Sustainability and cost-benefit analysis

In this paper I address the issue of incorporating environmental sustainabi lity in project appraisal. I extend the results of Barbier, Markandya, and Pearce on 'operationalizing' a concept of sustainability into appraisal met hods for practical decisionmaking. I generalize their results in two direct ions. First, I abandon their implicit assumption that benefits and costs of a given project in a given period depend only on the level of activity of the project in the same period. Second, I address the issue of which portfo lio of projects to choose. My results show how to modify the net present va lue criterion for choosing a set of projects in the presence of a sustainab ility constraint.