WHAT CAN ECONOMIC ANALYSIS CONTRIBUTE TO THE ‘SUSTAINABILITY’ DEBATE?

Jonathan A. Lesser and Richard O. Zerbe

Contemporary Economic Policy, 1995, vol. 13, issue 3, 88-100

Abstract: Economics generally, and benefit‐cost analysis in particular, are not substitutes for values. They are tools of analysis that rest on assumptions about values. The primary role for economics in normative analysis is to provide information about efficiently achieving that which is valued, not to make the decision. The major economic tool for analyzing normative issues is benefit‐cost analysis. This paper considers the role of benefit‐cost analysis in addressing the sustainability debate. The notion of “sustain‐ability” raises concerns about values held by society. The analysis here addresses several issues within the sustainability debate: concerns about intergenerational equity including the appropriate discount rate for projects with environmental consequences; implications for burdens on future generations; and the moral basis for benefit‐cost analysis. The authors argue that the correct discount rate for all such projects is the social rate of time preference, and that suggestions for using lower discount rates result from attempting to prevent inequities by adjusting prices. Additionally, the authors argue that economic analysis, especially benefit‐cost analysis, can play a useful role in providing information to decision makers, who ultimately will face resource allocation issues as they seek to implement policies promoting sustainability.

Date: 1995
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