Chapter 18 Environmental Economics

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Chapter 18Environmental Economics
Big Question Can We Put a Price on Scenic Beauty,
Endangered Species, and the Quality of Life?
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Environmental Dollar Values

• The dollar cost of pollution control is rising
• Although costly, cleaning our environment has
  economic benefits
• Tangible factors are easier to assess than
  intangibles

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The Environment as a Commons

• Garrett Hardins the tragedy of the commons
• A commons is land owned by the public and used by
  all the farmers of the town
• Each farmer tries to maximize personal gain
• Adding one more cow produces a positive and a
  negative value
• The benefit to the farmer of selling a cow is
  greater than his share of the negative cost of
  overgrazing
• But complete freedom in a commons inevitably
  ruins the commons

4
Low Growth Rate and Low Profit as a Factor in
Exploitation

• Nineteenth-century whalers didnt try to
  conserve whales

5
Externalities Costs that DontShow Up in the
Price Tag

• An externality a factor with side effects and
  consequences, that do not reflect on market
  prices
• Examples of externalities air and water pollution

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• Example nickel smelter, Sudbury, Ontario
• What is the true cost of clean air over Sudbury?
• Who should bear the burden of these costs?

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Natural Capital,Environmental Intangibles,
andEcosystem Services

• Ecosystems maintain clean air and water
• Bees pollinate an estimated 20 billion worth of
  U.S. crops
• Bacteria fix nitrogen in the oceans, lakes,
  rivers, and soils

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Valuing the Beauty of Nature

• Another environmental intangible landscape
  aesthetics
• One problem in aesthetic valuation is personal
  preference.

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• The price of scenery beautiful views, but high
  risk from mudslides, earthquakes, and fires

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How Is the Future Valued?

• Weighing the present against the future is a
  bird in the hand worth two in the bush?
• Present value is hard to assess
• Future value is even harder
• Is spending on the future always a good
  investment?

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• Example The failure of the levees in New Orleans
  during Hurricane Katrina
• The cost of strengthening the levees would have
  been less than the dollar value of the flood
  damage

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• The wealthier society becomes, the more it values
  the environment
• We are richer than our ancestors
• How would they have known what sacrifices would
  be important to us?
• Conclusion Do not throw away or destroy
  something that cannot be replaced if you are not
  sure of its future value

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RiskBenefit Analysis
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Global Issues Who Bears theCosts?

• Should developing nations pay as much as
  industrialized nations?
• Developing nations think industrial nations
  should shoulder the costs
• Viewing a global issue in terms of what benefits
  individual nations may be too restricted

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Environmental PolicyInstruments

• How does a society achieve an environmental goal?
• Policy instruments
• moral suasion
• laws and regulations
• market processes, subsidies, licenses
• government investments

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Pollution Control and the Law of Diminishing
Returns

• When have we done enough to consider
• the environment good?
• At some point, you need to spend more and more to
  get less and less

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• Three common methods of direct control of
  pollution
• Setting maximum levels of pollution emission
• Requiring procedures and processes that reduce
  pollution
• Charging fees for pollution emission
• Many people feel the third approach works best