A One-sided Sustainability Test With Multiple Consumption Goods

John Pezzey

Working Papers in Ecological Economics from Australian National University, Centre for Resource and Environmental Studies, Ecological Economics Program

Abstract: In an economy with multiple consumption goods (including environmental amenities) that uniquely maximises the present value of utility with constant discounting, constant or falling augmented green net national product, or zero or negative augmented net investment, at any time implies that the economy is unsustainable then. "Augmented" means that time is treated as a productive stock, so augmented net investment includes the value of time. This allows future exogenous technical progress and changes in world prices to be included in a unified accounting framework, along with features such as resource depletion, pollution and foreign investment. The practical and philosophical rationale for testing sustainability in a present-value maximising, and therefore fully prescribed, development path are discussed.

Date: 2002-02
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