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Title: Golden rules and second best shadow prices for sustainable development 
Author: Endress, Lee H.
Date: 1994
Abstract: This study puts the popular but vague concept of sustainable development on a firmer theoretical foundation. Drawing on neoclassical growth theory and the field of public economics, the study concentrates on two themes central to a theoretical consideration of sustainability: golden rules for resource management and capital accumulation, and second best shadow prices for ecological capital in distorted economies. Current research on sustainability focuses primarily on the case of nonrenewable resources with constant extraction cost and no backstop technology for providing a substitute resource. Sustainability is typically viewed in terms of imposing constants on growth, such as requiring aggregate consumption to be nondecreasing over time, or maintaining the value of the total capital stock, including both man-made and ecological capital, at a nondecreasing or even constant level. Another limitation of the literature is its reliance on first best, rather than second best, shadow prices for cost-benefit analysis and national income accounting in distorted economies. In contrast, this study takes a unified approach to resource modeling that admits renewable and nonrenewable resources as special cases. Extraction cost is assumed to rise as the resource stock is drawn down, but is bounded above by the unit cost of a backstop resource that serves as a substitute. This framework is used to drive modified golden rules and golden rules for capital accumulation and resource management that maximize utilitarian welfare, but also meet society's obligation to the future. In the case of golden rules, this is accomplished by setting the rate of social time preference equal to zero. The unified model of natural resources is also used to derive second best shadow prices of man-made and ecological capital in imperfect economies, so that net national product can serve as a true measure of social welfare. The study concludes that sustainability constraints on growth are likely to be redundant, infeasible, or dominated. Sustainable growth is best achieved by designing policies, based on golden rules and appropriate shadow prices, that are compatible with both economic efficiency and stewardship for the future.
Description: Thesis (Ph. D.)--University of Hawaii at Manoa, 1994. Includes bibliographical references (leaves 135-142). Microfiche. vii, 142 leaves, bound ill. 29 cm
Rights: All UHM dissertations and theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission from the copyright owner.
Keywords: Sustainable development -- Econometric models

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