Neoclassical Natural Capital Theory and "Weak" Indicators for Sustainability

Author(s): Sylvie Faucheux, Eliot Muir, Martin O'Connor

Source: Land Economics, Vol. 73, No. 4, Defining Sustainability (Nov., 1997), pp. 528-552
Published by: University of Wisconsin Press
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Neoclassical Natural Capital Theory and "Weak"
Indicators for Sustainability

SylvieFaucheux,Eliot Muir,and MartinO'Connor

ABSTRACT.We appraiseneoclassicaltheoryof tion levels; and (b) the sustaining of the

growthwith naturalcapitalfor the estimationof
cycles of resourcerenewaland the environ-
indicatorsfor sustainability.Relationshipsbetween
mental life-supportfunctionsthat underpin
four theoreticallydistinct measuresare clarified:
economic activity.It is, thus, no longer pos-
Hicksian "change in capital stock value"; the
sible to regard GNP-growthas a signpost
Hartwick "net savings" (which excludes capital
pointing in the direction of long-run eco-
gains); "sustainablenationalincome" (SNI); and
"environmentally-adjusted
nomic progress.The short run and the long
net national product"
(gNNP).An overlapping run may be in conflict;the pursuitof rapid
generations(OLG)general
growthas a short-termobjectivemay impair
equilibriummodel with depletablenaturalcapital
demonstrates durablythe economic welfare prospects of
the significanceof modelparameters
determiningtechnicalfeasibilityand intertemporal
future generations.
distributionof consumption.Irremediableuncer- A wide range of proposalsand practices
taintiesin modelspecificationand empiricalmea-
have emerged over recent years, seeking to
surementmean that the neoclassicaltheoryis not
define and estimatean "environmentally ad-
robustfor definingor estimatingindicatorsfor sus-
tainability.(JEL 011)
justed" national product, national savings,
or nationalincome figure.Measuresof "net
savings"taking naturalcapital depreciation
I. INTRODUCTION into account, and of an "environmentally
corrected net national product"(or "green
The classicaleconomists,in the 18th and NNP", henceforthgNNP) have widely been
19thcenturies,tended to regardthe primary proposed as sustainabilityindicators. The
environmentalsupports for economic pro- usual recipes involve making subtractions
duction activity as either non-scarce (such from the conventionalGNP. (We do not dis-
as air) or nondepletable (such as arable cuss alternativemodelingapproachesin this
land). From this point of view, a growthin paper;but see de Boer, de Haan, and Voogt
the volume of economic output from one 1994; Brouwer, O'Connor, and Raderma-
year to the next was not only a gain from cher 1996.) The key issue is how, in theory
the point of view of immediateconsumption and in measurementpractice,one can make
prospects,it was also a net improvementto the jump from GNP as a measure of this
the resource base upon which future eco- period's output level to "net savings" or
nomic output could be achieved.Success in
the short term was thus synonymouswith
augmentationof potentialsfor consumption
and capital accumulationin the long term. Faucheuxis professorof economicsciences at the
Universite de Versailles and director of the Centre
Sustainablegrowthwas simplythe continua- d'Economieet d'Ethiquepour
l'Environnementet le
tion of short-termgrowth. D6veloppement(C3ED)in France;Muiris a freelance
But, if natural resources are depletable, analystand consultantand formerlyresearchofficerat
and essential environmentalservicescan be the Universityof Aucklandin New Zealand;O'Connor
is professor-associ6of economicsciencesat the Univer-
irreversiblyimpaired through pollution or site de Versaillesand formerlylecturerin economicsat
ecosystem change, then present-day eco- the Universityof Auckland.The preparationof this
nomic activitycan have very high intertem- paperwas in part supportedby contractEV5V-CT94-
poral opportunitycosts. The existence of 0363 on "MethodologicalProblemsin the Calculation
such irreversibilitiesruptures the conso- of Environmentally AdjustedNationalIncomeFigures"
financedby the DG-XII of the EuropeanCommission.
nance between short-run performance Thanksto AndreaBaranziniand RichardHowarthfor
(GNP-growth)and long-run prospects for help and advice;responsibilityfor anyremainingerrors
(a) economic output and hence consump- is with the authors.

LandEconomics * November1997 * 73(4):528-552

73(4) Faucheuxet al.: NaturalCapitalTheory
gNNP as an indicatorof prospects for sus-
tainable future welfare levels relative to the
current level of consumption.1The usual
response in the economics literature relies
on theoretical results from neoclassical
growth-with-natural-capital theory.
Part II of the paperreviewskey elements
of the neoclassical theory of economic
growth with natural capital. Part III then
presents a simple overlappinggenerations
general equilibriummodel with a depletable
naturalresource,which is used to highlight
the significancefor "sociallyoptimum"con-
sumption timepaths of axiomatic assump-
tions relating to model structureand para-
metrization, in particular presumptions
about substitutability,time-discounting,and
relative prices as measures of opportunity
costs. On this foundationwe assess the am-
bition and limitationsof recent work, both
theoretical and applied, that has sought to
assess by the "weak"criteriathe "sustaina-
bility" or nonsustainability of national
economies. Part IV gives a synthetic
overviewof the search for macroeconomic
indicatorsof sustainabledevelopmentbased
on the neoclassicalnaturalcapital theoreti-
cal approaches.Part V assesses the com-
bined impactof the theoreticaland empiri-
cal limits to validityof the "weak"sustain-
ability indicators.We will conclude, in Part
VI, with the assessment that insurmount-
able problemsof aggregationand measure-
ment at both theoreticaland empiricallev-
els mean that the neoclassicaltheory is not
robust-and cannot ever be made robust--
as abasis for derivingreliable indicatorsfor
sustainability.
II. NEOCLASSICAL NATURAL
CAPITAL THEORY AND
SUSTAINABILITY
GrowthwithNaturalCapital:The
NeoclassicalConventions
It has, by now, become commonplaceto
refer to ecological goods and services as
deriving from existing stocks of "natural
capital" (cf. Daly 1994). The biosphere as a
habitat and life support system is a finite,
and in many respects destructible, reservoir
529
of naturalcapital.Estimatingthe severityof
trade-offs, and the redistributionsof eco-
nomic opportunities,access to environmen-
tal benefits, financial and ecological costs,
and burdensof risks,becomes a majortask
of economicsas a policy science.
Our concern in this paper is with one
class of theoretical and empiricalproblems
in the estimation of such trade-offs. We
focus on the definition,estimation,and in-
terpretationof "indicatorsfor sustainability"
pertaining to neoclassical models that as-
sume substitutabilitybetween natural and
producedcapitalsas (i) inputs for economic
capital accumulationand/or (ii) elements
of consumption.These models characterize
sustainabilityas nondecreasingsocial wel-
fare over time, the social welfare being de-
fined by an aggregate utility function or
consumptionlevel. The mathematicalmod-
els are of two main forms.On the one hand
are those in the lineage of growth theory,
with an aggregateoutput that can be used
in consumption or invested in economic
capitalaccumulation(see Pezzey 1989,1992,
1996; Toman, Pezzey, and Krautkraemer
1995; and papers in this volume). On the
other hand are intertemporalequilibrium
models that considerutilityas a functionof
consumptionlevels and agents' preferences
(as pioneered by Howarth and Norgaard
1990, 1992, 1993; also Muir 1995 gives a
good overview).
We can think of these models as express-
ing "social choices,"as signifiedby popula-
tion growth,individuals'preferencesand in-
stitutional arrangementsgoverning endow-
ment or income distribution,subject to the
defined technical and resource constraints.
In modeling, population change is usually
treated as exogenous, so the emphasis is
placed on production feasibility (the in-
tertemporalproductionpossibilityfrontier)
and on the social determinantsof invest-
ment and consumptionover time.
1The distinctionsbetween GDP and GNP, and be-
tween NDP and NNP, do not matter for this paper.
Most (thoughnot all) of the modelsin this domainare
"closed"economies,so it is most convenientto write
GNP and gNNP.
530 LandEconomics November1997

On the feasibilityside, the growthand/or (C) or for investmentto augmentthe stock

sustainabilitypotentials for a model econ- of manufacturedcapital (dM/dt), so: Q =
omy depend on the specific assumptions C + dM/dt. Dividingby Q, and writingx =
made about natural capital renewal rates, C/Q for the fractionpf output consumed,
about elasticities of substitution between and a = (dM/dt)/Q for the fractionsaved,
natural and produced capitals, and about we obtain:
technical progress augmentingproductivity
of capitals. Where "technical progress" 1 = C/Q + (dM/dt)/Q =: x = 1 - a.
and/or elasticities of substitutionbetween
naturaland producedcapitalsare made high Assume that labor supply grows at a con-
enough, the value of the economy'scapital stant rate, n = (dL/dt)/L, and that there
stock may grow without limit, and thus the are constantreturnsto scale, so ao + a 2+
"sustainablenationalincome"that is attain- a3 = 1. The parameters ao, a3 2, then
able "in the long run" is correspondingly designate the respective output elasticities
unbounded. In such instances, achieving of manufacturedcapital, labor, and natural
sustainabilityappears as a problem of sav- capital. With all these assumptions, it is
ings. In any particular period there is a shownby Stiglitz(1974)that a timepathwith
trade-off between consumptionand capital a positive rate of growthin per capita con-
accumulation.High consumptionin a given sumption, that is, gc = (L/C)d/dt(C/L)
period means "livingoff capital"duringthe = (dC/dt)/C - n > 0, requires that X >
period in question, but no permanentdam- a 3n. The rate of technicalprogressmust be
age to "sustainablegrowth"prospectsif this relatively high compared with the popula-
is just a transitoryphenomenon. tion growth rate and the factor share of
The feature of the modelingwork in the naturalcapital.
1970s was the introduction of depletable For the Cobb-Douglasform of produc-
"naturalcapital."Analyses focused on the tion function, the elasticity of substitution
importanceof substitutabilityand technical for naturalcapital by other inputs is always
progressfor relievinggrowthconstraintsdue equal to unity.While some input of natural
to the depletabilityof the natural capital. capital is necessaryfor nonzero production,
Three articles appearing just after the both the marginaland the averageproduc-
1973/ 74 OPEC oil crisis, by Dasguptaand tivityof naturalcapital are unbounded,and
Heal (1974), Solow (1974), and Stiglitz indeed will rise without limit as the ratio of
(1974), are among the seminal contribu- natural to economic capital input tends to-
tions;much of the more recent workfollows wardszero. This substitution propertyis thus
directlyin their line. As an illustration,we a key underlyingcondition-also identified
outline features of the model developedby by Solow (1974)-under which a nondeclin-
Stiglitz(1974), some of which are preserved ing positivelevel of output/consumptioncan
in our own model to be presented in Part be sustainedindefinitelydespite dependency
III. of productionon the nonrenewablenatural
Suppose a productionfunction with la- capital.
bor, economiccapital,and naturalcapital(a Considernow the case where population
depletableresource)as inputs, and a single growthand technicalprogressare zero (X =
homogenousoutput: n = 0), so that the significanceof substi-
tutabilityis isolated. Stiglitz showed that a
Q = f(M, L, R, t) = MclLa2Ra3ext,
timepath with constant consumptionis ob-
tained by setting c = a3. We recall that
with Cobb-Douglas production functions,
where Q is the output; M is manufactured the output elasticities a, a 2, a3 indicate,
capital, L is labor, R is naturalcapitalused respectively,the relativeimportanceof eco-
in production;and h is the rate of technical nomic capital, labor, and natural capital in
progress(assumedto be time-invariant).The production,as measuredby factor share.So,
output can be used either for consumption this conditionfor nonnegativechange in per
73(4) Faucheuxet al.:NaturalCapitalTheory
capita consumptionwhen technicalprogress
and populationgrowth are zero, is that the
share of economic productthat is saved (a)
is at least as large as the natural capital
factor share (a,). This illustratesthe result
now knownas "Hartwick'sRule" (Hartwick
1977, 1978).Necessaryconditionsfor a non-
negative per capita consumptionin a Cobb-
Douglas (unit elasticity of substitution)
economywith a constantpopulationare:
* that manufacturedcapital is relatively
more importantthan natural capital in
production(a1 > a 3), meaningthat the
factor share receivedby economiccapi-
tal (share to profits, ) is larger than
that going to naturalalcapital (share to
rents, a 3); and
* that savingsare sufficientlyhigh-more
particularly,that for each moment in
time there is investment in manufac-
tured capital stock formation(savings)
of at least the equivalentof the value
of the resourcerents.
and Intertemporal
Sustainability Rules
Distribution
By now a variety of models have been
constructedin which there exists the tech-
nological capabilityfor unlimitedgrowth in
the value of economic capital over time
by substitutingaway from a renewable or
nonrenewable natural capital, but where
achievementor not of consumptionsustain-
abilityis a social choice. Typically,solutions
are obtained in these models using the cri-
terion of maximizingthe present value of
"society's utility" as defined by some in-
tertemporal "social welfare function."The
generic result is now well known: where
there is a sufficientlyhigh time-preference
for present consumption over future con-
sumption, the intertemporal equilibrium
path will be characterized,from the outset
or after a peak is obtained, by monotoni-
cally decliningvalues for total capital stock
and, correspondingly,per capital utility or
consumption levels (see notably Howarth
and Norgaard 1990, 1992, 1993; Norgaard
531
and Howarth1991;Mourmouras1993;Ash-
eim 1994;Toman, Pezzey, and Krautkraem-
er 1995;Pezzey 1994, 1997).
The determinantsof the distributionover
time of consumption include consumers'
preferences in two respects, along with the
"social distribution rule" that is applied.
First,where more than one good enters into
individuals'utility functions at a given mo-
ment and these goods have differingnatural
capital requirementsfor their productionor
supply,the relative intensity of preferences
for one good over another influences the
pressure on natural capital. We will not
further consider this feature here. Second,
individuals'and society's consumption are
distributedover time, and this is partly a
time-preferencephenomenon. We use the
term "subjectivetime preference"to mean
the way that a consumercomparesthe value
(in welfare terms to her or himself) of con-
sumptionat one moment(or period)in time
comparedwith other moments (or periods).
In an overlapping generations model,
each class and generationof consumerswill
have a distinctive"preferencefunction,"and
each consumer'srate of time discountingis
determined by their particularpreference
function in conjunctionwith the consump-
tion opportunity set. In an intertemporal
general equilibrium,each individual'ssub-
jective rate of time discountingwill, at a
given moment in time or period, be equal-
ized to the interestrate (whichmay itself be
a function of time) characteristicof the
model solution timepath.2Consumers'pref-
erences may be taken as a "datum"(or,
alternatively,specifiedas a sociologicalvari-
able) while the interest rate measuringop-
portunitycost of capitalis influencedby the
"social distribution rule" that determines
(in conjunctionwith technologicalparame-
ters, initial stock levels, and preferences)
the particularmodel equilibriumattained.
The role of savingsis now seen to be one
of influencing the distributionacross con-
2The consumer'smarginal rate of intertemporal
substitutionis made equal to the marginalproductof
capital.
532 LandEconomics
sumers (successive generations, for exam-
ple) of endowmentsand of consumptionop-
portunities.Thus, as Dixit, Hammond,and
Hoel (1980) observed,following a program
of investmentrespectingthe HartwickRule
amounts to a policy choice in favor of in-
tertemporalequity. The problem of recon-
ciling criteria of economic efficiency with
intertemporalequity concerns had already
been identifiedby Solow(1974),who consid-
ered the timepath of natural resource de-
pletion under the assumptionof a maximin
social choice function. Dasgupta and Heal
(1979) noted that a timepath for present-
value-of-utility maximization with either
nonrenewable or renewable natural re-
sources (for example, coal or fish, respec-
tively)could be stronglyinequitabletowards
future generations.3 The issues involved
here, discussed early by Page (1977), have
been most clearly brought out by models
reframingthe optimalresourceuse problem
as one of intertemporalgeneral equilibrium
with utility maximizingconsumers, notably
by Howarth(1991, 1992, 1996),and Howarth
and Norgaard(1990, 1992, 1993).These au-
thors' usual model form is a closed econ-
omy, and the question of time preferenceis
structuredby assumingoverlappinggenera-
tions. Our model in Part III is adapted
directlyfrom Howarth(1991),so we give the
formulationin detail. Each generationlives
for two time periods(say n and n + 1), and
the nth generation maximizesutility Un =
Un(Cn,y, Cn + 1,o), whereCn, y is consumption
duringperiod n when the nth generationis
young, and C, 1,o is consumption during
period n + 1 when the generation is old.
Within each generation, all individualsare
identical so we can treat them as one, and
the emphasis is on aggregate consumption
each period; no questions of intragenera-
tional equity are addressed.4Markets for
naturalcapital (resourcesor environmental
amenity), consumer goods, and labor are
assumedto be "competitive"in the sense of
equalizationof opportunitycosts on all mar-
gins. Labor is an initial endowment dis-
tributedequallyacross all generations;each
November1997
generation"owns"(and thus supplies)labor
only while young. Intergenerationaltrans-
fers are possible through exchange of in-
come for natural capital held as initial en-
dowments.Technicalparametersand initial
stock levels determine the intertemporal
productionpossibilities frontier (IPPF) for
the economy, and the "optimal"point on
this frontieris then selected as either:
(i) the equilibrium outcome of utility-
maximizingconsumers' choices sub-
ject to a specified endowmentdistri-
bution, or
(ii) the optimumof a social welfarefunc-
tion, the latter being formulated in
terms of consumptionor utilitylevels
throughtime.
A number of importantresults emerge.
First, sustainabilityin the sense of indefi-
nitely nondecliningconsumptionfrom one
generationto the next, is not guaranteedby
the "competitive"rule of maximizingpre-
sent-value of total consumptionover time.
On the contrary,when the propertyrights
over natural capital are tipped in favor of
the "present" generation (still able to be
exchanged between generations to enable
3The converse is also true. Dasgupta and Heal
(1979), for example, showed that under some condi-
tions an investmentprogramassuringnondecliningper
capita consumptionwhile naturalcapitalwas depleted
could be achieved through an income tax combined
with governmentinvestment-a policyregimeinvolving
a "trade-off'between efficiencyand intergenerational
equity.
4Workby Muir(1996)drawsattentionto the signif-
icance of groupshavingdivergentpreferenceswithin a
given generation.If income distributionis shifted to-
wardsgroupswhose preferencesare for goods that are
less demandingof naturalcapital exploitationor who
"care more about the future,"this will tend to favor
sustainabilityof the model equilibrium.This result is
implicitin Howarthand Norgaard'swork, and can be
inferredfrom Pezzey'sresults, but was not systemati-
cally broughtout.
73(4) Faucheuxet al.: NaturalCapitalTheory
the old of each period to consume opti-
mally), the typical result is monotonically
declining utility levels beyond some period
into the future.5
Second and conversely, achieving an
equilibrium with nondecreasing consump-
tion levels requires that, one way or an-
other, present generations "care enough"
about future generations. This "caringfor
the future"can be expressedthrougha vari-
ety of mechanisms,notably:
* the impositionof a maximinsocial wel-
fare function;or impositionof a crite-
rion of intertemporal social-welfare
maximization subject to nonnegative
change in representative individuals'
welfare from one period to next;
* the assumption of a sufficiently high
level of individualaltruismof each gen-
eration towardsthe generationimmedi-
ately following;
* the assumption of an "obligation"on
the part of each generation to provide
for a utility level of the generationim-
mediately following at least as high as
its own, resultingin a "chainof obliga-
tion" indefinitelyinto the future;
* the explicit award of property rights
over naturalcapital or the benefits ob-
tainable from it as initial endowments
distributed "equitably"to all genera-
tions.
Third,the possible model equilibriafor a
given model are each characterizedby dis-
tinctive trajectories, not just for capital
stocks and consumption,but also for rela-
tive prices includingthe time discount rate.
It is often said that, for intertemporaleffi-
ciency, the price of natural capital such as
mineralsor energy resources or fish or for-
est products,should "correctly"reflect the
intertemporal opportunity cost (viz., the
"user cost").If sustainabilityis an objective,
we must add the condition that this has to
be the opportunitycosts as evaluatedalong
an intertemporalefficientpath that also sat-
isfies the sustainabilitycriterion.6
533
III. A SIMPLE OLG MODEL WITH
NATURALCAPITAL
Presentation
of theModel
We now specify a multi-periodoverlap-
ping generations (OLG) model which has
the same productionfunctionas in Stiglitz's
(1974) originalproblem:three inputs-man-
ufacturedcapital M, human capital L, and
nonrenewable natural capital R-to a
Cobb-Douglas production function which
produces manufacturedcapital as its sole
output. The manufacturedcapital can be
used in consumptionC or saved for invest-
ment S.
The model problem is to maximize an
intertemporalsocial welfare function, or in
other words an intertemporaldistribution
rule, subjectto a numberof constraints.As
in the earlier Howarth-Norgaardmodels,
each generation lives two periods. The nth
generationis young in period n, and old in
period n + 1, and obtains utility from con-
sumption specified by the Cobb-Douglas
function of the form Un = ln(Cn,) +
ln(Cn+1,o).
We have set N = 20 periods, which is
sufficiently"long"to show the range of so-
lution properties in question.' There are
5Thus, Pareto-efficiencyand sustainability(and eq-
uity considerationsmoregenerally)mustbe considered
as distinct,and complementary, criteriafor characteriz-
ing model solutions and policy possibilities(see also
Dasguptaand Mitra 1983;Dubourgand Pearce 1996;
Toman,Pezzey,and Krautkraemer 1995;Baranziniand
Bourguignon1995).
6This result also appliesto the "correct"valuation
of environmentalamenityand to the size of a "correc-
tive tax" for internalizingan externaleffect relatedto
economic productionor natural capital exploitation.
HowarthandNorgaard(1992)showthat,for a situation
of cumulativepollution,both the "efficient"tax level
and the interestrate are functionsof the incomedistri-
bution between generations (as determinedin their
model by the choice of social welfare function).For
furthertheoreticaldiscussionof "endowmenteffects"
on valuation,see Martinez-Alierand O'Connor(1996),
O'Connorand Muir(1995),and Muir(1996).
The number of periods can be varied between
N = 3 and N = any large (finite) number, limited only
by computationalcapacityof the software and hard-
ware.
534 LandEconomics
N - 1 = 19 generations who each live two
periods. Also we add an "old" generation
who consumes in the first period only; but
no new "young"generation is born in the
final Nth period. For our exposition, two
social welfare distributionrules will be ap-
plied.
The first rule is to maximizethe present
value of utility (henceforth PVU-max),dis-
countingeach generation'sutility by a con-
stant factor 8, where 0 < 8 < 1, relative to
the previousgeneration.The problemto be
solved is:
Maximize:Y61U,
where the sum is over n = 1 to n = N, [1]
subjectto:
M + MLa2Rn--l-a2=S2 + Cn,y Cn,o
L generation,
Vn = 1... (N- 1) [2]
Mn+, = Sn Vn = 1... (N - 1) [31
M1 = Mini,
[4]
L, = 1 Vn = 1... N [5]
SN =0 [6]
=0 [7]
CN,y
IR, = RTOT
where the sum is over n = 1 to n = N. [8]
= + ln(Cn+1,o).
Un ln(Cn,,) [9]
The constraints have the following mean-
ings: [2] representsthe marketclearingcon-
dition combinedwith the productionfunc-
tion; [3] is a device to propagate savings,
analyticallyconvenientbut not strictlynec-
essary;[4] sets the initial level of manufac-
tured capital in the first period, owned by
the first generation;[5] specifies a constant
endowmentof labor for each generationin
their "young"period; [6] specifies that the
Nth generation young do not save anything
because they are not born; [7] specifies that
the Nth generation young do not consume
anything because they are not born; [8] is
November1997
the natural resource constraint condition
stating that the entire stock of nonrenew-
able natural capital is used up by the Nth
period; [9] is the nth generation's utility.
The symbolsare as follows:
Rn is the amount of natural resources
used in period n,
RToris the total amount of natural re-
sources,
the amountconsumedby the young
Cn, yis
generationin period n,
C, o is the amount consumed by the
old-the (n - 1)th generation-in
period n,
U = ln(C + ln(C + 1, is the Cobb-
y) o)
Douglas utility function of the nth
generation,
8 is the utilitydiscountfactor,
Mn is the economic capital of the nth
Ln is the labor endowment of the nth
generationof young,
S, is the savings of the nth generation
of young,
Minit is the initial level of economic capital
in the firstperiod.
From [9], each generation gives equal
weight to its own consumptionas "young"
as it does to its own consumptionas "old."
There is thus no "subjective"discounting
within a generation's life. The social dis-
count parameter8 dictates the strength of
time-preference(impatience)for the econ-
omy overall. If 8 = 1 all generationscount
equally;if 8 < 1 the successivegenerations
count progressivelyless. Conventionally,the
social discountrate between generations is
given by p definedby 1/(1 + p) - * p-
(1 - 8)/B; note that this is not the interest
rate.
The second social distributionrule con-
sists of a "sustainability"requirementover-
laid on the PVU-maximizationobjective,
representingthe intergenerational equityre-
quirement that each generation at least
be
as well off as the immediately preceding
one:
> U,, for n = 1 to n = N- 1. [10]
Un+1
73(4) Faucheuxet al.:NaturalCapitalTheory
Further, and more complicated specifica-
tions would be possible, but would not
change the essential demonstrationcharac-
ter of our results. The optimizationprob-
lems have been solved numericallywith a
standardsolver under EXCEL 5.0. It is nec-
essary to choose with some care the initial
"guess"to avoid non-convergence.Once an
equilibriumhas been obtained it is possible
to vary all parametersgraduallyto obtain
comparativeequilibria.The ratherprimitive
specification of the boundary conditions,
with abrupt cutoff at the N = 20th period
with the death of the (N - 1)th generation,
is obviouslyan artifice;what matters is the
qualitative behavior of solutions up to
aroundthe 18th period.
Solutions
QualitativeTypologyof PVU-maximizing
The now large body of workon modelsof
has shown that
growth-with-natural-capital
at least four qualitativelydifferent sorts of
PVU-maximizing timepaths may be ob-
tained, depending on initial capital stock
levels and renewal properties, the techno-
logical determinantsof productionfeasibil-
ity, and the social determinantsof the distri-
bution throughtime of consumption.These
are:
(a) monotonic decrease in utility over
time: path of decline, clearly nonsus-
tained;
(b) increase of utility for a while, then a
turningpoint with monotonicdecline
after that: nonsustainableeconomic
growth;
(c) exactly constant utility throughtime:
sustainability as intertemporaleco-
nomic equality;
(d) monotonicincrease in utility through
time: sustainableeconomicgrowth.
Our focus will be on category(b) solutions
as comparedwith categories (a) and (d). A
brief comment about category (c) is war-
ranted.In continuous-timegrowthmodels,a
constant-utilitypath can be obtained by ap-
plyingHartwick'sRule;but as Asheim(1994)
and others have discussed (see also Svens-
son 1986;Pezzey 1997),if this result is to be
535
obtained as an otherwise unconstrained
PVU-max solution then the social discount
rate p(t) must be positive but decreasing
over time, dp/dt < 0 for t > 0. A similar
result might be expected to hold for an
OLG model, but we have not investigated
this mathematically.8 Our OLG model setup
provides for direct investigationof the sig-
nificanceof varyingthree parameters:
* the initial stock of naturalcapital
RTor
in comparison with initial economic
stock Mini,and laborendowmentL =
1;
* the constantintergenerationaldiscount
rate parameter 8, where we can write
p - (1 - 8)/0;
* the relativeimportanceof naturalcapi-
tal in production as indicated by the
output elasticity coefficient (p -(1 -
a1 -
a12).
In the examplespresentedbelow,we have
selected capital stock levels compatiblewith
the possibilityof obtainingsolutionsin all of
categories (a), (b), and (d). For demonstra-
tion purposes:
(a) Let RTor = 16; Einit = 0.3;
Ln = 1. [11]
(b) To see the significanceof varyingthe
importanceof naturalcapitalrelative
to economiccapitalin production,we
fix a2 = 0.15 for labor, and consider
the two cases a, = 0.7 and ao = 0.3.
(c) At the same time, we may vary the
socialdiscountrate:we take the cases:
8= .10 p - (1 - 8)/B = 1/9 and
8 = .30 p - (1 - 0)/8 = 3/7.
8An analogue to a "Hartwick path" having 1
=
Un,?
U,, for n = 1... N - 1, could presumablybe obtained
as a PVU-maxsolution for only one particularset of
intergenerationaltime-discountparametersB, which
varied from one generationto the next. It might be
thoughtthat this set of parametersshouldsatisfy81 <
.- < b, < Bn+ I < 1; but the overlapping gen-
"b,*
erations and finite
period characterof the model can
complicatethe specification(see Lupiand Tomasi1994
for some indications);this could be explored in our
model but we have not done it here.
536 LandEconomics November1997

TABLE 1
PARAMETERSAND PROPERTIESFOR MODEL EQUILIBRIUMSCENARIOS

8 = .10 * p (1 - 8)/8 = 1/9 8 = .30 * p (1 - 8)/8 = 3/7

-(1-otz - o2) =
0.15 (A) sustainedgrowth (B) single-peakgrowthand decline
0.55 (C) single-peakgrowthanddecline (D) monotonicdecline

Consumption Levels ConsumptionLevels

2,5 0,6
0,s
1.5 --+Young Consumption
03
-... OldConsumption
YoungConsumpoon
'
Old Consumption

0,2

0.5 05M-, - ..'......

1 3 5 7 9 1113151719
0
1 3 5 7 9 11 13 15 17 19 FIGURE 1(C)
CONSUMPTION
LEVELSOVERTIME:
FIGURE 1(A) PVU-MAX(SCENARIO
C)
CONSUMPTION
LEVELSOVERTIME: (nat capital p = 0.55; econ capital al = 0.15; labor a2 =
PVU-MAX(SCENARIO
A) 0.30; PVU-max with intergenerationalutility discount fac-
(nat capital 0 = 0.15; econ capital al = 0.55; labor a2 = tor 8 = 0.90)
0.30; PVU-max with intergenerationalutility discount fac-
tor 8 = 0.90)
This gives us four "scenarios,"for whichwe
comparethe timepathsfor consumption,see
Table 1 and Figure 1. The graphsshow the
Consumption Levels consumption levels of the "old" and the
0,7
"young"in each period. The utility of each
generation, Un ln(C, y) nC
+ 1), fol-
06 lows the same-=trend as the consumption
curves.9Solution [11-A]is sustainedgrowth;
0,5 K.. the output elasticity of economic capital is
- 0-iYoung Consumption
high and the society is sufficientlypatient to
...OlOdConsumption allow future generationsto enjoy a progres-
sively greater utility level. Solutions [11-B]
02
and [11-C] are nonsustainable growth paths
r
with a boom-and-declineform. In case (B)
oo
the culprit is the high social discount rate
01 3 5 7 9 1113151719
9Extension of the model to a larger number of
FIGURE 1(B) periods (say N = 50) does not alter the qualitative
CONSUMPTION LEVELSOVERTIME: features of the four cases chosen. Note in particular
PVU-MAX (SCENARIOB) that cases (A) and (B) have the substitution elasticity
(nat capital (p = 0.15; econ capital al = 0.55; labor a2 = and output elasticity properties identified by Stiglitz,
0.30; PVU-max with intergenerationalutility discount fac- Solow, Hartwick, and others as capable of supporting a
tor 8 = 0.70) finite nondecreasing consumption indefinitely.
73(4) Faucheuxet al.:NaturalCapitalTheory 537

ConsumptionLevels ConsumptionLeves

1,2 2,5

0,8
1,5
-4-Young Consumpton
Old Conuumpdion

0,4

0,5
0.2

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
1 3 5 7 9 11 13 15 17 19

FIGURE 1(D) FIGURE 2(A/S)

CONSUMPTIONLEVELS:"OP-SUS"
CONSUMPTIONLEVELSOVERTIME:
(PVU-MAX WITHSUSTAINABILITYRULE)
D)
PVU-MAX(SCENARIO
(nat capital (p = 0.55; econ capital cal = 0.15; labor ca2 = A / S)
(SCENARIO
0.30; PVU-max with intergenerationalutility discount fac- (nat cap (p = 0.15; econ cap al = 0.55; labor a2 = 0.30;
tor 8 = 0.70) "Op-Sus"with intergenerationaldiscount factor 8 = 0.90;
PVU-max,subjectto (nonbinding)nondecreasingutilityrule)

p = 43 percent per generation;in case (C)

ConsumptionLevels
the main culpritis the heavy dependenceof
productionon depletable natural capital (p
= 0.55, notwithstanding the lower p = 11
percent. Solution [11-D] is monotonic eco-
o0,
nomic decline, due to heavy dependenceon
the depletablenaturalcapital and high con-
sumptionimpatience. o0.3Old Consumpio
Young

PathswithNon-decreasing
Utility 02

acrossGenerations -- Con•u•npoon
01 2 3 4 5 6 7 8 10 11 12 13 14 15 17 18 20

Now look at the significanceof the inter-

generational equity requirement [10] as a 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 1920

supplementaryconstraint. In this case we FIGURE 2(B/S)

get the timepathsfor consumptionshown in
Figure 2. The case (A/S) is unaltered,be-
cause the growthis alreadysustainableover
the 20-period horizon. At the other ex-
treme, in case (D/S) the requirement to
hold future generations' utility at "equita-
ble" levels means that consumptionis dra-
matically reduced for early periods com-
pared with the non-constrainedPVU-max
case.10 In cases (B/S) and (C/S) there is
slight reduction in early period's consump-
tion levels, and instead of boom-and-decline
the consumptionrises more slowly than for
the PVU-max path and then stays on a
plateau until the end of the time horizon.
CONSUMPTIONLEVELS:"OP-Sus"
(PVU-MAX WITHSUSTAINABILITY RULE)
(SCENARIOB / S)
(nat cap p = 0.15; econ cap al = 0.55; labor a2 = 0.30;
"Op-Sus"with intergenerationaldiscount factor 8 = 0.70;
PVU-maxsubjectto nondecreasingutilityconstraint)
10For case (D/S), the "old" generation in period 1
has a curiously high consumption. This seems to be an
artifact of the way the solution conditions were speci-
fied for this "old," in conjunction with the nondeclining
utility condition. We have not smoothed the blip away;
it is a reminder that inevitably there are some arbitrary
elements in the way that initial and final periods are
dealt with in an OLG model.
538 LandEconomics November1997

ConsumptionLevels IV. INDICATORSFOR PROSPECTS

06, OF "WEAK"SUSTAINABILITY
SustainableNationalIncomeand "Savings"
Rules
for Sustainability
0.4
!-4Young Consumption
We now reviewthe problemof measuring
0,3 1*
--Ol-Ol
Consumpbon the requirementsfor "savings"to provide
02 for sustainability.Let us providesome defi-
nitions that pertain,in the first instance,to
0,1 models with an infinitetime horizon.
Sustainablenationalincome.The sustainable
12345678910
11
12
13
14
1517
1618
19
20 national income (henceforth SNI) for an
economy may be defined, in theory, as the
FIGURE2(C/S) quantityof goods and services,say C*, that
LEVELS:
CONSUMPTION "OP-SUS" may be consumed(rather than conserved/
(PVU-MAXWITH
SUSTAINABILITY
RULE) reinvested)in a given periodwhile the econ-
C / S)
(SCENARIO omy-systemstill furnishesthe capital stock
(nat cap 9p = 0.55; econ cap aol = 0.15; labor ao2 = 0.30; as the basis for providing(at least) the same
"Op-Sus"with intergenerationaldiscount factor 8 = 0.90;
PVU-max subject to nondecreasing utility constraint) level of real consumptionC* in every pe-
riod throughthe future.At least two some-
what differentdefinitionscan be offered for
a SNI:
ConsumptionLevels

(i) Immediatelyand thereafterperpetu-

1,2 ally obtainableincome:SNI(i).SNI(i),
is the highest level of "income"that
can be attained immediately,from
---Young Conswnpbon
some given vector of stocks V(t = 0),
-*-8Old C1nsp2on subject to the constraintthat the in-
come level during t > 0 is perma-
nently nondecreasing.This is a maxi-
0.2 min utilitypath.
(ii) Later but thereafter perpetuallyob-
1 2 3 4 5 6 7 8 9 1011 12 131415 1617 18 1920 tainableincome:SNI(ii).SNI(ii)is the
highest level of "income" that the
FIGURE2(D/S) economy can continuouslyattain at
LEVELS:"OP-Sus"
CONSUMPTION and after a finite time, starting from
RULE)
(PVU-MAXWITHSUSTAINABILITY
D / S)
(SCENARIO
some given vector of stocks V(t = 0),
(nat cap (? = 0.55; econ cap al = 0.15; labor a2 = 0.30; subject to the constraintthat the in-
"Op-Sus"with intergenerationaldiscount factor 8 = 0.70; come level is permanently nonde-
PVU-max subject to nondecreasing utility constraint)
creasing.

SNI(ii) is an important reference point

While the PVU-maxcriterionis still applied for any real or model economythat permits
util-
for solutionpurposes,the nondecreasing growth of the total capital stock through
ity constraint is dominant in determining time, as it will be possible to increase the
the allocationthroughtime of naturalcapi- "sustainablenational income" for the fu-
tal for productionand of economic capital ture, by, provisionally,restrainingconsump-
savingsfrom one period to the next. tion below the currentsustainable income
73(4) Faucheuxet al.:NaturalCapitalTheory
-the SNI(i)-so that the manufactured
capital stock is built up. This is, indeed, the
presumption behind traditional macroeco-
nomic modeling that discusses the "trade-
off' between current consumption and
growth rate-the so-called "golden-rule"
literature; and as Pezzey (1994, 1997) dis-
cusses, the concept of SNI(ii) seems very
pertinentwhere naturalcapitalscarcitycon-
strainslong-runmanufacturedcapital accu-
mulation.11
Hicksianincome.The Hicksiandefinitionof
a person's(or nation's)incomeis the amount
he/she (or it) can consume duringa speci-
fied period, while ensuring that his/her
wealth at the end of the period is no less
than his/her wealth at the outset (Hicks
1946).Assume that the value of total capital
stocks is K, measuredin moneyunits, so let
us write:
K - X,
where
X = (M, L, R) is the vector of stocks in
physicalunits, and
7r = (Pi, P2, P3) is the vector of relative
prices.
Then the Hicksiannationalincome will be
associated with the rule: dK/dt = 0. The
change in value of capital stock may, gener-
ally, be written: dK/dt = d/dt(7r -X), and
this can be split into two parts:
the currentvalue of savings: -rrdX/dt
and the "capitalgains"term: X- drr/dt.
Hartwick'ssavingsrule.Using the above no-
tation, Hartwick'srule is written:-7r dX/dt
? 0. For a model with constant population
we have dL/dt = 0, so this becomes
p, dM/dt + P3 dR/dt ? 0. The first term
refers to the value, in currentprices, of the
change in manufacturedcapital stock; the
second term refers to the value, in current
prices,of the change in naturalcapitalstock.
Green net national product. Suppose the
economy maximizespresent value of con-
sumption. Then the net national product
(henceforth NNP) is defined as value of
539
consumptionplus net changein the value of
capital stocks. If natural capital stocks are
included,we call it a "greenNNP," defined
as: gNNP = p1C + (' - dX/dt) where, as
before, C is the physical quantity of con-
sumption,p, is the currentprice of manu-
facturedcapital(whichcan be saved or con-
sumed) and 7r-dX/dt is the Hartwick"net
savings"measuredin currentprices (Solow
1986;Miiler 1991).
Because Hartwick'srule does not include
the "capital gains" term, the respect of
Hartwick'srule at any moment in time does
not necessarilyimplynonnegativechange in
the value of total capital stocks. So the
Hicksian national income and the net na-
tional product (gNNP) are not the same
thing.12 Furthermore,the gNNP and the
SNI(i) are not the same thing.As the recent
workby Asheim (1994) and by Pezzey(1994,
1997) has made plain, the gNNP and SNI(i)
will coincide only if highly restrictivetheo-
retical conditionsare fulfilled.
TheReasoningfor the "Weak"Indicators
for Sustainability
The early work by Solow, Hartwick,and
others showed that, for a closed economy
obeying the PVU-max criterion,a property
of the SNI(i) "maximin"consumptionpath
is that Hartwick'srule is satisfied at all
times. Howeverit was not initiallyremarked
that respect of Hartwick'srule in this con-
text was a necessary but not a sufficient
condition. In effect, the problems of (1)
changes in relativeprices along a PVU-max
path through time-showing up in, among
other places, the "capitalgains"term-and
of (2) different relative prices associated
with each distinct PVU-max solution, were
"Apart from Pezzey'swork and our own results
reported here, relatively little neoclassical modeling
work along these lines seems to have been done. This
reflects past computationalobstacles (which are no
longeras severe),and perhapsalso modelers'addiction
to PVU-maxcriteria?
12See also Johanssonand L6fgren(1996),who look
at the way that price changes make welfare compar-
isons for alternative investment/consumptiontime-
paths a hazardousbusiness.
540 LandEconomics
not fully appreciated.13 Consider,with this
in mind,the resultsthat we mayobtain if we
simply neglectprice changes.
* As above, write gNNP = pC + ?r*
dX/dt.
* According to the Hartwick-Solowre-
sults, along a path of constant con-
sumption dC/dt = 0, Hartwick's rule is
necessarilyrespected in equality form:
,r- dX/dt = 0 for all t. Under these
conditions we obtain: gNNP = pC, and
this is the SNI(i).
* Now, if it were that the prices do not
change,the capitalgains termwouldbe
zero and we could write: dK/dt=u.=
dX/dt.
* Thus along a PVU-max path where
Hartwick's rule is respected at all times
and also there are no capital gains (if
such a path can be found), the net na-
tional product gNNP is a measure of
the immediately and perpetually sus-
tainable welfare deliverypotential, the
SNI(i), for the economy and its natural
capitalstock,and this would also be the
"Hicksiannationalincome"at all times.
This is the reasoningthat has motivated
the estimationof dX/dt) and gNNP as
(r.-
sustainabilityindicators. If the above rea-
soningwere valid:
* The gNNP = SNI(i) and so the gNNP
could be interpretedas an estimate for
level of consumption(in money terms)
that may, in principle, be maintained
from the present onwards,on a long-
term basis, while also maintainingin-
tact the value of the total stock of capi-
tal.
* A positive value of the Hartwickterm
(,u dX/dt > 0) would signal that the
"net savings"of economic plus natural
capital, measured in money units, is
positive during the period. A negative
value (r . dX/dt < 0) would signal that
the "net savings" is negative, or there is
November1997
"net depreciation"during the period.
This yields the Hartwick-Solow"Weak
Sustainability Indicator" or "savings
rule" as proposed by Solow (1986),
quickly followed by others such as
Miiler (1991) and Pearce and Warford
(1993).
There is, or would be, one final step for
"operationalizing"the procedures.This is to
estimate the components of the formula
gNNP = pC + T'- dX/dt on the basis of
currentperiod prices and quantities. The
"sustainablenationalincome"SNI(i) is thus
estimatedby makingdeductions(n . dX/dt)
from current GNP (pC) representing de-
preciation of capital stocks, including manu-
factured capital and natural capital.
Theoretical for Weak
Preconditions
IndicatorValidity
The procedures described above have
widespread appeal, because they seem to
resolve objections made on environmental
groundsto the use of GNP as an indicator
of macroeconomicperformance.But these
recipes are theoreticallyflawed as well as
being difficult to implement in statistical
practice.
The Hicksianincome. Consider the notion
that sustainabilityis achievedif the value of
the nation'scapitalstockremainsintactfrom
one generationto the next, meaning dK/dt
= 0, while providingthe Hicksianincome as
the consumptionat any given time. There
are two inaccuracies here. First, as seen
above, dK/dt = 0 is not the condition for a
maximinSNI(i) timepath in a closed econ-
omy. Second, and more important,observ-
ing dK/dt > 0 in a closed economy at a
given moment in time does not guarantee
13This still seems to be the case with some recent
literature,for example, Hartwick(1991) and Pearce,
Hamilton, and Atkinson (1996). On the other hand,
several recent authors correctlyexpressedmisgivings
about the correctinterpretationand robustnessof the
deduction-basedindicators,withoutidentifyingthe the-
oretical "wrong prices" problems as such (e.g.,
Faucheuxand Froger1994;Aaheimand Nyborg1995).
73(4) Faucheuxet al.:NaturalCapitalTheory 541

that the economy is capable of sustaininga TotrlValueof Rource

nondecreasingHicksianincome.
We do not prove this second result math-
ematically. The reason can be seen intu-
itivelyfrom our model results as follows. On
a "single-peak" PVU-max timepath, the P-TV rod Cap

value of total capital stock rises initially. 0

-ATV
TV Nat Cap
Labour
There is a portion of the timepath where X TV Resources

consumptionrises beyond the long-runsus- 0,4

tainablelevel while dK/dt ? 0. For our dis-
crete-timemodel the "Hicksianindicator"is 0,.
the change in the value of the total stock
from the nth to the (n + 1)th period, say 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19s 20

AK,n.Figure 3 shows, for our scenarios(B)

and (C) of single-peakPVU-max consump- FIGURE3(B)
tion, the associatedtimepathsfor the value VALUE
OFCAPITAL
STOCKS:
PVU-MAX
of the stock of each capital,and the value of "BOOMANDBUST"(SCENARIO
B)
(nat capital (p = 0.15; econ capital
at = 0.55; labor ar2 =
total capital stock, measured using the prices 0.30; PVU-max with intergenerationalutility discount fac-
current at each point along the PVU-max tor 8 = 0.70)

timepath.

Case (B) has high output elasticitybut TotalValueof Resources

a boom-and-declinepath for PVU-max

consumptionis obtainedbecause of im-
patience. The comparisonwith the cor-
respondinggraphs (B) in Figure 1 and ---TV ProdCap
TV Not Cap
(B/S) in Figure 2 shows that from the S-TV Labour
-*-TV Resorces
4th to the 10th period consumptionby
young and old in each period is signifi-
cantly higher than the plateau level at-
tained in the case (B/S) where the 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

sustained-utilityconstraint is imposed.
The rapid exploitation of the de-
pletable natural capital combinedwith
inadequate savings of manufactured
capital compromises future genera-
tions' economicchances.We observein
FIGURE3(C)
VALUE OF CAPITALSTOCKS:PVU-MAX
"BOOM AND BUST" (SCENARIOC)
(nat capital cp= 0.55; econ capital al = 0.15; labor a2 =
0.30; PVU-max with intergenerationalutility discount fac-
tor 8 = 0.90)

graph (B) of Figure 3 that the sign of

AKn is positiveuntil the end of the 5th
period. Thus, by the time a negative
AKn is observed,the consumptionlevel
has already,for two periods,trespassed
beyondthe sustainablelevel. The Hick-
sian indicator AK 2 0, signalling a
nonnegative change in value of total
capital stocks from one period to the
next, provides a too-weak signal as to
whether or not the consumption in the
period is compatible or not with the
sustainabilitycriterion of nondecreas-
ing utility.
For case (C), the comparisonwith the
sustainability-constrainedcase (C/S)
shows that consumption "overshoots"
the sustainableplateau level at the 2nd
period. From Figure3 case (C), we see
that the sign of the AK, is positive
only for the change between the 1st
and 2nd periods. So the Hicksianindi-
542 LandEconomics
cator AK > 0 tells us, with one period's
delay, that the consumptionhas tres-
passedbeyondthe level compatiblewith
the sustainabilitycriterion of nonde-
creasingutility.
The Hicksian Rule dK/dt > 0 is "too
weak" as a sustainabilityindicator.Along a
single-peakpath, by the time that the sign
of the indicatorAKn changes from positive
to negative, significant (and possibly irre-
versible) damage has alreadybeen done to
sustainabilityprospects.
The Hartwick rule. Now consider the
propositionthat a nondecreasingconsump-
tion is assured by respect of the Hartwick
rule, WT.dX/dt = 0. The reasoning is that a
positive sign of the Hartwickian"net sav-
ings"(t.- dX/dt) > 0 for a PVU-maxecon-
omy means that pC < gNNP. If it is as-
sumed that gNNP = SNI(i), then the cur-
rent consumptionwould be lower than the
maximinincome and hence the economy is
not violating requirementsfor sustainable
consumption. But as Asheim (1994) and
Pezzey (1994, 1997)have demonstrated:
* the "Hartwickincome" defined by the
- ification estimation, three related theoreti-
gNNP when w dX/dt = 0, is not (gen-
erally)the SNI(i);
* the equalitybetween gNNP and SNI(i)
holds only for a PVU-max path where
the Hartwickrule is respected at every
point in time;
* the gNNP for a PVU-max timepath
therefore will not, in general, coincide
with SNI(i), nor for that matter with
SNI(ii). This statement holds even if,
for a particular moment in time, it hap-
pens that C = gNNP is the PVU-max
consumption;
* therefore a positive sign of the Hart-
wickian"net savings"(7-r dX/dt) for a
PVU-max economy is not a reliable
indicatorthat the currentconsumption
pC is lower than the SNI(i), and hence
that the economy is not violating re-
quirements for sustainable consump-
tion.
November1997
The measurementproblemsin theoryand in
practice.Figures that have, in recent years,
been actually produced as putative esti-
mates for a "green GNP" in this perspec-
tive, are generally admitted to involve "in-
complete" adjustments(e.g., Repetto 1989;
El Serafy 1989; Peskin 1991; Pearce and
Atkinson 1993; Pearce and Warford 1993;
and others since). Yet, there has been a
tendency to let it be presumed that these
"preliminary"calculations can somehow
function as "first approximations,"serving
the same policy relevance as the theoretically
specified measures.14 This presumption is
difficult to defend, partly because of the
restrictedvalidity in theory, and partly be-
cause of problemsof indeterminacy,incom-
pleteness, and systematicmeasurementbi-
ases at the empiricallevel.
The monetizationof environmentaldete-
rioration,in neoclassical perspective,relies
on the ability to estimate opportunitycosts
associatedwith resource use alternativesin
economic production, pollution treatment,
waste disposal, and environmentalmanage-
ment. Strictly speaking, these opportunity
costs are definableonly within the theoreti-
cal frameworkof an intertemporalgeneral
equilibriummodel. For valid indicatorspec-
cal points thus arise. First, the role of capi-
'4In workreportingestimationsof performanceac-
cordingto the "weak sustainability"criterion,Pearce
and Atkinson (1993, 104) stated: "We begin with an
intuitiverule for determiningwhethera countryis on
or off a sustainabledevelopmentpath. To do this, we
adopt a neoclassicalstance and assume the possibility
of substitutionbetween'natural'and 'man-made'capi-
tal...." They presentedempiricalcalculationssuppos-
edly as estimatesof the value of the "weaksustainabil-
ity indicator"for 22 countries,of which only 8 do not
fulfillthe nonnegativitycondition.Proopsand Atkinson
(1997) present similar sets of results, making adjust-
ments for internationaltrade such that naturalcapital
depreciationis attributedto the countryof final goods
consumptionratherthan production.Some changesin
magnitudesare observable,but the basic pattern re-
mainsthe same, and the underlyingassumptionsof the
approachare the same whetheror not the figuresare
"corrected"for internationaltrade.The evidentdefect
of this workis that the depreciationcoversonly a very
small number of categories of marketed natural re-
sources and environmentaldegradation,using current
pricesor inferencesfrom currentprices.
73(4) et al.:NaturalCapitalTheory
Faucheux
tal gains in indicator definition and mea-
surement must be dealt with correctly.
Second, the measurementsof dK/dt, or of
the gNNP and the related Hartwickiansav-
ings (wrrdX/dt), must be specifiedin terms
of prices (or, as the case may be) shadow
prices for the particularmoment(or period)
in time along the particularequilibriumpath
being considered.But this leads to a third
problem, of "chicken and egg." Take the
case of the closed economy. The relevant
indicatorsare gNNP and Hartwick"net sav-
ings."Estimateswill have reliableand trans-
parent "sustainability"indicatorproperties
-those correspondingto a maximinSNI(i)
timepath-only if the calculationsuse the
consumptionlevels, prices, and stock varia-
tionscorresponding to an economyon a PVU-
max intertemporal equilibriumpath character-
ized by constantnational.But, as Norgaard
(1990) has observed,if the purpose of indi-
cator constructionis to learnwhetheror not
an economy is far from a "sustainable"tra-
jectory,we cannot assume the propertiesof
a sustainable trajectoryin the process of
makingthe calculations."5
V. EMPIRICALMEASUREMENTS
AND THE INTERMEDIATION
OF
MODELS
The Arrow-Debreu equilibriumis very useful
whenforinstanceonecomesto arguewithsome-
onewhomaintains thatwe neednotworryabout
exhaustibleresourcesbecausethey will always
havepriceswhichensuretheir"proper" use. Of
coursethere are manythingswrongwith this
contentionbut a quickwayof disposingof the
claimis to note that an Arrow-Debreu
equilib-
riummustbe the assumption he is makingfor
the economy,andthento showwhythe economy
cannotbe in thisstate.(Hahn1973,14)
Getting the Model Right?
The basic idea of the "savings"indicator
-not generallyvalid, as we have seen-was
that if Hartwick'srule is respected,then the
economyis "operatingwithin the bounds of
sustainability"in the sense that currentcon-
is less than the sustainable
sumption
plC (presumed,somewhaterro-
nationalincome
neously,to be indicatedby gNNP).
543
To appreciatefully the theoreticallimita-
tions of this procedure,we must pose again
the question: what is involved,theoretically,
in definingthepassagefrom an actualGNP to
an estimatefor an SNI? Far more than just
some arithmeticwith some categoriesof the
national accounts and monetized satellite
accounts. Both in theory and in fact, the
specificationof a "sustainablenational in-
come" is highly speculative.It depends on
the underlyingmodel, and also on assump-
tions about investment and consumption
choices made throughtime. First,for a given
model:
* The maximin SNI(i) and the Pezzey-
path SNI(ii)will generallynot coincide.
As our own model results show, in Fig-
ure 2 cases (B/S) and (C/S), there may
be the possibility that a judicious in-
vestment programin the directions of
naturalresourceconservation,anti-pol-
lution, environmentalquality improve-
ments, etc., could permit the economy
to attain a value for SNI(ii) that is
higher than the SNI(i) that would be
immediatelyfeasible.
* Attainment of SNI(ii) does not gener-
ally coincidewith a PVU-maxpath.Re-
sults presented by Pezzey (1997) and
also with our own model, as shown in
Figure 2, suggest that paths that attain
SNI(ii) will usually not be PVU-max
paths-except in cases where C(t) in-
creaseswithoutboundsand thus SNI(ii)
is also unboundedin the long run.
e The values for SNI(i) and for SNI(ii)
will each be a function of (inter alia)
the initial capital stock vector. That is,
values for SNI(i) and SNI(ii) can, in
15In the case of an open economy,the specifications
for sustainedconsumptionwill be somewhatdifferent
(see the contributionby Brekke1997,in this issue),and
under certain assumptionsthe Hicks criterion dK/dt
= 0 is the relevantone. But still, the same "chicken-
and-egg"problemwill remain,that the indicator'sva-
lidityis not assuredunless one is alreadyon a sustain-
able path, and this is preciselywhat one wants the
indicatorfor, in orderto find out.
544 LandEconomics
principle,be determinedas functionsof
an initialstockvectorwithinthe analyt-
ical frameworkof a particularmodel
(subject to algebraic tractability and
numericalsolution convergenceobsta-
cles).
So the mathematicalpassage from a value
of gNNP obtainedempiricallyor for a point
on a model timepath, to either version of
SNI, is model specific and depends on sce-
nario parameters.
* The transformationfromGNP to gNNP
for the currentperiod can be made on
the basis of current prices, neglecting
for the moment whether or not these
pricesare PVU-optimal(but see below).
* The transformationfrom currentgNNP
to SNI(i) or SNI(ii) is, by contrast,
strongly model-specific. It requires a
complicated algebraic transformation
that assumes knowledge,for the entire
time-horizonof interest, of the social
discountrate or rates-the p(t) or the
pn-that characterizethe existing eco-
nomic equilibrium,of the substitution
and productivityparametersfor all sec-
tors (includingany so-calledtechnologi-
cal progress), of demographictrends,
and of consumerpreferences.
The values obtainable for SNI(i) and
SNI(ii) depend more heavily on the choice
of model and the parameterspecifications
than on the empiricalprice/quantity data
obtainable from the real world (see also
Common 1993 and Vanoli 1996). But since
we do not know what the "rightmodel" is,
and we cannot deduce this reliably from
empiricallyavailableinformation,we are in
a "chickenand egg" situation.
"LetUs Supposea PVU-maxEquilibrium..."
We can highlight the significance of
model uncertaintyfor indicatorestimation,
with the help of our OLG model. Our sus-
tainabilitycriterion leads to solutions that
November1997
are finite-time-horizonanaloguesof SNI(ii).
It is alreadyshownin Figure2 that the level
of consumptionper period attainablein the
long run (that is, throughuntil at least the
20th period) under the sustainabilitycon-
straint varies considerably-from 0.4 to
> 1.5 units for each generation living in a
given period, depending on our choice of
scenarioparameters.The initial stock levels
are identical in all cases. Our problem of
indicatorreliabilitycan be phrased:
* Is it possible to deduce which of these
timepaths(A/S, B/S, C/S, or D/S) is
the best representationof the econo-
my's welfare-deliveryprospects, based
solely on past and currentprice infor-
mation?
* Canwe use indicatormeasuresto gauge
how far the economy is from sustain-
abilityif, at the same time, we need to
know how far the economyis from sus-
tainabililityin order to gauge the valid-
ity of the indicators?
The short answers are, no and no. This is
serious, because, even in our (probablyfic-
titious) PVU-maxworld, applyingthe indi-
cator recipes blindly can give perverse re-
sults. Take the situations,such as our sce-
narios(B) and (C), where a model economy
has a nonsustainablePVU-max equilibrium
path along which nationalconsumptionfirst
rises to nonsustainable levels then falls
monotonically.As discussedby Pezzey(1994)
and Asheim (1994), such "singlepeak"con-
sumptionpaths will necessarilyhave a por-
tion along which the aggregatewealth-the
value of total capitalstocks-is rising,prior
to a subsequent monotonic decline. Along
the rising-aggregate-stock portion of such a
path, the weak sustainabilityindicatorswill
fail to signal the consumption"overshoot"
and thus do not signalthat the resourceuse
and savingsregime is impairingdurablythe
economy's sustainability prospects. These
authors'results establishthat:
* the use of equilibriumprices to esti-
mate the naturalcapitaldepreciationis
73(4) Faucheuxet al.:NaturalCapitalTheory
a systematicunderestimate,in the sense
that a positive Hartwick"net savings"
dX/dt 2 0 can be obtained despite
7•
the fact that the current consumption
level is > SNI(i) and, as such, can-
plC
not be sustained indefinitely.
the gNNP obtained from the formula
gNNP = pjC + 7r dX/dt is higher
than the SNI(i), which means that an
estimate for gNNP obtainedby deduct-
ing net capital depreciationfrom GNP
will not correctlyindicate the extent to
which current consumptionovershoots
sustainability.By corollary,a hypotheti-
cal reallocationof economic resources
away from consumptionto investment
equal in magnitudeto the currentvalue
of capital depreciation (wr dX/dt)
would not be sufficient to reduce the
consumptionto the SNI(i) as would be
required to put the economy onto a
sustainablepath.
By the time that aggregate wealth has
stopped rising(that is, dK/dt becomes non-
positive), and by the time the sign of the
Hartwick "net savings" 7 *-dX/dt changes
from positive to negative, it is too late. Sig-
nificant,and perhapsirreversible,damageto
sustainability prospects has already been
done. (We have alreadyseen the same sort
of defect with applicationof the "Hicksian"
indicator.)
The source of the systematicerrors can,
indeed, readily be identified in the frame-
work of our model. On the "boom"portion
of a single-peakPVU-maxpath, the price/
quantity information is giving "wrong sig-
nals" from the point of view of resource
allocationfor sustainability.In Figure 4, we
show the flows of resourceinputsto produc-
tion for the scenarios(C) and (C/S). These
correspondrespectivelyto Figure 1(C) with
boom-and-declinepath for PVU-max con-
sumptiondue to the time-discountingof fu-
ture generations'utility, and Figure 2(C/S)
with sustained-utility,close to the "maximin"
form. Comparison shows that high early
consumption under PVU-max involving
rapid exploitationof the depletable natural
545
capital compromises future generations'
economicchances.Fromthe 2nd throughto
the 9th period consumptionby young and
old in each period is significantlyhigher
than the plateau level maintained in the
case (C/S) where the sustainabilitycon-
straintis imposed.
The corollaryis that naturalcapital is, in
early periods, being used relatively more
quicklyfor the nonsustainablegrowththan
is the case along the sustainability-con-
strained path, and also the manufactured
capital stock grows relativelymore quickly
in the unconstrainedPVU-maxcase than in
the sustainability-constrainedcase. This im-
mediatelyimplies mis-valuation.Recall that
with a Cobb-Douglasproduction function,
the factor shares are constant and so the
relative price p3/pl is inversely propor-
tional to the input proportions.So, relative
to the sustainability-constrained path, the
early periods of the PVU-max path is char-
acterized by lower p3/pl than along the
sustained-utilitypath. These prices "under-
value" each unit of naturalcapital depleted
and "overvalue"each unit of the savingsof
manufactured capital compared with the
sustained-utilitypath prices.16
EmpiricalMeasurements UsingIncomplete
Inventoriesand "Strongly
Wrong" Prices
Real trends of economic activity are ex
hypothesifar from sustainability.Even if one
allows the doubtful propositionof a PVU-
max interpretationof economic reality, the
prices and quantities
far-from-sustainability
for capital stock variations are systemati-
cally wrong for the estimation purposes
wanted of them. Worse, there is no reason
to believe that current prices and patterns
16The Hartwicknet savings for a period can be
written:PI AM + p3 AR. In each of the earlyperiods,
the price and quantitybiases for manufacturedcapital
savingsreinforceeach other, so as to bias upwardsthe
first term in the Hartwick"net savings"measurecom-
pared with the sustained-utilitypath. For the natural
capital "depreciation",the price bias (-) is offset by
the quantitybias (+) due to the more rapiddepletion
in each period, but this offsetting is not enough to
"correct"the indicatorproperly.The mathematicsgets
verymessy;see the seminalworkbyAsheimandPezzey.
546 LandEconomics November1997

Capital Stock Flows

3

2,5

-4-Produced Capital
1,5 - - NaturalCapita

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

FIGURE 4(C)
FLOWSOF CAPITALSINTOPRODUCTION:PVU-MAX "BOOM AND BUST"
(SCENARIOC)
(nat capital p= 0.55; econ capital o I = 0.15; labor ot2 = 0.30; PVU-maxwith
intergenerationalutilitydiscount factor 8 = 0.90)

Corpital Stock Flows

3
2.5

2- zz~???~ss~:?..f?
-n-:::~::::::u:~:-ae~:~
IE:~:::s:::::~::
Xf.... .............
"M
IXi?:~::'~~:::::
....
.::*:.:.:
s-iK R?::-:ji ks0
'RIM, ---rdce
af
~~i: tz
:.:~~.
k::~
:~::~j::~:~;?:~:::
~ii~% ............
.
?.~s~i
'~'f'5:~:~:~i::i
.....
,, ~~~"~K""
Xx ?M M M. Ag -gk
,?..:::~:~:~:i:
~KOX ::%ffi *f--
::~::~:5~':":
%;:
?~Ii~:?:~-:;~;?:;?55S~??-
N,: ::"':..:.:::::i~j~:~"i
*X.I:~,,,
::::::;;:g:;;:g .
-*gM.m
................-??::~:"~:::ii~j:,~i:
~
0,5? ....... *%
,-,3X
1 2 3 4 5 6 7 8 9 1011121314151617181920
FIGURE 4(C/S)
FLOWSOF CAPITALSINTOPRODUCTION:OP-SUS WITHNONDECREASING
UTILITY
C / S)
(SCENARIO
(nat cap p= 0.55; econ cap alt = 0.15; labor a 2 = 0.30; "Op-Sus"with intergenerational
utility discount factor 8 = 0.90)

of resource utilization conform to a PVU- itous and cynical disposal of toxic wastes,
max path, and a lot of reasons exist to state interventions to furnish low-cost ac-
believe the contrary, notably the prevalence cess by commercial interests to forest, wa-
of market power, force majeure, and other ter, fisheries, and agricultural resources, and
forms of non-Pareto-efficient competition so on). Many environmental services (in-
(e.g., oligopoly market power, high commer- cluding waste disposal) and scarce natural
cial discount rates, strategic behavior, gratu- resources (including fish, water, forests) are
73(4) Faucheuxet al.:NaturalCapitalTheory 547

obtained virtuallygratis simply because of "pragmatic" estimation procedures cur-

market power and outright coercion, even rently in use are prone to give, in the situa-
when it is knownthat high opportunitycosts tions of greatest policy need, a positive sign
(including uncompensated environmental for the putative indicator (whether this is
damages)are involved. Hartwickian net savings or the Hicksian
Most non-commodifiednatural capitals change in value of capital stock) while in
such as the atmosphereand oceans, and the fact the economyis movingon a nonsustain-
great diversity of marine, freshwater, and able trajectory.This is not a reliable sort of
terrestrialecosystems,are, in effect, treated policy indicator.
by users as "free gifts of nature."Access is In reality,we can only observe past and
determined by social power relations, with present quantity-pricevariations.In the ab-
or without regard for the future (Arnoux, sence of independent knowledge of the
Dawson, and O'Connor 1993; Martinez- economy'skey technicaland social parame-
Alier and O'Connor 1996). In the case of ters (stock levels, output and substitution
irreversibilities,the marginalcost of degra- elasticities, social discount rate) it is not
dationbecomes veryhigh or infinite(Pearce possible to infer by how much the prices are
1976). Sometimes the use of market prices "wrong."If we do not knowwhat the "cor-
has been defended as pragmatism(citing, rect" parameterspecificationsof, inter alia,
among other reasons, the difficultyof "cor- substitution and output elasticities should
rect"valuation!),and as a matter of making be used as the basis for estimatingopportu-
a step in the right direction.This is hardlya nity costs, we are not justifiedin presuming
convincing defense of systematic error. that they are "revealed"in market prices!
Moreover, as Victor, Hanna, and Kubursi This is whywe are not justifiedto infer from
have commented, a positive sign of net savings(,a dX/dt) or
AKn whether or not consumption in the
By emphasizing in their work
empirical those nth period is respectful of a sustainability
aspectsof naturalcapitalfor whicheconomic intergenerationalequity norm.
measuresare more readilyavailable(i.e., for For example, the striking difference in
resourcessold throughthe marketand a few position of the curve for value of natural
measuresof pollutiondamages),far more has capitalstock in Figure 3(B) comparedwith
been left out thanhas been included.17(Victor, Figure 3(C) showshow significantlythe esti-
Hanna,andKubursi1997,forthcoming). mate of the relative importanceof natural
capital comparedwith economic capitaland
The errors and omissions are thus twofold labordependson model parameters-in this
-first of all the exclusion altogether of case the relativeoutput elasticities.There is
manyecologicalassets and servicesfrom the no reliable basis for deducingthe "correct"
accountingscheme, and second the use of value of such parameters from price and
market prices that are probablysystemati- quantityinformationfurnishedby "the mar-
cally "wrong"from the point of intertempo- ket."
ral opportunitycosts. These impose system- Which model should be selected as the
atic biases in the same direction(being due, "right" one for the purpose of inferring
generallyspeaking,to the habit of "self-in- shadowprices?Because there is no consen-
terested"producersand consumersto treat sus on this, any indicatorestimation result
nature as a "free gift" and to the predomi- will be controversial.Underlying disagree-
nance of present-day market power and ments on scientificand politicalmatterswill
purchasing power over, inter alia, future
generations'interests).The omissions-tan-
tamount to employing a zero-price in the
correction calculations-are sufficiently 17The results reported by Pearce and Atkinson
(1993) and by Proops and Atkinson (1997), involve
large that it becomes to
preposterous sug- estimatesof naturalcapital depreciationusing market
gest that these empirical figures give any values for a very limited range of items such as forest
indication of sustainabilitypotential. The products,petroleum,and minerals.
548 LandEconomics November1997

end up reframed in the arcane language wood pulp, in relationto manufacturedcap-

of modeling, without necessarilybeing re- ital inputs, ranging from +0.6 to + 15.
solved. Kiimmel(1989) has investigatedthe estima-
tion of productivityimprovementsbased on
TheImpossibility of Estimationof
a production function with manufactured
ModelParameters capital, labor, and primaryenergy, but the
results are inconclusive. Although these
Knowing the "correct"shadow relative sorts of econometricestimations may have
prices and the associatedquantitiesfor cal- worth for individualsectoral analyses,there
culatingthe gNNP depends on knowingthe are severalreasons to doubt their relevance
intertemporalproductionpossibilityfrontier as indications for overall sustainability
for economicproductionand environmental prospects. First, these estimates are sensi-
function(ipso facto the elasticitiesof substi- tive to the form of productionfunction as-
tution and the technologicalchangesfor the sumed and to the estimationtechniquesem-
of
timespan analysis), and knowing-or, at ployed (see Faucheux 1993; Faucheux and
least, placing bounds around-the pattern Noe*l 1995; Stern 1994a,1994b).Second,and
of "demand"for economic goods and envi- more important,these resultspertainto very
ronmental functions on the part of future specificproductioninputs,not to the broad
generations. spectrum of environmentalgoods and ser-
Norgaard(1990) has pointed out that the vices. We cannot infer much about substi-
use of existing market prices in order to tutabilitybetween life support,pollutionas-
gauge resourcescarcity(and, by implication, similation, and biological stock renewal
gauge substitutionelasticities)and, thus, the functions,and economiccapital,from exam-
critical values for model price variables, ination of elasticitiesfor a few minerals.As
wouldinvolvea fallacyof circularreasoning. authors such as Daly (1994), Victor (1991),
Similarly,Cabeza (1996) concludes that, in and Victor, Hanna, and Kubursi(1997) ar-
models of endogenoustechnologicalchange, gue, knowledgefrom physical and life sci-
in orderfor marketforces to induce natural ences suggeststhat readysubstitutabilitybe-
resource productivity-augmentingtechno- tween natural and manufacturedcapitals
logicalchange,the relativeinputpriceshave should not be presumed, and that casual
to signalthe relativescarcityof these inputs aggregationis a ratherchancybusiness.For
correctly.If prices fail in this role, then the example, thermodynamicirreversibilityim-
theory itself tells us we can hardly expect plies the impossibilityof substituting,be-
the technologicalchange to follow the "ap- yond certain well-definedlimits, away from
propriate"path. environmentalsources of "free energy" as
This bringsus to the final question:what productioninputs.Substitutionmay be rea-
empirical evidence might we be able to sonablyeasy between energytypes, but this
amass concerning key model parameters relativeease applies only withinthe class of
such as output elasticities or elasticities of energy sources, not between energy and
substitution?The short answer is: ambigu- other productioninputs (Slesser 1978; Peet
ous at best. A numberof studies have been 1992).Ecologicalsystemshave complexspa-
carriedout to obtain estimatesof elasticities tial structures,and are interlockedwith geo-
of substitutionfor inputs to manufacturing. physicalprocesses (such as hydrologicalcy-
These have yielded widely varyingresults. cles) that extend over large (sometimes
Artus and Perroux(1981), makinguse of a planetary)distances. These systems cannot
Translog production function form, ob- be fragmentedand transportedin the same
tainedelasticityestimatesvaryingfrom -6.9 way as minerals and manufacturedcapital
to + 1.8. Brown and Field (1979) report inputs.There is a strongcomplementarityof
elasticities of substitutionfor several min- "inputs" in the processes of reproduction
eral inputs (iron, aluminium,copper) and and renewalof ecologicalsystemsthatworks
73(4) Faucheuxet al.:NaturalCapitalTheory
against the application of the concept of
substitutionon the margin.
VI. CONCLUSIONS:
OF THE
UNSUSTAINABILITY
"WEAK"INDICATORS
Estimates for SNI(i), presumedequal to
gNNP, and for Hartwick "net savings" as
sustainabilityindicatorsobtained by deduc-
tions of naturalcapital "depreciation"from
conventionalGNP using currentprices, are
both logically invalid and empiricallysus-
pect for the situations in which they are
most urgently needed. The estimates of
changesin total capitalstockare often made,
in practice, on the basis of current prices
without enquiring into the conditions for
"correctness"of these valuations.But also
-and more crucially-there is no way of
being able to gauge, from marketprice and
quantity information,the extent to which
they might be "incorrect."The validity of
the estimates cannot be gauged without
knowing in advance the values of all key
technicaland social parametersdetermining
actual and possible economic performance,
and this is impossible.
So the real value of the neoclassicalnatu-
ral capital theory, properly understood, is
merelydidactic.It allowsthe constructionof
parablesto alert us:
* first, to the likelihood of "failure"of
existing prices to signal intertemporal
opportunitycosts of natural resource
use and environmentaldegradation;
* second, to the fact that, even if prices
are assumed to be PVU-optimal,they
almost certainly do not correspondto
anything near a sustainable resource
use timepath;and if not, then the "weak
criterion" for sustainability(nonnega-
tive "net savings")is logically invalid
and whollyunreliableas an indicatorof
long-run economic performancepros-
pects.
All is not lost, however.The explicit use of
scenario-typeanalyses introducingdiffering
549
hypothesesabout key parameters(e.g., com-
plementarily or substitutability, savings
rules, technologicalchange)can, we suggest,
serve to help decision makers understand
better the difficultiesinherent in evaluating
sustainabilityprospects, and the nature of
the judgments about uncertaintyand bur-
den-sharinginvolved in resource conserva-
tion and investment policies (see also da
Motta 1997).But, going beyondthe didactic
value, empiricalquantificationof the sever-
ity of the risks and "trade-offs"associated
with natural capital use requires quite dif-
ferent forms of decision-supportanalysis
from what the neoclassical optimization
analysiscan provide.
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