Re: post keynesian economics and environmetal sustainablity

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

     Tacky, "responding" to one's own message,
but I digressed.  The Roy Ash story on the 10%
discount rate story is interesting but irrelevant to
the deeper capital theory problem.  Let me
boringly self cite yet again.  The following summarizes
Raymond Prince and J. Barkley Rosser, Jr., "Some
Implications of Delayed Environmental Costs for
Benefit Cost Analysis: A Study of Reswitching in
the Western Coal Lands," Growth and Change,
April 1985, vol. 16, no. 2, pp. 18-25.  This paper is
also discussed in my 1991 book.
     So, the paper compares reasonable numbers for
that time period for a comparison of strip mining of coal
versus sustainable cattle grazing in the U.S. Southwest.
Cattle grazing was assumed to have constant net benefits
over time (certainly debatable).  Strip mining of coal was
assumed to have up front costs and then delayed
environmental costs.  This profile of comparisons in
a straightforward b-c framework set up the reswitching
case, with coal mining having higher expected present
value (no speeches about ergodicity here, please)
for discount rates (constant over time, not any of that
new fangled hypbolic stuff) below 4.5% and above 8.6%.
For discount rates between those switch points, cattle
grazing was optimal.
     I note that this is a single sector, essentially micro,
comparison that someone like Gary Mongiovi can
declare to be not "true reswitching," which presumably
involves macroeconomic steady state level comparisons.
This point was noted in the original article.
     Of course this general phenomenon of "multiple roots"
was first noticed by Irving Fisher.  Although they made no
links with the capital theory debates, the following sources
also prior to Ray and me noted the general problem for
benefit-cost analysis of environmental issues.
Orris C. Herfindahl and Allen V. Kneese, _Economic
Theory of Natural Resources_, 1974, Columbus, OH:
Charles Merrill.
W. Kip Viscusi and Richard J. Zeckhauser, "Environmental
Policy Choice under Uncertainty," Journal of Environmental
Economics and Management, Sept. 1976, vol. 3, no. 3,
pp. 97-112.
Anthony C. Fisher, _Resource and Environmental Economics_,
1981, London: Cambridge University Press.
Richard C. Porter, "The New Approach to Wilderness
through Benefit Cost Analysis," Journal of Environmental
Economics and Management, March 1982, vol. 9, no. 1,
pp. 59-80.
     Also, there is the still unpublished, but excellent, paper
on delayed environmental costs of nuclear power:
Geir B. Asheim, "The Occurrence of Paradoxical Behavior
in a Model where Economic Activity has Environmental
Effects," 1980, Norwegian School of Economics and
Business Administration Discussion Papers, which does
explicitly bring up the capital theory debates, possibly a
reason it has never been published.
     Sorry I don't seem to have the number of that one.  Geir
is still there and accessible for anybody who is curious (last
time I checked).
Barkley Rosser
----- Original Message -----
From: "J. Barkley Rosser, Jr." <rosserjb@xxxxxxx>
To: "Forstater, Mathew" <ForstaterM@xxxxxxxx>; "Ric Holt" <rholt@xxxxxxx>;
<pkt@xxxxxxxxxxxxxxxx>
Sent: Tuesday, January 22, 2002 5:40 PM
Subject: Re: post keynesian economics and environmetal sustainablity


>      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
> >
>
>