This implies for the formal analysis that joint production is the rule rather than the exception. Again, it was the activity analysis approach that made it relatively easy to introduce resource extraction, pollution emissions, and abate- ment into the original BF framework by introducing additional processes. Although these topics are exhaustively analyzed in envi- ronmental and resource economics, the neo-Austrian emphases on the vertical time structure and the transition path between steady states led to new insights. Maier studied the transition of tech- niques due to the exhaustion of natural resources that are essential and nonsubstitutable for a specific production technique.
Speck took a more encompassing point of view by integrating resource extraction, capital accumulation, recycling, pollution emis- sions, and abatement into a neo-Austrian model framework. Moreover, the activity analysis approach naturally suggests another application of neo-Austrian capital theory. Faber and Proops and Faber et al. They show how neo-Austrian capital theory may be extended to integrate international trade of resources and capital goods.
The long time horizons involved in many environmental and resource studies call into question the usefulness of an intertemporal optimization framework. The assumptions of static expectations and perfect foresight are hardly met in reality because of novelty and com- plexity.
For this reason, so-called rolling myopic plans are used for the decision process. According to these, plans are made for a few periods ahead and are steadily reevaluated as time goes by. This allows flexible adaptation to new circumstances Faber et al. However, rolling myopic plans do not solve the problems associ- ated with uncertainty and ignorance. A study of the anatomy of sur- prise and ignorance Faber et al. In our understanding, there is no doubt that formal models can help us in analyzing the complex interconnectedness of ecology- economy interaction e.
However, we acknowl- edge that formal modeling is ultimately limited by complexity; that is, the world is generally too complex to be perceived by humankind with indefinite accuracy. This is especially true because of the occur- rence of novelty, that is, the potentialities of a system change in an a priori, unknown, and unforeseeable way e.
Winkler b. However, we take a different approach to deal with this issue, as is outlined in our concluding section. During the last decades of the 20th century, we have expe- rienced environmental problems that tend to endanger the natural living conditions of humankind. The environmental crisis is one of the great challenges of the 21st century.
In our paper, we have shown that neo-Austrian capital theory is a general suitable method to study changes in time. We have demon- strated its potential and its limits, which apply to formal analysis in general. This leads to the following conclusions and insights. Planning and decision should not be a one-period activity but a continuing process that values and takes care of flexibility. Therefore, intertemporal optimization should be supplemented by myopic opti- mization, which is open for revision when novelty occurs. However, uncertainty and ignorance pose severe problems for any analytical framework.
Aspects of ignorance have to be given much more priority than in conventional economic analysis, as they are important aspects of contemporary environmental problems; for example, the depletion of the ozone layer by CFCs took humankind completely by surprise. Here, we can learn from the Austrian subjectivists, who have related problems of uncertainty and ignorance to the market system to a greater extent than other economic school of thought. They have stressed again and again that the price mech- anism leads individual economic actors to learn and thus induces inventions.
For instance, a very effective means of overcoming the scarcity of an exhaustible natural resource is to increase its price. However, it is not unimportant to note that there exists an asymmetry between natural resources and environmental pollution.
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This is the case because, in general, a market for scarce natural pollution degradation capacities of the environment does not exist. There is therefore no market price for the latter and, as many examples in the past have shown, it often takes a long time until the harmful effects of an economic activity are recognized by the public; often, it takes even longer for politicians to react.
Political action is not restricted to command and control approaches but may also internalize the harmful effect within the market system. To this end, the price system has to be supplemented by levying charges or taxes or by introduc- ing licenses. Moreover, ignorance in combination with the ubiquitous phenom- enon of joint production leads to problems of complexity. This raises the question of responsibility: How can we act responsibly in the face of radical ignorance? Take as an example the production and con- sumption of CFCs, which have resulted in the depletion of the ozone layer, endangering the basis for our survival.
If these recognitions are taken seriously, this would imply that poli- tics has to look at nature in a new way. This, in turn, implies for eco- nomic theory that the standard economic concept of humankind, the homo economicus, has to be supplemented by an additional concept of man, which we call homo politicus Faber et. This is a normative aim that cannot be derived from individual or collective welfare, as is the case in envi- ronmental economics, which is based on the neoclassical paradigm, as mentioned above.
In fact, this normative aim of sustainability has to be derived from the task of securing the basic foundations of living for humankind in the long run. Homo economicus and homo politi- cus likewise have their sources in political philosophy. Notes 1. In his Principles of Economics, Marshall  took a combined view, incorporating both marginal utility and marginal productivity, to deter- mine prices and production costs simultaneously. This concept still deter- mines the neoclassical paradigm today.
Gunter Stephan (Author of Introduction into Capital Theory)
The relationship between the two strands was investigated by Pellen- gahr a, b. See also Garrison , , Moss , Moldofsky , and Kirzner In fact, entropy was introduced in economic analysis by Georgescu- Roegen Dyckhoff, M. Faber, J. Proops, and J. Faber, and J. Cheltenham, UK: Edward Elgar. Bernholz, P. Faber, and W. Bliss, C. Capital Theory and the Distribution of Income. Cohen, and G. Harcourt eds. Capital Theory, vols. Berlin: Springer. The Positive Theory of Capital.
London: Macmillan. Burmeister, E. Capital Theory and Dynamics. Cambridge: Cambridge University Press. Costanza, R. New York: Columbia University Press. Dorfman, R. Faber, M. Introduction into Modern Austrian Capital Theory. Manstetten, and T. Manstetten, and J. Ecological Economics: Concepts and Methods. Niemes, and G. Umweltschutz und Input- Output Analyse. Heidelberg: Springer. Petersen, and J. Heterogeneity and Time Faber, M. Evolution, Time, Production and the Environment, 3rd ed. Proops, and S. Faucheux, J.
Gowdy, and I. Capital and Time in Ecologi- cal Economics. Funtowicz, S. Garrison, R. Rizzo with R. Basil Blackwell, Oxford. Hillsdale: Hillsdale College Press. Snowdon and H. Aldershot, UK: Edward Elgar. Georgescu-Roegen, N. The Entropy Law and the Economic Process. Cambridge: Harvard University Press. Hammond, P. Campiglio, L. Pineschi, D. Siniscalco, and T. Harcourt, G. Some Cambridge Controversies in the Theory of Capital. Hayek, F. Hennings, K. This section needs additional citations for verification.
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Sargent Paul Krugman N. Gregory Mankiw. See also. Macroeconomic model Publications in macroeconomics Economics Applied Microeconomics Political economy Mathematical economics. Main article: Austrian business cycle theory. Criticism of the Federal Reserve  List of Austrian intellectual traditions List of Austrian School economists Perspectives on capitalism by school of thought New institutional economics School of Salamanca.
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A special emphasis is given on infinite horizon and overlapping generations economics. Irreversibility of time, or the failure of the market system appear in a different light if an infinite horizon framework is applied. To bridge the gap between pure and applied economic theory, the structure of our theoretical approach is integrated in a computable general equilibrium model.