伽叩 2 D 怦叩催犬んな S 67 lies above the marginal-cost curve. The allocation that maximizes net benefits is Q*, the allo- cation where the demand curve crosses the marginal-cost curve. lnefficiency results because each person is able to become a free rider on the other's contri- bution A free ⅵ s someone who derives the benefits from a commodity without contributing t0 its supplj: ・ Because 0f the consumption indivisibility and nonexcludability properties of the FIGURE 4.6 Efficient Provision of Public Goods Benefits of Diversity (dollars per unit) Person A 0 Quantity 0 Benefits of Diversity (dollars per unit) 0 Quantity Benefits of Diversity ( dO 臉「 s per unit) Market Demand MC 0 + OB OB 0 0 Quantity

De ″ 2 イ Co れれな Xiii LAND CONVERSION 199 SOURCES OF INEFFICIENCY 202 Perverse lncentives fo 「 the Landowner Perverse lncentives for Nations 204 POVERTY AND DEBT 205 SUSTAINABLE FORESTRY 206 PUBLIC POLICY 207 202 EXAMPLE 11.1 PRODUCING SUSTAINABLE FORESTRY THROUGH CERT 旧 CATION EXAMPLE 11.2 SUCCESS STORIES 爪 CONSERVING TROPICAL FO s 212 EXAMPLE 11.3 DOES PHARMACEUTICAL DEMAND OFFER SUFFICIENT PROTECTION TO BIODIVERSITY? 213 EXAMPLE 11.4 TRUST FIJNDS FOR CONSERVATION 214 Summary 214 Further Reading 215 AdditionaI References 216 Discussion Questions 216 209 Bi0diversity Ⅱ : CommerciaIIy Valuable species 217 INTRODUCTION 217 EFFICIENT HARVESTS 218 The BioIogical Dimension 218 Static-Effcient Sustained Yield 220 APPROPRIABILITY AND MARKET SOLUTIONS 222 EXAMPLE 12.1 PROPERTY GH AND FISHERIES: OYSTERS 223 EXAMPLE 12.2 FREE-ACCESS HARVESTING OF THE MINKE WHALE PUBLIC POLICY TOWARD FISHERIES 225 Aquaculture 225 EXAMPLE 12.3 HARBOR GANGS OF へ 4 用 NE Raising the Real Cost of Fishing 227 Taxes 230 226 lndividual Transferable Quotas ( 仼 Qs ) 230 EXAMPLE 12.4 EF 日 CIENT VS. MARKET EXPLOITATION OF LOBSTERS The 200-Mile Limit 234 225 2 引 EXAMPLE 12.5 THE RELATIVE EFFECTIVENESS OF TRANSFERABLE QUOTAS AND TRADITIONAL SIZE AND EFFORT RESTRICTIONS IN THE ATLANTIC SEA SCALLOP FISHERY PREVENTING POACHING 236 EXAMPLE 12.6 LOCAL APPROACHES TO WILDLIFE PROTECTION: ZIMBABWE 237 Summary 237 Further Reading 238 235

Efficiencu れイ CO - Efi 尼 c ″れお 5 353 ANATOMY 0F AN OIL SPILL SUIT: THEAMOCO 朝ル On 17 March 1978 , the 襯 0C0 Ca 市 2 , an 0i1 transport ship traveling in a bad storm, lost steering control and, after unsuccessful towing attempts, drifted onto the rocks off the shore of Portsall, France, on the Brittany coast. UItimateIy, the ship broke in two and discharged 220 , 000 tons of crude 0 ⅱ and 4 , 000 tons Of bunker fuels along the cost of a resort area, 0 months prior to the opening Of the tourist season. Before the end of the year of the grounding, a mountain of claims had been filed involving France, a consortium Of resort owners and fishermen, Am0CO (the owner of the vessel), Bugsier (the owner 0f the tug), Shell OiI (the owner of the oil being carried at the time), and Astilleros Espafioles (the Spanish company that built the 襯 0C0 Ca イた ). After extensive and expensive preparations by all parties, the trial began in May 1982. During March 1984 a preliminary 叩 inion was issued finding Amoco and the shipbuilder jointly liable. The process then turned to the separate issue of the magnitude of the damages to be awarded. On 21 February 1989 , a judgment of 670 million francs (approximately $ 120 mil- lion) was levied against Amoco and Astilleros. The verdict was immediately appealed. The trial judge, now retired from the bench, summed up the situation: SO カ e we 尾 , twelve e ″ the acc れ 4 ツ卲 e れ ye ″ the 5 ″″〃必″ん the がれたアな加〃 0 e われ砿れ例襯 0 0 襯例ーれイ s ″り e けね e れ or 襯 0 / 記 fees 盟″ん 0 0 れ e ce れ / ん 2 れ ch れ ge イん . 2 case 襯 ch 0 れ盟砿ん the Co of 員〃〃な 面 each 〃 r 加 c ゆ記〃 expected ん叩〃 e 記 those 〃 ec な砿 the 〃れ記 me 面 盟ん c ん市 ee. な raises the 〃 os 豆わ市 , 記襯 0 ″川切加 , わ配 the ん 0 case co ″ん e ね be 〃 d れ . Source: Frank J. McGarr, "lnadequacy of Federal Forum for Resolution of 0 ⅱ Spill Damages," a talk given at a conference on 0 ⅱ spills at Newport, Rh0de lsland, on 16 May 1990. Judge McGarr was the trial judge for theAmoco C 市 2 case. citizen suits would have no ro 厄 tO play. Noncompliance iS a necessary condition for a success- ful suit. ln the early 1980S when public enforcement decreased, private enforcement—citizen suits—increased tO take up the slack. Lax public enforcement appears t0 have played a signif- icant role in the rise Of citizen suits. AII attorneys' fees incurred by the citizen group in any successful action under the Clean Water Act must be reimbursed by the defendants. Reimbursement of attorneys' fees has affected both the level and focus 0f litigation activity. ByIowering the costs 0f bringing citizen suits, attorney fee reimbursement has allowed citizen groups tO participate far more Often in the enforcement process than otherwise would have been possible. Because courts only reim- burse for appropriate claims (noncompliance claims that are upheld by the court), citizen groups are encouraged tO litigate only appropriate cases.

440 劭叩 r 27 The Q for S 加 D eli 叩襯ー the sustainability criterion has been the exception, not the rule. Capital accumulation and technological progress have expanded the ways in which resources can be used and have increased subsequent welfare levels—in spite Of a declining resource base. Nonetheless' the 朝 0 criteria are not inevitably compatible. resource bases diminish and glObal externalities increase, the conflict can be expected tO become intense. ◆ TRADE AND THE ENVIRONMENT One of the traditional paths tO devel 叩 ment involves 叩 ening up the economy tO trade. Freer international markets provide lower prices for consumer goods (because Of competition from foreign producers) and the 叩 portunity for domestic producers tO exploit foreign markets. Recently, however, concerns have been raised about the environmental consequences Of pro- moting a freer flOW Of capital and products across international borders. Prominent among these fears is the "pollution havens" hypothesis. According tO the pollution havens hypothesis StriCter envlronmental regulations in one country either encourages domestic prOdUCtiOn facil- ities tO move tO countries With less stringent environmental regulations encourages increas- ing imports from those countries. TO the extent the pollution havens hypothesis is valid' it provides a reason for local areas tO accept lower environmental standards as a means Of prOteCt- ing the j0bs that would be lost if production moved t0 countries with less stringent regulations. What is the evidence? Dean surveys a very large number Of studies and finds absolutely no SUPP0rt for the pollution havens hypothesis. 9 Another survey reaches the same conclusion in terms Of the effects Of environmental regulations on U. S. competitiveness. 10 Actually, these results should not be surprising. Because pollution control costs constitute a relatively small part 0f the costs Of production, it would be surprising if they were a major determinant Of either firm-location decisions or the direction Of trade. A distinctly different point 0f view has been articulated by Michael Porter. 11 NOW known as the "Porter hypothesis," this view suggests that firms in areas with the most stringent reg- ulations derive a competitive 市れ ge rather than a competitive disadvantage. Under this view, StriCt environmental regulations force firms tO innovate, and innovative firms are more competitive. This advantage is particularly pronounced for firms that produce pollution con- trol equipment (which can then be exported tO firms in Other countries, subsequently raising their environmental standards), but it might also be present for firms that, when forced t0 change their production processes, find that their costs are lower, not higher. Some instances Of regulation-induced lower production costs have been recorded in the literature12, but few studies have attempted tO examine the Porter hypothesis in its entirety. 9Judith M. Dean, "Trade and the Environment: A Survey of the Literature," in Patrick Low, ed. , 加われ記 Trade and 2 Env 0 れ襯例 / (Washington, DC: World Bank, 1992 ) : 15 ー 28. 10Adam B. Jaffe et al., "EnvironmentaI ReguIation and the Competitiveness of U. S. Manufacturing: What Does the Evi- dence Tell Us?, ”面 4 記砿 ECO れ 0 襯たん″ e 33 , NO. 1 ( 1995 ) : 132 ー 163. 11Michael E. Porter and Claas van der Linde, "Toward a New Conception of the Environment-Competitiveness Rela- tionship, ” Joumal 矼 ECO れ 0 襯た Perspectives 9 , NO. 4 ( 1995 ) : 97 ー 118. 12Anthony J. Barbera and Virginia D. McConneII, "The lmpact of Environmental Regulations on lndustry productiv- ity: Direct and lndirect Effects," JO ″ rn 砿 E れ ro れ襯ー ECO れ 0 襯 / cs れ M ロれ ge 襯ー 18 ( 1990 ) : 50 ー 65.

258 C ん叩 r 73 E れ ro れ襯例 / Eco れ 0 襯た s. ・れ 0 OECD. E れ ro れ襯 e and x われ . ・ The C 砿 e ルれム S 肥 e 施れ the U れ″ e イ States (Paris: Organization for Economic C0-operation and Development, 1994 ). Background case studies for a larger research project seeking tO discover the extent tO which fiscal and environmental POlicies could be made not only compatible, but mutually reinforcing. Portney, paul, ed. p ″ろ″ c policies for E れ″か 0 れ襯 e れ I Pro c ″ 0 れ (Washington, DC: Resources for the Future, 1990 ). A collection Of essays reviewing problems Of environmental regulation from the per- spective 0f the late 1980S. Tietenberg, T. H. E 襯わ T 川市れ 0. ・れ E ズ e 尾な 2 加 Re ん r 襯加 0 POI ん″ 0 れ PO ″ c. (Washington, DC: Resources for the Future, 1985 ). An examination 0f the use 0f marketable permits t0 control P011u- tion in principle and in practice. ADDITIONAL R を庇を NC C01tinge, R. A. , and W. E. Oates. "Efficiency in P011ution Control in the Short and Long Runs: A System of Rental Emission Permits," Ca れ口市 4 れ面″ rn 記砿 ECO れ 0 襯た s 15 (May 1982 ) : 347-54. DaIes, J. H. PO 〃われ , Pr 叩 and 怦 / c (Toronto: Toront0 University Press, 1968 ). Jurad0, J. , and D. Southgate. "Dealing with Air P011ution in Latin America: The Case 0f Quit0, Ecuador, E れ h0 れ襯ーイ De I 叩襯 e Economics 4 ( 1999 ) ( 3 ) : 375 ー 87. Kelman, Steven. の Price c ″ Eco れ 0 襯ななれ the E れ ro れ襯 e (Westport, CT: Greenwood Publishing Group, 1981 ). Kneese, Allen V. , and Charles L. Schultz. PO 〃われ , 片た , Public PO ″ c. (Washington, DC: Br00k- ings lnstitution, 1975 ). Kraemer, A. , and K. M. Banh01zer. "Tradable Permits in Water Resource Management and Water P011u- tion Contr01,' / m が e 襯 e れ″れ 0 DO 襯″ c Tradable P 襯 for E れ″か 0 れ襯 e れ I 怦 0 c ″ 0 れ . OECD, Organization for Economic C0-operation and Development ( 1999 ) : 75 ー 107. Levinson, A. "Grandfather Regulations, New Source Bias, and State Air Toxics Regulations," Ecological Economics 28 ( 1999 ) ( 2 ) : 299 ー 311. Lyon, R. M. "Auctions and Alternative Procedures for Allocating P011ution Rights,' んれ d Economics 58 (February 1982 ) : 16 ー 32. Milliman, Scott R. , and Raymond Prince. "Firm lncentives t0 Promote Technological Change in P011u- tion Contr01, ”面″ rn 記砿 E れれ襯例 I ECO れ 0 襯た s and Management 17 (November 1989 ) : 247 ー 65. Montgomery, David W. "Markets in Licenses and Efficient P011ution Control Programs," 面″記 ofEco- れ 0 襯た eo 5 (December 1982 ) : 395718. Orr, LIoyd. "lncentive for lnnovation as the Basis for Effluent Charge Strategy,' 襯たれ Eco れ 0 襯 / c R 盟 66 (May 1976 ) : 44177. Plourde, C. G. "A M0del of Waste AccumuIation and DisposaI," C れ ad れ JO ″記砿 Eco れ 0 襯 / cs 5 (Feb- ruary 1982 ) : 119 ー 25. Stavins, R0bert N. "Harnessing Market Forces tO Protect the Environment," E れ ro れ襯例ー 31 (Janu- ary/February 1989 ) : 4 ー 7 , 28 ー 35. SoderhoIm, P. "P011ution Charges in a Transition Economy: The Case of Russia," 面″ m 記砿 Eco れ 0 襯た lssues 33 ( 1999 ) ( 2 ) : 403710.

420 C ん叩 20 D ツ叩襯 54 P 側催 , and 2 E れ ro れ襯例ー accounts, indistinguishable from devel 叩 ment strategies that dO not depreciate the natural capital stock; the returns from bOth are treated as income. Consider an analogy. Many high-quality private educational institutions in the United states have large financial endowments. ln considering their budgets for the year, these institu- tions take the revenue from tuition and 0ther fees and add in some proportion Of the interest and capital gains earned from the endowment. Except in extraordinary circumstances however' standard financial practice does not allow the institution tO attack the principal• Drawing down the endowment and treating thiS increase in financial as iS allowed. However, that is precisely what the traditional national accounts allow us tO dO in terms Of natural resources. we can deplete our SOiIS, cut and with Oil, and the resulting economic activity is treated as income, not as a decline in the endowment Of natural capital. Because the Hicksian definition is violated for natural capital, policymakers are misled. By relying upon misleading information, policy makers are more likely tO undertake unsus- tainable development strategies. Adjusting the national income accounts tO 叩 PIY the Hicksian definition uniformly tO human-made and natural c 叩 ital could make quite a difference in resource-dependent coun- tries. For example, RObert Repett0 and colleagues 0f the World Resources lnstitute studied the growth rates 0f gross domestic product in lndonesia using b0th conventional unadjusted figures and figures adjusted tO account for the depreciation Of natural capital. Their study found that, whereas the unadjusted GDP increased at an average annual rate Of 7.1 percent from 1971 to 1984 , the adjusted estimates rose by only 4.0 percent per year. 14 M0tivated by a recognition Of these serious flaws in the current system Of accounts, a number Of industrialized countries have now proposed (or, in a few cases, have already set up) systems 0f adjusted accounts. lncluded among these countries are Norway, France, Canada, J 叩 an, the Netherlands, Germany, and the United States. Significant differences 0f opinion on such issues as whether the changes should be incorporated in a complementary system Of accounts or in a complete revision Of the standard accounts remain tO be resolved. ln the United States the Bureau 0f Economic Analysis has published its initial estimates of the value 0f the U. S. stock 0f minerals—oil, gas, and coal, as well as nonfuel minerals—and how the value Of that stock ()n constant dollars) has changed over time. 15 The objective was tO determine whether current use patterns are consistent with the constant-value version Of the sustainability criterion. Declining values would indicate a violation Of the criterion, whereas constant or increasing values would be compatible with it. ln general, it found that the value 0f additions just about offsets the value 0f the depletion; for the period 1958 ー 1991 , its esti- mates suggest that the criterion was not violated. Alternative Me su 肥 5 Because revised accounts are not yet available, we cannot use them tO assess the relationship between growth and economic well-being. But the question won't go away, so we have to do the best we can with what information is available. 14Robert Repetto, "Nature's Resources as Productive Assets," C んれ ge 32 , No. 5 (September/October 1989 ) : 16 ー 20. 15Bureau Of Economic AnaIysis, "Accounting for Mineral Resources: lssues and BEA's lnitial Estimates," S 砿 C レ″例ー召加 e. (April 1994 ) : 50 ー 72.

Discussion Questions FURTHER READING 13 Cairncross, F. Green, 加 c.. ・ Guide ん B 加 e れ the Environment(Washington, D. C. : lsland press, 1995 ). A noted economic journalist explores how business can become part of the solution. LOVins, A. , L. H. Lovins, P. Hawken. "A Road M 叩 for Natural Capitalism. ' 〃耀イ召加 e R ( 1999 ) : 145 ー 158. A vision suggesting that business strategies built on a more productive use of nat- ural resources can SOlve many environmental problems at a profit. Oates, W. E. , ed. , The RFF 施 r 加 E れ ro れ襯例 I and Resource れ 20e 襯 e (Washington, D. C. : Resources for the Future, lnc. , 1999 ). A collection. of short, highly readable commentaries on sub- jects ranging from biodiversity and climate change tO environmental justice. Stavins, R. , ed. Economics 砿肱 e Env か 0 れ襯 e れた Selected イ加の , 4th ed. (New York: W. W. Norton & Company, lnc. , 2000 ). An excellent set of complementary readings that captures both the power of the discipline and the controversy it provokes. World Commission on Environment and Devel 叩 ment. 0 Co 襯襯 0 れ″ル (Oxford: Oxford University Press, 1987 ). An enormously influential book that has set the tone for international discussions of sustainable development. ADDITIONAL REFERENCES Ascher, WiIIiam. 14 の Go m 襯例なⅢル 4 ル ral R 0 ce & ・ Po ″ c. F ん r 加の叩加 0 Co ″れ否 (Baltimore, MD: J0hns H 叩 kins University Press, 1999 ). Brander, James A. and M. Scott Taylor. "The SimpIe Economics of Easter lsland: A Ricardo-MaIthus ModeI of Renewable Resource Use," 襯催たロれ Eco れ 0 襯た肥 Vol. 88 , No. 1 (March, 1998 ) : 119 ー 138. Portney, P. R. "The Growing Ro 厄 of Economics in Environmental Decisionmaking,' E れ ro れ襯 e Vol. 40 , No. 2 ( 1998 ) : 14. DISCUSSION QUESTIONS 1. A central concept in the Beyond 2 ん / m 添 view Of the future is the finiteness Of resources. ln The ″襯 e R 0 ″尾 e , JuIian Simon makes the point that calling the resource base "finite" is mislead- ing. TO illustrate this point he uses a yardstick, with its one-inch markings, as an analogy. The dis- tance between ⅲ , 0 markings is finite—one inch—but an infinite number Of points is contained within that finite space. Therefore, in one sense, what lies between the markings is finite, but in another, equally meaningful sense, it is infinite. ls the concept 0f a finite resource base useful or not? Why? 2. This chapter contains two rather different views of the future. Because the validity of these views cannot completely be tested until the time periOd covered by the forecast has passed ()O that pre- dictions can be matched against actual events), hOW can we ever hope t0 establish whether one is a better view than the other? What criteria might be proposed for evaluating predictions? 3. Positive and negative feedback loops lie at the core Of systematic thinking about the future. As you examine the key forces sh 叩 ing the future, what examples 0f positive and negative feedback 100PS can you uncove r?

54 劭叩 r 3 加 0 the E れⅵ ro れ襯 e れたビ 0 ホ Dixon, J0hn A. and Maynard M. Hufschmidt. ECO れ 0 襯たんわれ c んれ晦″ for the E れれ襯日 Bal - timore, MD: J0hns H 叩 kins University Press, 1986 ). Haneman, W. Michael, "Valuing the Environment Through Contingent Valuation," JO レ m 記砿 ECO れ 0 襯 / c P 催 ect か VOI. 8 , NO. 4 (Fall, 1994 ) : 1973. Harrington, W. , R. D. Morgenstern, and p. Nelson, "Predicting the Costs 0f Environmental Regulations: How Accurate Are Regulators' Estimates?" E れ房 ro れ襯 e 41 ( 7 ) : 10 ー 14 , 4074. Howarth, R. B. and R. B. Norgaard. "Environmental Valuation under Sustainable Devel 叩 ment, 襯催 / ca れ Eco れ 0 襯た R 肥 VOI. 82 , NO. 2 ( 1992 ) : 473777. Kosz, M. "VaIuing Riverside Wetlands: The Case 0f the'Donau-Auen' National Park," Ecological ECO- れ 0 襯た s V01. 16 , NO. 2 ( 1996 ) : 109 ー 127. Loehman, E. T. , et al. "Willingness t0 pay for Gains and Losses in VisibilitY and Health," んれ ECO れ 0 襯 - ics Vol. 70 , No. 4 ( 1994 ) : 478 ー 498. Loomis, J. B. "Measuring The Economic Benefits 0f Removing Dams and Restoring the Elwha River: Results of a Contingent Valuation Survey," Water 0 c 犬 2 ch VOI• 32 , NO. 2 ( 1996 ) : 441747. Navrud, S. and E. D. Mungatana. "Environmental Valuation in Developing Countries: The Recreational value 0fWiIdIife Viewing, ” ECOZ0亟C記EC0れ0襯たS VOI. 11 , NO. 2 ( 1994 ) : 135 ー 151. Orians, Gordon H. , et al., ed. The p 尾耀われ and んわれ砿 B わあグ c 記 0 c (Seattle' WA: Uni- versity 0f Washington Press, 1990 ). peters, C, et al."Valuation of an Amazonian Rainforest," Ⅳ尾 VOI. 339 ( 1989 ) : 655 ー 56. Siachoono, S. M. ℃ ontingent Valuation as an Additional TOOI for Evaluating Wildlife Utilization Man- agement in Zambia: Mumbwa Game Management Area," ス襯わわ V01. 24 , NO. 4 ( 1995 ) : 246 ー 249. Van Houten, George and Maureen L. Cr 叩 per. 'When ls a Life TOO CostlY t0 Save? The Evidence from U. S. Environmental Regulations," 面″ rn 記砿 E れ ro れ襯 e れね I ECO れ 0 襯た s dMa れ e 襯 e VOI. 30 , No. 3 ( 1996 ) : 348 ー 368. Whitehead, J. C. , et al. "Assessing the Validity and ReliabilitY 0f Contingent Values: A Comparison 0f On- Site Users, Off-Site Users, and Non-Users," 面″砿 E れ ro れ me れ IECO れ 0 襯 / cs れ dM れ 20e 襯 e V01. 29 , No. 2 ( 1995 ) : 238 ー 251. DISCUSSION QLI [ 5 0N5 1. ls risk neutrality an appropriate assumption for cost-benefit analysis? Why or why not.? Does it seem more appropriate for some environmental problems than others? If SO, which ones? If you were evaluating the desirability Of locating a hazardous waste incinerator in a particular town, would the Arrow-Lind rationale for risk neutrality be 叩 propriate? Why or why not? 2. Was the executive order issued by President Reagan mandating a heavier use Of cost-benefit analy- sis ⅲ regulatory rule making a step toward establishing a more rational regulatory structure, or was it a subversion Of the environmental policy process? Why? 3. Certain environmental laws prohibit EPA from considering the costs Of meeting various standards when the levels 0f the standards are set. ls this a good example 0f "putting first things first" or sim- ply an unjustifiable waste Of resources? Why?

De Co れれな Emission Charges 277 Hazardous PoIIutants 278 Emissions Fees 280 EXAM PLE 14.3 EFFICIEN 「 REGULATION OF HAZARDOUS po 乢し AN 「 s : THE BENZENE CASE XV 281 な Summary 282 Further Reading 283 Additional References 283 Discussion Questions 284 Acid Rain and Atmospheric Modification INTRODUCTION 285 REGIONAL POLLUTANTS 286 Acid Rain 286 EXAMPLE 15.1 ADIRONDACK ACID 旧 CATION 288 EXAMPLE 15.2 THE SULFUR ALLOWANCE PROGRAM 292 285 EXAMPLE 15.3 WHY AND How DO ENVIRONMENTALISTS Buy POLLUTION? GLOBAL POLLUTANTS 295 Ozone DepIetion 295 00b Warming 297 293 EXAMPLE 15.4 TRADEABLE PERMITS FOR OZONE-DEPLETING CHEMICALS 298 EXAMPLE 15.5 ETHICS, RISK AVERSION, AND THE GREENHOUSE EFFECT 300 Summary 305 Further Reading 306 Additional References 307 Transportation 309 INTRODUCTION 309 THE ECONOMICS OF MOBILE-SOURCE POLLUTION lmplicit Subsidies 31 1 Externalities 312 The Consequences 313 POLICY TOWARD MOBILE SOURCES 314 Some History 314 Structure of the u. S. Approach 315 引 1 EXAMPLE 16.1 PROJECT XL—THE QUEST FOR EFFECTIVE, FLEXIBLE REGULATION European Approaches 318 317

86 劭叩 r 5 S 加 D 卲 el 叩 m 例た De れ加 the CO れ c 印 / ln our context this 叩 proach would suggest a hypothetical meeting Of all members Of pre- sent and future generations tO decide rules for allocating among generations. Because these members are prevented by the veil Of ignorance from knowing the generation tO which they will belong, they will not be excessively conservationist (lest they turn out tO be a member Of an earlier generation) or excessively exploitative (lest they become a member Of a later generation). What kind 0f rule would emerge from such a meeting? One possibility is the sustainability criterion. The s ね加わ市″われ suggests that, at a minimum, future generations should be left no worse Off than current generations. Allocations that impoverish future generations in order tO enrich current generations, are, according tO thiS criterion, patently unfair. ln essence, the sustainability criterion suggests that earlier generations are at liberty t0 use resources that would thereby be denied t0 future generations as long as the well-being Of future generations remains just as high as that Of a11 previous generations. On the Other hand' diverting resources from future use would violate the sustainability criterion if it reduced the well-being 0f future generations below the level enjoyed by preceding generations. One Of the implications Of this definition Of sustainability is that it is possible tO use resources (even depletable resources) as long as the interests Of future generations could be protected. DO our institutions provide adequate protection for future generations? We begin with examining the conditions under which efficient allocations satisfy the sustainability cri- terion. Are a11 efficient allocations sustainable? ◆ ARE EFFICIENT ALLOCATIONS FAIR? ln the numerical example we have constructed, it certainly does not appear that particular efficient allocation satisfies the sustainable criterion. ln the two-period example, more resources are allocated tO the first periOd than tO the second. Therefore, net benefits in the second periOd are lower than in the first. Sustainability does not allow earlier generations tO profit at the expense Of later generations, and this example certainly 叩 pears tO be a case where that is happening. Yet choosing this particular extraction path does not prevent those in the first periOd from saving some Of the net benefits for those in the second periOd. If the allocation is dynam- ically efficient, it will always be possible tO set aside sufficient net benefits accrued in the first period for those in the second period, SO that those in the second periOd will be at least as well off as they would have been with any Other extraction profile. We can illustrate this point with a numerical example which compares a dynamic effi- cient allocation with sharing tO an allocation where all resources are committed equally tO each generation. SUPPOSe, for example, you believe that setting aside half ( 10 units) 0f the available resources for each periOd would be a better allocation than the dynamic efficient allocation. The net benefits t0 each ßenod from this alternative scheme would be $ 40.00 (can you see why?). NOW let's compare this t0 an allocation Of net benefits that could be achieved with the dynamic efficient allocation. If the dynamic efficient allocation is t0 satisfy the sustainability criterion, we must be able tO show that it can produce an outcome such that each generation would be at least as well off as it would be with the equal allocation. Can that be demonstrated?