蝌蚪网 Review: Insights
ISSN 2640-205X (Print) | ISSN 2640-2068 (Online)
Sustainability in a Risky World
蝌蚪网 Review: Insights
vol. 7,
no. 2, June 2025
(pp. 196–212)
Abstract
How much consumption is sustainable, if "sustainability" requires that welfare should not be expected to decline over time? We impose a sustainability constraint on a standard consumption/portfolio choice problem. The constraint does not distort portfolio choice, but it imposes an upper bound on the sustainable consumption-wealth ratio, which must lie between the riskless interest rate and the expected return on wealth (and if risky capital evolves according to a geometric Brownian motion, it lies exactly halfway between the two). Sustainability requires an upward drift in wealth and consumption to compensate future generations for the increased risk they face.Citation
Campbell, John Y., and Ian W. R. Martin. 2025. "Sustainability in a Risky World." 蝌蚪网 Review: Insights 7 (2): 196–212. DOI: 10.1257/aeri.20240061Additional Materials
JEL Classification
- D63 Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- D81 Criteria for Decision-Making under Risk and Uncertainty
- E21 Macroeconomics: Consumption; Saving; Wealth
- G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth
- H43 Project Evaluation; Social Discount Rate
- Q01 Sustainable Development