Abstract

This paper models sustainable development as a consumption problem with effects on efficiency and equity. It uses a-three-period dynamic overlapping generations model to analyze consumption, efficiency, and equity. Consequently, unlike sustainable development theories of a trade-off between equity and growth, or growth oriented models, this paper models sustainable development in terms of consumption preferences. We conclude that when resources are optimally allocated among generations, the net environmental value obtained from previous generations must be equal to the marginal utility of consumption by subsequent generations when resource consumption is accounted for. We use the marginal utility of consumption in relation to resource consumption as an indicator of the efficient allocation of resources across generations, and the net environmental value as a measure of equity when societies are resource constrained but allocate the use of environmental resources optimally.