SBP
WEEK 1
LECTURE 1
H ISTORICAL PERSPECTIVE ECONOMIC GROWTH
Economic growth: the percentage increase in real Gross Domestic Product (GDP): increase in
the inflation adjusted market value of the goods and services produced by an economy over
time
Until the first half of the seventeenth century, the growth in income per person was related
to population size:
- Malthusian Trap: population growth led to a decline in nutrition and income per person
Higher productivity results in larger, but not wealthier populations
Starting around 1750, the Industrial Revolution led to the decoupling of income growth and
population size: continuous and sustained economic growth
Environmental and social concerns have questioned the viability and purpose of long-lasting,
continuous economic growth
- Social: income inequality: lower income class benefits less from economic growth
- Environmental: depletion of our natural capital
L IMITS OF ECONOMIC GROWTH
“Economic limit”: when the marginal utility (the utility added by consuming one more unit of
goods and services) is equal to marginal disutility
- Net profit is maximized
Growth after this limit is uneconomic
growth:
1. “Futility limit”: when the
marginal utility of production
falls to zero: more consumption
is no longer beneficial
2. “Ecological catastrophe limit”:
the point in growth where a
tipping point is induced ->
collapse of our ecosystem
,H ISTORICAL PERSPECTIVE POPULATION GROWTH
10.9 billion people by 2100
We are currently facing a trend of decreasing population growth: the world population
explosion will come to an end because many countries will pass/have passed the
demographic transition:
1. Malthusian paradigm: population size is inversely proportional to the food supply:
high birth and death rates
2. High birth rate but lower death rate because improvement in food supply ->
population growth
3. Decline in birth rate: higher wages/education levels, reduction in child labour,
contraception, women gain access to education: population growth levels off
4. Both birth and death rates are low: maybe even negative growth: no/negative
population growth
S USTAINABLE DEVELOPMENT
Paradox of sustainable development: more wealth by increasing production could potentially
destroy our ecosystem and harm future generations, but current generations in developing
countries are harmed if we do not increase our consumption
Two types of sustainability:
1. Weak sustainability: biophysical limits need to be enlarged through technological
development
- Multiple separately defined objectives are optimized
Objectives can have a weighing factor assigned
Weak focus on mutual interactions
- Objectives may be considered interchangeable
2. Strong sustainability: embed the economy in society and society in the ecosystem: limits
to growth, so we need to reduce the ecological footprint
- Clear hierarchy between people, planet and profit
- Based on mutual interactions and long-term consequences
,Sustainable development: “development that meets the needs of the present without
compromising the ability of future generations to meet their own needs”
Three sustainability pillars:
1. Economic: minimization of costs or maximization of profits
- Or better: prosperity
2. Environmental: Life Cycle Assessment
3. Social: no commonly accepted definition yet
- Qualitative ranking and scoring alongside quantitative approaches: e.g. the Analytic
Hierarchy Process (AHP)
- Often ignored in quantitative models
SINGELS CHAPTER 1
S OLVING TRAGEDY OF THE COMMONS
A few possible solutions:
- Sell the commons off as private property
- Keep the commons as public property and agree on the allocation of entrances
Based on wealth, by lottery, first-come, first-serve, auction system
- Mutual coercion (force):
Command-and-control approach: set standards
Market mechanisms: link the price of the commons to the economic activity:
tradeable permits or emission taxes
Market mechanisms:
1. Tradeable permits (cap-and-trade mechanism): a cap is set on the total amount of
emissions and companies can receive or buy tradable emission allowances
, - Won’t work if price of carbon credits is lower than price of shifting
- The price of tradable emission rights is unpredictable
Danger of oversupply -> tradable emission rights get really cheap
Unknown payback period slows down investment in low-carbon solutions
2. Carbon tax: on emitted greenhouse gases
- Should increase over time
- Contrary to the cap-and-trade mechanism, a carbon tax does not increase when the level
of emissions increases
- Higher burden on low-income households
- Hinders competition with countries that don’t have taxes
- For effective implementation governments also need to stop subsidizing coal/oil/gas and
start subsidizing low-carbon investment initiatives (wind, solar, and hydropower) and
stimulate energy efficiency
S UPPLY CHAIN
A supply chain consists of all the interconnected networks and parties involved, directly or
indirectly, in fulfilling the demands between suppliers and customers
- Manufacturing companies also have their own internal supply chain
Basic elements of this supply chain: sourcing of materials and services,
transportation, inventory management, storage
- All impact environmental sustainability
Three key flows in a supply chain:
- Products: raw materials, work-in-progress, finished goods
- Funds: invoices, payments, credits
- Information: orders, deliveries, marketing promotions, inventory
The goal is to maximize the supply chain surplus/ overall value generated (revenue from a
customer – minus the total cost of producing and delivering the product)
S USTAINABILITY
Supply chains are getting less sustainable: more freight transport and emissions
- Supply chain parties want to become more effective: more traffic to realize in-time
deliveries
- Increased demand for physical products
- Wider geographical sourcing of supplies
- Broader distribution of finished products
WEEK 1
LECTURE 1
H ISTORICAL PERSPECTIVE ECONOMIC GROWTH
Economic growth: the percentage increase in real Gross Domestic Product (GDP): increase in
the inflation adjusted market value of the goods and services produced by an economy over
time
Until the first half of the seventeenth century, the growth in income per person was related
to population size:
- Malthusian Trap: population growth led to a decline in nutrition and income per person
Higher productivity results in larger, but not wealthier populations
Starting around 1750, the Industrial Revolution led to the decoupling of income growth and
population size: continuous and sustained economic growth
Environmental and social concerns have questioned the viability and purpose of long-lasting,
continuous economic growth
- Social: income inequality: lower income class benefits less from economic growth
- Environmental: depletion of our natural capital
L IMITS OF ECONOMIC GROWTH
“Economic limit”: when the marginal utility (the utility added by consuming one more unit of
goods and services) is equal to marginal disutility
- Net profit is maximized
Growth after this limit is uneconomic
growth:
1. “Futility limit”: when the
marginal utility of production
falls to zero: more consumption
is no longer beneficial
2. “Ecological catastrophe limit”:
the point in growth where a
tipping point is induced ->
collapse of our ecosystem
,H ISTORICAL PERSPECTIVE POPULATION GROWTH
10.9 billion people by 2100
We are currently facing a trend of decreasing population growth: the world population
explosion will come to an end because many countries will pass/have passed the
demographic transition:
1. Malthusian paradigm: population size is inversely proportional to the food supply:
high birth and death rates
2. High birth rate but lower death rate because improvement in food supply ->
population growth
3. Decline in birth rate: higher wages/education levels, reduction in child labour,
contraception, women gain access to education: population growth levels off
4. Both birth and death rates are low: maybe even negative growth: no/negative
population growth
S USTAINABLE DEVELOPMENT
Paradox of sustainable development: more wealth by increasing production could potentially
destroy our ecosystem and harm future generations, but current generations in developing
countries are harmed if we do not increase our consumption
Two types of sustainability:
1. Weak sustainability: biophysical limits need to be enlarged through technological
development
- Multiple separately defined objectives are optimized
Objectives can have a weighing factor assigned
Weak focus on mutual interactions
- Objectives may be considered interchangeable
2. Strong sustainability: embed the economy in society and society in the ecosystem: limits
to growth, so we need to reduce the ecological footprint
- Clear hierarchy between people, planet and profit
- Based on mutual interactions and long-term consequences
,Sustainable development: “development that meets the needs of the present without
compromising the ability of future generations to meet their own needs”
Three sustainability pillars:
1. Economic: minimization of costs or maximization of profits
- Or better: prosperity
2. Environmental: Life Cycle Assessment
3. Social: no commonly accepted definition yet
- Qualitative ranking and scoring alongside quantitative approaches: e.g. the Analytic
Hierarchy Process (AHP)
- Often ignored in quantitative models
SINGELS CHAPTER 1
S OLVING TRAGEDY OF THE COMMONS
A few possible solutions:
- Sell the commons off as private property
- Keep the commons as public property and agree on the allocation of entrances
Based on wealth, by lottery, first-come, first-serve, auction system
- Mutual coercion (force):
Command-and-control approach: set standards
Market mechanisms: link the price of the commons to the economic activity:
tradeable permits or emission taxes
Market mechanisms:
1. Tradeable permits (cap-and-trade mechanism): a cap is set on the total amount of
emissions and companies can receive or buy tradable emission allowances
, - Won’t work if price of carbon credits is lower than price of shifting
- The price of tradable emission rights is unpredictable
Danger of oversupply -> tradable emission rights get really cheap
Unknown payback period slows down investment in low-carbon solutions
2. Carbon tax: on emitted greenhouse gases
- Should increase over time
- Contrary to the cap-and-trade mechanism, a carbon tax does not increase when the level
of emissions increases
- Higher burden on low-income households
- Hinders competition with countries that don’t have taxes
- For effective implementation governments also need to stop subsidizing coal/oil/gas and
start subsidizing low-carbon investment initiatives (wind, solar, and hydropower) and
stimulate energy efficiency
S UPPLY CHAIN
A supply chain consists of all the interconnected networks and parties involved, directly or
indirectly, in fulfilling the demands between suppliers and customers
- Manufacturing companies also have their own internal supply chain
Basic elements of this supply chain: sourcing of materials and services,
transportation, inventory management, storage
- All impact environmental sustainability
Three key flows in a supply chain:
- Products: raw materials, work-in-progress, finished goods
- Funds: invoices, payments, credits
- Information: orders, deliveries, marketing promotions, inventory
The goal is to maximize the supply chain surplus/ overall value generated (revenue from a
customer – minus the total cost of producing and delivering the product)
S USTAINABILITY
Supply chains are getting less sustainable: more freight transport and emissions
- Supply chain parties want to become more effective: more traffic to realize in-time
deliveries
- Increased demand for physical products
- Wider geographical sourcing of supplies
- Broader distribution of finished products
