Sustainability, Technology and Incentives

Abstract

While there are several definitions of sustainability, its premise is recognition of the exhaustible nature of environmental quality and recognition that the lack of well-defined property rights on environmental quality creates incentives for its overexploitation. The flow of polluting residues, which inevitably accompany production processes, could be larger than the assimilative capacity of the environment and, thus, could hinder the attainment of sustainability. Pollution is an externality associated with human activities that, in the absence of government regulation or well-defined property rights on environmental quality, individuals have no incentive to control. This implies that there is a role for environmental policy, which creates incentives to control pollution and induces a shift toward production processes that reduce the generation of polluting residuals. For sustainable development to be consistent with the growing demand for food and manufactured goods, it needs to be accompanied by technological development that increases input productivity while it reduces the generation of pollution perunit of input or per-unit of output. Numerous technologies with these features have been developed in the past, but their adoption has been limited because of a lack of incentives. In the future, government may play an important role for inducing the adoption of efficient technologies and for developing improved technologies.