Tuesday, 29 March 2016

Even a deforestation tax might not have saved Easter Island

A couple of weeks ago I reviewed Jared Diamond's 2005 book Collapse. One of the examples he uses in the book is Easter Island. So, I was interested to read this recent paper (sorry I don't see an ungated version anywhere) by Cyrus Chu (Academia Sinica, Taiwan), Ching-Chong Lai (Academia Sinica, National Cheng Chi University, and National Sun Yat-Sen University, Taiwan), and Chih-Hsing Liao (Chinese Culture University, Taiwan).

In the paper, the authors take a theoretical approach to economics and sustainability, illustrated by the idea of Easter Island (but of course, not by empirical data). The premise is of general interest to my ECON100 students, particularly since we will cover economics and sustainability in the final week of the semester.

The traditional idea of why economies (like Easter Island) collapse is because economic agents maximise their own utility from consumption over their own lifetimes, largely ignoring the consumption of future generations. This means that agents have little incentive to leave resources available for the future, so will over-consume those resources now. Of course, this denies any altruistic incentives for agents.

Chu et al. take a more realistic approach, with agents who have preferences for consumption with an infinite time horizon (essentially, more consumption today is good, but more consumption at all possible future times even after the agent is long dead is also good). However, the good news story ends about there.

Chu et al. show using a theoretical (endogenous growth) model that even with these more altruistic (and sustainability-loving) agents, the resulting rate of economic growth may be unsustainable and lead to depletion of the (limited) natural resource. They even show that a deforestation tax might not be able to arrest this unsustainability, if the rate of forest destruction is high (but the tax would be effective if the rate of forest destruction is low). Unfortunately, how high is a 'high deforestation rate' is left unanswered (as is typical of theoretical papers). However, the overall conclusion that even when we want to act sustainably (and the government is incentivising sustainability) we may not be able to have sustainability, is a little disconcerting.

On a good news note though, I also recently read this paper by Charles Kenny of the World Bank (ungated earlier version here). I'm not a believer of Malthusian ideas, and this paper confirmed a lot of my priors. Kenny shows that almost nowhere in the world is consistent with a Malthusian population trap, even in sub-Saharan Africa. I especially like this bit from Kenny's conclusion:
These cases of only incomplete inaccuracy aside, from the time of writing onwards Malthus' Essay on the Principle of Population was almost completely wrong about the future course of human history not just in England or Europe, but worldwide. The greatest reason that Malthus was wrong about the course of global history was that he underestimated the power of technological change to increase output and improve health.
Maybe technology is a path to long-term sustainability, even if government incentives and our own preferences alone are not sufficient to ensure it?

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