CESP senior fellows Kenneth Arrow and Lawrence Goulder are coordinating a three-year research initiative stemming from a $1.5 million grant from the William and Flora Hewlett Foundation. The Initiative aims to tap and incorporate the expertise of 16 faculty and senior research economists, legal scholars, political scientists, biologists, and engineers from Stanford and elsewhere within an economics-based framework to identify and evaluate policies to improve the management of natural resources so as to insure the quality of life of future generations.

The first component of the Initiative seeks to develop better measures of whether particular nations are following economic paths that are "sustainable," that is, which allow future generations to continue to enjoy the same quality of life as current generations. On the theoretical side, this work aims at expanding earlier measures of sustainability to incorporate uncertainty, technological change, and population growth in a consistent fashion. On the empirical side, a key issue is the extent to which potential substitutes are available for critical natural resources or for the various services that they provide.

The second component concentrates on sustaining the climate system. It examines both domestic and international policies to slow the rate of accumulation of greenhouse gases in the atmosphere. A distinguishing feature of this work is the attempt to incorporate political constraints in the economic analysis of climate policy. The third component investigates the management of water resources and the potential to develop water markets in developing countries. It includes the evaluation of water projects in developing countries, with attention to the competing needs of upstream and downstream users of water, as well as the competition between the needs to preserve water to maintain ecosystem services and the current demands for water by humans.