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Cross-cutting paper, welfare and consumption (Kurt Kratena)

Most studies take the 'Brundtland definition' (WCED, 1987) as a starting point for the analysis of sustainable development, i.e. " ..development, which meets the needs of the present without compromising the ability of future generations to meet their own needs". This definition bears two direct links to welfare economics. One is covered by the inter-generational allocation problem and the other one refers to definition of 'needs' that might be approached by the microeconomic theory of utility maximization.

The discussion about the two concepts of sustainability ('weak' vs. 'strong') that has been established in the literature also shows direct links to the problem of welfare measurement. The main distinguishing feature between these two concepts, namely the existence of a binding resource constraint has straightforward implications for modelling the influence of the state of the environment on welfare.

Starting point of this paper is the observation that most existing models can be classified into three broad groups with different concepts regarding welfare measures: - Aggregated neoclassical growth models,
- Disaggregated CGE models and
- Disaggregated macro-econometric models.

Of course this does not represent a clear cut classification for all existing modelling approaches. There is a group of important models following the lines of CGE modelling but only incorporating a partial analytical perspective, for ex-ample of energy relevant activities. The theoretical as well as empirical foundations of welfare measurement in these three groups of models shall then be described in a literature overview.

The treatment of welfare in TranSust models is analysed in another section along the lines of this broad classification. The distinguishing features concerning the measurement of welfare can be analysed for the 7 main models in TranSust. This analysis clearly shows strengths as well as shortcomings for an adequate description of sustainable development. That can be shown by extending the analysis to the expected welfare impacts of policy measures that represent 'successful sustainability strategies' in the different models. A standard policy measure of such a 'successful sustainability strategy' could be the introduction of prices for emissions/environmental use via taxes (e.g. road pricing) combined with the recycling of tax revenues to introduce new technologies thereby augmenting capital and leading to higher investment (e.g. public transport system). The single elements of this policy mix induce different adjustment mechanisms in the model types that can be seen as 'responsible' for different welfare impact results.

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