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A Welfare Economic Approach to Planetary Boundaries

Author

Listed:
  • Sureth Michael

    (Mercator Research Institute on Global Commons and Climate Change (MCC), Berlin, Germany)

  • Kalkuhl Matthias

    (Mercator Research Institute on Global Commons and Climate Change (MCC), Berlin, Germany)

  • Edenhofer Ottmar

    (Mercator Research Institute on Global Commons and Climate Change (MCC), Berlin, Germany)

  • Rockström Johan

    (Potsdam Institute for Climate Impact Research (PIK), Leibniz Association, Potsdam, Germany)

Abstract

The crises of both the climate and the biosphere are manifestations of the imbalance between human extractive, and polluting activities and the Earth’s regenerative capacity. Planetary boundaries define limits for biophysical systems and processes that regulate the stability and life support capacity of the Earth system, and thereby also define a safe operating space for humanity on Earth. Budgets associated to planetary boundaries can be understood as global commons: common pool resources that can be utilized within finite limits. Despite the analytical interpretation of planetary boundaries as global commons, the planetary boundaries framework is missing a thorough integration into economic theory. We aim to bridge the gap between welfare economic theory and planetary boundaries as derived in the natural sciences by presenting a unified theory of cost-benefit and cost-effectiveness analysis. Our pragmatic approach aims to overcome shortcomings of the practical applications of CEA and CBA to environmental problems of a planetary scale. To do so, we develop a model framework and explore decision paradigms that give guidance to setting limits on human activities. This conceptual framework is then applied to planetary boundaries. We conclude by using the realized insights to derive a research agenda that builds on the understanding of planetary boundaries as global commons.

Suggested Citation

  • Sureth Michael & Kalkuhl Matthias & Edenhofer Ottmar & Rockström Johan, 2023. "A Welfare Economic Approach to Planetary Boundaries," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 243(5), pages 477-542, October.
    • Handle: RePEc:jns:jbstat:v:243:y:2023:i:5:p:477-542:n:3
    DOI: 10.1515/jbnst-2022-0022
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    More about this item

    Keywords

    cost-benefit analysis; cost-effectiveness analysis; global commons; planetary boundaries; precautionary principle; shadow price; uncertainty; welfare economics;
    All these keywords.

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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