Re: post keynesian economics and environmetal sustainablity

["J. Barkley Rosser, Jr." <rosserjb@xxxxxxx>]

     Mat's point about reswitching problems being
relevant to discount rate selection are very germane
and are discussed in my 1991 book, as well as an
earlier article.  Indeed, the usual story that low
discount rates "help the environment" ( in cost-
benefit analysis) and high ones "hurt the environment"
(by their respective relative present valuations of
the future) are far from general.
     Thus, back in 1970 (Roy Ash of the OMB)
environmentalists were applauding the imposition of
a government-wide 10% discount rate in the US for
cost-benefit analysis because the US Army Corps
of Engineers was justifying building dams by using
low discount rates that upvalued future claimed flood
control benefits relative to the upfront costs of building
the dams.  The higher discount rate would make many
of their proposed projects not pass the test.
     Ric knows that I am a fan of hyperbolic discounting
of some sort.  Thus, one uses higher discount rates for
shorter term horizon events and uses lower discount\
rates, asymptotically approaching zero, for further out
in the future events.  But this does not resolve or deal
with the problems of fundamental uncertainty.
Barkley Rosser
----- Original Message -----
From: "Forstater, Mathew" <ForstaterM@xxxxxxxx>
To: "Ric Holt" <rholt@xxxxxxx>; <pkt@xxxxxxxxxxxxxxxx>
Sent: Tuesday, January 22, 2002 5:13 PM
Subject: Re: post keynesian economics and environmetal sustainablity


> The problems with the discount rate, as Barkley Rosser should be better
> able to explain, is that if you look at resources in isolation, you are
> abstracting from the very important issue of interacting resources. If
> you take interacting resources into account, you get perverse
> "reswitching" like results where resources are conserved at very low and
> very high discount rates, etc.
>
> Why do you say that the predictions of science are made in an ergodic
> world?  Human behaviors and decision-making are part of what
> environmental policy makers must consider in their scenarios. I don't
> see why it should be any different in economics and environmental.
>
> -----Original Message-----
> From: Ric Holt [mailto:rholt@xxxxxxx]
> Sent: Tuesday, January 22, 2002 4:02 PM
> To: pkt@xxxxxxxxxxxxxxxx
> Subject: Re: post keynesian economics and environmetal sustainablity
>
> I'll read the piece by Ravetz. So what would be the suggested discount
> rate  with an uncertain future? Low like zero or high? If we accept that
> the predictions of science our made in an ergodic world compared to the
> nonergodic world of economics wouldn't we have a better handle of
> evaluating the risk associated with certain environmental outcomes and
> calculating the caution  and cost we should take with environmental
> policies?
> -Ric
>
> >>> ForstaterM@xxxxxxxx 01/22/02 10:52AM >>>
> Uncertainty is emphasized by many in environmental policy, and the
> connections to PK emphasis on same is clear, and has been pointed out
> by
> some.  Some of the best work on uncertainty in environmental policy is
> by Funtowicz and Ravetz, and they (or maybe Ravetz by himself) had an
> article in the JPKE on "Economics as a Folk Science".  The literature
> on
> the "precautionary principle" in environmental policy is mostly due to
> uncertainty.  We don't KNOW that global climate change or ozone
> depletion or whatever will happen to such and such a degree by a
> certain
> date and that if so it will have such and such effects, but we don't
> KNOW that it won't either.  So the precautionary principle says we
> should be cautious in the face of uncertainty-better to err on the
> side
> of caution when it comes to life, health, environment.  Stephen
> Marglin
> has an essay some years back where he talked about uncertainty in
> environmental and uncertainty in Keynes, and he said that in Keynes,
> investors are uncertain but we need action in the face of uncertainty
> (animal spirits), 'otherwise there would not be much investment' just
> based on cold calculation. But in the case of environmental
> uncertainties we don't want action in the face of uncertainty, but
> caution. mat
>
> -----Original Message-----
> From: RHolt1234@xxxxxxx [mailto:RHolt1234@xxxxxxx]
> Sent: Monday, January 21, 2002 5:01 PM
> To: pkt@xxxxxxxxxxxxxxxx
> Subject: post keynesian economics and environmetal sustainablity
>
> Hopefully in the near future Bill Mitchell, Mat Forstater and I will
> start on a project of editing a volume on Post Keynesian economics and
> the environment. Thinking a little bit about the project let me throw
> out a basic issue to see how some of you will respond. A primary issue
> in environmental economics has to do with long-run sustainability.
> Using
> a very simple model of comparing marginal abatement costs with
> marginal
> damages to determine a socially efficient level of emissions of a
> pollutant assumes that all costs are estimated. A criticism given is
> that such a model has a tendencyto put more weight on costs and
> benefits
> for present generations compared to future generations. This would not
> be a problem if all resources were renewable and pollutants
> noncumulative, but as we know this is not the case. The neoclassical
> response is that through discounting we can come up with an estimated
> value of the marginal abatement cost and the marginal damage functions
> that takes into consideration all costs in the short-run and the
> long-run associated with pollution. But this analysis is based on an
> ergodic system. If we accept a non-ergodic system - a future that is
> uncertain how do we evaluate all future costs associated with
> pollution
> and carry out a policyof sustainability?
>
> -Ric Holt
>