Chapter 18: Environmental Economics

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Chapter 18 Environmental 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.

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Low Growth Rate and Low Profit as a Factor in
Exploitation

• Nineteenth-century whalers didnt try to
  conserve whales.

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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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Case Study Sudbury's Nickel Smelter

• 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, and
Ecosystem 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 is landscape
  aesthetics. One problem in aesthetic valuation is
  personal preference.

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The Advantage and 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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The Cost of Prevention versus the Cost of Damage

• 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.

Link to Hurricane Katrina Cost http//www.msnbc.
msn.com/id/9281409
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Wealthy Societies Value the Environment

• 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 the Costs?

• 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 Policy Instruments

• 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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Direct Control of Pollution

• 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

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Chapter 18 Environmental Economics

• Questions? E-mail us at eschelp_at_uw.edu