Intergenerational Equity and Sustainability. This is IEA conference volume no. 143

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1 Intergenerational Equity and Sustainability This is IEA conference volume no. 143

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3 Intergenerational Equity and Sustainability Edited by John Roemer Yale University, USA and Kotaro Suzumura Hitotsubashi University, Japan in association with Palgrave Macmillan

4 International Economic Association 2007 Softcover reprint of the hardcover 1st edition All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act First published 2007 by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N.Y Companies and representatives throughout the world PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St. Martin s Press, LLC and of Palgrave Macmillan Ltd. Macmillan is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries. ISBN ISBN (ebook) DOI / This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data International Economic Association Roundtable Meeting on Intergenerational Equity (2005 : Hakone-machi (Japan)) Intergenerational equity and sustainability / edited by John Roemer and Kotaro Suzumura. p. cm. Papers presented at the International Economic Association Roundtable Meeting on Intergenerational Equity on March 10 12, 2005 in Hakone, Japan. Includes bibliographical references and index. 1. Welfare economics Congresses. 2. Intergenerational relations Economic aspects Congresses. 3. Distributive justice Congresses. 4. Sustainable development Congresses. I. Roemer, John E. II. Suzumura, Kotaro, 1944 III. Title. HB846.I dc

5 Contents List of Figures The International Economic Association Acknowledgements List of Contributors List of Abbreviations and Acronyms Introduction John Roemer and Kotaro Suzumura vii viii x xi xii xiv Part I Equity Among Overlapping Generations 1 Pension Contributions and Capital Accumulation 3 Toshihiro Ihori 2 Equity and Efficiency in Overlapping Generations Economies 20 Tomoichi Shinotsuka, Koichi Suga, Kotaro Suzumura and Koichi Tadenuma 3 Social Security Pensions and Intergenerational Equity: The Japanese Case 36 Noriyuki Takayama Part II Ranking Infinite Utility Streams 4 A New Equity Condition for Infinite Utility Streams and the Possibility of Being Paretian 55 Geir B. Asheim, Tapan Mitra and Bertil Tungodden 5 Possibility Theorems for Equitably Aggregating Infinite Utility Streams 69 Kaushik Basu and Tapan Mitra 6 On the Existence of Paretian Social Welfare Quasi-orderings for Infinite Utility Streams with Extended Anonymity 85 Tapan Mitra and Kaushik Basu 7 Pareto Principle and Intergenerational Equity: Immediate Impatience, Universal Indifference and Impossibility 100 Yongsheng Xu Part III Intergenerational Evaluations 8 Formal Welfarism and Intergenerational Equity 113 Claude d Aspremont v

6 vi Contents 9 Intertemporal Social Evaluation 131 Charles Blackorby, Walter Bossert and David Donaldson 10 Intergenerational Fairness 155 Marc Fleurbaey 11 Person-Affecting Paretian Egalitarianism with Variable Population Size 176 Bertil Tungodden and Peter Vallentyne Part IV Sustainability and Human Development 12 Intergenerational Justice and Sustainability Under the Leximin Ethic 203 John E. Roemer 13 Intergenerational Justice, International Relations and Sustainability 228 John Roemer and Roberto Veneziani 14 Intergenerational Equity and Human Development 252 Joaquim Silvestre Part V Long-Run Issues of Intergenerational Equity 15 Toward a Just Savings Principle 291 Ngo Van Long 16 Normative Approaches to the Issues of Global Warming: Responsibility and Compensation 320 Kotaro Suzumura and Koichi Tadenuma 17 Fundamental Incompatibility between Economic Efficiency, Intergenerational Equity and Sustainability 337 Naoki Yoshihara Index 358

7 List of Figures 1.1 Steady-state level of pension contribution Trade-off between NEOC and Pareto efficiency Piecewise-linear utility function Logical relations among equity concepts KNH balance sheet before reforms Per-capita income by age in Japan Drop-out from SS Pensions (non-employees) KNH balance sheet: after reforms KNH balance sheet: alternative reforms NDC plus GP Illustration of the transfer axiom Illustration of the equality axiom Overlapping generations with exogenous growth Fraction of output for seniors consumption in the various solutions Paths of standards of living in the various solutions Diamond s (1965) model The consumption investment conflict in Diamond s model The consumption investment frontier when investment is productive within the period Progress at the leximin of the endogenous growth model with same-period productive investment Two types of violation of the sufficientarianist constraint Overlapping generations in the Roemer Veneziani model 16.1 Past and future time paths 325 vii

8 The International Economic Association A non-profit organization with purely scientific aims, the International Economic Association (IEA) was founded in It is a federation of some 60 national economic associations in all parts of the world. Its basic purpose is the development of economics as an intellectual discipline, recognising a diversity of problems, systems and values in the world and taking note of methodological diversities. The IEA has, since its creation, sought to fulfil that purpose by promoting mutual understanding among economists through the organization of scientific meetings and common research programmes, and by means of publications on problems of fundamental as well as of current importance. Deriving from its long concern to assure professional contacts between East and West and North and South, the IEA pays special attention to issues of economies in systemic transition and in the course of development. During its fifty years of existence, it has organized more than a hundred round-table conferences for specialists on topics ranging from fundamental theories to methods and tools of analysis and major problems of the present-day world. Participation in round tables is at the invitation of a specialist programme committee, but 13 triennial World Congresses have regularly attracted the participation of individual economists from all over the world. The Association is governed by a Council, composed of representatives of all member associations, and by a 15-member Executive Committee which is elected by the Council. The Executive Committee ( ) at the time of the Hakone Conference was: President: Vice-President: Treasurer: Past President: President-elect: Other members: Professor János Kornai, Hungary Professor Bina Agarwal, India Professor Jacob Frenkel, Israel Professor Robert Solow, USA Professor Guillermo Calvo, Argentina Professor Maria Augusztinovics, Hungary Professor Eliana Cardoso, Brazil Professor Duardo Engel, Chile Professor Heba Handoussa, Egypt Professor Michael Hoel, Norway Professor Jean-Jacques Laffont, France Professor Andreu Mas Colell, Spain viii

9 The International Economic Association ix Advisers: Secretary-General: General Editor: Professor Kotaro Suzumura, Japan Professor Alessandro Vercelli, Italy Professor Fiorella Kostoris Padoa Schioppa, Italy Professor Vitor Constancio, Portugal Professor Jean-Paul Fitoussi, France Professor Michael Kaser, UK Sir Austin Robinson was an active Adviser on the publication of IEA Conference proceedings from 1954 until his final short illness in The Association has also been fortunate in having secured many outstanding economists to serve as President: Gottfried Haberler ( ), Howard S. Ellis ( ), Erik Lindahl ( ), E.A.G. Robinson ( ), Ugo Papi ( ), Paul A. Samuelson ( ). Erik Lundberg ( ), Fritz Machlup ( ), Edmond Malinvaud ( ), Shigeto Tsuru ( ), Victor L. Urquidi ( ), Kenneth J. Arrow ( ), Amartya Sen ( ), Anthony B. Atkinson ( ), Michael Bruno ( ), Jacques Drèze ( ), Robert M. Solow ( ) and Janos Kornai ( ). The activities of the Association are mainly funded from the subscriptions of members and grants from a number of organizations. Support from UNESCO since the Association was founded, and from its International Social Science Council, is gratefully acknowledged.

10 Acknowledgements The Conference was held on 10 to 12 March 2005 at the Hotel de Yama, Hakone, Japan. The responsibility for the selection of papers was in the hands of a Programme Committee with the following members: Walter Bossert John Roemer (co-chair) Joaquim Silvestre Kotaro Suzumura (co-chair) Koichi Tadenuma. To cover a wide spectrum of issues related to intergenerational equity and sustainability, the Committee invited 25 highly-qualified economists and philosophers to discuss 17 papers over three full days. The IEA and the Chairman express sincere gratitude to all who contributed, as committee members, authors and discussants, without whose collaboration this book would not have been fruitfully completed. An international academic meeting of this size and level could not have been organized without the generous support of a Grant-in-Aid for Scientific Research from the Ministry of Education, Culture, Sports, Science and Technology of Japan. Warm thanks are due to those involved in the planning and implementation of the Round Table and in particular to the 21st Century Centre of Excellence Programme on the Normative Evaluation and Social Choice of Contemporary Economic Systems, and the Project on Intergenerational Equity, both at Hitotsubashi University, and to the Union of National Economic Associations in Japan for supplementary financial help. Last but not least, thanks are also due to the staff of the 21st Century Centre of Excellence Programme and the Project on Intergenerational Equity, particularly Takane Fukushima, Kana Ito, Yuko Kajiyama, Ayako Komoto, Aki Soejima, Chieko Takada and Harumi Uwai, whose dedicated work were instrumental in bringing the meeting to a successful conclusion. The IEA General Editor, Michael Kaser, was responsible for the editing. x

11 List of Contributors Geir Asheim, University of Oslo, Norway Claude d Aspremont, Université de Louvain, Belgium Kaushik Basu, Cornell University, USA Charles Blackorby, University of Warwick, UK Walter Bossert, Université de Montréal, Canada David Donaldson, University of British Columbia, Canada Marc Fleurbaey, Université de Pau et des Pays de l Adour, France Toshihiro Ihori, University of Tokyo, Japan Tapan Mitra, Cornell University, USA John Roemer, Yale University, USA Tomoichi Shinotsuka, University of Tsukuba, Japan Joaquim Silvestre, University of California at Davis, USA Koichi Suga, Waseda University, Japan Kotaro Suzumura, Hitotsubashi University, Japan Koichi Tadenuma, Hitotsubashi University, Japan Noriyuki Takayama, Hitotsubashi University, Japan Bertil Tungodden, Norwegian School of Economics and Business Administration, Bergen, Norway Peter Vallentyne, University of Missouri at Columbia, USA Ngo Van Long, McGill University, Canada Roberto Veneziani, Queen Mary, University of London, UK Yongsheng Xu, Georgia State University, USA Naoki Yoshihara, Hitotsubashi University, Japan xi

12 List of Abbreviations and Acronyms APE C CES CIREQ CLS CPI EG EL ELLR EO EWEP EWUP FOC FP FQRSC FRP GC GDP GP GPI HDI HE HEF IF J-HD KNH Leximin LNBS NBER NCLS NDG NE NEEG NELC NEOC NEUG anonymous Paretian egalitarianism continuity constant elasticity of substitution Centre Universitaire de recherche en économique quantitative, Université de Montreal cosmopolitan leximin solution consumer price index Egalitarian Equivalence excess liabilities Equity in Lifetime Rate of Return equal opportunity Equal Welfare for Equal Preferences Equal Welfare for Uniform Preferences first order condition fixed population Fonds québécois de la recherche sur la société et la culture fixed relative position generational continuity gross domestic product guaranteed pension generational Pareto indifference Human Development Index Hammond Equity Hammond Equity for the Future Independent Future J-Reference Human Development Kosei-Nenkin-Hoken lexicographic completion of the maximin leximin Nash bargaining solution National Bureau of Economic Research non-cooperative leximin solution notional defined contribution No-Envy No-Envy among Equally-Endowed Generations No-Envy in Lifetime Consumptions No-Envy in Overlapping Consumptions No-Envy among Uniform-Endowed Generations xii

13 List of Abbreviations and Acronyms xiii NIPSSR NSPE O OLG PA PB PE QT R&D RC RFG RS RUSC RWP SOF SP SQOF SS SSHRC STP SWF SWO SWQ TFR UNEP USC WD WLD WP WPD WS National Institute of Population and Social Security Research non-selfish Pareto efficiency order overlapping generations person-affecting public bads monotonicity Pareto efficiency quasi-transitivity research & development restricted continuity Responsibility for Future Generations restricted sensitivity restricted upper semi-continuity restricted weak Pareto social ordering function strong Pareto social quasi-ordering function strong sensitivity Social Sciences and Humanities Research Council (Canada) sensitivity to the present social welfare function(al) social welfare ordering social welfare quasi-ordering total fertility rate Undomination among Equal Preferences upper semi-continuity weak dominance weak Lorenz domination weak Pareto weak Pigou-Dalton weak sensitivity

14 Introduction John Roemer and Kotaro Suzumura 1 Historical background The problems of intergenerational equity, efficiency, and rationality have been receiving close attention since the advent of modern normative economics. To start with, there is a strong utilitarian tradition of treating otherwise equal generations equally. Henry Sidgwick expounded this tradition lucidly as follows: [I]t may be asked, How far we are to consider the interests of posterity when they seem to conflict with those of existing human beings? It seems... clear that the time at which a man exists cannot affect the value of his happiness from a universal point of view; and that the interests of posterity must concern a Utilitarian as much as those of his contemporaries (Sidgwick 1907, p. 414). To paraphrase this viewpoint in the modern parlance, the intergenerational normative judgements should satisfy the requirement of finite anonymity with respect to the date at which an individual is born. Sidgwick s view was endorsed by Arthur Pigou, Frank Ramsey, and Roy Harrod to cite just a few salient scholars who followed him. For Pigou, who laid the foundation of the so-called old welfare economics, disobeying the anonymity principle àlasidgwick is nothing other than being irrational: [E]verybody prefers present pleasures or satisfactions of given magnitude to future pleasures or satisfactions of equal magnitude, even when the latter are perfectly certain to occur....[t]his preference for present pleasures... implies only that our telescopic faculty is defective, and that we... see future pleasures, as it were, on a diminished scale [Pigou (1920, pp )]. Ramsey, who pioneered the theory of optimal saving, went so far as to say that a practice of discounting later enjoyments vis-à-vis earlier ones was ethically indefensible, a practice which arises merely from the weakness of the imagination [Ramsey (1928, p. 543)]. Harrod, who initiated the postwar growth theory, went even further, and asserted that [w]e do not see the future so vividly as the present and underrate the advantage of having money at a future date compared with that of having it now... Also we may be dead at the future date and not rate the welfare of our heirs as highly as our own. xiv

15 Introduction xv The desire to use the money now is reinforced by animal appetite. Greed may be thought to be as appropriate a name for this attitude as time preference, though less dignified. Time preference in this sense is a human infirmity, probably stronger in primitive than in a civilized man [Harrod (1948, p. 37)]. Thus, the widespread convention of discounting future utilities or welfares vis-à-vis present utilities or welfares is viewed by these celebrated scholars as ethically indefensible, reflecting human irrationality and fallibility. Tjalling Koopmans (1960) raised a strong criticism against this view by showing that the rational, continuous, and stationary evaluation of infinite resource allocation programmes cannot but exhibit a phenomenon which he christened impatience, viz., the preference for an advancement along the time axis of an outcome yielding higher utility vis-à-vis another outcome yielding lower utility. This intriguing proposition was further elaborated by Peter Diamond (1965) into a general impossibility theorem to the effect that there exists no social evaluation ordering over the set of infinite utility streams satisfying the following three basic requirements: the Pareto efficiency principle, the equity principle à la Sidgwick, and the continuity axiom on the social evaluation ordering with respect to the sup topology. It is no wonder that this impossibility theorem caused a stir in the profession, as it means that there is a fundamental conflict between the intergenerational equity principle à la Sidgwick and the widely accepted Pareto efficiency principle in the presence of a weak regularity requirement of continuity on the social evaluation ordering. Confronting this impossibility theorem is one way that we may deepen our understanding of the relationship among intergenerational equity, efficiency, and rationality, but the conceptual framework of Koopmans and Diamond may not be sufficiently articulated to accommodate the variegated facets of the basic problem. Recall that the Koopmans-Diamond framework expressed the problem of intergenerational equity in terms of the social evaluation ordering over the set of infinite utility streams, where a generic component u t of representative stream u = (u 1, u 2,..., u t,...) stands for the utility enjoyed by generation t. A salient feature of this description is that there is neither an explicit channel through which different generations interact with each other, nor any explicit stipulation of resource constraints. As in the case of the pure theory of consumer behaviour, where a consumer s preference ordering over the set of all conceivable consumption programmes is described prior to the introduction of the budget constraint that reflects the market environment constraining the consumer, the Koopmans-Diamond framework may well qualify as a convenient beginning for the theory of intergenerational equity. However, it falls short of capturing many other intergenerational issues of crucial importance. To see this, we cite three concrete problems of intergenerational equity, efficiency, and rationality. In the first place, the problem of designing and implementing an equitable and efficient mechanism for intergenerational transfer of resources seems to

16 xvi Introduction call for a different conceptual framework altogether. The required framework is one where the resource transfer between adjacent generations is explicitly formulated within the model. An ingenious model, most helpful in this context, was introduced by Paul Samuelson (1958), widely known as the overlapping generations model. Most, if not all, attempts to capture the essence of social security schemes for intergenerational transfers are based on a suitably augmented version of the Samuelsonian model. Note, however, that the traditional focus of these analyses including Samuelson s own has been on the intertemporal efficiency, and not on the intergenerational equity, of resulting resource allocations over generations. This is a conspicuous lacuna in the literature. In trying to work on this open question, our analytical focus should be on the balance between overlapping generations as to their claims for equitable treatment without sacrificing the intertemporally efficient use of scarce resources. In the second place, consider the concept of sustainable development. This phrase was first introduced in 1980 by the International Union for the Conservation of Nature and Natural Resources. It came to acquire worldwide recognition through the publication in 1987 of the so-called Brundtland Report by the World Commission on Environment and Development. According to this report, [s]ustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs [World Commission on Environment and Development (1987, p.43)]. It is worthwhile to emphasize that the proposed concept of sustainable development embodies a basic belief to the effect that the well-being of future generations is as important as the well-being of the present generation. In this sense, sustainability echoes the classical principle of Sidgwick. According to this basic principle, all generations, irrespective of when they emerged in the past or will emerge in the future, should have equal opportunity to lead worthwhile lives. In order to give concrete substance to this admittedly abstract concept, we must go beyond the narrow informational framework of Koopmans and Diamond, and take account, in our analysis, of the limitations imposed by the past, present and future states of technology. In the third place, consider the long-run problem of environmental externalities, viz., the issue of global warming. Economic activity since the Industrial Revolution has contributed to the accumulation of greenhouse gases, which will affect the well-being of future generations. Thus, global warming poses a unique externality problem in which many of those who should be held responsible no longer exist, and many of those who will be most severely affected have not yet been born. As if this is not enough, there is yet another intriguing feature of the problem of future generations in the context of global warming. Observe that it is undeniable that the actual historical path of human evolution up to the present is determined by the choices made by past generations, and the population of all generations up

17 Introduction xvii to the present generation is also determined. Indeed, human evolution in the future hinges on choices made by the present generation. For instance, what our generation does with respect to energy consumption cannot but affect the size and personality characteristics of the next generation. The malleability of future generations in this sense is an aspect of the non-identity problem posed by Derek Parfit (1984). This fact makes the problem of intergenerational equity, efficiency, and rationality in the presence of global warming even more complex than otherwise. Thus, the conceptual framework of the Koopmans Diamond model is too thin to accommodate many issues that we face. More highly articulated models, and an informational framework that goes beyond welfarism, or even consequentialism, may well be needed to provide a satisfactory analysis of the problem. 2 Brief overview of the book Based on the papers presented at the Hakone Roundtable Meeting, the book consists of five parts, each containing three or four chapters. In this section we briefly describe the contents of the book. Part I (Equity among Overlapping Generations) contains three chapters which focus on intergenerational equity and efficiency in overlapping generations economies. Chapter 1 by Toshihiro Ihori ( Pension Contributions and Capital Accumulation ) investigates some dynamic implications of pension contributions and intergenerational transfers under the pay-as-you-go scheme, where each interest group may easily avoid contributions and the national government cannot effectively penalize such evasive behaviour. Within the standard model of overlapping generations economies that incorporates subsidies from the national government, some long-run properties of public spending, social security contributions, and economic growth are explored. It is shown, among other things, that the social security contribution is too little in terms of static efficiency, but it may be too much or too little in terms of dynamic efficiency. Chapter 2 by Tomoichi Shinotsuka, Koichi Suga, Kotaro Suzumura and Koichi Tadenuma ( Equity and Efficiency in Overlapping Generations Economies ) examines several distinct notions of intergenerational equity as no-envy within the model of overlapping generations economies à la Samuelson. The notion of no-envy in overlapping consumptions stipulates that, for each time period, no person should prefer the bundle of any other person, who lives in the same period, to his own. The notion of no-envy in lifetime consumptions requires that no person should prefer the lifetime consumption plan of any other person to his own. Finally, the notion of equity in lifetime rate of return requires that the lifetime rate of return in the sense of David Cass and Menaham Yaari (1966) be equal for all generations. For each of these notions of intergenerational equity, the chapter

18 xviii Introduction characterizes allocations satisfying that notion and clarifies logical relations among these notions. It also examines the existence of a stationary allocation that attains maximal utility under no-envy in lifetime consumption. Chapter 3 by Noriyuki Takayama ( Social Security Pensions and Intergenerational Equity: The Japanese Case ) is unique in the book, as it addresses the issue of intergenerational equity in the concrete context of a specific nation, viz., Japan. It is worth recalling that Japan has the oldest population in the world; although it has a generous social security pension programme, the income statement of its principal pension programme has been in deficit since 2001, and the balance sheet of its pension programme has been suffering from huge excess liabilities; as a result, there is a growing scepticism among the citizenry concerning the government s commitment to the public pension scheme. With this background in mind, Takayama addresses himself to intergenerational issues in the context of Japan s social security pension reform with special focus, on the one hand, on the remedy for the mistakes made in the past, and, on the other hand, on the pension scheme which would avoid intergenerational inequities arising from uncertainties in the future. Part II (Ranking Infinite Utility Streams) turns to the classical Sidgwickian concern with intergenerational equity, efficiency, and rationality in the context of evaluating infinite utility streams. Chapter 4 by Geir Asheim, Tapan Mitra and Bertil Tungodden ( A New Condition for Infinite Utility Streams and the Possibility of Being Paretian ) introduces a new equity condition called Hammond Equity for the Future that replaces the Sidgwick equity condition. The new condition captures the ethical idea that a sacrifice by the present generation leading to a uniform gain for all future generations cannot bring about a less desirable utility stream if the present generation remains better off than future generations even after making the sacrifice. The effect of replacing the Sidgwick equity condition with Hammond Equity for the Future in the presence of other conditions àladiamond is carefully examined, and leads to another impossibility theorem. Chapter 5 by Kaushik Basu and Tapan Mitra ( Possibility Theorems for Equitably Aggregating Infinite Utility Streams ) tries to identify an escape route from the Diamond impossibility theorem by seeking the existence of a real-valued social welfare function over the set of infinite utility streams, which is not necessarily continuous, by weakening the Pareto efficiency principle and exploring some domain restrictions. Chapter 6 by Tapan Mitra and Kaushik Basu ( On the Existence of Paretian Social Welfare Quasi-Orderings for Infinite Utility Streams with Extended Anonymity ) focuses on the generalizability of the finite anonymity axiom in the context of a social welfare quasi-ordering on the set of infinite utility streams and in the presence of the Pareto principle. The Sidgwick Pigou Ramsey equity axiom is usually captured by a finite anonymity axiom saying that two infinite utility streams, one of which can be obtained from the other by applying a finite permutation, should be declared socially indifferent. The attempt to expand the admissible class of permutations beyond

19 Introduction xix that of finite permutations has a clear limit in that arbitrary infinite permutations can be easily checked to be in conflict with the Pareto principle. This chapter is devoted to the logical problem of characterizing the class of admissible permutations which makes the resulting anonymity axiom compatible with the Pareto principle in the presence of social welfare quasi-orderings. Chapter 7 by Yongsheng Xu ( Pareto Principle and Intergenerational Equity: Immediate Impatience, Universal Indifference and Impossibility ) is designed to answer two questions. Its first purpose is to examine the scope for obtaining a possibility theorem for the social evaluation relation to be Paretian and intergenerationally equitable. Its second purpose is to crystallize the respective implications of the Paretian axiom and the intergenerational equity axiom for a social welfare function, thereby clarifying the structure of a social evaluation relation satisfying these two axioms. Part III (Intergenerational Evaluations) is still concerned with the social evaluation of infinite utility streams, but it gathers contributions which go beyond the classical Koopmans Diamond conceptual framework. Chapter 8 by Claude d Aspremont ( Formal Welfarism and Intergenerational Equity ) looks closely at the foundations of the Koopmans Diamond formulation within the social welfare functional approach to social choice theory, which is due to Amartya Sen (1970). Recall that the classical framework is welfarist in nature in that utilities of all generations exhaust all the information required for the construction of a social evaluation on the future history of infinite length. Besides, the classical framework also presupposes that, within each generation, the individual utilities are aggregated into a single generational utility. The chapter discusses some disturbing implications of these two presumptions of the traditional approach. Chapter 9 by Charles Blackorby, Walter Bossert and David Donaldson ( Intertemporal Social Evaluation ) employs an axiomatic approach to identify ethically attractive social evaluation procedures for intertemporal social evaluation. In particular, they explore the possibilities of using welfare information as well as non-welfare information in a model of intertemporal social evaluation. For the relevant non-welfare information, they adopt the birth dates and lengths of the individuals lives, whereas they adopt lifetime utilities as the relevant welfare information. They identify several sets of axioms which characterize the birth-date dependent or lifetime-dependent versions of generalized utilitarianism. Chapter 10 by Marc Fleurbaey ( Intergenerational Fairness ) studies the construction of a criterion for the ethical evaluation of allocations in an overlapping generations economy with linear technology and heterogeneous preferences. It studies how to construct a ranking of allocations on the basis of axioms of efficiency and fairness, and characterizes a particular ranking of the infimum kind, which evaluates every individual situation in terms of money metric utility. It also shows that defining a complete social ordering satisfying the efficiency and fairness requirements raises a difficulty due to the infinite horizon of the basic model. Chapter 11 by Bertil Tungodden

20 xx Introduction and Peter Vallentyne ( Person-Affecting Paretian Egalitarianism with Variable Population Size ) develops and discusses a deontic version of anonymous Paretian egalitarianism for the variable population case where who comes into existence depends on agents choices. In more specific terms, this is done in the context of a person-affecting framework where an option is just if and only if it wrongs no one according to certain plausible conditions on what constitutes wrong-doing. The chapters in Part IV model sustainability as a path of intertemporal consumption that guarantees a lower bound on the utility of all generations. The natural goal is to maximize the size of this bound thus, maximin (or leximin) utility of all generations that will exist. Roemer s chapter ( Intergenerational Justice and Sustainability under the Leximin Ethic ) postulates a renewable resource (the forest or biosphere ) which can be harvested by each generation to produce a consumption good, and which is enjoyed as well in its natural state. The intergenerational leximin solution is defined and studied with exogenous technical progress; in particular, conditions are given under which the leximin solution is compatible with increasing utility of generations over time. Finally, there is some study of endogenous technical progress. Roemer and Veneziani ( Intergenerational Justice, International Relations and Sustainability ) study a world with two representative agents at each date, one in the poor South and the other in the rich North. There is a global commons (the biosphere) which each agent pollutes in order to produce a consumption good; the technology of the South is inferior, so it must pollute more per unit of output produced. The consequences of three regimes of international cooperation (or lack of it) are studied, ranging from non-cooperative Nash equilibrium between the South and the North, to the cosmopolitan solution, where national borders are ignored. The analysis points out the conflicts between environmental concerns and sustainability, and between international and intergenerational justice. Silvestre s chapter ( Intergenerational Equity and Human Development ) applies two normative criteria, viz., leximin and sufficientarianism (which requires a good enough standard of living), to an overlapping-generations society with a given decision date. These criteria may conflict with the desideratum of human development across generations, because they advocate benefitting the early generations, presumably the worst-off ones, assuming that technological progress occurs. Two difficulties in the application of the leximin criterion are discussed. First, leximin requires the exogenous specification of the initial obligations to decision-date seniors. Second, the appearance of human development at the leximin solution imposes an extreme lifetime pattern, with low levels of primary goods during the productive years, and abundance at the late stages of life. Sufficientarianism attenuates these difficulties, and is to some extent complementary to leximin when applied to the intergenerational problem.

21 Introduction xxi Part V (Long-Run Issues of Intergenerational Equity) is assigned to three chapters which are devoted to the long-run issues of intergenerational equity and justice. Chapter 15 by Ngo Van Long ( Toward a Just Savings Principle ) starts from a brief review of John Rawls (1971) objection to the direct application of his difference principle, which is the core concept of his principles of justice, to the problem of intergenerational equity, viz., the problem of just savings. It then makes some adjustments to the difference principle so as to crystallize the author s proposed concept of just savings, and extracts some implications of these adjustments by means of some formal economic models. Chapter 16 by Kotaro Suzumura and Koichi Tadenuma ( Normative Approaches to the Issues of Global Warming: Responsibility and Compensation ) focuses on the analysis of equitable treatment among far distant generations, a prototypical example thereof being the issue of global warming. This is a severe problem of environmental externalities. Unlike many other problems of environmental disruptions, this problem has a unique feature: a large part of those who are responsible for causing the problem do not exist anymore, and a large part of those who will be most severely affected by the problem do not yet exist. This crucial feature prevents standard resolution schemes for environmental externalities from being applied to this class of problems. Besides, the informational basis of normative analysis cannot but go beyond the confinement of welfarism in view of the crucial problem of malleability of future generations, which is an example of Derek Parfit s (1984) non-identity problem. In view of these novel features, the chapter proposes a new principle of responsibility and compensation in the context of global warming. Finally, Chapter 17 by Naoki Yoshihara ( Fundamental Incompatibility among Economic Efficiency, Intergenerational Equity and Sustainability ) examines intergenerational resource allocations in production economies with long-run negative externalities and shows that the basic axioms of economic efficiency, intergenerational equity and environmental sustainability cannot but conflict with each other. Since the issues of intergenerational equity, efficiency, and rationality are broad, and there are many alternative approaches which we may conceive in trying to do justice to these issues, it is too much to hope that the Hakone Roundtable Meeting and the present book based on our extensive discussions at the Meeting could settle these perennial issues. Indeed, further studies, which are meant to pursue some of the issues raised but left open at the Hakone Meeting, are being vigorously promoted by some of the participants of the Hakone Meeting. It is hoped that this book will serve as a useful reference book as well as an indispensable bridge between what precedes it and what succeeds it on the issues of intergenerational equity, efficiency and rationality.

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