TY - JOUR

T1 - Irreversibility and uncertainty cause an intergenerational equity-efficiency trade-off

AU - Hoberg, Nikolai

AU - Baumgärtner, Stefan

PY - 2017/1/1

Y1 - 2017/1/1

N2 - Two important policy goals in intergenerational problems are Pareto-efficiency and sustainability, i.e. intergenerational equity. We demonstrate that the pursuit of these goals is subject to an intergenerational equity-efficiency trade-off. Our analysis highlights two salient characteristics of intergenerational problems and policy: (i) temporal irreversibility, i.e. the inability to revise one's past actions; and (ii) uncertainty of future consequences of present actions in human-environment systems. We employ a two-non-overlapping-generations model that combines an intragenerational production decision on the use of circulating capital and a non-renewable resource, with a negative intergenerational externality as an unforeseen contingency. If initially unknown problems become apparent and policy is enacted after irreversible actions were taken, policy-making faces a fundamental trade-off between ex-post Pareto-efficiency and sustainability. That is, one can achieve either one of these two goals, but not both.

AB - Two important policy goals in intergenerational problems are Pareto-efficiency and sustainability, i.e. intergenerational equity. We demonstrate that the pursuit of these goals is subject to an intergenerational equity-efficiency trade-off. Our analysis highlights two salient characteristics of intergenerational problems and policy: (i) temporal irreversibility, i.e. the inability to revise one's past actions; and (ii) uncertainty of future consequences of present actions in human-environment systems. We employ a two-non-overlapping-generations model that combines an intragenerational production decision on the use of circulating capital and a non-renewable resource, with a negative intergenerational externality as an unforeseen contingency. If initially unknown problems become apparent and policy is enacted after irreversible actions were taken, policy-making faces a fundamental trade-off between ex-post Pareto-efficiency and sustainability. That is, one can achieve either one of these two goals, but not both.

KW - Sustainability sciences, Management & Economics

KW - climate change

KW - closed ignorance

KW - intergenerational equity-eciency tradeo

KW - irreversibility

KW - Pareto-eciency

KW - sustainability

KW - unawareness

KW - Climate change

KW - Closed ignorance

KW - intergenerational equity-efficiency trade- of

KW - Irreversibility

KW - Pareto-efficiency

KW - sustainability

KW - unawareness

UR - http://www.scopus.com/inward/record.url?scp=84991226908&partnerID=8YFLogxK

U2 - 10.1016/j.ecolecon.2016.08.015

DO - 10.1016/j.ecolecon.2016.08.015

M3 - Journal articles

VL - 131

SP - 75

EP - 86

JO - Ecological Economics

JF - Ecological Economics

SN - 0921-8009

ER -