Environment and Risk: The Problem of Risk Assessment

1
Environment and Risk The Problem of Risk
Assessment
2
Nature always presented risks to mankind and to
all life

• Living beings have adapted to those by developing
  survival strategies
• These are not conscious but have been acquired in
  an evolutionary way
• Human beings have done the same over the ages
  except that conscious strategies have replaced
  unconscious ones
• What is new is that humans can modify
  significantly and quickly their environment
• This is not new

3
Focus on Society-Environment Interactions

• What behavioral and institutional factors mediate
  relations with natural system?
• What features create vulnerability or resistance
  to certain natural events or processes?
• What mechanisms are available to different types
  of society to adapt or mitigate change.

4
Environment-Society Issues

• Level of resource use
• Population size
• Even with constant level of use, attain limits as
  population increases
• Could these be related?

5
Environment-society issues

• What behavioral and institutional factors mediate
  relations with natural system?
• What features create vulnerability or resistance
  to certain natural events or processes?
• What mechanisms are available to different types
  of society to adapt or mitigate change?

6
Environment and Society. A Critical Issue for our
Future?

• At issue is relation between natural processes
  and human populations
• To what extent does human agency matter?
• If human choices affect natural processes, can we
  identify some problems crucial enough to address
  now?
• How can cooperation about environmental issues be
  organized?

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General Issue Environmental Influences and Human
Control

• Immediate environmental influences high in past
  very high risks for humans, examples of collapse
• Less important with technological progress
  cushioning and spreading of risks
• Some troubling aspects remain mastering Climate
  change

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The Assessment of Environmental Risks

• The studies of society collapse show the
  importance of knowing the environment in order to
  assess the risks it presents knowledge of two
  aspects are important 1) The evolutionary
  dynamics of the crucial resource 2) The initial
  resource stock (ex. climate change)
• It also shows the importance of social responses
  to the problems involved in terms of a) control
  of access b) charging for use in proportion
• 3 Types of risk management have therefore to be
  considered

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Risk management types

• 1. Risks due to nature
• 2. Risks due to the consequences of uncoordinated
  and non-cooperative human activities, present and
  future
• 3. Risks due to problems of coordination and
  cooperation of social institutions present and
  future

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Risks due to nature can be assessed in terms of
expected utility

• 2 elements uncertainty measure p (probability)
  of an outcome and its subjective value or utility
  U
• P(o)U(o)
• This formulation suggests a cost benefit
  analysis. Suppose there are only 2 outcomes, o1
  and o2 Total value is
• P(o1) U(o1) (1 P) U(o2)
• Present value P(o1) U(o1) (1 P) U(o2)/r
  where r is a discount rate (interest rate)

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Risk analysis

• Suppose we have several other outcomes resulting
  from different plans of action

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Risk analysis
13
Risk analysis continued
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Solution of the minimization of expected losses
Min L(a) Min (aij p aij (1 p))

• Expected losses of a1 are inferior to all
  others 3400 instead of 4000 and 3800
• This conclusion holds only if one cannot update
  informations

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Cost Benefit Analysis

• Previously take the SPiUj which is largest (or
  smallest if the Us represent costs)
• Climate change Choose where Marginal Damage of
  CC Marginal Cost of Abatement

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Risks from Nature, Risks from Society

• As seen from the Stephens text in Cashdan, risk
  analysis can help us understand animal behavior
  and thus raise our knowledge about nature
• This is necessary for estimating stocks of
  natural resources and their evolution
• Risks from Society involve the positive or
  negative influences (externalities) people can
  exert on each other

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Complexity of Human Behavior

• Human behavior is obviously complex. One can
  analyze it with the help of general concept such
  as the one of collective good. A collective good
  characterized by two aspects Non excludability
  and some times non-rivalry. Collective goods that
  are rival, so called commons, thus 2 types of
  collective goods welfare generating and welfare
  preserving

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Welfare preserving collective goods

• In welfare preserving (rival) collective goods,
  users represent a negative externality with
  respect to each other. The risk comes from
  others! The purpose of institutions is to limit
  use. This is difficult to achieve because there
  is a first mover advantage of non cooperation
  with the institution which then often leads to
  conflict and coercion
• This model cannot easily be followed at the
  inter-institutional level

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Welfare Preserving Collective Goods

• Dasgupta and Heal Economic Theory and Exhaustible
  Resources (1979)
• Graciela Chichilniskys Trade Theory between
  Regions with Different Property rights Regimes
  (1994)
• The choice is not really only between different
  types of rights but between different types of
  hierarchies of collective goods Even private
  property rights have to be protected!

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Problem 2 strategies

• Adhere or not to a strategy depending on what
  others are doing.
• This problem can have a stable (Nash )
  equilibrium
• The equilibrium is only efficient if a sufficient
  number participate.
• Non- Efficient Accord Efficient Accord

Coop. Strat a(t)
U(t)
Non Coop. Strat b(t)
U(t)
Stable Nash Equ.
Non Coop. Strat b(t)
Coop. Strat a(t)
Stable Nash Equ.
Min fraction of total to sustain accord
Min fraction of total to sustain accord
0 t
1
0 t
1
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Theory of Collective Goods and Theory of the Open
Access

• The importance of jointness Behavior driven by
  average product F(Nx)/N(x)
• Open access as opposed to private marginal
  product dF(Nx)/dN(x)
• As emphasized by Dasgupta and Heal open access
  problems are not PD problems

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Open access resource use

• Open access situations are characterized by an
  overuse of Resources at any price. This is due to
  the fact that one can show that the open access
  marginal product is always superior to the
  restricted access marginal product

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Open access and private supply
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Graphical Illustration
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Role of a Market for Externalities

• Mechanisms developed by society
• To set limits on resource use before diminishing
  returns set in
• To meet needs across space and through time with
  greatest efficiency

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Market for externalities solution
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Conclusion

• There are several ways of solving the open access
  question
• Markets for externalities, the most efficient
  solution might not always be possible
• The structuring of authority associated with the
  open access problem is quite important

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Property rights
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Role of Property Rights

• Mechanisms developed by society
• To set limits on resource use before diminishing
  returns set in
• To meet needs across space and through time with
  greatest efficiency

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Property Rights solutions
32
Standard economic view of property rights

• Well-defined property rights
• Market mechanisms and a pricing system
• No transaction costs
• No income effects
• Assumes collective action problems solved

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Private property solves production (and
environmental) problems

• Can anticipate diminishing returns incorporate
  foregone benefits into present production
  decisions (Hotelling)
• Private property rules provide means to maintain
  efficiency even when environmental externalities
  exist (Coase)

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Possible problems

• Definition of the property itself
• Enforceability of exclusionary rights
• Optimality

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Common Property Tragedy of the Commons

• Resource that is
• Depletable
• Non-exclusive
• Rival
• Joint, fugitive

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Common Property

• Resource unit defined
• Well-delineated user group
• Multiple users
• Explicit rules of extraction

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Why Common Property?

• Nature of resource
• Economies of scale
• Maintenance or capital demands
• Enforcement

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The Example of water

• Common good aspects
• Competitive use
• Particular spatial distribution creates
  asymmetries
• Upstream-downstream
• Common pool technology differences lead to
  differential access
• Unequal political power
• International aspects compound problems

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Debates about water

• Debate over nature of resource
• Symbolic aspects natural right
• Water as economic good
• Debate about most effective management strategies

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Nature of resource debate

• Symbolic aspects natural right
• Open access?
• BUT
• Demographic growth
• Urbanization concentration of demand
• Agricultural intensification
• 70 of water used for irrigation
• Changing demands economic development
• Quality/quantity
• Health issues water borne diseases
• Pollution overuse and salinization

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Nature of resource debate

• Water as commodity evaluate costs
• Supply costs exploitation, maintenance,
  investments
• Opportunity costs
• Externalities
• Goal promote efficiency and avoid "tragedy of
  commons" type outcome

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Management problems

• How to balance equity issues raised by "right to
  water" approach with efficiency aspects raised by
  "water as commodity" view?

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A view of the problem
Aral Sea 1985
Aral Sea 1997
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Causes of shrinking Aral Sea

• Since 19e century, Russia, and later Soviet Union
  emphasized cash crops cotton and rice
• Reduce dependence on imports
• Acquire hard currency
• After 1960, consequence of policy was reduction
  in volume of water flowing to Aral Sea

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Soviet system

• Quotas specifying quantities of water available
  for each region
• Exchange fossil fuels and energy for water
• Coordination by central government

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Present context

• Water allocation is no longer an domestic issue
  within a centralized state but has become an
  international problem
• New source of conflict

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Current management structure

• Almaty Agreement 1992
• Based on former Soviet allocation system
• Creation of interstate commission where decisions
  taken by consensus
• Establish quotas
• Assure their implementation

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Management problems

• Maintenance of old Soviet system
• Not all states accept previous allocation
  criteria
• Favors richer downstream countries
• Enforcement problems quotas not respected
• Exchanges between energy and water have been
  maintained but also not always respected

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Persisting common good problems

• Lack of information on quantities really
  available
• Thus cannot determine sustainable rate of use
• Costs of water use not distributed fairly
• Downstream users of Toktogul dam do not
  contribute to maintenance costs

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Reaction

• After independence , Uzbekistan and Kazakstan
  introduced market prices for gas and coal.
• Kyrgyzstan couldn't pay increased electricity
  production to increase revenues but then the
  amount of water available for downstream
  irrigation in Uzbekistan and Kazakstan was also
  reduced

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Response

• 2001 Kyrgyzstan passed law to regulate
  transborder water use
• Water belongs to state
• Has economic value
• Kyrgyzstan owns water "created" within it borders
• Users must pay

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Water International efforts

• Dublin Conference and Rio Summit, 1992
• Broad often contradictory principles
• Slow definition of international water law UN
  Convention 1997 on non-navigational uses

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Relevance of different property regimes to other
current environmental issues

• Confrontation of regimes is occurring
• South/North
• Common property characteristics of environmental
  resources
• Institutional solutions are adopting common
  property arrangements

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Problems of environmental regulation solution
through definition of property rights

• Atmosphere rival at global level
• Consumption interdependent
• Command and control difficult to achieve because
  deal with countries
• Introduce market solution to create incentives
• Raises problems of initial allocation

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Efficiency, the Environment and Property Rights

• What is efficiency in economic, social,
  environmental, and technical terms?
• Are they equivalent?
• What is the relation with property rights?
• Is the problem simple to solve?

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Efficiency

• Economic and social efficiency use resources in
  such a way that they minimize costs and maximize
  profits
• Technical efficiency minimizing inputs with
  respect to outputs ? minimizing energy use
• There should not be any contradiction between the
  2 above
• If contradiction not internalized externality,
  ill defined property rights

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The Coasian analysis

• Problem of property rights, efficiency and
  externalities raised by Coase
• Argument What matters is the overall cost and
  benefit
• Compensation schemes can be built around this
  principle
• It depends who has the biggest loss
• The issue can be resolved by negotiation
• All allocations based on Coasian principle
  optimal

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What do property rights provide?

• Demsetz claims that they are an internalization
  of externalities
• Adjustment of property rights are an adjustment
  to externalities
• Example forced labor
• Property rights originate under scarcities in
  particular environmental scarcities

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Problems raised by Dasgupta and Heal

• Property rights are not created in a vacuum
• Problem often comes from partially defined
  property rights
• Coase and Demsetz assume symmetry which might not
  exist
• They implicitly assume unique equilibrium
• Problem Multiple equilibria

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Multiple equilibria
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Solutions

• In these cases, solutions have to be revealed to
  producers
• Sometimes solutions have to be imposed

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Sustainability and exhaustible resources

• In some basic sense nothing is truly sustainable
  since finite resources are continuously exhausted
  by man but also by nature
• Sustainability has thus evolved to mean a
  correct relationship between generations
• Dasgupta has suggested that net wealth rather
  than income should be considered in this relation
• Net wealth is accumulated social, economic and
  institutional capital minus depreciation for
  natural resources exhausted

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Sustainability continued

• Sustainability means that resources should be as
  much as possible preserved for future
  generations use
• The net wealth criteria tells us that some
  countries like India have GDP growth but
  decreasing net wealth while Western countries
  have increasing net wealth and income Africa,
  decreasing net wealth and income
• Clearly this means that slowly renewable and
  exhaustible resources should be depleted at an
  optimal rate.

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Theory of slowly renewable resources

• Slowly renewable resources have to be evaluated
  as an evolving stock such as a population minus
  withdrawals

Evolution of z Natural Dynamics of z minus
catches
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Slowly renewable resources Production

• Producers will be drawn into using the stock by
  profits

Evolution of inputs x, if average profits are
positive, if F is production, q unit price, p
unit costs
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Equilibrium conditions

• In equilibrium there should be an optimal level
  of the resource z if

Is maximized subject to the relation before and
where r is a discount rate The discounted sum of
all future profits is maximized with a discount
rate r, the spot price of the resource is thus
dependent on availability of z in nature and the
discount rate
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Exhaustible Resources

• Hotelling Principle
• An exhaustible resource is an asset and its net
  price (market price - extraction costs) should
  increase exponentially with the interest (or
  discount rate, to some extent a socio-political
  construct), i.e.
• P(t) P(0)eit or (dP/dt)/P I
• Indeed if for the resource Z, the price is
  P.Total value of resourcePZ. Compare to other
  assets, P has to grow as P(0)eit to stay
  competitive.

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Hotellings Principle

• Competitive resource owners will deplete at a
  socially optimal rate
• Take r the rate if return to the owner of natural
  resources. In equilibrium r i
• Whenever, r i, we have a conservationists
  dilemma.

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Conditions for Hotelling principle

• 1. No externalities
• 2. No uncertainty about future sales, exploration
  prospects, etc.
• 3. No extraction with environmental externalities
  (ex. Gold Rush).
• 4. Not too big differences between private and
  market (social) discount rate (for instance due
  to dangers of transfer within society)

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ExampleDeforestation processes

• According to Hotelling principles a forested area
  is a particular type of asset whose capitalized
  value should grow with the interest rate. If this
  growth is not achieved other assets including
  agricultural ones will be closer and the forested
  land will either sold for development or
  transformed into another agricultural asset.
• In particularIf the income flow stemming from
  the forest is lower than the income flow from
  other activities then deforestation will occur!

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This can be due to

• subsidies for agricultural production
• income subsidies or welfare
• cost of property rights enforcement
• prohibition of trade
• unclearly defined property rights

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Graphical analysis
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Population Dynamics

• Fundamental problem of global environmental
  change
• Balance supply of resources from physical system
  with demand for these resources from human
  populations over time

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Population dynamics

• Fertility
• Mortality
• Migration
• Population size
• Age distribution

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Measuring Population

• Static characteristics
• Total
• Age distribution
• Genders
• Urban/rural
• Geographic distributions
• Dynamic use various extrapolation techniques to
  predict future trends

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Measuring Population

• Challenges in achieving accurate assessment
• Completeness and accuracy
• Census comparability
• Different interpretations of categories
• Different areas/levels of aggregation
• Different time periods
• Size of area
• Units

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Projections

• Dependent on accuracy of initial conditions (i.e.
  count)
• Need techniques of projection
• Postulate relationships among the different
  aspects of population so you can have internally
  driven system.
• But projections assume smooth path. Also need to
  introduce mechanisms to account for changes in
  rates

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Malthusian theories of population

• Assumptions
• Constant "passion between the sexes"
• Finite earth
• Argument
• Left unchecked, population grows and, by
  definition, grows exponentially (passion)
• After an initial period of strong growth, output
  as a function of population (labor) exhibits
  diminishing returns

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Preventive checks

• Late marriage
• Celibacy
• Low marital fertility (spacing)
• Contraception
• Migration

Positive check
Mortality
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Alternatives to Malthus Boserup/Simon

• Relate technological progress to population
  growth
• Population concentration leads to higher
  likelihood of technological advance.
• Population growth ? longer hours,
• More labor-intensive techniques ? eventually
  leads to more sophisticated technology.

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Multiple influences on population dynamics

• Demographic influences on fertility
• Institutional controls
• Property rights
• Production systems and technologies

83
Pre-industrial Western European Demographic Regime

• High mortality
• High Fertility
• Fertility Controls
• Celibacy
• Age at marriage
• Spacing behavior
• Contraception

84
Limits to Malthusian Approach

• Explaining emergence of new demographic regimes
• How technology might explain shifts
• These considerations important, because new
  regimes have emerged
• Synthesis argument Lee, Ronald, Malthus and
  Boserup A Dynamic Synthesis, In David Coleman
  and Roger Schofield, The State of Population
  Theory, Oxford Basil Blackwell, 1986.

85
Demographic Transition

• Characterized by a drop in marital fertility
• Achieved through "stopping" behavior, i.e.
  controlling births after having the desired
  number of children

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Demographic transition

• Puzzle
• Not linked to decreased mortality
• No obvious link to Industrialization
• No Malthusian population response to income growth

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Fertility Declines, Real and Projected
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Stabilization Remains a Challenge
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Sub-Saharan African Fertility Regime

• Low age at marriage
• Polygyny men have many wives, leaving few women
  celibate
• Acceptance of pre-marital and extra-marital
  sexual relations
• Remarriage after widowhood or divorce is the norm
• These are all factors that make women susceptible
  to childbearing throughout their reproductive
  period of 15-49.

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Differences Pre-industrial European and African
Regimes

• Europe reduce "exposure"
• Africa spacing behavior

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Characteristics of Sub-Saharan African Social
System

• Poorly defined or poorly enforced common property
  systems
• Children reared communally (polygyny)
• Share costs in time or responsibility
• Weak conjugal bonds
• Lineage holds land
• Large families have access to larger share
• References Dasgupta Partha, The Population
  Problem Theory and Evidence Journal of Economic
  Literature, 33, 4, 1995 1879-1902 Chichilnisky,
  Graciela, North-South Trade and the Global
  Environment, The American Economic Review 84 (4)
  851-874.

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Changes in life expectancy in selected African
countries with high and low HIV prevalence 1950
- 2005
with high HIV prevalence
Zimbabwe
South Africa
Botswana
with low HIV prevalence
Madagascar
Mali
1950 1955
1955- 1960
1960- 1965
1965- 1970
1970- 1975
1975- 1980
1980- 1985
1985- 1990
1990- 1995
1995- 2000
2000- 2005
Source UN Department of Economic and Social
Affairs (2001) World Population Prospects, the
2000 Revision.
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Predicted loss in life expectancy due to HIV/AIDS
in children born in 2000
Predicted life expectancy
Loss in life expectancy due to HIV/AIDS
Botswana
Zimbabwe
South Africa
Kenya
Zambia
Côte d'Ivoire
Rwanda
Mozambique
Haiti
Cambodia
0
10
20
30
40
50
60
70
Life expectancy at birth (years)
Source U.S. Census Bureau, 2000
96
Population and environment Key points

• Population dynamics in part create demand for
  environmental resources by determining population
  sizes and distributions
• Other factors tastes/lifestyles technology
• Importance of understanding mechanisms linking
  fertilitymortalitymigration and relation
  between these demographic processes and other
  socio-economic variables

97
Two views of populationresource interaction

• Population grows until limited by resource
  availability (at all levels of technological
  development). Ultimately checked by mortality
  Malthus
• Population growth stimulates technological
  development which permits higher levels of
  population Boserup/Simon

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Problem How to account for new regimes?

• Malthus perspective could not account for shift
  from high fertilityhigh mortality to low
  fertilitylow mortality first in Europe then,
  progressively, globally

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Demographic transition the definition

• Pre-transition Western Europe characterized by
  high fertility and high mortality
• Transition defined as a drop in marital
  fertility that in Western Europe was achieved by
  stopping behavior
• Conscious limitation of family size once a
  desired number of children born

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Demographic transition the evidence

• Shift from high to low fertility was a result of
  deliberate family limitation
• Transition occurred rapidly once it began
• To date, process has been irreversible

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Causes Early theories

• Link to modernization Frank Notestein (1944)
• New ideal of the small family arose in the urban
  industrial society.
• It is impossible to be precise about the various
  causal factors, but apparently many were
  important
• Individuality
• Mobility
• Education
• Declining mortality
• Costs of children

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The standard model
103
Transition the European-US data

• Great variation in socio-economic and demographic
  conditions
• Timing and extent of decline in mortality
• France and USA
• Infant mortality varied
• Extent of urbanization differed at transition
• France 1800 70 male labor force in agriculture
• England 1892 15 male labor force in agriculture

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Transition Developing countries

• Link to mortality seems more direct
• Knowledge and treatments not available at time of
  initial transition in Europe and often precedes
  fertility decline
• Role AIDS epidemic as Malthusian control in high
  fertility regions
• Sub-Saharan Africa either slow to adopt
  transition or exhibits special characteristics

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Questions for future

• Evolution of African population patterns
• Response of regions where population below
  replacement rate
• Lower population levels
• Pro-natalist policies
• Role of migration in redistributing population
• Prediction difficult since mechanisms of previous
  transitions are still under debate

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Environment and Migration

• Migration constitutes, as mentioned before, a
  significant factor in population dynamics
• Migration and the environment are linked in 2
  important ways
• Some migrations are environmentally induced ex.
  The dust bowls in the US, the Sahel
• Migrations create environmental problems
  crowding effects

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Before we look at these links lets consider
theoretical approaches to migration

• There are two basic theoretical considerations
  about migration which emphasize either push or
  pull factors
• Voluntary migration migrants decide to move from
  one place to the other on the basis of some
  incentives, wages, quality of life
• Involuntary migrations migrants are excluded
  from a given society and are forced to leave
• This 2 causes can combine themselves

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Involuntary migration

• A description of the multiple aspects of
  involuntary migration is included in the Zollberg
  article political, racial or religious reasons
• The collective good literature helps to
  understand exclusion processes
• Other countries often are reluctant to accept
  these populations which are then concentrated in
  relatively small areas and cause environmental
  problems

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Voluntary Migrations

• Since voluntary migrations are based on
  incentives to move, these incentives have to be
  made explicit in the form of wage differentials
  for instance
• Migration due to wage differential constitutes
  the main explanation for migrations in economics
• A standing puzzle lies in the explanation of
  overcrowding of big developing country cities

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Harris Todaro Model

• These 2 authors postulate a 2 sector rural
  (agricultural) and industrial economy
• Wages in agriculture are WAP.q
• Wages in industry are dependent upon a minimal
  wage Wmin They are

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Equilibrium conditions

• As long as the following is gt0, migration will
  occur

Is a time evolution (derivative)
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Other Factors Could Be Important As well

• The pull aspect of cities exists before Minimal
  wage policies are applied
• The pull aspect is enhanced by existing social
  networks that support newcomers
• Increasing returns to scale in cities
• High paying but difficult to enter jobs
• Segmented labor market

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Increasing Returns
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Other incentive models The Owen land use model

• The land use model developed by Owen assumes only
  two types of land use, agriculture and dwelling
  and examines the special case of areas around
  urban centers
• Whether land will be transformed into dwelling
  will depend on income streams generated by both
• Arrival of newcomers increases income streams
  from dwellings especially if migrants get
  subsidies

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Conclusions of Owen model and further development

• Even under normal conditions, as long as there is
  an attraction to moving into an urban area such
  as a subsidy or the hope of a job, farm land will
  be urbanized down to a critical value which can
  be very close to zero.
• Higher interest rate for agricultural investments
  as opposed to investments for urban dwellings
  will accelerate the process.

116
Further conclusions

• Mass migration which can result from climate
  change will accelerate this process.
• Foreign aid and relief can accelerate the process
• An Ill-defined property right regime will
  initially slow but then accelerate the process.
• Climate change might reduce net profits made from
  agricultural production and accelerate the
  process.

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Trade and Environment

• From a general point of view, trade and the
  environment should be neutral with respect to
  each other
• Problems come from the different political social
  and legal structures between countries
• These lead to either advantageous or problematic
  relationships between the two

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Positive and negative effects

• Environmental conditions can be positively
  affected by trade liberalization
• Positive effects can result from the suppression
  of distortions which have all kinds of costs
  including environmental ones
• Other legislation than trade legislation might
  create distortions environmental standards
• A market economy and this is due for trade as
  well can work optimally only if some structural
  conditions are similar such as property rights
• To make all this explicit lets look at trade
  theories

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Property Rights, the Environment and Trade

• Changes in the Economic Theory of Trade
• Traditional Theory Based on the Notion of
  Comparative Advantage Heckscher Olin
• 2 New Notions
• Importance of Increasing Returns to Scale and
  Intra-Industry Trade (Helpman, Krugman, Ethier,
  etc.)
• Importance of availability of a factor and factor
  prices (Chichilnisky)

120
Characteristics of Trade

• Importance of increasing returns in
• External aspects
• Monopolistic competition
• Some property rights regime lower the price of
  factor inputs
• Countries with ill-defined property rights
  extract too many natural resources
• They have thus an "artificial" comparative
  advantage in environmental goods

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The Chichilnisky Perspective

• Chichilnisky (1994) has analyzed trade links
  between regions with different property rights
• Basic conclusions are drawn from her
  investigation
• The region with undefined property rights will
  supply more of a resource at any price
• This applies to any good that is "fugitive"
  rights of ownership established only when
  captured or freely extractable

122
Open access and private supply
123
Chichilnisky Perspective

• This situation creates an "abundance" of the
  resource in the region without or with
  ill-defined property rights
• The region will "appear" to have a comparative
  advantage in the given resource.
• Abundance is not due to any intrinsic natural
  availability of the resource but only to the
  absence of rights.
• The region without property rights will get
  poorer because it will get rid of its resources
  at too low a price.

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Chichilnisky Analysis

• Assumptions about the region without well defined
  property rights
• elasticity of substitution between leisure and
  consumption for harvesters or extractors of the
  resource good that is lower than 1
• extractors consume mostly other goods than the
  natural resource that are purchased with their
  harvest or catch
• An increase of the relative price of other goods
  with respect to the resource will result in more
  extraction

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Consequences

• Regions with ill-defined property rights are
  "exploited" those with well defined rights.
• Resultant lower prices lead to increasingly
  unfavorable terms of trade followed by more
  extraction of the resource
• Thus regions with poorly defined property rights
  grow poorer as a result of trade with regions
  with better defined property rights
• More important, corrective taxes are
  counterproductive lower demand and lower prices
  lead to more extraction

126
Analysis of Countries with Ill-Defined Property
Rights

• These countries are sensitive to price
  fluctuations due to substitution effects or
  taxation policies
• Lower prices lead to more extraction of natural
  resources due to a lowering of the opportunity
  cost of labor
• This lowers their bargaining power at the
  international level
• Their bargaining power is lowered further by the
  cost of the artificial "comparative advantage" in
  terms of natural resources on the society as a
  whole which might lead to social upheavals.

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Environment and trade policies

• One has to distinguish here between production
  and consumption
• The prevalent norm and WTO rule is that
  consumption can be regulated with respect to
  environmental standards (up to a point) by
  national legislation
• No such leeway exists for production methods (ppm
  problem)

128
Conflict, cooperation, and the environment

• The relations between conflict, cooperation and
  the environment are numerous but cannot always be
  clearly established
• Quite clearly early cooperative structures such
  as early agricultural states were driven by the
  necessity to better control the human environment
• Resource driven conflicts are probable in this
  context

129
Relationships between the environment and human
production

• As technology evolves, the relations between the
  environment and human activities become more
  distant
• 2 types of relations can be emphasized 1.
  Cataclysmic Events such as volcano eruptions
• Long term changes such as deforestation trends
  and climate changes the 2 may be linked

130
Conflicts over environmental resources may exist
but they are difficult to show

• Difficulty to disentangle environmental form
  other conflicts, ex. Rwanda
• Here again importance of property and property
  rights
• Similar for conflict over resources Central Asia
  and Water in the Jordan river water basin,
  conflict between Turkey, Syria and Iraq over the
  Euphrates and Tigris waters

131
The Central Asian Water Question
132
Symmetric and Asymmetric Access to Resources
The Example of the Middle East
133
2 Middle Eastern Conflicts The Jordan and
Euphrates River Basins

• Jordan River Israel plus Palestinians use about
  2300 million cubic meters per annum, only 1950 is
  considered sustainable
• Jordan uses 740 to 750 million cubic meters per
  annum. Only 730 is considered sustainable
• Euphrates Turkey reduces Euphrates flow to 500
  to 300 cubic meters per second, 700 are demanded
  by Syria

134
Some Theoretical Notions

• Goal tackle problems analytically and suggest
  responses that tend to promote strategies to
  minimize conflicts and promote cooperation
• All social interactions and conflicts are not the
  same. They have to be analyzed according to their
  incentive structures
• Water problems are also common problems
• Commons lead to asymmetries Lack of dominant
  strategies lead to first mover advantage
• First, (or second) move advantage can be enhanced
  by geographic or technological circumstances

135
Fundamental Questions to Address

• What are the nature of the conflicts
• How can one find optimal solutions to solve them?

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138
Water competition has technological and economic
limits

• Price of Water from Sea fundamental
• Given by the cost of a m3of water from sea water
  or possibly from pipe lines
• Around 65 per m3
• 70 of all consumed water is for agriculture
  (irrigation)
• In the Middle East this proportion can reach 80
  to 90
• Is it worth it?

139
Symbolic aspects

• The sharper the conflict and the demands around
  it, the more is at stake
• Giving in on little things is perceived as signal
  to give in on big ones

140
How to get out of the conflict spiral?

• Emphasize limited worth of conflict
• Franklin Fisher approach using pricing
• Problem Symbolic aspect
• Policy of mutual voluntary restraint in use
• Reduce conflict extensions to other areas through
  compensations

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Difficulty The Mid-east population explosion
143
The Mid-East Demographic Boom
144
Per capita GDP diminish in the Mid-East
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Environmental Negotiations

• The Common problem makes it difficult to carry
  out international environmental negotiations
• Often countries try to free ride on each other
• It is difficult to exclude from environmental
  benefits

147
Unit veto and leader problem

• Unit Veto makes agreements even more difficult
• Particular importance of players
• One has to find ways to exclude
• Side payments have to be provided
• Importance of a leader, US for Montreal, EU for
  Kyoto