Sustainability and its relation to efficiency under uncertainty

Evaluating the long-run consequences of present actions, as in the context of sustainability, requires information about the actions’ outcomes and about future preferences that is often uncertain. We analyze a risk-based criterion of sustainability and a corresponding efficiency concept that cover these uncertainties. We derive several properties of these criteria and formally characterize the trade-off between sustainability and efficiency. Furthermore, we show that maximizing the probability of ex post efficiency under a sustainability constraint provides an interesting choice rule and that, for a special case, this rule is connected to portfolio theory. We are indebted to an anonymous referee whose comments helped substantially to improve the article.