Lecture 22: The Environment and Development

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Lecture 22The Environment and Development

• Economics and the Environment

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Environment and Development The Basic Issues

• The concept of sustainable development, and
  linkages between the environment
• Sustainability a development path is
  sustainable if and only if the stock of overall
  capital assets remains constant or rises over
  time
• Environmental accounting the preservation or
  loss of valuable environmental resources should
  be factored into estimates of economic growth and
  well-being

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• NNP GNP Dm Dn R A
• NNP sustainable net national product
• Dm depreciation of manufactured capital assets
• Dn depreciation of environmental capital
  monetary value of environmental decay over a year
• R expenditure required to restore environmental
  capital (forests, fisheries etc.)
• A expenditure required to avert destruction of
  environmental capital

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Population, Resources, and the Environment

• Perception that there is a limited population
  size which can be sustained with the earths
  finite resources
• Potential for new technologies may alleviate the
  strain on the resources
• Growing populations in the LDC have led to land,
  water, and wood shortages in rural areas, and
  sanitation and water in urban areas
• Increasing populations contributes to accelerated
  degradation of resources

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Poverty and the Environment

• Relationship between environmental destruction
  and high fertility which are both out growths of
  absolute poverty
• Preventing environmental degradation is linked
  to providing institutional support to the poor
• Insecure land rights, lack of credit and inputs
  and absence of information often prevent poor
  from marking resource augmenting investments
  which would help preserve the environment

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Growth versus the Environment

• Question of whether or not it is possible to
  achieve growth without environmental damage
• The worst environmental damage by the richest
  billion and poorest billion of the world
• Therefore idea that increasing incomes of the
  poor would decrease environmental damage
• Increasing consumption while keeping
  environmental degradation low is difficult

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Rural Development and the Environment

• Growing LDC populations will require food
  production in LDCs to double by 2010
• Land in LDC are already being overworked by the
  existing population
• Increased accessibility of agricultural inputs
  and introduction of sustainable methods of
  farming are need to decrease destructive patterns
  of land use

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Urban Development and the Environment

• Rapid population increase and rural-urban
  migration has led to increasing urban population
  growth
• Strain on existing urban water supplies and
  sanitation facilities, high costs of urban
  crowding
• Resulting in health hazards as circumstances
  allow for epidemics and health crises
• Research reveals that urban environment tends to
  worsen at a faster rate than urban population
  size increases so that the marginal environmental
  cost of additional residents rises over time

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The Global Environment

• As world population grows and incomes rise, net
  environmental degradation will worsen
• Efficient use of resources can be undertaken via
  population abatement technology and resource
  management
• Trade-offs between output and environmental
  improvements will be necessary

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The Scope of Environmental Degradation

• Environmental challenges in developing countries
  will be caused by poverty
• These are common where households lack economic
  alternative to unsustainable patterns of living

• These include health hazards created by
• Lack of access to clean water and sanitation
• Indoor air pollution
• Deforestation
• Severe soil degradation

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Principal Health and Productivity Consequences of
Environmental Damage

• See Todaro Ch. 11 Table 11.1

• Example
• Water pollution and scarcity
• More than 2m deaths, and billions of illnesses a
  year
• Effect on productivity declining fisheries,
  rural household time and municipal costs of
  providing safe water

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Traditional Economic Models of the Environment

• Privately Owned Resources (11.1)
• Static Efficiency in Resource Allocation
• Where total net benefit is maximized when the
  marginal cost of producing/extracting one more
  unit of the resource is equal to its marginal
  benefit

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• Optimal Resource Allocation Over Time (11.2)
• Price of a good that is being rationed inter-
  temporally must equate the present value of the
  marginal net benefit of the last unit consumed in
  each period
• Indifferent between obtaining the next until
  today or tomorrow
• Efficient allocation of resources over time must
  allow for scarcity rent to be collected by owner

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• Common Property Resources and Misallocation
  (11.3)
• Potential profits or scarcity rents will be
  competed away
• Misallocation or resources under a common
  property system
• Implication of model is the where possible
  privatization of resources will lead to an
  efficient allocation of resources
• Example relationship between the returns to
  labor on a given piece of land
• Scarcity rent Green area