe minimumstandardcan be seen as a social compactfor expressing agreed-upon moral senti-ments in the face of high ecological uncer-tainty and potential loss asymmetry,evenwith egoistic consumption, bequest, andtime preferencesthat are entirelyneoclas-sical.16The arguments n this section are some-what similar to those developed by Vatnand Bromley(1994)regarding nvironmen-tal decision making and economic valua-tion. Briefly,these authorsargue hatlarge-scale environmental assets or risks areinherentlydifficult o value meaningfullyna conventionaleconomic sense. This is notjust because of limited informationaboutthese assets and risks, which causes indi-vidualpreferences o be poorlydefined,butalso becauselarge-scaleenvironmentalon-

15See also Pezzey (1989, 1994a),who shows witha simple examplethat efficientmanagement f exter-nalitiesover timemaynotgenerate ustainablewelfaredistributions.'6TimBrennansuggests (in privatecommunica-tion)that the safe minimum tandard lso can be seenas a social decisionstrategy hateconomizesoncostlyinformation-gatheringnd enforcementactivitiesrela-tive to theoreticallypreferredmarginalevaluationsandpolicies.

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70(4) Toman:Economicsand "Sustainability" 409

siderations are bound up in social moresthatcondition individualpreferences.Vatnand Bromley argue that people must beseen as dualistic, behaving as citizens aswell as consumers, and that many socialinstitutions for environmental manage-ment-including the norms surroundinggovernmentof the environment-must beseen as ways that societies have attemptedto circumvent the informationaland "con-textual" problems surrounding ndividual-istic valuation. This point of view justifiesin particularthe imposition of safe mini-mum standards determinedthroughpoliti-cal discourse and othercomplex socialpro-cesses.V. CONCLUDINGREMARKS

Sustainability ultimately is intimatelywrappedup with humanvalues andinstitu-tions, notjust ecological functions. An en-tirely ecological definitionof sustainabilityis inadequate;guidancefor social decisionmakingalso is required.It must be recog-nized that humanbehavior and social de-cision processes are complex, just as eco-logical processes are. At the same time,economic analysis without adequate eco-logical underpinnings also can be mis-leading. The sustainability debate alsoshould remindeconomists to carefullydis-tinguishbetween efficientallocations of re-sources-the standardfocus of economictheory-and socially optimal allocationsthat may reflectother intergenerational aswell as intragenerational)quity concerns.

The tension betweenecologicalandeco-nomic perspectives on sustainabilitysug-gests several ways in which both econo-mists and ecologists could adapt theirresearch emphases and methodologies tomake the best use of interdisciplinary on-tributions. For ecologists, the challengesincludeproviding nformation n ecologicalconditionsin a form that could be used ineconomic assessment.'7 Ecologists alsomust recognize the importanceof humanbehavior,particularlybehaviorin responseto economic incentives-a factor oftengiven shortshrift in ecological impactanal-yses. Economists for their part could ex-

pand analyses of resource values to con-sider the function and value of ecologicalsystems as a whole, makinggreateruse ofecological informationn the process. Bothmethodologicalresearch and case studiesare needed to synthesize ecological andeconomic perspectives. Researchby econ-omists andother social scientists (psychol-ogists and anthropologists)also could helpto improve understandingof how futuregenerationsmightvalue differentattributesof naturalenvironments.From the standpointof economic the-ory, an importantdirectionfor furtherre-search is the consideration of how bothphysical limits and ethical constraints onresource use may affect the time pathsandshadowvaluesof natural apitalstocks, rel-ative to the results found in standardthe-ory. The literature on economic growthwith naturalresources is beginningto ad-dress these issues, and thereis a lot of basicmethodologythat can be exploitedfor thispurpose.18One example is the work by Asheim(1988, 1991) and Pezzey (1989, 1994a,1994b) alluded to earlier. Asheim showsthat if we accept the idea of two-tieredso-cial preferences,in which individualshavelimited altruism for the next generationbut also subscribeto a broaderconceptionof intergenerational ocial justice, sociallypreferred outcomes can promote justicewithout sacrificing growth. In particular,this argumentprovides a more basic justi-fication for the criterion of nondecreasingutility assumed in Pezzey's sustainabilityanalysis.'9Anotherset of examplesconcerns the is-sue of resource substitution.A numberof

'7Carpenter1992)arguesthatthe currentstateofbiophysicalmeasurementorassessingthesustainabil-ity of humanimpacts on ecological systems is tooweakto effectivelyoperationalizeheconceptof natu-ralcapital;only grossunsustainabilityan bedetected.'8Forfurtherdiscussionsee Toman,Pezzey, andKrautkraemerforthcoming).19Because f theobvious mportance f uncertaintyin dealingwithlong-term nvironmentalhange,for acompleteanalysis it is necessaryto explicitlyreflectthisuncertaintyn socialwelfareorderings.Thisissueis tackled n AsheimandBrekke(1993).

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papershave exploredthe consequencesforpresent-value-maximizing aths of includ-ing stocks in utilityfunctions as a reflectionof some sortof "amenity"value (see, e.g.,Krautkraemer1985, 1988 and Tahvonenand Kuuluvainen1993).In these analyses,preservationof some positive level of envi-ronmentalattribute s not assured;achiev-ing preservationnthe steadystaterequiressome combination of large initial capitalaccumulation and unbounded disutilityfrom environmentaldegradation. Barbierand Markandya 1990), in particular,con-sider the consequences of requiring athreshold evel of environmentalpreserva-tion to stave off irreversibleenvironmentaldisaster. Common and Perrings(1992) gofurtherin discussing the basic differencesbetween economic and ecological sus-tainability,and the difficulties in bringingthese ideas togetherin a single model.Despite its continued abuse as a buzz-word in policy debates, the concept of sus-tainabilitys becomingbetter establishedasa consequence of studies in economics,ecology, philosophy,and otherdisciplines.Witha betterunderstanding f the interdis-ciplinary theoretical issues, and a betterempiricalunderstanding f both ecologicalconditionsand social values, sustainabilityalso can evolve to the point of offeringmore concrete guidancefor social policy.

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