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weak and strong sustainability indicators and regional environmental resources michael getzner department of economics university of klagenfurt klagenfurt austria keywords 1 introduction rules on a regional level regarding water sustainable ...

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              Weak and strong sustainability indicators and
              regional environmental resources
                                                    Michael Getzner
                                                    Department of Economics, University of Klagenfurt, Klagenfurt, Austria
              Keywords                                1. Introduction                                                 rules on a regional level regarding water
              Sustainable development,                                                                                resources. If sustainability as a concept for
              Groundwater, Capital                  Manyattempts to operationalize the ecologi-                       future ecological, economic and social devel-
              Abstract                              cal concept of sustainability have been un-                       opment is taken seriously, only physical
              Weak sustainability indicators of-    dertaken (not only) by the economics                              constraints (taking time as an additional
              ten suffer from their unrealistic     profession during recent years. It seems that                     factor of production into account) and an
              and inadequate assumption of          manymainstream economists tend to focus                           applied precautionary principle can indeed
              substitutability between natural                                                                        lead to sustainability.
              capital and man-made capital.         their research on the assumption of substi-
              Defining sustainable development      tutability between man-made(manufactured)
              in these terms is almost trivial;     capital and natural capital (natural re-
              measurement problems as well as       sources, goods and services). The crucial                           2. Substitutability and
              methodological and sociological                                                                         sustainability
              issues maybeconsideredasmajor         points of this discussion can be seen espe-
              flaws of operationalizing weak        cially in contributions by Solow (1993) on a                      Onthe basis of several attempts to operatio-
              sustainability indicators. On the     more theoretical level and by Pearce and                          nalize the framework as well as the indica-
              other hand, strong sustainability     Atkinson (1993) on an empirical level who all
              indicators rely on physical mea-                                                                        tors for a sustainable development (e.g.
              sures. This ecological economics      plead for at least partial substitutability. As                   WCED,1987; Daly, 1992; Weterings and
              approach concedes that the            Daly (1992) and others have pointed out, the                      Opschoor, 1992; Schmidt-Bleek, 1994; Wup-
              economy is embedded in matter         assumption of substitutability cannot be                          pertal-Institut fuÈr Umwelt, Klima und Ener-
              and energy flows ultimately lim-      drawn in the search for an adequate treat-
              ited by solar energy input and the                                                                      gie, 1995) the environmental and ecological
              Earth's capability to produce re-     ment of natural resources in economic and                         economics field is working on models to
              newable resources and to cope         ecological modeling and policy.                                   define the significance and the crucial ele-
              with emissions of all kinds. Draw-       This article tries to clarify some questions                   ments of an economic development which
              ing on the example of regional        regarding weak and strong sustainability                          meets sustainability criteria. The starting
              environmental resources, ground-      indicators as well as sustainability rules for
              water in Austria, some thoughts                                                                         point of this discussion is the notation of the
              on strong regional sustainability     dealing with regional natural resources.                          ``total economic value'' (TEV) which primar-
              indicators are presente                  In the first part of the paper, the assump-                    ily sets the scene. The TEV should in
                                                    tion of substitutability is discussed in var-                     principle comprise all relevant economic
                                                    ious aspects. Given weak sustainability                           values of a natural resource. The size of the
                                                    indicators, calculating the ``sustainability'' of                 TEVdepends not only on the decision which
                                                    a regional system (or national economy)                           values (or preferences) are to be counted as
                                                    becomes almost trivial. If the rate of depre-                     such, but also on the choice of the relevant
                                                    ciation of natural capital is at least offset by                  discount rate. The economic value of an asset
                                                    savings (accumulation) of man-made capital,                       (e.g. a machine, a stock of natural assets) is
                                                    the economy is on a sustainable development                       conventionally calculated by all goods and
                                                    path. Besides the missing of the social                           services that can be produced (or main-
                                                    ``branch'' of sustainability, the depreciation-                   tained) by the asset now and in the future.
                                                    savings approach lacks understanding of the                       While with man-made capital this way of
                                                    fundamental objections against putting a                          calculating the economic value may be an
                                                    monetary value on natural resources (e.g.                         appropriate way of dealing with economic
                                                    biodiversity). Some crucial aspects in this                       trade-offs and internal interest rates of in-
                                                    context are discussed (e.g. lexicographic                         vestments, informational problems with nat-
                                                    preferences, ``consumer-vs-citizen'' ap-                          ural assets can hardly be overcome. The
              Environmental Management              proach).                                                          choice of discount rate is a scientific and
              and Health                               The strong sustainability indicators are in                    empirical problem known for long: should a
                      1999] 170±176
              10/3 [                                favor of different approaches, e.g. the save-                     rate of time preference which might be very
              #MCBUniversity Press                  minimum-approach. The second part of the                          small due to ethical considerations regarding
              [ISSN 0956-6163]                      paper deals with practical sustainability                         future generations be applied, when an
              [170]
             Michael Getzner                  individual discount rate applied to consumer              the existence value is given by preferences
             Weak and strong                  goods or interest rates of alternative invest-            for protection of natural resources merely
             sustainability indicators and    ments is probably much higher? However,                   because they exist (based e.g. on altruistic or
             regional environmental
             resources                        theTEVis ±intheory ±dividedbetweentwo                     paternalistic motives). Non-use preferences
             Environmental Management         crucial components (Pearce and Turner,                    are valued mostly by direct measurement
             and Health                       1990):                                                    methods such as the contingent valuation
             10/3 [1999] 170±176                              TEV ˆUV‡NUV                         …1†   method (CVM) founded on welfare econom-
                                                                                                        ics. Monetary measures for non-use values
                                              Equation (1) subdivides the total economic                include compensating and equivalent com-
                                              value (TEV) into two elements which are                   pensation, operationalized by means of will-
                                              both difficult to define and to measure. The              ingness-to-pay (WTP)orwillingness-to-accept
                                              use value (UV) of a natural resource is                   (WTA) bids in a hypothetical contingent
                                              defined as the economic value of the resource             market. As there are no markets on which
                                              derived by goods and services produced or                 non-use characteristics of natural resources
                                              directly consumed. The use value in this                  are traded, the ``complementary'' good of
                                              sense can be calculated by empirically test-              these values is the consumer's sacrifice she
                                              ing the importance of the natural resource in             feels in her wallet when purchasing a per-
                                              theproductionfunctionoffirms,aswellasin                   sonally satisfying quality level of the natural
                                              the utility function of private households. A             resource. This directly connects to the pro-
                                              production function of a firm thus can be                 blems of substitutability and methodological
                                              enlarged by an argument explaining natural                measurement problems discussed in detail
                                              resources inputs (e.g. Q ˆ f…L;C;R†; where                below. Besides informational restrictions,
                                              theoutputofthefirmdependsnotonlyonthe                     fundamental uncertainties as well as pro-
                                              input of the ``classical'' factors of production          blems of democratic public choice, this
                                              (labor L, capital C); additionally natural                approach directly assumes the willingness to
                                              resources (R) are included. The concept of                exchange natural goods for money and that
                                              use values of natural resources (UV) is not               cannot be presupposed as being a priori
                                              limited to direct economic benefits such as               given with all respondents.
                                              raw materials, consumption goods and                         Especially neoclassical environmental
                                              scientific benefits. Preferences for the pro-             economics focuses on the so-called weak
                                              tection of the resource because of its eco-               sustainability rule assuming total substitut-
                                              nomic function as fundamentals for                        ability between natural capital and man-
                                              recreation and sports are included as well.               made capital. The weak sustainability rule
                                                 Usually cash values for productive and                 has its roots in capital theory (Victor, 1991).
                                              consumptivefunctions as well as preferences               The idea behind this is that mankind has a
                                              for recreation are derived by means of                    certain total capital stock at its disposal. This
                                              indirect valuation methods such as the                    capital stock K consists of two components:
                                              production function approach, hedonic pri-                                    K ˆK ‡K                         …2†
                                                                                                                                   N      M
                                              cing and travel cost analysis. The basic
                                              assumption in all these approaches is that                The total capital stock K is made up of K
                                                                                                                                                           N
                                              the demand for a complementary good (e.g.                 (natural capital) and K (man-made capital,
                                                                                                                                    M
                                              value added in the pharmaceutical industry,               manufacturedcapital).Thefirstpart(natural
                                              demandforapartments,numberofvisitstoa                     capital) is measured by the TEV discussed
                                              recreation area) is directly correlated to                above. Man-made capital consists of all
                                              environmental indicators like availability                physical (machinery, infrastructure) and
                                              and quality of resources for industrial pro-              nonphysical (human capital) parts of the
                                              duction, emissions in a certain neighborhood              anthroposphere. An at least constant (non-
                                              as well as beauty of and biodiversity in the              decreasing) capital stock K is the indicator
                                              recreation area.                                          for a sustainable development. This weak
                                                 The second even more important element                 sustainability rule presupposes that natural
                                              of the TEV is the non-use value (NUV) of a                capital and man-made capital can be traded
                                              naturalresourcecomprisingallvalueswhich                   off against each another. As long as the
                                              are derived besides the direct (anthropo-                 ``worth'' of the capital, regardless of its
                                              centric) use of a resource. Typically the                 composition, is non-decreasing over time,
                                              protection of species is considered mainly as             sustainability is achieved. Interestingly, em-
                                              a non-use value due to aesthetic or ethical               pirical studies in this field mainly take the
                                              values. NUVs can be divided into the well-                present capital stock as given, only consid-
                                              known components of existence, option, and                ering that these entire capital stocks remain
                                              bequest values. While option, and bequest                 at least constant. There is nearly no con-
                                              values can be seen as premiums assuring the               sideration as to whether the actual capital
                                              future existence of the resource for one's own            stock may be too low to maintain (sustain)
                                              future use or as a heritage to one's children,            economic development in the future.
                                                                                                                                                        [171]
             Michael Getzner                  Furthermore, assuming that a species only                 inequation(3)becomesalmosttrivial.Pearce
             Weak and strong                  has one marketable service to offer, there                andAtkinson(1993)haveadoptedthissimple
             sustainability indicators and    would not be a reason to protect that species             conclusion for their work on a number of
             regional environmental
             resources                        if this particular service can be provided by             national economies. Compensating for the
             Environmental Management         other (artificial) means.                                 different income levels, they found that those
             and Health                          Equation (2) is an expression of the view              industrial countries (USA, Japan, Germany),
             10/3 [1999] 170±176              that natural goods and services can, in                   which are consuming relatively as well as
                                              principle, be supplied by man-made capital,               absolutely the highest level of resources
                                              that means that natural benefits can be                   (energy, raw materials etc.), are the ones
                                              artificially produced or that forgone or lost             facing a sustainable future while poor coun-
                                              ecological benefits can be compensated by                 tries like Indonesia, Nigeria or Madagascar
                                              other means. Even if the natural capital                  are consuming more of their capital than
                                              depreciates, there is no danger for sustain-              they add as savings to their capital[1].
                                              ability if, at the same time, man-made capital               This rather astonishing result shows on
                                              is being produced to compensate for these                 one hand that weak sustainability indicators
                                              losses. The substitutability assumption ac-               like the savings rule according to (3) incor-
                                              cording to this capital theory approach is a              porate significant measurement problems,
                                              strictly anthropocentric one, and it is ``opti-           andontheotherhand,thatsuchanindicator
                                              mistic'' insofar that, even if the technological          seems to be not very helpful in discussing
                                              standard today does not allow a perfect                   which economy is on a sustainable develop-
                                              substitution between natural and man-made                 ment path. Besides the fact that the substi-
                                              capital, with increasing scarcity of natural              tutability assumption is at least doubtful,
                                              resources approaching depletion, and higher               there are a number of problems associated
                                              prices, innovations will take place to com-               with the monetary valuation of natural
                                              pensate for these losses. This viewpoint is               capital that is needed to compare natural
                                              also partly incorporated in Daly's second                 capital and man-made assets. Section 3 con-
                                              sustainability criterion which states that                centrates on some crucial elements of mone-
                                              non-renewable resources are allowed to be                 tary valuation of natural capital.
                                              depleted when new technologies are financed
                                              to substitute these resources at the same
                                              time. Financing should take place by levying                3. Environmental valuation and
                                              a kind of scarcity fee (Daly, 1992).                      substitutability
                                                 The depreciation of natural capital in
                                              general can, as already mentioned, be com-                3.1 Lexicographic preferences
                                              pensatedbyanincreaseinman-madecapital.                    As mentioned above, the savings rule ap-
                                              It is not necessary to calculate the total                proach discussed in section 2 is an anthro-
                                              economic value (TEV) or the total capital (K)             pocentric one with the aim to derive the
                                              to conclude whether an economy is on a                    ``worth'' of an asset[2], be it natural or man-
                                              sustainable development path. The only                    made, by valuing the functions provided by
                                              thing whichhastobeknownisameasurefor                      this asset (valuation of assets in the ``cash
                                              the depreciation of capital as well as the                economy'' according to Price, 1993). Even if it
                                              savings per period (usually one year). This               is assumed that all functions can be valued
                                              leads to a measurement of sustainability by               fromthis viewpoint, e.g. by asking people for
                                              the ``savings rule'' which is an expression for           their willingness-to-pay for the protection of
                                              the ``marginal sustainability'' of an economy.            species because they hold altruistic motives
                                              If the parameter Z is positive, the economy               or feel moral satisfaction, the method of
                                              tends to a higher degree of sustainability:               monetary valuation presupposes that people
                                                             Z>0if S>… ‡ †                      …3†   are prepared to trade natural goods for
                                                                              N     M                   money. It is this trade-off people are willing
                                              where  denotes the periodical depreciation               to accept. But this approach leaves out
                                                        N
                                              (exploitation) of natural capital, while           is    preferences which cannot be stated by re-
                                                                                               M
                                              the depreciation of man-made capital. S                   spondents in a monetary form. This is
                                              denotes all savings of the economy (both in               especially the case when respondents either
                                              natural and man-made capital). If total sav-              are not able to make adequate deliberations
                                              ings are higher than total depreciation, the              onthesubject, or when respondents refuse to
                                              economy is on a sustainable development                   value natural goods in monetary terms.
                                              path because there are net savings which                  Refusing to answer a valuation question can
                                              increase the total capital stock needed to                in many cases be explained by respondents'
                                              produce goods and services (benefits for                  point of view that there are moral (ethical)
                                              humans). In this sense, abstracting from                  obligations that cannot be valued because
                                              rather difficult problems of measuring the                there is only ``right'' or ``wrong''. In this case,
                                              depreciation of natural capital, calculating Z            economists have spoken about lexicographic
             [172]
             Michael Getzner                  preferences (e.g. Hanley et. al., 1995; Spash             informational constraints facing individual
             Weak and strong                  and Hanley, 1995). These are preferences                  perceptions of natural values and future
             sustainability indicators and    whereatrade-off between the good for which                events. Theory concedes that ± ultimately ±
             regional environmental
             resources                        these preferences are held and other goods is             in every market decision, risk and uncer-
             Environmental Management         denied on (probably) ethical grounds. Where               tainty are captured because fully informed
             and Health                       natural goods are concerned, many respon-                 agents incorporated the future in today's
             10/3 [1999] 170±176              dents (up to one quarter) hold preferences of             behavior. Therearemanyproblemswiththis
                                              that kind. This can be a serious flaw for the             assumption, e.g. it cannot be presupposed
                                              valuation approach which is founded on the                thateconomicagentsvaluefutureeventsbya
                                              neoclassical theory of exchange.                          discount rate adequate in a societal perspec-
                                                 Sustainability in its ``weak'' form is based           tive. ``Adequate'' in this context means that a
                                              on this willingness to exchange. Therefore,               distinction should be made between discount
                                              preferences in a lexicographic form, where                rates for trading off present versus future
                                              there might be only one ``right'' or ``wrong''            consumption and valuing the welfare of
                                              development decision, which can be the case               future generations. Furthermore, these dis-
                                              with biodiversity or landscape protection, do             count rates may significantly differ from the
                                              not fit into the model of substitutability of             rates at which ecological systems regenerate,
                                              natural capital and man-made capital                      not to speak of geological time scales.
                                              (money).                                                     Strong sustainability indicators, only in-
                                                                                                        directly based on individual perceptions of
                                              3.2 Consumer vs citizen                                   future events[3], try to focus on longer time
                                              Anadditional argument against ``weak'' sus-               scales than weak indicators. Besides this
                                              tainability indicators may be seen in the                 time scale problem, informational con-
                                              divergence of socio-economic roles of eco-                straints of individuals as well as risk neutral
                                              nomic agents as ``consumers'' and ``citizens''.           or risk loving individual behavior contrary
                                              There is a lively debate in ecological eco-               to risk-averse social behavior should lead to
                                              nomics and surrounding fields (e.g. institu-              more stringent strong sustainability frame-
                                              tional economics) concerning to what extent               works. Gowdy and Olson (1994) ± making the
                                              the individual choice may differ, depending               connection between individual valuations
                                              on the ``viewpoint'' or ``role''. Sagoff (1988)           and the knowledge science has accumu-
                                              started this discussion by stating that indi-             lated ± write: ``Contingent valuations, even
                                              viduals are not only consumers acting ac-                 in theory, are no better than the information
                                              cording to their personal sacrifice when                  available to the most knowledgeable people.
                                              valuing natural goods. The monetary valua-                Knowledgeoftheintricaciesoftherainforest
                                              tion operationalizing the ``weak'' sustain-               environment [...] is almost nonexistent even
                                              ability approach is based on an individual                among biologists specializing in that area''
                                              utility function where the willingness to pay             (p. 169). And concluding: ``What sense does it
                                              depends on the different ``utility'' levels               make to set environmental policy on the
                                              obtained as consumer. By contrast, espe-                  basis of opinion surveys of an uninformed
                                              cially when dealing with public goods, eco-               public?'' (p. 170). It cannot be assumed that
                                              nomic agents do not only maximize their                   economic agents in their individual market
                                              individual utility but act as citizens con-               environment behave as if they follow the
                                              cerned for the better of society.                         precautionary principle of environmental
                                                 Taking this divergence of roles into ac-               policy.
                                              count, it becomes clear that a weak sustain-
                                              ability rule, based on market prices and
                                              consumer choices lacks the preferences of                   4. Strong sustainability indicators
                                              economic agents which they hold as citizens.              for regional water resources in
                                              With the ``weak'' criteria some preferences               Austria
                                              maynot be included, and measuring only
                                              market values instead of values held by the               Onthebasis of the discussion of the weak
                                              ``civil society'' may pose serious dangers to a           sustainability rule and its foundations, the
                                              sustainable development. The latter values                ground for approaching the concept of a
                                              mayonly be captured by ``strong sustain-                  strong sustainability rule is prepared. To sum
                                              ability'' criteria especially due to their in-            up, the main problems of the weak sustain-
                                              commensurability.                                         ability rule are the lack of substitutability
                                                                                                        between natural and man-made capital, and
                                              3.3 Time, information and the                             major flaws of the individualistic monetary
                                              precautionary principle                                   valuationofnaturalgoodsingeneral.Itcanbe
                                              Before discussing sustainability for a regio-             concluded that the weak sustainability rule
                                              nal natural resources in more detail, a final             has in principle a different world view
                                              point should be made regarding the                        regardingthe``embeddedness''oftheeconomy
                                                                                                                                                        [173]
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...Weak and strong sustainability indicators regional environmental resources michael getzner department of economics university klagenfurt austria keywords introduction rules on a level regarding water sustainable development if as concept for groundwater capital manyattempts to operationalize the ecologi future ecological economic social devel abstract cal have been un opment is taken seriously only physical dertaken not by constraints taking time an additional ten suffer from their unrealistic profession during recent years it seems that factor production into account inadequate assumption manymainstream economists tend focus applied precautionary principle can indeed substitutability between natural lead man made research substi defining tutability manufactured in these terms almost trivial re measurement problems well sources goods services crucial methodological sociological issues maybeconsideredasmajor points this discussion be seen espe flaws operationalizing cially contributions...

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