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Challenges In Determining Intertemporal Efficiency And Sustainability

561 words - 3 pages

The notion of sustainability sometimes seems vague when applies to real world decision making process. But one universal agreement with regard to how sustainability functions in the political and economic arena unfolds as decisions made today would have huge impact on both nowadays and the future. According to Goulder and Stavins, economists, in order to help decision makers implement policy evaluations, would commonly discount future impacts. Basically, discounting serves as a mechanism to convert the potential impact in the future into computable monetary unit for nowadays. Here comes the first challenge in determining whether the use of non-renewable resources is intertemporally efficient or not. There exists some skepticism and controversy because some people would argue that discounting gives insufficient weight to future benefits and wellbeing of future generations. However, except for the superficial misconceptions, the real challenges lie in the unpredictable future interest rates and the tastes and preferences of future generations. For example, discounting will be used in the process for an energy company to strategize on whether to make a million dollar investment overseas by purchasing a newfound shale area or to deposit the money in the bank at 3% annual interest. Suppose that the project will yield higher return based on the current market interest rate, what if the market interest rate hikes for the next several years? On the other hand, with respect to the miscellaneous uncertainties deducing from how future generations would value the existence or observation of the shale scene, we could hardly figure out the shrewd answer.
Robert Solow also recognizes that the products we are using now are too cheap for the good of future generations. He argues in “The Economics of Resources”...

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