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Yaniv Stopnitzky

Econ 280 / BAIS 103

The Global Economy

Assignment 4

Development and Sustainability

Due: December 7, 2015

1. Summarize Esther Duflo’s and Abhijit Banerjee’s five key lessons that emerge from development

economics research of the last decade and a half.

2. Explain, using at least one example, how rigorous evaluation of development projects can be

used to build political support for interventions.

3. Identify three types of natural capital for which you believe there are (or could be) perfect

substitutes (either in terms of natural capital or any other capital asset). Identify another

three for which you think there is limited or no substitutability. Hint: you can use the spatial

characteristics of different forms of natural capital to help identify these cases.

4. This question relates to the video on complexity. Summarize the video’s arguments about why

development should be viewed through the lens of complexity? What insight to we gain from

this perspective?

5. You are a policymaker tasked with tasked with deciding whether to adopt a carbon tax pol-

icy today in order to prevent possible future damages from climate change. (Assume for this

problem only the policies in your country matter for climate-related economic damages.) Im-

plementing this carbon tax is estimated to cost the economy $10 billion dollars, but the benefit

from avoided climate damages is estimated to be $1 trillion dollars in 100 years time.

• What would the discount rate have to be to justify this as a sound investment (you can round the discount rate to the nearest tenth of a percent)?

• What about if the benefits from avoided climate change arrived in 50 years?

• What about if the benefits only arrived in 200 years?

• How do each of these discount rates compare to today’s risk-free real interest rate? Why does this matter?

6. Describe how the choice of discount rate affects the balance between the ethical concerns of

intra-generational equity versus inter-generational equity, making sure to clearly identify which

criterion is emphasized by a low versus high discount rate. Now considering everything you

know about global poverty and sustainable development, which discount rate do you think

we/you/policymakers should use?