Content area
Full text
1 Introduction
A central tenet in microeconomics is that the perfectly competitive market equilibrium dictates the maximization of net benefits (NBs). This equilibrium further coincides with a well-functioning system of private property rights. But the perfectly competitive equilibrium is seldom evident because of imperfectly competitive market structures and the absence of markets themselves. Environmental goods and services (EGS) are clear examples of absent markets because of their intangible nature. Such absent markets are often cited as prime causes of resource misallocation and the resulting losses of sustainability of EGS; ([6] Mäler and Vincent, 2003). The standard approaches in environmental economics to deal with such issues are:
- development of methods of valuation (and measurement) so that EGS can be included in market analyses and market failures could be corrected ([10] Sinden and Worrell, 1979; [9] Randall, 1981; [5] Knetsch, 1994; [6] Mäler and Vincent, 2003); or
- assignment of property rights of (selected) EGS to private entities in the expectation that a markets capable of maximizing net social benefits would eventuate ([9] Randall, 1981; [8] Quiggin, 1888; [6] Mäler and Vincent, 2003).
That is, the corrective measures in environmental economics are "market-centric" implying that the perfectly competitive market equilibrium may also coincide with the incidence of sustainability. The main aim of this paper is to argue that such coincidence is unlikely and that the benchmark of perfect competition (PC) should be revised to include sustainability as an explicit condition besides the standard ones, namely anonymity, homogeneity, perfect information, perfect mobility, and full employment. The bench mark should then be appropriately renamed PC and sustainability (PCS).
The distinction between PC and PCS is considered the in the next section. This is followed by an illustration of how some of the standard expositions offered in the context of comparing PC with imperfect competition could markedly vary when PCS is introduced as the benchmark. In this instance, a monopoly is considered as the case of imperfect competition. It is further possible to argue that the adoption of PCS as a benchmark could render the recognition of voluntary environmental stewardship as a policy option.
2 PC and sustainability
Sustainability can be defined as the perpetual flow of EGS despite the utilization of environmental capital (KN) stocks that generates them...