A Welfare Economic Approach to Planetary Boundaries

Sureth Michael (), Kalkuhl Matthias, Edenhofer Ottmar and Rockström Johan
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Sureth Michael: Mercator Research Institute on Global Commons and Climate Change (MCC), Berlin, Germany
Kalkuhl Matthias: Mercator Research Institute on Global Commons and Climate Change (MCC), Berlin, Germany
Edenhofer Ottmar: Mercator Research Institute on Global Commons and Climate Change (MCC), Berlin, Germany
Rockström Johan: Potsdam Institute for Climate Impact Research (PIK), Leibniz Association, Potsdam, Germany

Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), 2023, vol. 243, issue 5, 477-542

Abstract: The crises of both the climate and the biosphere are manifestations of the imbalance between human extractive, and polluting activities and the Earth’s regenerative capacity. Planetary boundaries define limits for biophysical systems and processes that regulate the stability and life support capacity of the Earth system, and thereby also define a safe operating space for humanity on Earth. Budgets associated to planetary boundaries can be understood as global commons: common pool resources that can be utilized within finite limits. Despite the analytical interpretation of planetary boundaries as global commons, the planetary boundaries framework is missing a thorough integration into economic theory. We aim to bridge the gap between welfare economic theory and planetary boundaries as derived in the natural sciences by presenting a unified theory of cost-benefit and cost-effectiveness analysis. Our pragmatic approach aims to overcome shortcomings of the practical applications of CEA and CBA to environmental problems of a planetary scale. To do so, we develop a model framework and explore decision paradigms that give guidance to setting limits on human activities. This conceptual framework is then applied to planetary boundaries. We conclude by using the realized insights to derive a research agenda that builds on the understanding of planetary boundaries as global commons.

Keywords: cost-benefit analysis; cost-effectiveness analysis; global commons; planetary boundaries; precautionary principle; shadow price; uncertainty; welfare economics (search for similar items in EconPapers)
JEL-codes: D60 D81 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:jns:jbstat:v:243:y:2023:i:5:p:477-542:n:3

DOI: 10.1515/jbnst-2022-0022

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