Growth and long-run sustainability

Abstract

From any state of economic and environmental assets, the maximin value defines the highest level of utility that can be sustained forever. Along any development path, the maximin value evolves over time according to investment decisions. If the current level of utility is lower than this value, there is room for growth of both the utility level and the maximin value. For any resource allocation mechanism (ram) and economic dynamics, growth is limited by the long-run level of the maximin value, which is an endogenous dynamic sustainability constraint. If utility reaches this limit, sustainability imposes growth to stop, and the adoption of maximin decisions instead of the current ram. We illustrate this pattern in two canonical models, the simple fishery and a two-sector economy with a nonrenewable resource. We discuss what our results imply for the assessment of sustainability in the short and the long run in non-optimal economies.

Extraction path and sustainability

“…For 0 0 ≥ 0 , a unique that maximizes min 23 Some studies (e.g. Cairns and Martinet, 2021) define sustainability in terms of maximin value implying that economy may be considered sustainable if this value increases despite current consumption decline. This approach, as argued above, requires a very accurate definition of utility to avoid a short-run implicit collapse (despite the growth of sustainability indicator) due to a fast drop in current consumption.…”

“…Therefore, a cautious underestimation of resource stock works not only as an insurance 29 For analytical goals, it may be convenient to express extraction via current stocks and using the criterion (e.g. Cairns and Martinet, 2021). In practice, however, it can be less robust than recalculation because preferences are changing in time (Loewenstein et al, 2003) and coordination of many activities requires the time path of extraction.…”