Book Reviews

Models of Economic Growth with Environmental Assets, by Andrea Beltratti, Dordrecht, Kluwer Academic Publishers, 1996

The book approaches the very familiar theme of the connection between the quality of the environment and economic growth, based around the notion of sustainable development. The author uses formal economic models to define and analyze the concept of sustainability but, in so doing, extends the boundaries of the conventional models of economic growth.

These economic models are used to generate policy conclusions but it is recognized that the standard approach of the economist is flawed because optimal policies are sensitive to both the structure of the economy and to the preferences of the decision- makers. Thus, to develop appropriate optimal policy conclusions a way has to be found to accommodate the partiality and predilections of the policy-maker.

At the same time, we need to recognize that the vigorous debate over sustainability has proved uncomfortable for the economist as many of the questions generated through this debate can only be addressed by stepping outside the boundaries of conventional economic argument. In particular, several authors have attempted to describe the interrelationships between the economic and the ecological systems but, since each of these systems is massive, the modeling problems that arise are considerable.

To approach this problem the author develops standard deterministic growth models but with explicitly environmental assets so utilizing ideas developed through environmental accounting. The models presented are developed and adjusted to try to reflect more accurately the empirical evidence drawn from practical examples. The second part of the book tries to develop alternative models that incorporate new ideas relating to the environment. In all cases the clear focus of the author is to try to develop better policy conclusions. Nevertheless, the policy-maker without a background in formal economics will find the argument of the book difficult if not impossible. In a way this is a shame since the conclusions from the book are of most relevance to the non-specialist but the formal argument presented will be all but inaccessible to those without a training in economics.

Chapter 1 introduces some stylized facts that form the basis for the models to be developed. These describe the basic physical laws that give rise to the apparent scarcity of energy and minerals, although some economists will be surprised to see these issues discussed with limited reference to economic criteria. There is then some discussion of environmental assets in the context of growth models, taking into account other dynamic variables such as population and climate change.

Chapter 2 deals with the formal development of optimizing growth models that consider environmental assets as a stock of natural capital interconnected with economic activity. The analysis seeks to identify if there are limits to development that are due to an excessive depletion of natural resources. This then provides the opportunity for Chapter 3 to attempt to operationalise these concepts; both to fit in with national accounting procedures and to use or calibrate the theoretical models to analyze real world situations and facts.

Two particular issues in these environmental models are the focus for more detailed discussion. Chapter 4 deals with equity across generations and in particular the difficulties that arise in determining the appropriate weight to be attached to future generations at distant points in the future. This provides a very interesting discussion about the appropriateness of using a rate of time preference and discounting more generally. The appropriate treatment of uncertainty is the focus of discussion Chapter 5. The existence of uncertainty with respect to environmental phenomena is of obvious importance to the formulation of apt economic and environmental policies. Again, there is an interesting general discussion of the concept of uncertainty in relation to growth and the environment. The author is able to show how rules of thumb can be developed and that the correction due to uncertainty usually results in more prudent use of environmental resources.

The final chapter of the volume attempts to apply the concepts developed in earlier chapters to sustainable development, with a particular focus on the need to develop policies for growth and development that accommodate sustainability. It is the conclusion to a bold attempt to use theoretical models to devise policies for application in the real world. What emerges is more clarity surrounding the difficulties encountered in attempting to contrive an appropriate policy set, rather than clear policy recommendations themselves.

Indeed, the great strength of the volume is the ability of the author to take complicated ideas, often where there exist differences in interpretation, and present them in a refreshingly clear and neutral manner. It remains, however, a book that it will be difficult for non-economists to grasp fully. The book generates a considerable agenda for further research and invites further study of the interaction between economics and the environment. It deserves to be read by a wide audience and non-economists should be encouraged to wrestle with the sometimes difficult technical language. The rewards for so doing are great.

Christopher D. Rogers, CEPMLP/Dundee