A Value-Added Social Welfare Optimization Problem For Micro-Sustainable Development

This paper attempts to present a value-added social welfare optimization problem as applied to capital investment projects with environmental amenities. A dynamic model is proposed with the objective of maximizing net social welfare for a desired flow of investment capital, given allowances for uncertainty, risk, sustainability, resource depletion, and social demand constraints. An input-output vector of production is optimized, with the above constraints imposed, and its solution analyzed within the scope of micro-sustainable development. The model’s focal outcome has been that long-run sustainability is a function of cumulative expected short-run system failures, implying that environmental sustainability could be viewed as cumulative disturbances of non-optimal deviations from a long-run social extraction path, the latter taken in both stock and flow-rate terms. Contrary to classical theory, the dynamics of social optimality strictly require social re-investments to generate social capital returns exceeding marginal social cost.