M3.1 Economic Sustainability.pdf

Economic Sustainability SOCSC 13 Module 3: Paradigms  Outline 01 02 The Quiz Coordination Problem 03 04 Doughnut T...

Economic Sustainability SOCSC 13 Module 3: Paradigms  Outline 01 02 The Quiz Coordination Problem 03 04 Doughnut The Big Push Economic Model Model Traffic in Ateneo Why does this problem exist?  The Coordination Problem Underdevelopment as a Coordination Failure Complementarities An action taken by an individual or organization that increases the incentives for other agents to take similar actions The more I do/use something, the easier/cheaper it is for others to do the same Examples: Recycling, Commuting to school/work  Concept Check Given the definition of complementarities: “An action taken by an individual or organization that increases the incentives for other agents to take similar actions” Is corruption considered a complementarity? Underdevelopment as a Coordination Failure Complementarities Complementarities are not always necessarily a good thing Examples: Corruption Underdevelopment as a Coordination Failure Complementarities Complementarities can lead to status quo bias: a preference to maintain the current state of affairs Underdevelopment as a Coordination Failure Coordination Failure A situation in which the inability of agents to coordinate their behavior (choices) leads to an outcome (equilibrium) that leaves all agents worse off than in an alternative situation that is also an equilibrium. It is possible for agents to be fully aware of a better alternative but it is individually suboptimal to deviate from the current equilibrium Underdevelopment as a Coordination Failure Making a coordinated switch to the new equilibrium is very hard to do Driving direction change in Sweden, 1967 Underdevelopment as a Coordination Failure Making a coordinated switch to the new equilibrium is very hard to do Argument for Change All neighboring countries, with which Sweden shares land borders, drive on the right Driving direction change in Sweden, 1967 Underdevelopment as a Coordination Failure Applications to Development Complementarities may lead to coordination failure Coordination Complementarities Failure Underdevelopment as a Coordination Failure Applications to Development Coordination failure leads to a bad equilibrium Making a coordinated switch to the new and better equilibrium is very hard to do Coordination An Economy is in Complementarities Failure a “bad” equilibrium Underdevelopment as a Coordination Failure Ateneo Traffic Coordination An Economy is in Complementarities Failure a “bad” equilibrium Underdevelopment as a Coordination Failure Ateneo Traffic Coordination An Economy is in Complementarities Failure a “bad” equilibrium “Since other people are The volume of cars Bad Equilibrium: using private cars, it inside the campus are makes it easier for me to too high at certain times Extreme Traffic also use a private car” of the day Inside the Campus Underdevelopment as a Coordination Failure Ateneo Traffic Coordination An Economy is in Complementarities Failure a “bad” equilibrium Bad Equilibrium: “Since other people are The volume of cars Extreme Traffic Inside using private cars, it inside the campus are the Campus because no makes it easier for me to too high at certain times one deviates from the also use a private car” of the day current norm Underdevelopment as a Coordination Failure Ateneo Traffic Coordination An Economy is in Complementarities Failure a “bad” equilibrium Bad Equilibrium: “Since other people are The volume of cars Extreme Traffic Inside using private cars, it inside the campus are the Campus because no makes it easier for me to too high at certain times one deviates from the also use a private car” of the day current norm  Concept Check Apply Coordination Failure to this scenario: San Vicente, Palawan San Vicente is a charming coastal town in Palawan that boasts of pristine beaches, crystal-clear waters, and stunning natural scenery. San Vicente remains relatively undiscovered Underdevelopment as a Coordination Failure Local Tourism Coordination An Economy is in Complementarities Failure a “bad” equilibrium Bad Equilibrium: San Vicente is not maximizing its tourism potential The Big Push Model A theoretical model that addresses the coordination problem The Big Push Model Economic Sustainability Whether an economy has been growing sustainably for some time or has been stagnant seems to make a very big difference for subsequent development If growth can be sustained for a substantial time (a generation or more), it is much more unusual for economic development to later get off track for long How to get modern economic growth in the first place? The Big Push Model Big Push Model A concerted, economy-wide, and typically public policy–led effort to initiate or accelerate economic development across a broad spectrum of new industries and skills. Addresses coordination problems The Big Push Model Application San Vicente, Palawan The Big Push Model Example Maximize Tourism Potential Invest in roads Invest in water distribution Invest in electricity distribution Incentivize accommodations Incentivize restaurants Incentivize tours The Big Push Model Limitations of the Big Push Model Expensive. Requires massive investment Insufficient information on where to invest Insufficient information on final equilibrium (might still be bad or even worse than current state) Government may prevent coordination (corruption, etc.) Doughnut Economic Model Sustainable economic growth Doughnut Economic Model Doughnut Economics The name is derived from the shape of the diagram: a disc with a hole in the middle Doughnut Economic Model Doughnut Economics New economic model: First published by Kate Raworth in 2012 Kate’s book, “Doughnut Economics: seven ways to think like a 21st century economist”, was published in 2017 Doughnut Economic Model Doughnut Economics The aim is to meet the needs of all people within the means of the living planet Doughnut Economic Model Center Ring (Social Foundation) Depicts the proportion of people that lack access to life’s essentials (healthcare, education, food, water, etc.) Doughnut Economic Model Outside Ring (Ecological Ceiling) Represents planetary boundaries that life depends on and must not be overshot Doughnut Economic Model The Safe and Just Space for Humanity The area between the ecological ceiling and social foundation is the “safe and just space for humanity” A dynamic balance is met wherein our social needs can be met without overburdening the planet Doughnut Economic Model Regenerative Economy Our material and energy use work within the cycles of the living world and within planetary boundaries Doughnut Economic Model Distributive Economy Redistributing wealth creation Ex. Health and Education are sources of wealth creation Doughnut Economics  Summary 01 02 The The Big Push Coordination Model Problem 03 Doughnut Economic Model