Mariano Torras

Income, inequality, and pollution: a reassessment of the environmental Kuznets Curve

Abstract Improvements in some measures of air and water quality can accompany rising per capita income, as illustrated by the so-called environmental Kuznets curve. For pollution variables which show such a relationship, we hypothesize that a more equitable distribution of power contributes to these outcomes, by enhancing the influence on policy of those who bear the costs of pollution, relative to the influence of those who benefit from pollution-generating activities. An empirical analysis of international variations in seven indicators of air and water quality supports this hypothesis. Literacy, political rights, and civil liberties are found to have particularly strong effects on environmental quality in low-income countries.

The total economic value of Amazonian deforestation, 1978-1993

National income accounting has been criticized because of its failure to encompass the notion of sustainability. Several studies address this problem through ‘green’ income accounting — i.e. by adjusting conventionally measured GDP for reduction in a given country’s ‘stock’ of natural resources. These studies generally base value on the unit net price of the resource. Other studies go beyond net price, emphasizing a natural resource’s total economic value (TEV) — that is, its non-marketable as well as its marketable values. This paper combines the green income accounting and TEV approaches and applies the new framework to Brazil in order to assess the foregone economic benefits resulting from Amazonian deforestation. The results lend support to calls for greater policy emphasis on conservation of unique and irreplaceable ecosystems.

Mechanisms of social value creation: extending financial modelling to social entrepreneurship and social innovation

We focus on the identification and selection of innovation initiatives that are intended to create cumulative social value. We suggest that a process like discounted cash flow (DCF) is needed, but developing such a process is complicated in the social value context due to a lack of metrics and consistent social value constructs. Taking a dynamical systems perspective and using economic modelling as a guide, we argue that access to resources and information about their future use represent measurable social value. Further, we describe innovation as the recognition and exploitation of patterns in the environment that create social value.

Inequality, Resource Depletion, and Welfare Accounting: Applications to Indonesia and Costa Rica

Abstract Ahluwalia and Chenery noted that the standard measures of GDP growth imply distributional weights that place greater weight on the income of richer income groups, and proposed distribution-neutral and pro-poor alternatives. More recently, pilot studies by the World Resources Institute (WRI) have questioned the sustainability of GDP growth and have introduced natural resource modifications to national income accounting. To date, no studies have undertaken both revisions concurrently, creating a revised measure based on GDP but corrected for both distributional bias and resource depletion. Such a measure is derived in this paper, and its impact illustrated with data from Indonesia and Costa Rica, the countries studied by the WRI.

The Impact of Power Equality, Income, and the Environment on Human Health: Some Inter-Country Comparisons

Abstract Economic studies on environmental degradation generally have a narrow focus on per capita income as an explanatory variable, and often fail to distinguish among the various types of environmental quality or damage. This paper addresses both problems by examining the effect of relative equality in the distribution of power on environmental outcomes, and making a clear distinction between health‐related environmental outcomes and so‐called ‘environmental amenities,’ only the latter of which should correlate strongly with income. This paper introduces a national index of power equality that is derived from related socioeconomic variables, and studies its effects on individual country achievement in addressing environmental quality and population health. This model is applied to a data set of 180 countries, as well as to subgroups of the entire country set. Employing disability‐adjusted life expectancy and the population child mortality rate as two health proxies, this paper finds that power equality in most cases positively influences population health, and that power equality is in every case no worse and in some cases better than per capita income at explaining population health.

Technology leverage and a sustainable society: a call for technology forecasting that anticipates innovation

We argue that economic value to society is created by converting input resources into valued outputs though the application of technology. To support this argument, the concept of technology leverage is introduced, and it is noted that the same input resource can be converted into different output values depending upon the technology employed in the conversion process and the state of technical innovation at the time the conversion occurs. This implies that through as yet unrealised innovations, future generations may create greater value for the same amount of resource than is currently possible. This difference has significant ramifications for current day resource allocation decisions. In addition to more conventional conservation arguments, technology leverage also recognises that the future value of retaining resources, especially non-renewable ones, may be evaluated using real option valuation techniques. These concepts are helpful in determining more comprehensive policies relating to resource allocation decisions.

RECONCEPTUALIZING VALUE CREATION WITH LIMITED RESOURCES

In traditional economics and finance the notion of value creation is virtually synonymous with the net present value of cash flows. Such a characterization implies that all of the uses of resource inputs, such as raw material and energy, are known and that their value is priced into commodities markets. It also fails to allow for the opportunity cost associated with the depletion of resources which, with advancing technology, might reasonably have future uses far greater in value than can be achieved at present with current technology. Stated differently, in traditional valuation analysis the option value associated with scarce resources –when new technology or knowledge can be applied to them– is not addressed. In the present work, we define technology leverage as representative of this effect. We then address the problem of sustainability of organizations by stating four propositions and examining their implications for government policy and for firm governance.

Global structural change and its de‐materialization implications

Employing World Bank data, this article finds that the observed worldwide transition from industrial to service activity has an insignificant long‐term impact on global de‐materialization. Unlike earlier studies that focus on actual material flows for specific sectors, this study considers economy‐wide sectoral composition changes from 1960 to 1998 for 206 countries, and infers some future scenarios based on observed trends. Sensitivity analysis under alternative assumptions about technological change and average industry material intensity indicates that, unless de‐materialization is “weakly” defined, a leveling off of world gross domestic product at some time this century will probably be required to achieve it.

Welfare Accounting and the Environment: Reassessing Brazilian Economic Growth, 1965–1993

Few countries in recent decades have experienced economic growth as rapid as that in Brazil. The period spanning the late 1960s and mid 1970s, during which GDP growth was especially strong, is often referred to as the ‘economic miracle’. Yet, the use of per capita GDP growth as a proxy for economic development (or social welfare improvement) can be questioned on both distributional and environmental grounds. Scholars such as Ahluwalia and Chenery have noted that per capita GDP growth places greater weight on the income of richer income groups, and have proposed distribution-neutral and pro-poor alternatives. More recently, studies by the World Resources Institute and others have questioned the environmental sustainability of GDP growth and have introduced an alternative national income accounting methodology that factors in estimated losses associated with natural resource depletion. To date, no studies have undertaken both types of revisions concurrently, creating a revised national welfare measure based on per capita GDP, but corrected for both distributional bias and resource depletion. Such a measure is derived in this article and applied to the Brazilian case. The results cast doubt on the proposition that rapid economic growth in Brazil has resulted in comparable welfare gains.

An econometric analysis of ecological footprint determinants: implications for sustainability

Most research on the impact of income and other socioeconomic variables on the environment focuses on specific local environmental effects and not on the broader sustainability picture. We seek to fill the apparent gap in the literature, exploring whether and the extent to which income, economic openness, income inequality and the distribution of power influence sustainability. We employ ecological footprint data and from it derive a sustainability indicator, the ecological deficit. Using econometric analysis, we test the effects of our explanatory variables on the ecological deficit. While we find that economic openness appears to run counter to the goal of sustainability, the results for the other variables are more ambiguous and inconclusive.