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Lecture 2 - Social Choice

This document discusses foundations of environmental economics and social choice theory. It covers topics like utilitarianism, libertarianism, welfare theory, and sustainability. Alternative views on ethics are presented as well as criticisms of mainstream economics approaches.

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Sam
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26 views

Lecture 2 - Social Choice

This document discusses foundations of environmental economics and social choice theory. It covers topics like utilitarianism, libertarianism, welfare theory, and sustainability. Alternative views on ethics are presented as well as criticisms of mainstream economics approaches.

Uploaded by

Sam
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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ENVIRONMENTAL ECONOMICS | LECTURE 2: SOCIAL CHOICE

Environmental Economics and Social Choice

 Foundations
 Why is ethics so important?
 Alternative views, including the standard economic position
 Sustainability
 Environmental economics compliments public economics
 It is normative

Why Ethics?

 Environmental economics: a discipline concerned about the allocation,


distribution and use of environmental resources
 Some of these ethical questions are positive, whereas others are normative
 Mainstream economics is based on utilitarian ethics
 However, utilitarianism is not universally accepted

Foundations

 Naturalist moral philosophy


 Humanist moral philosophy
 Libertarianism
 Utilitarianism
 Social welfare
 Distributional implications
 Intertemporal welfare
 Rawls
 Other criticism

Immanuel Kant

 Introduced the idea of a “moral agent” and “universality”


 Moral agent: most basic design of a human being
 Universality: if a rule applies to one moral agent, it applies to any
Naturalism

 Naturalist moral philosophy extends rights to other species


Extending rights to:
 Poor
 Females
 Non-whites
 Higher animals
 Sentient beings
 All beings including rocks
 Overall, there are many different moral agents of different genders, ethnicities
and colour
 Utilitarianism is about the government doing the greatest good for the greatest
number of people
 Utility: pleasure, satisfaction, absence of pain

Libertarianism

 Libertarianism is one of the two school of Humanism

Focuses on:

 Individual rights and liberties


 Primacy of process

Locke: original property is just if acquired through labour

Nozick: property is just if obtained through free consent

 No concept of consequential justice


 No role for distributional policy

Government has a role in:

 Unjust holdings
 Open access, common property
 Externalities
Utilitarianism

 Utilitarianism is about individual pleasure, happiness and wellbeing


 Individual utility and social welfare
 Primacy of outcomes
 Contains no concept of procedural justice
 Says that government policy should strive for the greatest good for the greatest
number
 Two approaches to utility

Narrow: utility is individual, human utility; welfare is sum of utilities

Broad: utility includes altruism and non-humans; welfare is some function of


utilities

Welfare theory

 Welfare theory states that Situation A is Pareto Superior to Situation B if at least


one is better off, and none are worse off
 A situation is Pareto Optimal, or Efficient if there are no Pareto Improvements
 Situation A is a potential Pareto Improvement to Situation B if it is Pareto
Superior after transfers, that is if the winners compensate the losers
 Potential means that some people are better off and others worse off
 However, the winners compensate the losers

Welfare theorems

First welfare theorem: a perfectly competitive market is a Pareto Optimum

 This implies leaving everyone to their own devices and collective bargaining

Second welfare theorem: Any Pareto Optimum can be achieved as a perfectly


competitive equilibrium with the appropriate reallocation of resources

Arrow

If there are:

 2 agents and 3 goods (or 3 agents and 2 goods), and


 Utility cannot be compared, then
 Individual preferences (utility functions) cannot be aggregated to social
preferences, a social welfare function that satisfies:
1. Non-dictatorship
2. Unrestricted domain
3. Independence of irrelevant alternatives
4. Monotonicity
5. Non-imposition
6. Pareto efficiency (monotonicity and non-imposition)

Rawls

 Believed that justice is what everyone would agree to if all were free, rational and
impartial
 Veil of ignorance
 Skills
 Position
 Attitude
 Fundamental principles
 Maximum liberty, no infringement on other’s liberties
 Resource difference only if
 It makes everyone better off
 Attached to position
 Rawls may have disagreed with maximising the utility of the worst off

Other criticisms

 The definition of utility is too narrow


 There is more than just goods and service e.g. freedom
 Freedom is not a human concept but a societal concept
 Standard utility does not include freedom
 Besides individual utility, there is also altruism and responsibility
 Utilitarianism may lead to repugnant conclusions
 Thus, utilitarianism is a poor description of behaviour
Sustainability

Sustainable development: development that meets the needs of the present without
compromising the ability of future generations to meet their own needs

 i.e. we should live our lives without ruining the lives of those who will come after
us

Sustainability comprises of:

1. Weak sustainability
 Non-declining utility
 Non-declining production opportunities
 Non-declining yields of resource services

2. Strong sustainability
 Non-declining natural capital stocks
 Ecosystem stability and resilience

3. Social Construct
4. All of the above, plus efficiency and equity

What does non-declining utility mean?

Pezzy: utility should not fall

Hartwick: consumption should not fall

Solow: consumption should be constant

Non-declining production opportunities

 Solow, Page
 Q = Q (L, KH, KN)
 No assumption about what consumption is, utility
 Production for whom?
 What is production?
 What time scale?
 Substitution is allowed

Non-declining natural capital stocks

Strong sustainability: no substitution is allowed

 Taken literally, this stops everything


 In practice, some substitution and compensation must be allowed, but how
much?
 Is spatial substitution allowed? Or, at what spatial scale?
 What stocks are maintained? Habitats, species, genes?
 What to do with viruses and pests?

Non-declining yields of resource services

 Back to an anthropocentric viewpoint, or not?


 Depends on services to whom?
 What are services?
 What time scale?
 What spatial scale?
 Substitution is allowed, as long as the service is generated

Ecosystem stability and resilience

 An ecocentric viewpoint, or is it?


 Is stability measured as stably as human needs?
 What is stability, resilience?
 Are ecosystems naturally stable?
 Beyond a point, no substitution of manufactured stocks and activities for natural
stocks and processes

A social construct

 Sustainability is, of course, defined as society would like to define it


 There is no objective definition possible
 Some argue that if only we get the procedure of defining sustainability right …
 This is an example of a political goal jumping the environmental agenda
Sustainability, equity and efficiency

 The sustainability debate includes issues of distributional justice and economic


efficiency
 The concept of sustainability cannot be blurred
unless for political reasons

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