Stochastic Sustainability

Abstract

A lot of attention has recently been devoted to the concept of sustainable development or sustainable growth.’ This is usually defined as development “that meets the needs of the present without compromising the ability of future generations to meet their own needs” (WCED, 1987, p. 43). Operationally it can be interpreted as: given a certain rate of time preference “a sustainable economy is… one that provides the maximum level of social welfare over an infinite horizon maintaining both the optimal reproducible capital stock and the optimal stock of regenerable environmental stock” (Musu, 1991, p. 3). Consequently, sustainable development reduces to a constrained maximization of a social welfare function and “control theory… (is the technique used) to examine sustainability in the context of renewables and non-renewables resources” (Pezzey, 1989, p. vi).²

The author would like to thank A. Beltratti, D. Siniscalco and A. Vercelli for their comments on an earlier draft of this work. Any remaining errors are the sole responsibility of the author. Financial support from the Fondazione EM Enrico Maffei is gratefully acknowledged.