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A Question of Interest. Economics and Sustainability:. James Stodder, (Economics PhD., Yale 1990) Lally School of Management & Technology Rensselaer Polytechnic Institute at Hartford. If a man takes no thought about what is distant, he will find sorrow near at hand . - PowerPoint PPT Presentation
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04/19/2023Sustain
If a man takes no thought about what is distant, he will find sorrow near at hand.
- Confucius (551-479 BC)
Economics and
Sustainability:
James Stodder, (Economics PhD., Yale 1990)
Lally School of Management & Technology
Rensselaer Polytechnic Institute at Hartford
A Question of Interest
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* Two Kinds of Interest
I. Interest as Self-Interest: 1) Is maximizing Shareholder Value
sustainable?
2) Is accurate Carbon Pricing sustainable?
II. Interest as Social-Discounting:3) Is maximizing Expected Present Value
sustainable?
4) Can we Balance current needs with long-term survival?
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1) Max Shareholder Value: not enough
* Shareholders = low commitment, demand high returns regardless of long-term effects.
* GM a glaring example: failed to make the long-term investments of Japanese, Germans, or Ford (family).
* Other systems ensure larger stakeholder voice: German banks and co-determination; Japanese Kereitsu and Lean Management promote-from-within.
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* US Energy ‘Independence’
http://www.worldenergyoutlook.org/publications/weo-2012/
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2) Right Externality Pricing: not enough* GE considers US carbon pricing necessary for economy, but does Cradle-to-Cradle (C2C) anyway.
*Mercedes GLK-Class first car in the world to receive Environmental Certificate from TUV* (Technical Inspection Association), setting EU standards for LCA.
* Right Pricing is necessary, but it is not sufficient.
* http://www.tuv-sud.com/home_com
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http://www.daimler.com/Projects/c2c/channel/documents/2003772_Environmental_Certificate_Mercedes_Benz_GLK_Class.pdf
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Stock (S)
Con
su
mp
tion
(C
),
Reg
en
era
tion
(R
) Stock ↓
Stock ↑
C = R(S)
C < R:
C > R:
Two Kinds of Sustainability
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Stock (S)
MaximumYield
Con
su
mp
tion
(C
)
Reg
en
era
tion
(R
)Two Kinds of Sustainability
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Stock (S)
MaximumSustainable
Welfare
Con
su
mp
tion
(C
)
Reg
en
era
tion
(R
)Two Kinds of Sustainability
MaximumYield
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Stock (S)
Max EPV (C) “EnlightenedSelfishness”
Max SustainableSocial Welfare“The Green Golden Rule”C
on
su
mp
tion
(C
)
Reg
en
era
tion
(R
)Two Kinds of Sustainability
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Green Golden Rule
*Formalizing the
http://www.amazon.com/Valuing-Future-Geoffrey-Heal/dp/0231113072
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Stock (S)
MaximumYield
MaximumSustainable
Welfare
Con
su
mp
tion
(C
)
Reg
en
era
tion
(R
)
S1 S2
Stock ↑
Stock ↓
Stock ↓
Stable
Stability of Green Golden Rule
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Stock (S)
Con
su
mp
tion
(C
)
Reg
en
era
tion
(R
)
Stock ↓
Stock ↓
Stable
Stability of Max Sustainable Yield
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Stock (S)
MaximumYield
MaximumSustainable
Welfare
Con
su
mp
tion
(C
)
Reg
en
era
tion
(R
)
S1 S2
Stock ↑Stock
↓
Stock ↓
Stable
Stability of Green Golden Rule
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* Viable Balance between Efficiency & Resilience (Goerner, Lietaer, Ulanowicz, Ecol. Econ., 2009)*
* http://www.sciencedirect.com/science/article/pii/S0921800909003085
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Stock (S)
Old Econ: Max EPV(C)
r > 0
New Econ: Max EPV(C, S)
r = 0
Con
su
mp
tion
(C
)
Reg
en
era
tion
(R
)
“Dictatorship of the
PRESENT”“Dictatorship
of theFUTURE”
Two Different Discount Rates
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*Example of Interest Rate Conflict:
Debate on the ‘Stern Review’* Dictatorship of the Future:
The Stern Review (2006): r = 0.1%
* Dictatorship of the Present:
Nordhaus Critique (2007): r = 3% → 1%
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* A ‘Saudi-Arabia of Waste’
http://www.worldenergyoutlook.org/publications/weo-2012/
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“Avoiding Extinction: Equal Treatment of the Present and the Future”
Graciela Chichilnisky, Economics E-Journal (2009):
*The “Chichilnisky Criterion”
•Starts with a focus on sustainable consumption, gradually shifts toward sustainable welfare.
•Requires a gradual transition from r > 0 to r = 0 (thus becoming more ‘future oriented’).
•There is evidence that this is how most people naturally discount the far future anyway.
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*Evidence on discounting from anthropology, animal behavior, and experimental psychology:
http://evolution-institute.org/sites/default/files/external_docs/The%20evolution%20of%20hyperbolic%20discounting-%20Implications%20for%20truly%20social%20valuation%20of%20the%20future.pdf
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“Management is not about maximizing profits or share-holder value in the short term. That may be relatively easy to do if the corporation is willing to sacrifice its future. Nor is management about investing everything into the long-term prospects. It may be impossible to survive the cash flow constraints or the risks and uncertainties of making investments without seeming rewards.” (p. 341)
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*Tying it all together*Efficient Carbon Pricing, Maximizing Shareholder Value, Maximizing Expected Present Value – all are insufficient for sustainability if not based on Green Golden Rule.
*Because of this insufficiency, firms aiming at very long-term success will go beyond what is currently required.
*A Falling-Discount rate is “nature’s rule” in successful ecosystems. Most traditional cultures of spirituality and stewardship also foster the Green Golden Rule.
*Similarly, a contemporary path to the Green Golden Rule must build a social and moral consensus toward the future. (If forced, that could be a real dictatorship!)
