towards an ecological economics of sustainability - mick common.pdf

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Ecological Economics, 6 1992) 7-34Elsevier Science Publishers B.V., Amsterdam

Towards an ecological economics of sustainability 1Mick Common a and Charles Perrings ,*

a Centre for Resource and Environmental Studies, Australian National Unicersity, GPO Box 4,Canberra, ACT 2601, Australia

b Department of Economics, University of California, Riverside, CA 92521, USA(Accepted 2 January 1992)

ABSTRACTCommon, M. and Perrings, C., 1992. Towards an ecological economics of sustainability.

Ecol. Econ., 6: 7-34.Persistent disagreement both as to the interpretation to be given to sustainability, and as

to the relation between ecological and economic sustainability, has hindered the develop-ment of an ecological economics of sustainable resource use. This paper identifies the mainconcepts of sustainability deriving from the two disciplines in order to explore the differenceimplied by an ecological approach to the problem. It is argued that present economic andecological approaches are largely disjoint, and that they address basically different phenom-ena. By combining the efficiency requirements of what is usually thought of as economicsustainability with the stability requirements of an ecological approach, it is shown that anintertemporally efficient allocation of resources that satisfies the conditions for constantlevels of consumption is not necessary to assure ecological sustainability. Ecological sustain-ability requires that the allocation of economic resources should not result in the instabilityof the economy-environment system as a whole.

1. INTRODUCTION

Whilst sustainability has become a watchword for much recent work inenvironmental economics, there remains considerable disagreement bothas to the conceptual and operational content of the term. This disagree-ment has various sources, including differences in disciplinary perspective,the axiomatic foundations of the dynamic models within which the concept

Correspondence to: M. Common, Centre for Resource and Environmental Studies, Aus-tralian National University, GPO Box 4, Canberra, ACT 2601, Australia. We acknowledge the useful comments of two referees.* This paper was prepared while Charles Perrings was a visiting fellow at the Centre forResource and Environmental Studies, Australian National University.0921-8009/92/$05.00 0 1992 - Elsevier Science Publishers B.V. All rights reserved


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8 M. COMMON AND C. PERRINGShas been explored, and the interpretation of sustainability at the policylevel. Moreover, underlying many of the disputed issues is an ill-defined setof philosophical and ethical differences over the problem of both intra- andinter-generational equity. The net result is a debate in which the funda-mental points at issue remain obscure. This paper seeks to clarify mattersthrough the development of a model of resource allocation that embracesboth economic and ecological concepts of sustainability, and so helps toidentify some basic operational principles of an ecological economics ofsustainability. To do this it has been necessary to select from the variety ofmodels in each of the two disciplines. We have chosen to work with theSolow/Hartwick approach from economics and the Holling approach fromecology. The former offers the most widely used framework for addressingsustainability issues in economics. The latter, although it does not have thesame status in ecology, has the double advantage that it is both cogent andobviously amenable to economic interpretation.

The approach adopted in the paper is cross disciplinary in that thestructure of the model developed here depends on insights deriving fromboth ecology and economics. Since a first requirement of any economicmodel of natural resource allocation is that it is sensitive to the propertiesof ecological systems that generate the natural resources involved, thepaper is drawn into a review of those elements in the axiomatic structure ofexisting dynamic economic models of sustainability that are problematicfrom an ecological perspective. To anticipate, we argue that while it is notnecessary to sacrifice the intertemporal efficiency required by aSolow/Hartwick interpretation of economic sustainability in order to as-sure ecological sustainability, intertemporal price efficiency is not a neces-sary condition for ecological sustainability. However, we also argue that thepursuit of intertemporal efficiency on the basis of the sovereignty of thepresent consumer may well be inconsistent with ecological sustainability.An ethical shift away from the values that privilege consumer sovereigntymay be a necessary feature of an ecological economics of sustainability.Daly and Cobb (1989) have recently arrived at a similar position via asomewhat different route.2. ECONOMICS: SOLOW-SUSTAINABILITY

The starting point for a treatment of sustainability within the utilitarianframework of neoclassical economics is the concept of consumption. Con-sumption defines those goods and services that are taken out of the totalavailable goods and services generated within the global system in order tosatisfy a given set of wants within the constraint posed by a given set ofendowments. The concept of consumption accordingly implies two key


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TOWARDS AN ECOLOGICAL ECONOMICS OF SUSTAINABILITY 9

assumptions about the nature of the economic problem. First, the notion ofa given set of wants implies that there exists an exogenously determined setof preferences (assumed to have a number of far from innocuous mathe-matical properties) that is both external to the productive system andinvariant with respect to that system. Moreover, it implies that satisfactionof such preferences may be treated as a criterion of system performance.Second, the notion of a given set of endowments implies that there existsan exogenously determined heritage comprising both a set of resourcesand the property rights that map those resources into the consumersconstraint set. The set of property rights is likewise assumed to be invariantwith respect to the productive system. A corollary is that the organizationand technology of the productive system may also be taken to be exogenousto the economic problem.We shall return to a discussion of these assumptions later. For now ourinterest lies in what this concept of consumption implies for the treatmentof sustainability. We begin by relating consumption and income using theHicks/Lindahl concept of income. Recall that in his (1946) discussion ofincome Hicks canvassed three definitions. Income was defined to be themaximum amount that could be spent on consumption in one periodwithout reducing either (a> the expected capital value of prospectivereceipts in future periods; or (b) nominal consumption expenditure infuture periods; or (c) real consumption expenditure in future periods. Ashas frequently been observed since, these are all definitions of sustainablenet income, and they have immediate implications for the heritage con-straining consumption decisions. If income is defined to be the maximumreal consumption expenditure that leaves society as well off at the end ofa period as at the beginning, it presupposes the deduction of expendituresto make good the depreciation or degradation of the asset base that yieldsthat income (cf Pearce et al., 1989). In terms of our earlier statement of theeconomic problem, it implies the preservation of some suitably definedcapital stock with a view to ensuring that the constraint set does not tightenover time. It is, accordingly, income net of the expenditure needed tomaintain such a suitably defined capital stock.

Hicks had argued that all three definitions of income amounted to thesame thing provided that both the rate of interest and prices were constantover time. If the rate of interest were to vary over time the first definitionceased to be relevant. If prices varied over time the second definitionceased to be relevant. It is of central importance to the neoclassical

3 The assumptions appear to have limited usefulness as a framework within which toconsider the long run economic history of man: see Common (1988).4 The theoretical basis for this has recently been explored by Hartwick (1991).


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10 M.COMMON AND C. PERRINGS

approach to sustainability that Hotelling (1931) had already establishedthat a necessary condition for the efficient intertemporal allocation ofexhaustible resources was that the price of an exhaustible resource shouldincrease at the rate of interest. That is, neglecting extraction costs:d$)/P0) = y (1)where Y is the interest or discount rate and pi(t) is the in situ price of theith resource at time t. If the stock of capital includes both produced and(exhaustible) environmental assets, an efficient price path will be one inwhich the prices of in situ exhaustible resources change over time. While itis not possible to point to an efficiency rule governing the evolution of therate of interest attracting similar consensus, a range of contributions byFisher (19301, Knight (1934, 1936) and Hayek (1941) had established arelationship between the rate of interest and the marginal productivity ofcapital, which had similar implications. The significance of this is that therelevant definition in Hicks gallery is the third: income is given by themaximum amount that may be spent on consumption in one period withoutreducing real consumption expenditure in future periods.

The translation of this definition into a theory of sustainable resourceutilization involved a series of papers which sought to establish how realconsumption expenditure based on the exploitation of exhaustible re-sources might remain constant over time. Economists have always had towork hard to find a rationalization for the principle of constant consump-tion. In this instance, the rationalization was provided by Solow, who usedthe egalitarian arguments of Rawls (1971) to propose a Rawlsian maximinapproach to the intertemporal distribution of consumption. 5 With thisjustification, Solow (19741, and later Hartwick (1977, 1987a,b), Dasguptaand Mitra (1983) and Dixit et al. (19801, all considered the conditions inwhich real consumption expenditure might be preserved despite decliningstocks of exhaustible resources. The product of their enquiry was a verysimple result now known as the Hartwick rule. The rule states thatconsumption may be held constant in the face of exhaustible resources onlyif the rents deriving from the intertemporally efficient use of those re-sources are reinvested in reproducible capital. That is, a necessary condi-tion for consumption to be maintained over time is that the efficiency rentsfrom exploiting exhaustible resources should be reinvested in non-exhausti-ble assets.

The intuition behind the Hartwick rule is transparent in the simplest ofall cases considered by Solow (1974). Let 4 =f(x> define net output

5 It is interesting that Rawls himself deliberately shied away from the maximin principlewhen dealing with intergenerational equity.


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produced under constant returns by a homogeneous stock of capital x withinitial value x0 (we may neglect labor). Define q = c +.i as the sum ofconsumption and new investment. Then, as Solow pointed out, the maxi-min principle implies that i should be set equal to zero, and x =x0. Theoptimal policy for each generation is to maintain the existing capital stock.Investment should be exactly equal to depreciation. Now the importantproperty of a homogeneous capital stock is that each component of thatstock is perfectly substitutable for all other components. If x(t) is definedto be a time-varying vector of heterogeneous capital stocks includingexhaustible resources, this is no longer true. However, as Solow (1974) andHartwick (1977, 1978a,b) both showed, providing that there is sufficientsubstitutability between reproducible and exhaustible stocks, it is stillpossible to derive an investment rule that will maintain the productivecapacity of that stock.

The proviso concerning the substitutability of reproducible and ex-haustible stocks is crucial. Before we consider the Hartwick rule moreclosely, it is worth elaborating on the substitutability assumptions thatenabled Solow and Hartwick to link the rule to sustainable consumptionexpenditure. We have already observed that the assumption of heteroge-neous capital implies that there is less than perfect substitution betweenproduced and natural assets. To capture this Solow (19741, Hartwick (1977,1978a), and Dasgupta and Mitra (1983) assumed that all inputs wereessential in the sense that output would be zero if any input were zero.That is, in addition to the usual properties of the production function, itwas assumed that f[x(t)] = 0 if xi = 0 for all i and all t. However, whetheror not the assumption that inputs are essential in this sense implies anyreal constraint on output depends on the substitution possibilities assumedto exist between inputs, and this depends on the form of the productionfunction. Where the functional form chosen to characterize global produc-tive activity is Cobb-Douglas, as it is in Solow (1974) and Hartwick (1977,1978a), we have the extraordinary property that the average product of anessential resource has no upper bound. As the resource tends to zero, itsaverage product may tend to infinity. Even more remarkable, where theproduction function is CES with an elasticity of substitution betweenexhaustible resources and produced capital greater than unity (e.g.,Hartwick, 1978b) the non-renewability of natural resources is simply irrele-vant. They cannot be essential to production.

The precise form of the production function is actually irrelevant to thederivation of the Hartwick rule. However, it is crucial if application of theHartwick rule is to be associated with constant consumption over infinitetime. Indeed, the rule itself is less a criterion for sustainable developmentthan a condition for the efficiency of intertemporal resource allocation. To


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see this, consider the following very general model. Let x(t) denote ann-vector of the resources available to the global system at time t. x(t)accordingly includes produced capital, renewable natural resources, ex-haustible resources, and both intermediate and final consumption goods.k(t) then defines the net rate of augmentation or depletion of the corre-sponding components of x(t). xi(t) > 0 implies that the ith resource isexpanding either through net investment (in the case of produced re-sources) or through natural growth (in the case of natural resources).x,(t) < 0 implies that the resource is being depleted either through depreci-ation (in the case of produced resources) or through extraction or degrada-tion (in the case of natural resources). ii(t) = 0 implies that net productionof the resource is zero. If it is interesting to isolate some particular class ofresource, then x(t) and x(t) must be partitioned appropriately. The produc-tion possibilities of the system are described by the set of all feasible pairs[x(t), jr(t)], and it is assumed to be stationary, convex, and continuouslydifferentiable. In addition, let p(t) denote an n-vector of prices corre-sponding to x(t), fi(t) denoting the rate of change of those prices. pi(t) > 0indicates that the ith resource is a scarce good; pi(t) < 0 that it is a bad insufficient supply to impose costs; and p,(t) = 0 that it is perceived as anon-scarce good. A price path [p(t), (t>]~z=os said to be efficient if, andonly if, it respects a generalized Hotelling rule for durable produced ornatural assets. That is, denoting the rate of discount by y6, [p(t), ~Xt>l~=~ issaid to be efficient if, and only if,di(t)/P,(t) =r-ii(t)/xi(t> (2)for all t and for all i. A time path for resource allocation [x(t), x(t)]T=C,, issaid to be efficient at prices [p(t), b(t)rzo if, and only if, for all t, itmaximizes instantaneous profit defined by:II(t) = p(t)k(t) + fi(t)x(t) (3)p(t) denoting a row vector, the transpose of p(t). It follows immediatelythat profit along such a time path will be at a maximum if, and only if, netinvestment [defined by p( t)k(t)] is equal to the imputed rents on theresource base [defined by -i,(t)x(t)]. More particularly, it is immediatethatd[p(t)i(t)]/ dt = -d[i,(t)x(t)]/ dt (4)is a necessary condition for intertemporal efficiency in the allocation of

The use of an exogenously determined rate of discount should not be taken to imply thatthe determination of r is unproblematic. However, it is beyond the scope of this paper todiscuss the issues it raises.


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resources. This captures the sense of the Hartwick rule: optimal investmentalong an efficient time path is equal to rents on resources.

To relate the result on prices more specifically to consumption expendi-ture, let the vectors x(t) and p(t) be partitioned conformably to distinguishbetween resources devoted to consumption (subscripted c) and otherresources (subscripted k), so that x(t) = [x,(t), x,(t)] and p(t) =[p,(t), pk(f)]. We then have, as a condition of the maximization of profit,thatd[PX%(t)l/ dt

= -d[P;(t)x&)]/ dt - {d[PXt)x,(t)]/ dt + d[P;(t)x&)]/ dt} (5)If consumption is to be constant over time, the term on the LHS must beequal to zero, from which it follows thatd[P;(t)x&)]/ dt = -{d[P:(t)x,(t)]/ dt + d[P x&)]/ dt} (6)Note that the RHS includes a term defining the rent on stocks of resourcesintended for consumption. This follows from the fact that we have insistedthat prices should reflect a generalized Hotelling role with respect to alldurable assets, and stocks of resources intended for consumption fall intothis category. Otherwise this restates the Hartwick rule. Moreover, sincep(t)i(t) + (t)x(t) = d[p(t)x(t)]/dt, it is equivalent to a requirementthat the value of the stock of assets is kept constant.The important point here is that the Hartwick rule is driven by acondition on prices (the Hotelling rule), and not by a condition on thenature of the physical environment. The rule gives rise to constant con-sumption over infinite time in the Solow and Hartwick models - what wehave called Solow-sustainability - because both authors assume thataggregate output may be maintained even as essential inputs asymptoticallyapproach zero. However, the validity of the rule as a condition for theefficient intertemporal allocation of resources is independent of the func-tional form chosen to characterize productive activity.The way in which the Hartwick rule and Solow-sustainability of con-sumption levels is currently being incorporated in the neoclassical ap-proach to sustainability shows some sensitivity to the limitations of thetechnological assumptions made by these authors. In particular, the substi-tutability assumptions implicit in the sort of well-behaved neoclassicalproduction functions adopted by Solow and Hartwick have been modifiedto admit the non-substitutability of certain types of natural and producedcapital. It is, for example, now sometimes assumed that there exists someupper bound on the assimilative capacity of the environment to absorbwastes, and some lower bound on the level of stocks that can supportsustainable development (see, for example, Barbier and Markandya, 1990).


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Indeed, externalities associated with the multifunctionality of naturalresources and the problem of irreversibility have been cited as rationalesfor setting the lower bound conservatively (Pearce and Turner, 1990). Inaddition, following the early mass-balance models of Kneese et al. (1970), itis now recognised that waste generation is an increasing function ofconsumption (Barbier, 1990). 7

Nevertheless, the notion that some suitably defined stock of capitalshould be kept constant is a crucial component of sustainability in thisapproach (cf Turner, 1988; Pearce et al., 1989; Pezzey, 1989; Maler, 1990).Moreover, while there remains some uncertainty about the appropriatedefinition of the stock of capital to be kept constant, there is a degree ofconsensus among those taking this view of sustainability that the onlymeaningful measure is a measure of value (cf Solow, 1986; Pearce andTurner, 1990). * This focus on value magnitudes is, it turns out, criticallyimportant to an understanding both of the essential features of the neoclas-sical approach to sustainability and of the operational principles to which itgives rise. Recall that the price path [p(t), b(t>rco defines a set of effi-ciency or optimal prices. They are, accordingly, shadow prices rather thanruling market prices, capturing both the marginal extraction costs (wherethese are explicitly modelled) and the resource rental or marginal usercosts of all assets in the global system. It is immaterial whether theresources involved are natural or produced; the optimal price will comprisethe same elements in all cases. We earlier made the point that the generalHartwick rule is an arbitrage condition for the efficient intertemporalallocation of resources. What this means is that if property rights are welldefined (eliminating the problem of externalities), and if all markets arecompetitive, then rational agents confronted by such optimal prices wouldallocate resources according to the rule.

The implications of this for a set of operational principles are bothimmediate and far-reaching. Providing that competitive agents are con-fronted by the full social cost of resource use, as defined by the set ofoptimal prices, the resulting intertemporal equilibrium allocation of re-sources will be Solow-sustainable. The attention then switches to theconditions in which individual resource users will be confronted by the set

It is of interest to note that in The Limits to Growth, Meadows et al. (1972) didexplicitly recognise the connection between waste production and resource consumption,and drew attention to the pollution problems arising should resource stocks be larger thanassumed in their base case. Although the base case itself attracted much (hostile) commentfrom economists, this feature of the work passed largely unnoticed by economists. Nevertheless, Pearce and Turner (1990) do argue the importance of preserving certainphysical assets. The significance of such a requirement in the environmental controlproblem is considered in Perrings (1991).


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of optimal prices. There are two conditions here: either that there exists acomplete set of markets including a complete set of contingent marketsfrom the present date to infinity; or that all agents in the system contract incurrent markets on the basis of rational expectations about the futurecourse of resource prices. Since rational expectations in this sense impliesexpectations that are consistent with the clearing of all non-existent for-ward or contingent markets, the two amount to the same thing. Theseconditions might seem excessive, but as Dasgupta and Heal (1979) show,nothing less will do. A sequence of momentary equilibia in which agentshave perfect myopic foresight as to the rate of change of prices, and perfectknowledge of the current rate of interest is not sufficient to ensure anefficient intertemporal competitive equilibrium.3. ECOLOGY: HOLLING-SUSTAINABILITY

To approach the identification of an ecological economics of sustainabil-ity, consider again the assumptions underpinning what we have calledSolow-sustainability. These are, of course, part of the general gallery ofassumptions characterizing neoclassical economics, and are not unique tothe Solow/Hartwick models, even though the existence of Solow-sustaina-bility supposes a very particular set of technological assumptions, and so avery particular selection from the neoclassical gallery. The difficulty withthese assumptions from an ecological perspective lies in their treatment ofthe human economy in the global system. Since they ignore the fact thatthe human economy is an integral part of a materially closed evolutionarysystem, models constructed on the basis of such assumptions are necessar-ily blind to the dynamic implications of this fact. In fact, for over a hundredyears the dominant metaphor of economic activity has been a trophic onein which economic agents are conceived as feeding off the resources of aquiescent and independently functioning natural environment in order tosatisfy an exogeneously determined set of desires up to the limits permittedby an exogenously determined set of endowments. But except over the veryshortest of time scales, this is not a useful characterization of economicactivity.

Human preferences and property rights are not independent of the stateof nature. Indeed, there is increasingly widespread recognition in eco-nomics that the assumption of the exogeneity of preferences and propertyrights obstruct the further development of the discipline. Neither thestructure of preferences nor the structure of property rights can any longerbe left outside the domain of rational economic choice. Choices made nowwithin a given set of preferences and rights influence the future structureof both preferences and rights. Essentially the same objection may be made


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with respect to the technological assumptions of the Solow/Hartwickmodels. Such assumptions are both inconsistent with the physical principlesinforming a materially closed thermodynamic system, and blind to thefeedbacks due to the dynamic interdependence of human and environmen-tal productive systems (Georgescu-Roegen, 1971). The necessity for changein the technology both of consumption (preferences) and production as aconsequence of environmental change have long been recognized (cfWilkinson, 1973; Boyden, 1987; Common, 1988). Indeed, Perrings (19871derives such changes as a logical necessity of the structure and dynamics ofthe global system. The contribution of ecologists working within a systemsapproach is to show how the feedbacks in an interlocking set of ecosystemsmay change the rationality and the organizational principles of a givenecosystem.Our starting point here is the work of Holling (1973, 1986) on theresilience and stability of ecosystems. Ecosystems, like economic systems,can be analyzed in terms of the operation of principles of optimization. So,for example, Holling argues that ecosystems are characterized by discontin-uous change, expressed through successional and disruptive processes, andthat it is these processes that define both the organization and rationalityof such systems. As an instance of this, the r and K strategies (originallyidentified by MacArthur and Wilson, 1967) are argued to reflect twodifferent optimization principles: the r strategies refer to the selection oforganisms during disruptive or early successional phases to maximizegrowth in an unconstrained environment; and the K strategies refer tothose organisms selected at the climax of a successional phase for efficiencyof nutrient harvest in a crowded environment. The r and K strategies are,of course, merely examples within a continuum of such strategies, but thepoint is that the optimization principles that underlie system organizationare themselves argued to be a function of system structure and dynamics.

In order to explore the stability properties of ecosystems, Holling distin-guishes between what are, in effect, two levels of stability. Stability, per se,he defines to mean the propensity of the populations within an ecosystemto return to an equilibrium condition (whether stationary or cyclic) follow-ing perturbation. Resilience, on the other hand, he defines to mean thepropensity of a system to retain its organizational structure followingperturbation. To interpret the two concepts, we note that Holling-stabilityis the narrower term, and refers to the stability of the system variables (thepopulations of organisms) in the face of disturbance. Holling-resilience isthe broader term, and refers to the stability of the system parameters(organizational principles) in the face of disturbance. Resilience admits thepossibility of multiple equilibrium values for the system variables, butinsists on the uniqueness of equilibrium values for the system parameters.


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TOWARDS AN ECOLOGICAL ECONOMICS OF SUSTAlNABlLITY 17

The distinction between the terms implies a difference in the focus ofanalysis within an ecosystem. An ecosystem may be defined to be acommunity of organisms in which the effect of internal interactions be-tween organisms dominates the effect of external events, catastrophesapart. It is legitimate to investigate either the individual populations oforganisms making up the community, or the community of organisms as awhole. But the nature of the insights obtained from analysis at the microand macro levels is very different. Nor is it symmetrical. It is not possible toderive the properties of the ecosystem as a whole from a study of onepopulation within the ecosystem. However, it is clear that the individualpopulations of an ecosystem will be Holling-stable only if the ecosystem isHolling-resilient. That is, the stability of the individual populations withinan ecosystem presumes the stability or resilience of the ecosystem as awhole. On the other hand, Holling-resilience does not necessarily implyHolling-stability. Indeed, system resilience may be positively correlatedwith instability in the system populations. Since Holling-resilience is arguedto be an increasing function of what is called interconnectedness orcomplexity within an ecosystem (Holling, 19861, it may be inferred that it isan increasing function of the number of constituent populations within anecosystem. Moreover, since ecosystems are naturally interpreted in termsof a nested hierarchy of subsystems, it seems clear that Holling-resilience isa stability concept best suited to a discussion of aggregations of communi-ties of organisms.

To obtain a concept of sustainability from these notions of stability andresilience, it is useful to appeal to recent advances in the theory of complexthermodynamic systems. It is now understood that ecosystems that areopen with respect to energy flows have a tendency to self-organize withinthe constraints imposed by an evolutionary and fluctuating environment.Any point where the self-organizing forces of the system balance thedisorganizing forces of the environment may be said to be an optimumoperating point of that ecosystem (Kay, 1989). The climax community in anecosystem accordingly represents one such optimum operating point. Atsuch an operating point the individual populations of organisms within thecommunity might be expected to be Holling-stable. However, it is recog-nized that consistent with a given organizational structure, there may bemultiple equilibrium values for the populations within an ecosystem, each

9 This is, of course, in marked contrast to Walrasian economic theory where it is assumedthat knowledge of the behavior of individuals is sufficient to give knowledge of the behaviorof the system as a whole. Indeed, this is a fundamental point of methodological disputebetween an ecological and a Walrasian or neoclassical approach to the economics of theenvironment.


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being at least locally stable. The Holling-resilience of the system may bemeasured by its ability to maintain its self-organization or, put anotherway, to accommodate the stress imposed by its environment throughselection of a different operating point along the same thermodynamicpath without undergoing some catastrophic change in organizationalstructure.

We refer to the notion of sustainability deriving from this as Holling-sus-tainability. A system may be said to be Holling-sustainable if, and only if, itis Holling-resilient. This is the sense of sustainability as it has been definedwith respect to agricultural systems by Conway (1985, 1987). The importantfeature of resilience is the capacity it implies to adapt to the stressesimposed on a system by its interdependence with other systems. In thissense resilience preserves the options available to future generations oforganisms within an ecosystem, without in any sense prescribing thoseoptions. lo

The point made by Holling is that where the dynamics of the globalsystem involve the discontinuous change of each component system, theresilience of each system is itself subject to change. This may occurnaturally due to the interaction between ecosystems, or it may be the resultof the way in which an ecosystem is exploited in the course of economicactivity. Holling (1986) characterizes most historical attempts to manageecosystems as weak experiments testing a general hypothesis of stability/resilience. Management directed at minimizing the variance of sometarget variable has a Holling-stability goal. But, as he points out, there isoverwhelming evidence that historical attempts to stabilize ecosystems inthis sense, while frequently successful in terms of the short run variance ofthe target variable, have led to qualitative changes in the nature of thewider system - often with adverse implications for the resilience of thatwider system. In many cases, the source of difficulty lies in the reduction ofthe range of communities within the system as a result of an economicfocus on a single species. A narrower range of communities within anecosystem implies, among other things, a reduction in the interconnected-ness or complexity that is argued to underpin the resilience of that system.

To capture the sense of Holling-sustainability formally, recall that ourdistinction between Holling-stability and Holling-resilience is the distinc-tion between two classes of stability. The first requires the stability of boththe (organic) variables and (organizational) parameters of an ecosystem.The second requires the stability only of the (organizational) parameters of

lo We note, in passing, that while the constant consumption rule which motivates the Solowapproach has a similar intent, it does constrain options in so far as it requires that aparticular savings rule be followed.


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that system. The first class of stability is obviously stronger and morerestrictive than the second. Holling-stability implies neither the phenotypicnor the genotypic evolution of the system. Holling-resilience, on the otherhand, admits the evolution of systems within bounds allowed by theorganizational parameters of the system. That is, it admits the phenotypicevolution of the system. As Faber and Proops (1990) have recently pointedout, this implies that the changes that may occur in what we have termed aHolling-resilient system are essentially predictable.Holling correctly argues that the first class of stability is overly restrictiveas a management concept in an evolutionary environment, where the objectof analysis is a system of interdependent populations of organisms, ratherthan the populations themselves. Our problem here is to find a suitablelogical construction to capture the second class. The first point to make isthat Holling-resilience is a stability concept. Despite his reference to thequalitative insights that derive from the concept, Holling-resilience doesrelate to the time variation of a response to some perturbation. Theprimary difference between Holling-stability and Holling-resilience is inlevel of analysis. Holling-stability is defined by the stability of populationswithin an ecosystem. Holling-resilience is defined by the stability of theecosystem itself.To formalize this, let us return to our earlier description of the resourcesof the global system at time t in terms of the n-vector x t), and note thatthis vector will include the populations of all organisms making up theglobal system. The Holling-stability of the global system would be mea-sured by the stability of each component of x t). More particularly, if wetake the Euclidean norm of the perturbations of x t), denoted 113 ) 11, henthe system may be said to be Holling-stable if it is possible to define afunction C?(E)such that if II%(O)) < 6, then II%(t) II 0and for all t > 0. If lim, ~ II ; t) II = 0, then the system may be said to beasymptotically Holling-stable.

To get at a concept of Holling-resilience relevant to economic decision-making, we need to have some sense of the mutual dependence of theresource stocks and the system parameters. To do this let us first define atime varying k-vector of stochastic system parameters, z(t), the jointprobability density function of which at time t is denotedz(t) = pr[z(t)l (7)This vector of parameters describes what we have earlier referred to as theorganizational principles governing productive activity in the system. Itwould include, for example, indices of the effectiveness of the range ofspecific processes associated with entropy production in the natural system:photosynthesis, respiration, and so on. It is assumed that z(t) is a functionof (a> the undisturbed time path of resource stocks; and (b) perturbations


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in the undisturbed time path of resource stocks at time t. Formally,z(t) =h[@), rz(t)] (8)where s(t) defines perturbations in x(t) due to economic activity, i1 andZ(t) defines the undisturbed values of x(t). We assume that Z(t) is anon-stationary random process.

Equation (8) accordingly reflects the assumption that the organizationalprinciples of a system are sensitive to perturbation of the resource stocks inthat system due to economic activity. An example of the sort of relationcaptured by this assumption would be the effects of the introduction oflivestock into the semi-arid Savannah ecosystems of the Sahel, eastern andsouth central Africa. In all cases this has perturbed the natural balance ofresource stocks in terms of both fauna and flora. On the one hand, it hasled to a different balance between grazing species, an expansion of domes-ticated cattle and goats, and a contraction in herbivorous wildlife. On theother it has led to a change in the balance of vegetation: woody vegetationreplacing grasses. The result has been an increase in the sensitivity of theeffectiveness of the natural processes to climatic fluctuations, making theecosystems less resilient in a Holling sense. Put another way, the effect ofthe perturbation of resource stocks has been a change in both the meanand variance of the system parameters.

Stability implies that the time derivative of z(t) with respect to economicperturbations of ii(t) is non-positive. That is:i(t) =&d(t) IO (9)If i(t) I 0 is in the neighborhood of the unperturbed values of theresource stocks, then the function h[%( 1, X( t >] is a Lyapunov function andthe neighborhood may be said to be a stable region. It is asymptoticallystable if i t ) < 0. A system may be said to be locally Holling-resilient andso locally Holling-sustainable if the probability density function of thesystem parameters is a Lyapunov function.

Note that this does not require the stability of the elements of x t).Depending upon the nature of the function h[ .I, it is quite possible for asystem to be resilient and yet for particular components of x t) to disap-pear. Resilience admits the extinction of some resource stock providingthat the extinction does not affect the stability of the system parameters.Holling refers to this as creative destruction. Nevertheless, since thestability of system parameters is argued on empirical grounds to be anincreasing function of the diversity of populations within an ecosystem, andof the links between them, the extinction of any one species as opposed to

We offer a more precise definition of this vector in Section 4 below.


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one local population within a species will generally reduce the stability ofthe system parameters.4. MODELLING THE ECOLOGICAL ECONOMICS OF SUSTAINABILITY

It should be apparent that the major difference between the models thatunderpin the Solow and Holling approaches to sustainability lies in theexplicit or implicit axiomatic structure of the physical components of eachmodel. The axiomatic framework of the Solow model is fundamentallyblind to the properties of the physical system in which the economic systemis embedded. Indeed, it contains a variety of free gifts and free disposalsassumptions that insulate the model from its environment, and preventconsideration of the most important dynamic implications of resource use.The axiomatic framework of the Holling model, on the other hand, privi-leges the system over its component parts. The dynamic economic problemfor Holling exists precisely because of the physical feedbacks that charac-terize the growth and decay of subsystems within the global system. Themodel does not exclude the possibility that economic activity may acceler-ate the dynamics of natural processes. Nor does it exclude the possibilitythat the acceleration of natural processes may lead to the irreversiblechange of system organization and structures.

Having said this, we do not want to suggest that the models represent afundamental division between economics and ecology. The Solow approachis no more representative of all economics than the Holling approach is ofall ecology. The division is between a systems or macroscopic view of thephysical processes involved on the one hand, and a component or micro-scopic view on the other. Within the history of economic thought there is,in fact, a very strong and continuous line of economic models since thePhysiocrats that are all very consciously rooted in the biophysical systems ofthe environment (Christensen, 1987, 1989; Cleveland, 1987; Martinez-Alier,1987). And while some of the impetus to the development of such modelswas undoubtedly lost in the aftermath of the Walrasian revolution ineconomic thought, economists concerned with the limitations of a micro-scopic view of the environment have continued to insist on the importanceof an axiomatic structure that respects the properties of physical systems. *Moreover, even within work founded on the Solow approach to sustainabil-

I2 The historical reviews cited above cover many of these. It is, however, worth signaling themost seminal contributions: those which have added a dimension of the biophysical systemthat turns out to have significant implications for the economic system. Of these Boulding(19661, Kneese et al. (1970), Georgescu-Roegen (19711, Clark (1976), Daly (1977), andNorgaard (1984) are perhaps pre-eminent.


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ity it is recognized that the technological assumptions underpinning Solow-sustainability do not reflect the essential properties of the real phenomenabeing modelled. l3 On the other side, ecology also has examples of compo-nent (population) oriented analysis. Moreover, even among those who takea systems perspective, there is no consensus on ecosystem dynamics,although there is some recent evidence of convergence at a methodologicallevel in the main theoretical approaches to ecosystem analysis (cf Mauers-berger and Straskraba, 1987).

When we speak of an ecological economics of sustainability in terms ofthe Solow and Holling approaches, we do not, therefore, have in mindsome sort of weighted average of disciplinary concerns. The problemaddressed is an economic problem in as much as it involves human activityfor the satisfaction of competing human purposes. The problem is usefullyconceptualized in terms of the allocation of resources in order to optimizesome welfare objective over time subject to a constraint set. What charac-terizes our approach to this problem is not an ecological bias so much as asystems perspective. This leads us to admit the dynamic interdependence ofthe objectives, instruments, and constraints alike - not to exclude it byassumption. Ecology is in this sense important because the constraint setincludes the properties of the biophysical systems within which economicactivity takes place. The constraint set has its own internal dynamics, andthese dynamics are sensitive to the stimuli offered by the economic ex-ploitation of the resources within an ecosystem, or of the imposition ofwastes on an ecosystem. The evolution of the economy and the evolution ofthe constraint set are accordingly interdependent. It is not only proper, it iscrucial to think in terms of Norgaards (1984) co-evolution of the eco-nomic and environmental components of the global system.

As before, let x(t) denote an n-vector of the resources available to theglobal system at time t, and let it be defined so as to include producedcapital, renewable natural resources, exhaustible resources, and both in-termediate and final consumption goods. In addition, let ri(t) define thenet rate of augmentation or depletion of the corresponding components ofx(t). We now define an m-vector of economic resources, u(t), the compo-nents of which are physical measures of those resources in the system thatare (a) subject to rights of property, and (b) transacted in a market. Sincex(t) is the set of resources available to the global system at time t, it followsthat the components of u(t) are a subset of the components of x(t), andthat m I n. As before, let the distribution of the set of system parameters,

I3 A good example is Pearce and Turner (1990).


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z(t), be defined by the probability density function z(t) = pr[z(t)], wherez(t) = h[x(t), x(t)] from (8). More particularly, letz(t) = h[x(t) - x(t), x(t)] (10)where x(t) = x(t) - x(t) indicates the difference between the disturbed andundisturbed value of resource stocks at time t. As a first approximation wedefine this difference to be equal to the allocation of economic resources,u(t). That is, l4Z(t) = u(t) (11)The rate of change in resource stocks (their growth or reduction) isassumed to depend on (a) the undisturbed processes of the natural envi-ronment; (b) disturbances due to the allocation of economic resources; and(c) the probability density function of the system parameters. This gives anequation of motion for the system of the form:x(t) = f[x(t>, u(t), z(t), tl (12)The rate of change in resource stocks is accordingly affected by theallocation of economic resources in two ways: one through a direct growthfunction that relates outputs to inputs; and the other through a functionrelating the probability density function of the system parameters to thelevel of resource stocks. Notice that from equations (10) and (11) thecondition for the Holling-resilience of the global system becomesi(t) =/2$(t) 4 0 (13)p(t) again denotes an n-vector of prices corresponding to x(t), b(t) denot-ing the rate of change of those prices. As before, positive and negativeprices indicate goods and bads respectively. A zero price for a resource isusually interpreted to mean that it is a non-scarce good, but may equallyimply that it is not subject to property rights. Since resource allocation in adynamic framework is assumed to be a function of the set of relative prices,and its evolution over time, we haveu(t) = U[P@>, tl (14)To characterize the sustainability problem we assume a benefit or socialwelfare function of the formJ= W(T)[x(T), z(T), T]e-T+ LTY(t)[ i(t), u(t), z(t), t]e- dt (15)Welfare is assumed to be time varying and depends on two things. The first

I4 This is, of course, a strong assumption which we take to be justified by the focus of thispaper.


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of these is the state of the resource base together with an index of systemhealth, the probability density function of the system parameters, at theterminal time. It is assumed that the present generation derives benefitfrom the state of the system it bequeaths to future generations. We shall bemore precise about this when we discuss the constraint set momentarily.The second is the income deriving from exploitation of the resource baseover the planning period. This depends on the productive potential of theglobal system, and so on the same index of system health. Welfare isdiscounted at the rate Y (given by the marginal productivity of capitalevaluated at intertemporally efficient prices).

The planning period is defined by the interval (0, T). It relates to theperiod in which it is reasonable to assume that the relation between socialpreferences and the state of the system may be treated as constant. That is,defining the relations W(T) = W[z(T)] and Y(t) = Y[z(t)], representsthe maximum time over which the functions I+[.] and Y[*] representmeaningful criteria of system performance. It therefore depends on therange of institutional, technological, cultural, and ethical factors that regu-late both the function and its arguments. One might, however, think ofas defining the minimum of the technological and preferential shortperiods. Once again, we shall be more precise about this when we discussthe constraint set.

The primary constraints on the optimization of welfare are given by thedynamics of the global system, described by the equation of motion (121,and the initial conditions in respect of resource stocks, x(0) = x0, andprices, p(0) = p,,. The ecological content in our treatment of this problemrelates to the way that these system dynamics are incorporated in thedecision-making process. The basis for our approach is the Holling condi-tion for the resilience of ecosystems, which we have interpreted in equation(9) as a condition on the probability density function of the systemparameters. Equations (10) and (11) assert that Holling-resilience and soHolling-sustainability is to be regarded as a function of the allocation ofeconomic resources in the global system which, from (141, depends on thetime path of resource prices. To be sure, system resilience may changeindependently of economic decisions, but the implication of these equa-tions is that the natural evolution of ecosystems will also be affected byeconomic decisions. We believe that this formal statement of the connec-tion between economic resource allocation and system health is bothintuitive and in accordance with the historical experience that has moti-vated the sustainability debate.

An ecological sustainability constraint of the Holling variety is a con-straint on the allocation of economic resources designed to ensure thestability of the function z(t) = h[i(t), I]. In general, such a constraint


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TOWARDS AN ECOLOGICAL ECONOMICS OF SUSTAINABILITY 2.5

requires only that i(t) = hLti(t) be non-positive. Consider, however, thefunctions W(T) = W[z(T)] and Y(t) = Y[z(t)]. These state that the formof the benefit function is itself dependent on the system parameters. It isimmediate, therefore, that the form of the benefit function will be constantif, and only if, the probability density function of the system parameters isconstant. That is l&(T), Y(t) = 0 if, and only if, hkti(t) = 0 for all t,0 I t I T. The Holling-resilience of the global system is both a necessaryand a sufficient condition for the existence of a constant structure ofpreferences.

A corollary of this is that a sufficient condition for the Holling-resilienceof the global system (where we ignore natural disturbances to the distribu-tion of the system parameters) is that ti(t> = 0. In other words, if there is nochange in the allocation of resources over time, there will be no change inthe density function z(t). It is easy to see from this that the emphasis in theclassical growth models on the ability of a system to reproduce or replicateitself over time is rather naturally related to the notion of Holling-sustaina-bility. If the structure and level of consumption and investment is constant,b(t) = 0, and if the system is resilient at time t, then it will continue to beresilient thereafter. Since the structure of consumption and investment willbe constant along a classical equilibrium path, and since the level ofconsumption and investment will be constant if the rate of growth is zero, itfollows that the zero rate of growth along an equilibrium path is sufficientto assure Holling-sustainability. Conversely, surplus and positive growth ina classical model would be inconsistent with Holling-sustainability. I5

The secondary constraints on the optimization of welfare derive from theHartwick arbitrage rule for the optimal intertemporal allocation of re-sources. The rule requires that along an optimal path d[p(t)x(t) +(t>x(t)]/dt = 0 for all t. Given that the equilibrium rate of interest isidentical to the internal rate of return, we have

0 = -P'(t>x(t) + [p(t)@) + $(t)x(t)]ePimplying thatp( t)x( t)e = P(W) + tqt>x(t)

ts Walsh and Gram (19801, in an exposition of the viability conditions for a classicaltechnology model, pages 270-271, actually refer to sustainable outputs and comment in afootnote as follows: One might imagine an economy temporarily in a position which, if itcontinued, would eventually be self-destroying. Pollution problems for example can turnotherwise viable technologies into nonviable ones. We leave this matter aside.. .. Cre-means (1974) and Lipnowski (1976) consider the existence and nature of an equilibriumgrowth path in a classical model where pollution occurs and a clean-up industry exists.


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26 M. COMMON AND C. PERRINGSNow d[p(t)x(t) + $(t)x(t)]/dt = 0 implies that d[p(t)x(t)e]/dt = 0.

Taking this last derivative and eliminating common terms, we are left withthe following condition on the rate of change in the value of the resourcebase relative to the discount rate.rp(t)x(t) + p(t)+) + $(t)x(t) = 0 (16)We are now in a position to state the social problem in full. It is tomaximize the benefit functionJ= W[x(T), z(T), T]e- +~'Y[X(t), u(t), z(t), t]e-I dt (17)subject tof[%(t), u(t), z(t), t] -k(t) = 0 OstsT (18)i(t) = 0 OstsT (19)rp(t)x(t) + p(t)%(t) + $(t)x(t) = 0 0 5 t I T PO)with boundary conditionsx(0) = xg (21)z(0) = z() (22)P(0) = PO (23)and given thatu(t) = U[P(% tl (24)P(f) = Pm, z(t), tl (25)Since i(t) is constrained to be equal to zero, and since this is a sufficientcondition for k(T), p(t) = 0, W[* ] and Y[*] are shown in (17) as time-in-variant functions. To draw out the implications of the approach as simplyas possible, we once again ignore the potential for disturbances to thesystem from other than an economic source. This is tantamount to anassumption that i ?(t) = 0 for all t. While we would not regard such anassumption as an acceptable approximation of reality, it is useful forpresent purposes. The Hamiltonian for the function isH[x(t), u(t), z(t), y, P(t)+)7 A(t), l-Q)7 tl= Y[E (t), u(t ), z(t), t]e- dt

+ qt)f[qt), u(t), z(t), tl +m~P(w) (26)where A(t), an n-dimensional vector, and p.(t), a scalar, are Lagrange


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multipliers, enabling us to write the augmented benefit function in theformJ= W[.]e-+~~(H[.]e-+~~(l)x(t) --;l(t)z(t)

+(t)P(t)x()) dt - [h(T)x(T) -X(0)x(O)]+ MI)+) - mm1 + MT)P(T)x(T)) - 4O)P(O)x(O)l (27)

and to obtain, as necessary conditions for an optimum, the adjoint equa-tions:i(t) = -H,[*] = -Y,(t)e--h(t)f,(t)

- [P(f)T - I;(t)] [x(t)pk - P(t)]q(t) =I ,[ .] = y,(t) epr r + A(t)fz(t) + M t)r - wlP:xwE-L(t) ~p,H =&b-Wtogether with the transversality conditionsy(T)z(T) = W,(T) eprTA(T)x(T) = W,(T) emrTand the maximum condition

(28)(29)(30)

(31)(32)

r(t)zL(t) = Y:(t) epr + h(t)f,(t) (33)The adjoint vector, A(t), obtained by integration of (28) measures thesensitivity of the benefit function to variation in the system dynamics due tochanges in the level of real resources, x(t), along an optimal trajectory.Analogously, the multipliers y(T) and p(t), obtained by integration of (29)and (30), measure the sensitivity of the benefit function to variations in theindicator of system stability, and to the rate of change in the value of theresource base.We may use these to investigate the significance of the economicefficiency condition and the ecological sustainability constraint respectively.First, consider the adjoint equations (28) and (30). The adjoint vector, A(t),defines the marginal benefit of the dynamics of the real resources, and theequation describes its evolution over the interval [0, T]. The ith componentof the first vector on the RHS of (28) denotes the marginal benefit of theith real resource in the system. The ith component of the second vector isthe marginal benefit foregone of a change in the rate of growth/decay ofthe ith resource. The ith component of the last vector on the RHS is themarginal cost of the ith resource weighted by the change in marginalbenefit of the real discounted value of the resource base. It is this last


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vector that captures the effects on the evolution of A(t) of an intertemporalefficiency condition on prices. But notice that if condition (30) is satisfied,the last vector is equal to zero and the efficiency condition has no effect onthe time path for h(t). Condition (30) is perfectly intuitive. It requires thatalong an optimal trajectory the marginal benefit from a change in the valueof the resource base should grow at a rate equal to the discount rate. If therate of discount and the rate of change of prices is out of balance withchanges in the real system, the time paths of A(t) and hence u(t) will beaffected. We repeat, however, that satisfaction of (30) is a necessarycondition for the economic efficiency of an optimal trajectory. It is not anecessary condition for the ecological sustainability of that trajectory.Nonoptimal prices will affect the allocation of resources through the rate ofchange of A(t), but optimal prices will not ensure the satisfaction of theconstraint on z(t).

To see what the impact of an ecological sustainability constraint may be,consider the second of the adjoint equations (29) together with the maxi-mum condition (33). Substitution of the former into the latter reveals that[K(t) - YZ(+zXt)]e- + {A(%(t) - [Wf,W14~)~

-[~(t)Y-~(t)]x(t)P:=O (34)which makes the effect of the ecological sustainability constraint apparent.The discounted marginal benefit of the allocation of economic resources isreduced by the impact of that allocation on the index of system stability.Similarly, the marginal foregone benefits of the allocation of economicresources are augmented by the indirect effects of economic resourceallocation on the rate of growth/decay of resources through their effectson the system parameters. The impact of the price efficiency conditionenters via the vector [p(t)r - b(t)]x(t)p:. Once again, along an optimaltrajectory this vector will be equal to zero. The optimal allocation ofresources is found by solving (34) for u(t). This presumes that A(t) hasalready been found from (28) and (29) and implies that if the priceefficiency condition is not satisfied it will have both an indirect and a directeffect on the time path of u(t): indirectly through its effect on the adjointvector A(t) in (28), and directly on u(t) in (34). Nevertheless, it remains thecase that satisfaction of a condition for the intertemporally efficient evolu-tion of prices is not necessary for the satisfaction of an ecological sustain-ability constraint.5. CONCLUSIONS

The most striking conclusion to be drawn from this is that the conceptsof Solow-sustainability and Holling-sustainability that underpin the con-


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straint set in our approach are largely disjoint. Moreover, this conclusion isdespite the dependence of prices on both real resources and some index ofsystem health. While it is clear that change in the structure of prices due tochange in the structure of real resources implies some shift in the optimalallocation of resources, it is not clear that this implies satisfaction of anecological sustainability constraint. Nor should we expect there to be aclose relationship between economic efficiency and ecological sustainabil-ity. Indeed, historically it would appear that most economies that havemanaged a resource base in an ecologically sustainable manner have notsatisfied the minimum conditions for intertemporal economic efficiency.Such economies have typically been characterized by gross under utiliza-tion of resources; by crude rationing devices that do not facilitate adjust-ments at the margin; by highly ritualized gift and exchange mechanismsthat preclude the law of one price. And yet, at the same time, they haveoperated in such a way as to minimize the pressure on the systemparameters.

This is not to imply that an efficient price path is necessarily incompati-ble with the ecological sustainability of the system. If prices derive from thepreferences of economic agents, and if preferences weight the ecologicallysustainable use of resources heavily, efficient prices may also be ecologi-cally sustainable. More particularly, from (13) and (14) we have thati(t) = h;u,gt) (35)A sufficient condition for this to be equal to zero is that p(t) = 0. From (25)it follows thatfi(t) = p,qq + P,+) (36)which will be zero valued along an optimal trajectory only if both terms areequal to zero. Since i(t) = 0 in order to satisfy the ecological sustainabilityconstraint, p(t) = 0 requires then that p,k t> = 0. This implies either thatjr(t) = 0, which means that the global system is stationary, or that i(t) 0,but p,i t) = 0, which means that non-zero changes in the real resourcebase are not registered in the price set. This last case requires that the onlyreal resources changing over time are either goods in excess supply or badsin insufficient supply to register. This hardly sounds credible. Returning to(351, we have two further possibilities. Either C(t) = 0, which means thatthe economy is stationary, or that i(t) 0, but hLti(t) = 0, which meansthat non-zero changes in the allocation of economic resources do not affectthe system parameters.

It is this last option that is in a very real sense the goal of an ecologicallysustainable development strategy. Providing that economic activity does notperturb the system parameters to the point where the stability (Holling-re-


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silience) of the system or key components of that system are threatened,then the preferences/ technology (and hence prices) driving economicactivity may be said to be ecologically sustainable. The problem of ecologi-cal sustainability is, in this sense, to be solved at the level of preferences ortechnology. If the preference and production possibilities sets informingeconomic behavior are ecologically sustainable, then the corresponding setof optimal and intertemporally efficient prices will also be ecologicallysustainable.

This brings us to the operational differentia specifica of an ecologicaleconomics of sustainability. Since the conditions in which a set of optimalresource prices will be generated do not exist (and cannot exist), theoperationalization of the Solow approach necessarily involves a set ofsecond best instruments. It turns out that for many commentators thechoice of these hinges on their implications for the principle of consumersovereignty. It is, for example, the principle of the sovereignty of theconsumer of the moment (as well as fear of Hobbes Leviathan) that liesbehind most property rights solutions. Nor does it apparently matter thatthe principle of consumer sovereignty may compromise both economicefficiency and ecological sustainability. Although the allocation of propertyrights sufficient to generate a complete set of current markets may beconsistent with momentary equilibrium, it has been shown that this willgenerate a time path for the resources of the global system that is eitherinfeasible or intertemporally inefficient (Dasgupta and Heal, 19791, andalmost certainly ecologically unsustainable. The tendency to seek an in-tertemporally efficient allocation of environmental resources through pricecorrections based on the contingent valuation of such resources in bothsurrogate and simulated markets, which is such a pervasive characteristic ofmuch recent work in environmental economics, is further evidence of thedominance of the principle of consumer sovereignty over the relevance ofthe instruments. To be sure, the maintenance of the value of the stock ofcapital is a necessary condition for Solow-sustainability, and this certainlyimplies the need to generate measures of the value of that stock that willenable it to be monitored over time. Indeed, this is what lies behind thedevelopment of natural resource accounts. But as Maler (1990) points out,it is the optimal value of that stock that is at issue. There is no reason tobelieve that prices generated in simulated or surrogate markets are at allrelevant to such a measure.

To approach the operational principles in an ecological economicsapproach, it is worth repeating that Solow-sustainability is a value conceptderiving from an efficiency condition: the Hartwick rule. The sustainabilityindicators in this approach are accordingly measures of value. By contrast,Holling-sustainability is a physical concept deriving from a condition for


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the stability of ecosystems. The relevant indicators in this approach areaccordingly a set of physical measures. In the case of Holling-stability theyare population indicators. l6 In the case of Holling-resilience, they areindicators of the responsiveness in the distribution of the system parame-ters to perturbation in resource stocks. Notice that the size of any givenpopulation relative either to other populations or to its critical thresholdsize is not a sufficient indicator of the resilience of the system, although itmay be a necessary component of a set of sustainability indicators. Schaef-fer et al. (19881, for example, suggest the following combination of stockand response indicators: changes in the numbers of native species; overallregressive succession; changes in standing crop biomass; changes in therelative energy flows to grazing and decomposer food chains; changes inmineral micro-nutrient stocks; and, finally, changes in the mechanisms ofand capacity for damping oscillations. A number of these are stock orpopulation measures (the independent variables of the function z(t) =h[S(t), iz(t>]>, but others relate to the system parameters. The key indicatorsin the approach are in fact the derivatives of the function with respect tothe resource stocks under economic control.

An ecological economics approach requires that resources be allocatedin such a way that they do not threaten the stability either of the system asa whole or of key components of the system. If a self-regulating economicsystem is to be ecologically sustainable, it should serve a set of consumptionand production objectives that are themselves sustainable. But this runs usup against a principle of consumer sovereignty that privileges the existingpreferences and technologies. If existing preferences and technologies arenot ecologically sustainable, then consumer sovereignty implies systeminstability. This leaves these options: if existing preferences and technolo-gies are not ecologically sustainable, it is necessary either to regulateactivity levels within the existing structure of preferences, or to change thatstructure of preferences, or both. The appropriate instruments - whetherprice manipulation, education, changes to property rights, etc. - will varydepending on institutional and other characteristics, and we do not wish to

l6 One population indicator consistent with Holling-sustainability is the maintenance ofspecies diversity. This indicator considers both the number of species in an ecosystem andthe relative size and distribution of the population of each species (cf Pielou, 1975). Itconcentrates attention on the dynamics of the size of each population relative to its criticalthreshold level. This approach implicitly assumes that there may be a range of populationsizes over which the ecosystem remains stable, but if any one population in an ecosystemfalls below its critical threshold level the self-organization of the ecosystem as a whole willbe radically altered. The ecosystem will become unstable. In other words, it assumes thecomplementarity of all species in the ecosystem.


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discuss them in this paper. What we do wish to emphasize is that anecological economics of sustainability implies an approach that privilegesthe requirements of the system above those of the individual. Certainly thisinvolves ethical judgments about the role and rights of present individuals(cf Pearce, 1987). Consumer sovereignty in such an approach is an accept-able principle only in so far as consumer interests do not threaten thegeneral system - and through this, the welfare of future generations.More particularly, since the valuation of resources deriving from ecologi-cally unsustainable preferences is itself unsustainable, there is no advan-tage in giving special weight and special privilege to such valuations. Whatis important in the approach is the ability of the system to retain theresilience to cope with random shocks, and this is not served by operatingas if the present structure of private preferences is the sole criterionagainst which to judge system performance.REFERENCESBarbier, E.B., 1990. Alternative approaches to economic-environmental interactions. Ecol.

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Environmental Quality in a Growing Economy. RFF/Johns Hopkins Press, Baltimore,pp. 3-14.Boyden, S., 1987. Western Civilization in Biological Perspective: Patterns in Biohistory.

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elling, 38: 75-89.Christensen, P., 1989. Historical roots for ecological economics - biophysical versus

allocative approaches. Ecol. Econ., 1: 17-36.Clark, C., 1976. Mathematical Bioeconomics. John Wiley, New York.Cleveland, C., 1987. Biophysical economics: historical perspective and current research

trends. Ecol. Modelling, 38: 47-73.Common, M.S., 1988. Poverty and progress revisited. In: D. Collard, D. Pearce and D.Ulph (Editors), Economics Growth and Sustainable Environments. Macmillan, Bas-

ingstoke.Conway, G.R., 1985. Agroecosystem analysis. Agric. Admin., 20: 31-55.Conway, G.R., 1987. The properties of agroecosystems. Agric. Syst., 24: 95-117.Cremeans, J.E., 1974. Pollution abatement and economic growth: an application of the Von

Neumann model of an expanding economy. Nav. Res. Logist. Q., 21: 525-542.Daly, H.E., 1977. Steady-State Economics. Freeman, San Francisco.Daly, H.E. and Cobb, J.B., 1989. For the Common Good: Redirecting the Economy Toward

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