Post-Keynesian Consumer Choice Theory for the Economics of Sustainable Forest Management

Abstract

Post-Keynesian economics is one of the many heterodox schools of thought in economics, such as the Marxist, Institutionalist and neo-Ricardian schools. Its members mainly deal with macroeconomic issues, but post-Keynesian economics also has a theory of the firm and a theory of consumer choice. As with most other heterodox variants of economics, post-Keynesian economics is based on four presuppositions: its epistemology is based on realism, its ontology is based on organicism, rationality is procedural, and the focus of analysis is production and growth issues. By contrast the symmetric presuppositions of neoclassical theory are: instrumentalism, atomism, hyper rationality, and the focus of analysis is exchange and the optimal allocation of existing resources.

Post-Keynesian consumer theory arises from a multitude of influences, including those of socioeconomists, psychologists, marketing specialists, and individuals such as Herbert Simon and Georgescu-Roegen, who are or were fully aware of the complexity of our environment, as well as the disparate clues that were left by the founders of post-Keynesian theory, clues that turn out to be surprisingly consistent with each other. Post-Keynesian consumer theory can be said to be made up of seven principles: procedural rationality; the principle of satiation, the principle of separability, the principle of subordination, the principle of the growth of needs, the principle of non-independence and the heredity principle. These seven principles will be explained in the paper. A key consequence of these seven principles, in particular the principle of subordination, is that the utility index cannot be represented by a scalar anymore, but rather by a vector, and that the notions of gross substitution and trade-offs, which are so important for neoclassical economics, are brought down to a minor phenomenon, which only operate within narrow boundaries. This consumer theory does not rely on the Archimedes principle that “everything has a price”. In particular, it is presumed that the principle of subordination, or hierarchy, is particularly relevant when dealing with moral issues, for instance questions of integrity, religion, or ecological issues.

Past work in ecological economics has shown indeed that a substantial proportion of individuals refuse to make trade-offs with material goods when biodiversity, wildlife, or forests are concerned. This has implications for contingency value analyses, based on willingness to pay or willingness to accept compensation, that attempt to take into account the non-market value of ecology or forestry preservation. The claim made here is that post-Keynesian consumer choice theory is highly relevant to forest economics, and could be used as a basis for consumer choice models in the economics of sustainable forest management.