Chapter 5 Efficiency and Sustainability TP
Economic efficiency: equi-marginal principle; where marginal willingness to pay equals marginal costs
Static and Dynamic (Inter-temporal) efficiency
Marginal Social Costs
Marginal Social Benefits
Maximization of NET Social Benefits= efficiency criterion
Dynamic efficiency: maximization of present value of net benefits
Marginal User Costs: opportunity costs of using some quantity today on the future use of the quantity.
Farmer planting corn: zero user costs
Tree farmer harvesting trees: positive user costs
Extracting phosphate: positive user costs
Natural Resource Rents: in situ price (stumpage price). It is not a value.
Sustainability: Sustainable Development so as to make future generations as well off as today’s
generation
Strong sustainability: nature of the remaining stock of natural capital should not decrease
Weak sustainability: the value of natural plus physical capital should not decline
Environmental sustainability: the physical flows of individual resources should be maintained
Hartwick Rule: If all the scarcity rent (user costs) from the use of scarce resources is invested in capital,
the resulting allocation will satisfy weak sustainability.