University of Lüneburg Working Paper Series in Economics 198
We demonstrate the existence of an intergenerational equity-efficiency tradeoff in policy-making that aims at Pareto-efficiency across generations and sustainability, i.e. non-decreasing utility over time. Our model includes two salient characteristics of sustainability problems and policy: (i) temporal irreversibility, i.e. the inability to revise one's past actions; (ii) closed ignorance, i.e. future consequences of present actions in human-environment systems may be 'unknown unknowns'. If initially unforeseen sustainability problems become apparent and policy is enacted after irreversible actions were taken, policy-making faces a fundamental trade-off between intergenerational Pareto-efficiency and sustainability.