Learning Outcomes:
On completion of this module students should be able to:
1. have an understanding of the basic tools of economic analysis,
2. apply those tools to practical situations related to sustainability,
3. understand the contributions economics can make to the discussion on sustainability issues, their causes and their solutions.
Indicative Module Content:
The main topics covered in this module are as follows (exact content and order may change):
INTRODUCTION TO ECONOMICS AND SUSTAINABILITY
What does sustainability mean? What are the main goals and challenges we as society are facing? And what does economics as a discipline have to say about them? What do economists even do?
We'll set up the scene for the module by discussing economics as a discipline (which is different from "the economy" or "business/management"), how the economy fits into the biosphere, climate change and other planetary boundaries, tipping points, how can we define sustainability (and how challenging that is). We will then look into the Sustainable Development Goals and the main ideas of Doughnut Economics to see how they combine social and environmental sustainability.
MEASURING WEALTH AND WELL-BEING
Being "better off" is better than being "worse off", isn't it? But how do we measure how "well off" we are? And how unequal the distribution of resources is? How do we compare different people, groups or countries at different points in time?
We'll start with the Gross Domestic Product (GDP) as a measure of the aggregate economy. By learning how it is constructed we will discuss what GDP can capture and what is missing and therefore what its pros and cons are. We'll then look at how inequality can be measured (this is not always straightforward!). But money is not everything! We will then look at alternative measures of wealth and well-being, such as the Human Development Index (HDI), genuine savings, the System of Environmental-Economic Accounting (SEEA), the concept of Natural Capital, the "doughnut" in doughnut economics. Are any of these measures capturing sustainability? You'll join in to discuss how satisfied you are and whether you would do anything different.
ECONOMIC DECISIONS, INCENTIVES, AND TECHNOLOGY
Now we have a general idea of what our aims are and how to measure our progress towards them. But why are our actions (especially in the economy) not always aligned with these societal objectives and sustainability? Can we find some key patterns to understand how people/firms/countries decide what actions to take? This would help us understand why sustainability problems arise and also what we can do about them. There are many disciplines that tackle these questions (psychology, sociology, history, anthropology, economics, etc.) but in this module we'll focus on the economics. We will introduce the key concepts of decision-making in economics: "costs and benefits", "opportunity costs", and "incentives". We will then apply these to examples: should I go to a concert or take an extra shift at work? Should a firm in 1800 England adopt a labour-saving or an energy-saving technology? How does a country chooses which products and sectors to specialize on? These examples will help us understand several key topics in economics as well as how "models" are used in economics. Trade and specialization decisions by introducing the ideas of "absolute" and "comparative" advantage. Technology, production, population, and growth. The industrial revolution.
SOCIAL INTERACTIONS & SOCIAL DILEMMAS
Sometimes our decisions and what we get as a result depends not only on us but also on what others choose to do. Thinking through a decision can then feel a bit like playing a board game! We will look at how "game theory" is used to understand these social interactions and to highlight some of the challenges of being sustainable and sharing resources. We will talk about free-riding (ever had a room mate or family member who never does the dishes and just waits for someone else to clean up?), the "invisible hand" v. the "prisoners’ dilemma", public goods, the "Tragedy of the Commons" (or is it rather a tragedy of open access?), the work of Elinor Ostrom, social norms and social preferences. Now that we are understanding the challenging and what is going on, is also time to start thinking of solutions! We will debate on the pros and cons of bottom-up and top-down solutions to foster cooperation and sustainability. We can look at climate change and climate negotiations as an application of all that we have learnt in this section.
PRODUCTION AND CONSUMPTION DECISIONS IN A MARKET; HOUSING CRISIS AND RENT CONTROL
We now look even closer into market interactions, as several sustainability issues are related to what we choose to buy and consume and what firms choose to produce and sell. If we understand how these choices are made, we can then try to change the "incentives" to favour more sustainable ones. We'll discuss Suppliers and Consumers, Economies of scale, production and costs. Competition & market power, Demand and elasticity. Producer and consumer surplus as a measure of the gains from market exchanges. Supply and Demand models. Now let's use these tools to analyse some very practical problems such as the housing crisis: what are the different policies that can be put in place (e.g., rent ceiling, subsidies)? How would renters and landlords react to each? What are the pros and cons? And we can also use the same tools to understand taxes! Why are taxes used? Can they help address environmental issues?
DESIGNING POLICIES FOR SUSTAINABILITY
Having a better understanding of consumption and production decisions, we can start assess when these market mechanisms do well and when they "fail" to achieve a good result. We'll talk about Market Efficiency and the First Fundamental Theorem of Welfare Economics and then Market Failures and what to do about them. In particular, why are many production and consumption decisions unsustainable? Part of the reason is because suppliers and consumers may not take into consideration the side-effects of their production and consumption (eg pollution, climate change, health problems) if they do not have to pay to fix them; this side-effects are called Externalities in economics. How can we make sure people consider these side-effects in their decision and make decisions that are more in line with societal well-being? We'll see some different policy options with case studies and applications to Sustainability, Climate Change and the Environment.
INTER-TEMPORAL CHOICES
A key challenge of sustainability is balancing sacrifices and benefits between the present and the future, that is, making inter-temporal choices. This is also one of the questions in the degrowth / (green) growth debate. Getting solar panels on your roof requires a high upfront payment and mining minerals and metals but over time it will save you money on the electricity bills and hopefully help phase out fossil fuel, so how many should we get to balance these effects? The idea behind these choices is the same as in banking. How much am I willing to deposit today so that I get a certain interest in a year? Or how much interest are you willing to pay in a year in exchange for a loan today? We'll introduce the concept of time discounting and discuss normative and positive views on discounting for social and environmental decisions about the future of the planet.
We now know a lot about the barriers to achieve more sustainable economic systems and what can we do about it!