Economics and the Environment

1
Economics and the Environment

• Chapter 6 Sustainability A Neoclassical View

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Considering long-run impacts

• Two Concepts
• Environmental sink the absorptive capacity of
  the environment
• Stock Pollutants pollutants that accumulate in
  the environment, relatively quick to damage and
  are known to dilute or transform into harmless
  substances (flow pollutants)
• Stock pollutants use up the critical natural
  resource of environmental sink.

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Some Definitions

• Natural capital both the natural resource
  inputs and the environmental waste sinks
• Sustainability providing the typical person
  alive in the future with a standard of living

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Neoclassical and Ecological

• Two Groups of Economists
• Neoclassical those who are pro technology, want
  less government intervention, use resources while
  we have them
• Ecological those who feel conservation is
  necessary and must be taken into consideration,
  pessimistic about technology, pro government
  involvement

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Measuring Sustainability

• Neoclassical measure sustainability by weighing
  directly the material benefits of growth against
  its environmental costs, both measured in dollar
  terms
• NNW Total Output Costs of Growth
  Depreciation
• GDP nonmarket output
• - externality costs
• - pollution abatement and cleanup costs
• - depreciation of created capital
• - depreciation of natural capital

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More Neoclassical Views

• Neoclassicals argue for achieving the maximum NNW
  over time, a goal known as dynamic efficiency
• Depreciation rule depreciation equals the
  measured value of the resource rent
• Profit-based conservation holding off on
  exploiting ones holdings in order to reap greater
  profits in the future

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• Two ways in which a measure of NNW that accounts
  for the depletion of natural capital can be
  useful
• Indicator of progress
• Sustainable resource use

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Future Benefits, Costs, and Discounting

• Opportunity cost to foregone investment
• Example New Orleans
• Environmental Bond putting money aside into a
  bank account specifically to compensate future
  generations for depletion of natural capital

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Present Discounted Value

• PDV X / (1 r)t
• PDV present discounted value
• X future benefit in terms of todays dollars
• T amount of years
• R discount rate