INTRODUCTION

Global warming involves international and intergenerational equity and justice. Although global warming is largely caused by the emission of carbon dioxide and other greenhouse gases associated with economic activities mostly in developed countries and by the disruption of forests – particularly tropical rain forests – again mostly resulting from the industrial activities of the developed countries, it is the people in developing countries who have to bear the burden. The current generation may enjoy the fruits of the economic activities that cause global warming, but it is the people in all future generations who will have to suffer from a significant increase in atmospheric instability as a consequence.

In this chapter, we examine the problems of global warming and other global environmental issues primarily from the viewpoint of the international and intergenerational distribution of utility. We introduce the concept of sustainability, which may capture some aspects of international and intergenerational equity, and derive the conditions under which processes of capital accumulation and changes in environmental quality over time are sustainable. The conceptual framework for the dynamic analysis of environmental quality developed in previous chapters will be extended to deal with the problems of the irreversibility of processes of capital accumulation due to the Penrose effect. The concept of the Penrose effect was originally introduced by Uzawa (1968, 1969) in the context of macroeconomic analysis.

The analysis focuses on the formula for the system of imputed prices associated with the time-path of consumption that is dynamically optimum with respect to the intertemporal preference relation, where the presence of the Penrose effect implies the diminishing marginal rate of investment in private capital and social overhead capital upon the rate at which capital is accumulated.