What Is Environmental Economics
What Is Environmental Economics
What Is Environmental Economics
Economics is the study of how and why individuals and groups make de- cisions about the use and
distribution of valuable human and nonhuman resources. It provides a set of analyti- cal tools that
can be used to study any situation in which the scarcity of means requires the balancing of
competing objectives.
Environmental economics is the application of the principles of econom- ics to the study of how
environmental resources are managed. Environmental focuses primarily on how and why people
make decisions that have consequences for the natural environment. It is concerned also with how
economic institutions and policies can be changed to bring these environ- mental impacts more into
balance with human desires and the needs of the ecosystem itself.
Economic Analysis
Environmental economics is an analytical subject. expressing connections between important
factors that are involved in the envi- ronmental quality issues we explore. To do this, economists
use what are called analytical models. A model is a simplified representation of reality, in the sense
that it isolates and focuses on the most important elements of a situation and neglects the others
The economic approach to environmental issues is to be contrasted with what might be called the
moral approach. the environmental movement has led a great many people to focus on questions of
environmental eth- ics, exploring the moral dimensions of human impacts on the natural
environment.
the biggest problem with basing our approach to pollution control strictly on the moral argument is
the basic assumption that people pollute because they are somehow morally underdeveloped.
One simplistic incentive-type is that pol- lution is a result of the profit motive. the profits that
entrepreneurs try to maximize are strictly monetary profits. entrepreneurs give no thought to the
environmental impacts of their actions because it “does not pay.”
But the most persuasive argument against the view that the search for profits causes pollution
comes from looking at the history of Eastern Europe and the former USSR. With the collapse of
these ex-Communist regimes, we became aware of the enormous environmental destruction that
occurred in some of these regions—heavily pol- luted air and water resources in many areas, which
have a major impact on human health and ecological systems.
Incentives: A Household Example
An incentive is something that attracts or repels people and leads them to mod- ify their behavior in
some way. An economic incentive is something in the eco- nomic world that leads people to channel
their efforts at economic production and consumption in certain directions. nonmaterial incentives
that lead people to modify their economic behavior; for example, self-esteem, the desire to preserve
a beautiful visual environment, or the desire to set a good example for others.
The response in introduce a system that gives people an incentive to search for ways to reduce the
amount of solid waste they pro- duce. This was done by charging people for each bag of trash they
put on the curb- reduce the number of bags. They can do this by recycling, by switching to products
that have less waste, by putting food scraps in a compost pile, and so on. The technical name for
this approach is unit pricing.
the global issue that is thrusting itself into the world’s conscious- ness is the greenhouse effect, the
buildup of heat-trapping gases in the earth’s atmosphere that is producing long-run changes in
global climate. identify the most effective policy ap- proaches to combat the emissions of substances
causing the greenhouse effect, especially carbon dioxide (CO2)
One way to approach this is with conventional “command-and-control” policies. There are two
basic types of incentive policies: emission charges or taxes, analogous to the trash-collection fees
discussed in the previous section; and market-based trading programs.
The problem of designing efficient environmental policies is often not given the emphasis it
deserves.
By “get- ting it right,” he means having programs that get the maximum improvement in
environmental quality for the resources spent. Everybody has an interest in this: environmentalists,
for obvious reasons; public regulators, because they are tapping a limited supply of taxpayer
resources and consumer tolerance; and the regulated polluters themselves, because matters of
efficiency are critical to business success.
An important problem in en- vironmental policy is that of perverse incentives—that is, incentives
created by a policy that actually work against the overall objectives of that policy
Issues related to the design of environmental policy are a major part of environmental economics.
From a political standpoint, perhaps the most sensitive question is whether stricter environmental
policies will tend to retard economic growth. environmental protection costs have been a significant
economic burden.
“Some pollution increases during the early stages of a country’s development and then begins to
diminish as countries gain adequate resources to tackle pollution problems.” This happens because
at low incomes, people tend to value development over environmental quality, but as they achieve
greater wealth, they are willing to devote greater resources to environmental quality
improvements.
Benefit–Cost Analysis
Effective decision making requires that there be adequate information about the consequences of
the decisions. This is as important in the public sector, where the issue is effective public policy, as
it is in the private sector, where the main concern is with the bottom line of the profit-and-loss
statement. The primary type of public-sector analysis in environmental policy questions is benefit–
cost analysis. Or a proposal to build a solid-waste incinerator would compare the costs of building
and operating the incinerator, including the costs of disposing of the remaining ash and the costs of
possible airborne emissions, with benefits, such as reducing the use of landfills for the solid waste
How this plays out will depend on the negotiating skills of the parties, and on the incentives that
the countries have to take part in an effective agreement.
Globalization has become a politically charged concept; it is sometimes hard to cut through the
rhetoric and identify the substantive issues that are involved. One part of globalization is the
substantial increase that has occurred in the volume of trade among nations.
Another aspect of globalization is the growth of multinational firms and the relocation of industrial
firms from developed to developing countries. The fear is that some developing countries could
become pollution havens, places to which firms move in order to have to spend less on pollution
control measures
we know that the real world is one of compromise and power, the best way for scientists and
economists to serve that process is to produce studies that are as clear and as objective as possible.