Welfare and consumption - the road to sustainability
The Brundtland Report (WCED, 1987) defines sustainable development as, "development which meets the needs of the present without compromising the ability of future generations to meet their own needs". This definition has two direct links to welfare economics. The first being the inter-generational allocation problem, the second refers to the definition of 'needs' that can be considered using the microeconomic theory of utility maximisation. Two concepts of sustainability have been established in the literature, these are 'weak' versus 'strong', both of which are directly linked to the question of welfare measurement. The main difference between the two concepts is the existence of a binding resource constraint. This in turn has an impact with regard to modelling the influence of the state of the environment on welfare. The TRANSUST project aimed to build a network of excellence for researchers interested in sustainability models. Specifically, researchers at WIFO in Austria studied the input of welfare and consumption. The paper begins by noting that most existing models are grouped into three broad categories, each with different ideas regarding welfare measures. The three groups include aggregated neoclassical growth models, disaggregated Computable general equilibrium (CGE) models and disaggregated macro-econometric models. These three groups of models are described in a literature overview. A further section uses this broad classification to analyse the treatment of welfare in seven main TranSust models. The analysis highlights both strengths and weaknesses in order to give a satisfactory description of sustainable development. This can be demonstrated by extending the analysis to the expected welfare implications of policies representing, 'successful sustainable strategies', in the different models. A 'successful sustainable strategy' could include a policy of introducing prices for emissions and or environmental use through taxation. One example is road pricing. This might be combined with the recycling of tax revenues in order to introduce new technologies. This would augment capital and lead to greater investment, such as for the public transport system.
