Structural change and sustainable development

In this paper, we show that the commonly observed decline in primary (natural resource using) sector output and employment shares, often termed structural change, can be explained as an endogenous response to the presence of nature's constraint. Structural change takes place even if consumer preferences are homothetic, and technological progress does not discriminate against the primary sector. Under certain conditions, structural change allows an open economy to grow with natural resource sustainability. Sustained and environmentally sustainable economic growth is possible even if the natural resource is exploited under open access. Well-defined property rights are neither necessary, nor sufficient for sustainable growth. We show that there is no unique relationship between natural resource endowment and the rate of economic growth over the long run. Resource-rich economies may grow faster or slower than resource-poor ones.     

Attitudes towards risk and the optimal exploitation of an exhaustible resource

The exploitation of a nonrenewable natural resource, such as petroleum or mineral ores, is analyzed in a stochastic framework with price uncertainty. The market setting may be either monopolistic or competitive. We demonstrate that the rate of extraction varies directly with the resource owner's willingness to accept risk. Rish-preferring owners use the resource more rapidly than risk-neutral owners, who in turn deplete the resource more rapidly than risk-averse owners. It is also seen that the usual practice of increasing the discount rate to account for risk induces a more rapid rate of resource use, when in fact a slower rate of depletion is desired.     

Discounting for personal and social payments: Patience for others,impatience for ourselves

The market rate of return on private investment is often used as the discount rate when conducting cost-benefit analysis (CBA) of public projects. I argue that the decision to invest pits current consumption against future consumption, both of which accumulate to the private decision maker. Public projects, on the other hand, provide benefits that accrue to society in general. To examine the appropriateness of discount rates based on returns to private investment, this paper considers lab experiments designed to test whether individuals discount personal and social benefits at different rates. Personal benefits are captured through personal monetary payments, while social benefits are captured through anonymous donations to charitable organizations. I jointly elicit time and risk preferences and find that subjects discount charitable contributions at significantly lower rates than personal payments.     

Discounting for personal and social payments: Patience for others,impatience for ourselves

The market rate of return on private investment is often used as the discount rate when conducting cost-benefit analysis (CBA) of public projects. I argue that the decision to invest pits current consumption against future consumption, both of which accumulate to the private decision maker. Public projects, on the other hand, provide benefits that accrue to society in general. To examine the appropriateness of discount rates based on returns to private investment, this paper considers lab experiments designed to test whether individuals discount personal and social benefits at different rates. Personal benefits are captured through personal monetary payments, while social benefits are captured through anonymous donations to charitable organizations. I jointly elicit time and risk preferences and find that subjects discount charitable contributions at significantly lower rates than personal payments.     

Discounting and relative consumption

We analyze optimal social discount rates when people derive utility from relative consumption, i.e. their own consumption level relative to the consumption level of others. We compare the social, private, and conventional Ramsey rates. Assuming a positive growth rate, we find that (1) the social discount rate exceeds the private discount rate if the importance of relative consumption increases with consumption, and that (2) the social discount rate is lower than the Ramsey rate given quasi-concavity in own and others’ consumption and risk aversion with respect to others’ consumption. Numerical calculations demonstrate that the latter difference may be substantial and have important implications for long run environmental issues such as global warming.     

On the taxation of nonreplenishable natural resources

A resource constraint alters the profit maximizing decision rule for a natural resource producer. Stich a producer also responds differently to common policy instruments. For a zero rate of discount, it is shown that a franchise (lump sum), severance (ad valorem or unit), or profit tax result, respectively, is increased, unchanged, and unchanged output. These results are generalized to the case when the rate of discount is nonzero and tax rates vary over time. A tax-subsidy scheme for guaranteeing the equality of optimal social and private rates of depletion is presented for a case where these rates diverge.     

Positive framing does not solve the tragedy of the commons

We investigate whether positive framing increases cooperation in three social dilemmas with slightly different properties: a linear public goods (PG) game, a non-linear PG game, and a common pool resource (CPR) game. Results from our laboratory experiments show that contributions to a linear PG are higher if the externality is framed positively, rather than negatively, corroborating earlier findings by Andreoni (1995). By contrast, we find no such framing effects in the non-linear PG game or the CPR game. In these games, the best response in the material payoffs is to contribute less if others contribute more, counteracting effects of pro-social preferences. Positive framing therefore does not help to solve the tragedy of the commons.     

Learning abatement costs: On the dynamics of the optimal regulation of experience goods

We study the introduction of new technologies when their costs are subject to idiosyncratic uncertainty and can only be fully learned through individual experience. We set up a dynamic model of clean experience goods that replace old polluting consumption options and show how optimal regulation evolves over time. In our base setting where social and private learning incentives coincide, the optimal tax on the polluting consumption is increasing over time. We show, however, that if social and private learning incentives diverge because the private discount rate exceeds the social discount rate, it may be optimal to temporarily increase the tax rate beyond net marginal external damages to induce more learning before reducing the tax rate to the steady state level. Alternatively, one could complement the tax with subsidies for first-time users which can be phased out over time. Similar results apply if consumers have biased expectations. We therefore give a rationale for introductory subsidies on new, clean technologies and non-monotonic tax paths from a perspective of consumer learning.     

Valuation of natural capital under uncertain substitutability

Natural capital is complex to value notably because of the high uncertainties surrounding the substitutability of its future ecosystem services. We examine a Lucas economy in which a consumption good is produced by combining different inputs, one of them being an ecosystem service that is partially substitutable with other inputs. The growth rate of these inputs and the elasticity of substitution evolve in a stochastic way. We characterize the socially efficient ecological discount rates that should be used to value future ecosystem services at different time horizons. We show that the inverse of the elasticity of substitution can be interpreted as the CCAPM beta of natural capital. We also show that any increase in risk of this beta reduces the ecological discount rate. If our collective beliefs about the elasticity of substitution of ecosystem services are Gaussian, the ecological discount rates go to minus infinity for finite maturities. In that case, a marginal increase in natural capital has an infinite value. We provide a realistic calibration of the model that is coherent with observed asset prices by using the model of extreme events of Barro (2006). The bliss maturity for infinite discount factors is less than 100 years in this calibration.     

Economic growth,international trade,and the depletion or conservation of renewable natural resources

Conservation of renewable natural resources and promotion of economic growth are both sustainable development goals. Here, we study the interdependency between economic growth, international trade, and the use of renewable natural resources—under alternative institutional settings of either open access or full property rights—in an endogenous growth model. We find that if the resource is depleted over time, consumption growth is reduced. Economic growth and international trade only impact resource use when the resource is harvested under full property rights. Then, widening international trade can lead countries to shift from conservation to depletion. Changes in the institutional setting of resource use in one country may have repercussions on trading partners. Our results indicate potential trade-offs between the sustainable development goals and imply that policies focusing on resource use or trade (e.g., international trade bans or certified trade) are not sufficient to prevent resource depletion.     

Natural resource use,income and dependence among San and Mier communities bordering Kgalagadi Transfrontier Park,southern Kalahari,South Africa

Contemporary strategies for natural resource management espouse the need to integrate local people and their livelihood needs into biodiversity conservation projects to achieve sustainable ‘development and ecological integrity’. Valuation of natural resource use provides empirical evidence and conceptual arguments of local people's dependence on these resources, which could be factored into biodiversity conservation planning. Based on household surveys and key informant interviews, this study looked at the contribution of dryland natural resources to the livelihoods of two culturally different but neighbouring communities, the San and Mier, bordering Kgalagadi Transfrontier Park, South Africa. Overall, natural resources represented an important livelihood source for the San, contributing on an average 32% of total annual income, compared to 9% for the Mier. Fuelwood was the predominant contributor to natural resource incomes in both cases. Income quintile analysis showed that dependence on natural resources decreased moving to higher income groups for Mier households, but increased with income for San households. Well-off households still derived higher total income from natural resources; often from the more lucrative sources of such income, notably from fuelwood sales. Contextual factors such as culture and social institutions, among others, influenced access to, and consequently the use of, particular resources and the value of these to households. Sustainable natural resource management interventions should consider these disparities in patterns of natural resource dependence among different income groups.     

Hartwick's rule and maximin paths when the exhaustible resource has an amenity value

This paper studies the maximin paths of the canonical Dasgupta–Heal–Solow model when the stock of natural capital is a direct argument of well-being, besides consumption. Hartwick's rule then appears as an efficient tool to characterize solutions in a variety of settings. We start with the case without technical progress. We obtain an explicit solution of the maximin problem in the case where production and utility are Cobb–Douglas. When the utility function is CES with a low elasticity of substitution between consumption and natural capital, we show that it is optimal to preserve forever a critical level of natural capital, determined endogeneously. We then study how technical progress affects the optimal maximin paths, in the Cobb–Douglas utility case. On the long run path of the economy capital, production and consumption grow at a common constant rate, while the resource stock decreases at a constant rate and is therefore completely depleted in the very long run. A higher amenity value of the resource stock leads to faster economic growth, but to a lower long run rate of depletion. We then develop a complete analysis of the dynamics of the maximin problem when the sole source of well-being is consumption, and provide a numerical resolution of the model with resource amenity. The economy consumes, produces and invests less in the short run if the resource has an amenity value than if it does not, whereas it is the contrary in the medium and long runs. However, and without surprise, the resource stock remains for ever higher with resource amenity than without.     

Models-as-usual for unusual risks? On the value of catastrophic climate change

We study the role of intertemporal preference representations in a model of economic growth, stock pollutant and endogenous risk of catastrophic collapse. We contrast two polar instances of risk-sensitive preferences: the traditional “discounted utility” model, which imposes a positive rate of pure time preference and risk neutrality with respect to intertemporal utility, and multiplicatively separable preferences, which display risk aversion in that dimension but no pure time preferences. We show that both representations of preferences can rationalize the same economy when there is no collapse risk associated with pollution. Once we introduce a collapse risk whose hazard rate depends on the pollution stock, multiplicatively separable preferences are associated with a much higher value of catastrophic risk reduction, and a more stringent policy response. A relatively high discount rate may thus be compatible with large emissions abatement in the face of a low probability large impact event, reflecting preferences for catastrophic risk reduction.     

Economic aspects of natural resource exploitation

Low entropy accumulations of matter and energy are more economic for humans to exploit as natural resources. This accumulation of a resource takes place over time and the most concentrated resources, such as fossil fuels, are created over geological ages. As the most concentrated resources become depleted it may be possible for technology to enable the exploitation of less concentrated resources, such as low-grade metal ores or thinly populated fishing grounds. Analysis of the timescales necessary to create different types of natural resource reveals three distinct groups. Further consideration of economic characteristics of resources, including ownership and access, and rate of consumption relative to rate of supply confirms the grouping of resources into the three distinct groups. Rate of change of entropy as a resource is exploited is an indicator of its impact on the environment. Consideration of this again suggests three distinct groups of resources, and this paper identifies them as: continuous natural resources (CNR), such as solar power and wind power; potentially renewable resources (PRR), such as fish and forests; and non-renewable resources (NRR), such as fossil fuels and metals.     

Discounting,inequality and economic convergence

The aim of this paper is to examine the impact of inequalities and economic convergence on the efficient discount rate when international credit and risk-sharing markets are inefficient. We consider an economy in which initial consumption levels and growth expectations are heterogeneous. In the benchmark case in which relative inequalities are permanent and relative risk aversion is constant, inequalities do not affect the discount rate. We derive necessary and sufficient conditions under which permanent inequalities reduce the discount rate. We also show that the anticipation of economic convergence raises the efficient discount rate when relative prudence is larger than unity.     

It takes more than a village: the challenges of co-management in Uganda's fishery and forestry sectors

Decentralisation policies in least developed countries have emerged in response to failed centralised natural resource governance programmes because high-value natural resources are distributed unequally, with central governments often reaping more than local-level users. Current natural resource governance institutions have been created to remedy the problems that central governments formerly posed. Here, we argue that Uganda's forestry and fishery resources are biologically diverse and thus amenable to current decentralised management programmes, provided that there is compromise between market values and local cultural and subsistence values and uses. We observe, however, Uganda's current institutional arrangement favours the former over the latter and determine that successful natural resource decentralisation requires strengthening local-level natural resource institutions with increased fiscal flow, enforcement, monitoring and judicial powers. A strong and reliable partnership between local-level resource users and the central government is necessary for this to occur.     

How certain are we about the certainty-equivalent long term social discount rate?

Theoretical arguments for using a term structure of social discount rates (SDR) that declines with the time horizon have influenced government guidelines in the US and Europe. The certainty equivalent discount rate that often underpins this guidance embodies uncertainty in the primitives of the SDR, such as growth. For distant time horizons the probability distributions of these primitives are ambiguous and the certainty equivalent itself is uncertain. Yet, if a limited set of characteristics of the unknown probability distributions can be agreed upon, ‘sharp’ upper and lower bounds can be defined for the certainty-equivalent SDR. Unfortunately, even with considerable agreement on these features, these bounds are widely spread for horizons beyond 75 years. So while estimates of the present value of intergenerational impacts, including the social cost of carbon, can be bounded in the presence of this ambiguity, they typically remain so imprecise as to provide little practical guidance.     

The endowment effect,discounting and the environment

There is a considerable body of evidence showing that our preferences exhibit both reference dependence and loss aversion, a.k.a. the endowment effect. In this paper, we consider the implications of the endowment effect for discounting, with a special focus on discounting future improvements in the environment. We show that the endowment effect modifies the discount rate via (i) an instantaneous endowment effect and (ii) a reference-updating effect. Moreover we show that these two effects often combine to dampen the preference to smooth consumption over time. What this implies for discounting future environmental benefits may then depend critically on whether environmental quality is merely a factor of production of material consumption, or whether it is an amenity. On an increasing path of material consumption, dampened consumption smoothing implies a lower discount rate. But on a declining path of environmental quality and where we derive utility directly from environmental quality, it implies a higher discount rate. On non-monotonic paths, loss aversion specifically can give rise to substantial discontinuities in the discount rate.     

Seasonal variation in feeding behavior, competition and female social relationships in a forest dwelling guenon, the blue monkey (Cercopithecus mitis stuhlmanni), in the Kakamega Forest, Kenya

Socioecological models relate differences in feeding strategies to variation in the nature of female social relationships. Among the African forest guenons, females consume large quantities of fruit and other plant reproductive parts, resources which are thought to promote contest competition, yet these monkeys have been characterized as having agonistically undifferentiated relationships in which rank, if discernible at all, does not correlate with fitness benefits. To determine whether female relationships become more hierarchical under relevant ecological conditions, we monitored the adult females of two blue monkey groups (Cercopithecus mitis stuhlmanni) over a complete annual cycle in the Kakamega Forest, Kenya. Females competed aggressively for plant reproductive parts more often than any other resource type, and in both groups we detected linear dominance hierarchies. Nonetheless, agonism rates remained low throughout our study, and did not vary with changes in ecological conditions. Rather, when plant reproductive parts were scarce, subordinate females spent more time feeding and less time resting in an apparent attempt to compensate for a reduced efficiency of food intake. The effects of rank and food abundance were not reflected, however, in the distribution of grooming. The use of alternative feeding strategies appeared to blunt competition – females of all ranks were unlikely to be near others while feeding and spent more time consuming alternative resources when plant reproductive parts were scarce. The diverse diet of this species may allow females to avoid conflict so that dominance has only subtle effects that are difficult to detect. While socioecological models often simplify the connection between resources and female interactions, our results emphasize that the behavior of animals consuming particular resources, and not the resources themselves, are critical predictors of social patterns.