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NTRODUCTION : Nature of environment

Ecology was traditionally defined as the 'study of organisms in relation to environment' the environment was considered a sort of inert stage in which the actors that is the organism played the game of natural selection. Perceptions today have changed, wherein we now are cognizant of the fact that the 'stage' and the 'actors' interact with each other constantly so that not only do organisms relate to the physical environment but they also change the environment, Not only are they shaped by the environment they live in but also shape it, thus when the first cynano- bacteria started putting oxygen in the environ they paved the way for the first aerobic organisms. Today everything outside a person affecting him is considered as Environment.

NTRODUCTION : Nature of environment Ecology was traditionally defined as the 'study of organisms in relation

FIG 1.1

NTRODUCTION : Nature of environment Ecology was traditionally defined as the 'study of organisms in relation

Environment refers to the physical & social conditions in which people live, especially as it influences their feelings & development. Environment can be defined as the complex set of physical, chemical, biological factors & social factors in which a living organism or community exists. This includes factors which operate like air, water, land, natural resources, flora, fauna, humans & interrelationships. The totality of surrounding conditions & circumstances affect growth & development, atmosphere & ambience, happiness & quality of life. This results into survival, growth, development & quality of life in general. The social environment of an individual refers to his culture, family life, people, institutions & others with whom the person interacts. Children need a "happy home" environment. A well planned modern factory needs to

offer a pleasant working environment. People need to survive; hence they need clean water, air and unpolluted space. Therefore, we can create certain beautiful environmental conditions and we need to preserve the natural environmental conditions. The scientific study of the patterns of relations of plants, animals & people to each other & their surroundings refer to Ecology. In addition to the physical sciences (including energetic, biogeochemical cycling and earth sciences in general), now more than ever we have to consider humans and the social sciences as part of the environment. So now we have a new discipline of ecology that is a three way interface (Snow 1959). A new Culture would need to emerge to close the communication gap between Science and Humanities which was getting larger as science and humanities were getting more and more reductionistic, fragmented and specialized Ecology has emerged as a discipline increasing the scale of study to whole systems landscapes and up to ecosphere.

What we are learning from nature about youth to maturity or quantitative to qualitative growth patterns, food chain energetic, feedback cybernetics, carrying capacity, evolution of competition to mutualism, diversity, networks and other ecosystem -level processes can help us build these culture bridges. In summary science and technology alone will not prevent global environmental deterioration because the problems and the solutions involve people and the non science disciplines especially Psychology, economics, law, education, political science and the social sciences.

Landscape ecologists Zev Neveh (1982 ) gave the term 'techno-ecosystems' These utilize powerful energy sources (fossil as well as atomic and involve technology money and cities which have few if any parallels in nature. If the urban-industrial society is to survive in our finite world, it is important that techno-ecosystems coexist with natural ecosystems in a more positive, mutual manner than is now the case.

Prior to the industrial revolution humans were parts of rather than apart from nature. We were hunters and gatherer omnivores acting as top predators in the food web. Early agricultural practices like those still used in small family farms in the pre- industrial parts of the world, were compatible with natural ecosystems. Indeed they often enriched the landscape in addition to providing food. The basic natural

ecosystem model however is no longer adequate to take account of modern human activities that include: replacement of the less concentrated sunlight-based energy sources with fossil fuels; mushrooming growth of cities; rapidly expanding industrial agriculture and especially the increasing use of a money based market economics as a basis for decision making, Thus we need to think and act in terms of new models that relate the two interdependent systems.

Reward- feedback refers to a process such as what parasites and predators and herbivores do to enhance the survival of their food supplies. e.g. when grazers such as grasshoppers antelopes or cows eat grass their saliva contains growth hormones that stimulate the grass to put up new shoots (Dyer et al 1993 95) We need to increase the reward feedback flow from techno ecosystems to natural ecosystems To accomplish reward feedback we need to 'reconstruct' economics to include life supporting goods and service (natural capital) as suggested by economists and ecologists (Lovins and Hawkins)

Environment generally means everything outside a person. The term 'Ecology' has its roots in the Greek word 'Oakes' which mean s household or living place. It came into use in the later of the 19th century in the works of zoologists and botanists to describe the study of ways in which organisms live their environment. Later two branches of ecology were distinguished. These are 'Auteology' and 'Synecology'. Autecology's is defined as being the study of individual organism in their interaction with their environment and synecology is defined as being the study of the relationship between the organisms engaged together within the given unit of environment (Encyclopedia of Social Science).


Ecology is the branch of science which studies the interactions between organisms & their environment. As discussed earlier, this interaction is with physical habitat, climate, geology & other aspects of surroundings. The environment of an organism includes both its physical habitat, which is described as the sum total of all local factors like climate and geology, as well as other organisms which share its habitat.

The term "oekologie" was coined in 1866 by the German Biologist Ernst Haeckel, from the Greek word meaning "household".

Ecology is the science of relationships between organisms and their environments. This branch of Social Sciences is concerned with studying the relationships between human groups and their physical and social environments, is called human ecology. The study of detrimental effects of modern civilization on the environment, with a view towards prevention or reversal through conservation is also a part of human ecology. Importance of understanding ecology is crucial to man's future. An understanding of ecology provides the basis for substantial use of natural resources, for the conservation of habitats and species, and for the prediction of effects of man's activities on natural environment. The science of ecology is thus concerned with relationships between living organisms: plants, animals, microorganisms and their environment. Ecologists study the way in which organisms, populations, communities and ecosystems function and in doing so draw on many other areas of knowledge. Ecology is thus a challenging and diverse subject. Ecology and applied ecology cover a wide range of aspects, including animal ecology, vegetation ecology, environmental science, soil science and microbial ecology. An ecologist works in very many different environments, natural and managed from tropics to the Arctic and from estuaries to mountain tops to man made social environments.

Ecology is also defined as being the study of the spatial and temporal relation of human being affected by the selective, distributive and accommodative forces of the environment, (Kenzia 1924). Hawely (1950) defined ecology as 'A study of the form and development of the human community.

Learn More >> Overview Of Ecology

The quality of environment is the degree of the positive impact of the environment balanced off against the degree of the negative impact of the environment on a given individual. When a community or a nation sets about to improve its quality of life it is highly probable that they will target environmental factors. Indicators of the quality of life and environmental quality as suggested by UNESCO (1976) are the following:

Fire protection.

Comfort of home. Electric service. Privacy in your home. Relation with fellow workers. Postal service. Garbage-collection. Mechanical helpers in your family. Telephone services. Public-water system. Relation with neighbors. Gas service. Freedom to live where you want. Sewage disposal service. Availability of food around your living place. Convenience for getting to important places. Noise level in the home setting. Beauty of your home. Security of your home. Topography of land around. Product available to the community. Medical care in your locality. Police protection. Quality of water used by the household. Natural outdoor recreation. Variety of wild life in community. Cleanliness of air around. Overall weather. Public information media. Level of crowding in your residential neighborhood. Transportation over long distance. Level of traffic congestion. Job-opportunities. Quality of water for recreation. Product quality and variety. Relations among group in the community. Freedom to move from class to class. Freedom to move form on job to another. Public services-gas, sewage etc sec 7,12,10,14 etc. Unspoiled natures. Man made environment. Physical condition of environment at school. Isolation of your community. Physical condition of environment where you work. Amount of open space around. Access to parks. Control of dogs and other pets. Cost of living.

Taking these as components of environment and ecology this web based course attempts to present a multidisciplinary system approach. The concepts are drawn from all subjects relevant to explain the environment scenario. Appropriate Technology, Psychology, Sociology, Economics, Management, and Philosophy, Values and Ethics are some subjects from where concepts and concerns are drawn (Fig 1.2). The course also presents methodological approaches, training, ideologies, globalization, ecological behavior and knowledge management relating them to environment and ecology. Details of the course outline are as presented in the next section.

ENVIRONMENT: A MULTIDISCIPLINARY PERSPECTIVE Environment as a concept is this multidisciplinary involving a number of disciplines.
Environment as a concept is this multidisciplinary involving a number of disciplines.
Fig 1.2
More discussion on this is presented in section four of this module.
Micro level and Macro level Environment:
Micro level environment refers to social, psychological, ethical and motivation
process involved in the impact assessment of environment. Examples are human,
likes and dislikes, stress and enjoyment, privacy, effect of crowding, ambience, etc.
These factors are included in this group of environmental analysis. Macro level
factors include pollution, greenhouse effect, temperature, large space crowding etc.
the next chapter deals with these aspects in greater details.

Man made and Natural Environment:

Environment could also be understood as man made environment and natural environment. Engineering science and architecture contribute immensely to design of environment, environment development which are largely man-made. Natural environment on the other hand refers to forest, climate, water resources etc. In this process user, human interface, economic ethical, social, political, and governance aspects become inevitable aspects of environment analysis. In order to have high quality environment and quality of life, it is inevitable to look into environment protection and environmental crisis.

Environmental Protection:

Environment means our surroundings. The concept is relative to whatever object that is surrounding us. Einstein once remarked, "The environment is everything that is not me" (Singh, 1995). Environmental protection means protection of the nature and surroundings. Environmental protection is not new in the Indian Context. Love of nature is not a new phenomenon. It existed even from the beginning of human life and its mention is available in pre-historic phase too. Man cannot survive without nature. As a result it is the duty of man to protect nature and thus environment.

Environmental crisis:

Environmental crisis is global phenomenon. More recently there has been major concern over the environment protection and environmental development. The rapid economic development, Technological and scientific advancements have increased their impact on the natural environment. They have added to the environmental degradation and ecological imbalances. Increasing damage to the environment and ecological imbalance has created a fear in the minds of people in both developing and developed countries. In this direction the Stockholm Conference in 1972 is significant which emphasized on dealing with the aspects of environment. After the conference all the countries made environmental protection enactments on various aspects form time to time.

Evolution of Environmental concerns over time:

Very little is known about pre-historic civilizations and environment issue. Only the last 200 years have been discussed in different sources. During the middle ages there have been eminent people who have developed our


sciences, arts and literature. Archimedes, Newton, Dalton, Alexander G Bell, Einstein, Charles Gaguan, Monet, Mozart, Beethoven, Shakespeare, Thomas Hardy, Ernest Hemmingway, Sigmund Freud and many others. They have all emphasized on environmental issues related to mankind. Contemporary technology, the arts, music and literature have evolved from their work.


The concept of environmental jurisprudence in India is not new. The age-old environmental jurisprudence in Indian civilization - to live in harmony with nature is almost forgotten. Worshipping nature as deity and recognizing earth as mother shows a kind of conservation ethics that comes to us through our history, culture, religion and Vedic philosophy. In order to understand the concept of environmental jurisprudence in Indian society we can discuss this aspect in different periods. They are Ancient Period, and Pre-Historic time, Historic Period, British Period, and Post Independence Era.

Environment in Ancient and Prehistoric time:

Protection of environment was prevalent in our ancient Indian society. The concept of environment was best explained by the word Paryavarana, meaning something that envelops us. Some Indian literature of olden times especially mentioned about worship of plants, trees, mother earth, sky, air, water, and animals. As a philosophy of life it has been considered as the duty of the mankind to protect the nature. Atharva Veda considers Earth to be the mother and the other creations are its offspring's. Man has thus, no right to destroy the valuable creation of God. Respect for nature, environmental harmony and conservation through trees, animals, hills, mountains and rivers are worshipped as symbols of gods and goddesses, representing nature has been emphasized in ancient scriptures like Vedas,

Upanishads, Smritis, Puranas, Mahabharata, Geeta, Bible & the Holy Quran, Gurugranth Sahib and mythological literature. These are full of revelations of the idea of harmony with nature and respect of nature. Fig 1.3 presents a……

Sages, Saints and great thinkers and teachers of India lived in forest as a result people dared not destroy the forest, Protection of nature was considered to be the duty of every one. Rig Veda. Manu Smriti, Charak Samhita have emphasized on the purity of water and healing and medicinal value of water. Because of this a system of Maryada (code of conduct) developed in Indian society to keep the water clean and wholesome (Shashtri, 2002).

Hindu society, in Vedic era was conscious of adverse pollution effects of indiscriminate destruction of plants and forests. They gave respect and consideration for the natural world including animals and birds. Yajurva Veda emphasizes the relationship with nature and animals; it should not be that of dominion and subjugation but of mutual respect and kindness (Tiwari, 1989)

Most of the mythologies have adequately conveyed the importance of environment in pre historic time too. The religions all over the world have so much to say about the relationship between human life and nature. The world is green and beautiful, and human beings as his stewards to protect it. One can observe that most of the religious texts i.e. from Islam, Christianity. Sikh, Buddha, Jainism and Hindu emphasize on the importance of environment in some way or the other.

All the religious texts preach about the importance of natural world. In Islam there is close harmony between man and nature. The Holy Quran declares that Allah created heaven and earth. From clouds he released water. On earth he made rivers and raised mountains. As per Islam every thing is created from water, thus there is significance of purity of water. Mankind is the trustee of the nature, whereas the other living creatures are considered to be the beneficiaries. Destruction of nature is the destruction of life. Christians are baptized in water as a sign of purification. It also gave importance for the protection and preservation of natural environment.

In Sikh religion also the concern for environment is evidence from the fact that it considers every creature to be the incarnation of God and hence conservation and preservation are essential principles.

Ancient jurisprudence in relation to the environment had close proximity with prehistoric era. Gautam Buddha the greatest rationalist, humanist and environmentalist of the era derived enlightenment while meditating under the Bodhi tree. The basic tenets of Buddhism are simplicity and ahinsa or non-violence. The principles of simplicity teach us that man should not overexploit the natural resources. Buddhism preaches the norms of respect of ecology. It believes in non separable relationship of man with trees and forests. In Buddhism the tree is a potential source of food and shelter for man and animals. Buddha preached compassion towards every living creature (Desai. 1998).

Jainism condemns sacrifice of animals to the sacred fire. It disapproved captivity. Whipping, overloading or depriving animals of adequate food and drink. Jainism is also based on the principle, which is in close harmony with nature and helps in protecting and preserving the nature.

Mahavira Swami proclaimed a profound ecological truth saying that one who neglects or disregards the existence earth, air, tire, water and vegetation, he himself disregards his own existence". Lord Mahaveer thus explained that man has no existence exclusive of nature.

ENVIRONMENTAL CONCERNS : A bit of history The Maurya's period During historical period before Maurya's regime


The Maurya's period

During historical period before Maurya's regime there was no precise idea of environmental conservation. Maurya period was perhaps the most glorious chapter in the Indian history for environmental protection. The concern for environmental protection in India can be traced back to the period between 321 and 300 B.C. Kautilya in his Arthashastra exhaustively dealt with the question of environmental protection. He dealt in detail and meticulously explicated the various rules for the protection and up gradation of environment. Rules made by Kautilya made it mandatory for the rulers to protect forest and animals. They also prohibited killing or injuring animals and birds. Service penalty was prescribed for the offenders. Arthashastra also prescribed punishments for causing pollution and uncivil sanitation. In historic period most of the temples or shrines were situated in remote places in forests and mountains. This originated from the belief that God has nearness with nature. Therefore, people have not dared to interfere with the surroundings of temple or shrines. This promoted the conservation of forests and wildlife in many places. Environmental protection existed during Mauryan period and continued till the end of Gupta Empire in 673 A.D. Other Hindu Kings also prohibited Killing of animals and destruction of forest (Thapar, 1973)

King Ashoka's state

King Ashoka expressed his view about the welfare of creatures in his State. He gave orders for planting of trees by the roadside for the benefit of travellers. He also issued 'Adnvapatra' (command of the king) to preserve forests and natural water resources. He prescribed various pecuniary punishments for killings animals that include even ants, squirrels, parrots, pigeon, lizards and rats. (Thakur, 1999) During the Moghul period environmental conservation emphasized more on aesthetic parameters. They were great lovers of nature spending their time in the lap of natural environment. They also made significant contribution by establishing magnificent gardens, fruit orchards and parks and foliage at different places. To some extent Akbar's religion of complete tolerance deals with concern for protection for birds and beasts. Different regimes had different rules, but they have shown their common concern for the preservation and enrichment of the environment. In the course of time, however human beings did not distil the obvious logic in various mythological commands and this resulted into a gradually drifting loss of concern for nature and the environment.

The British Period

During the British period the phenomenon did not appear having earlier concerns. The British and their rule in India showed some destruction of natural resources too. The early British rulers in India were totally indifferent to the needs of forest conservation. It was observed that there was fierce onslaught on Indian forest. This onslaught was due to increasing demands for business and military purposes. Royal Navy, ship building, supply of teak and sandalwood for exports and trade purpose and some programs such as development of railway networks (Guha, 1989) were given precedence at the cost of the environment.

However on a positive note apart from forest enactments the British government also made attempts to regulate various kinds of pollution in India that is water, air and wild life.

Some of the Acts were as under: The Shore Nuisance (Bombay & Kolaba) Act of 1853 was one of the earliest laws concerning water pollution. The Oriental Gas Company Act, 1857, to regulate pollution produced by Oriental Gas Company by imposing fines (Rosencranz, 1991). The next most important enactment was The Indian Penal Code, 1860. This Penal Code prescribes punishments in various kinds of pollution like nuisance, adulteration of food, drink and drugs, water and air pollution. But the penalties prescribed were not sufficient in the present society. The Indian Easement Act, 1882 protected the riparian owner against unreasonable pollution by upstream user. The Indian Fisheries Act, 1897, penalized the killing of fish by poisoning water by using explosives. The earliest enactments during British rule to control air pollution were the Bengal Smoke Nuisance Act, 1905 and Bombay Smoke Nuisance Act. 1912.

In the field of wildlife protection the early legislation was limited to specific areas and particular species. In 1873, Madras enacted the first wildlife statute for the protection of wild elephants. The Elephants Preservation Act of 1876 (Central enactment). The Forest Act of 1878 and Wild Birds and Animals Protection Act, 1912 were legislations that introduced regulatory measures on hunting.

The first comprehensive law for the protection of wildlife and its habitat was the Hailey National Park Act of 1936, which established the Hailey National Park in the State of Uttar Pradesh. The British for the proper utilization of land and to consolidate land holding enacted the Consolidation of Holding Act 1920 (Singh,


However, the objective of environment policy during this period was different i.e. was not directed at the conservation of the nature but it was directed at exploitation of common resources with a primary objective of earning revenue.

India's Independence and environment scenario:

Once India became independent from the British rule, during the early years of Indian independence there was no precise environmental policy. Government was making enactments from time to time to protect environment as per the needs in the society. Two early post independence laws touched water pollution. Later many

other Acts were introduced such as The Factories Act 1948 mentions, about the effective arrangements for waste disposal and empowered. State Government to frame rules to implement these directives. With the River Boards Act of 1956 for the regulation and development of inter-State rivers and river valley, the Government was empowered to prevent water pollution under this Act.

Other important enactments regarding environmental protection were Prevention of Cruelty to Animals Act, 1960 deals with protection of animals. The Atomic Energy Act. 1962 was passed to regulate nuclear energy and radioactive elements in India. The Insecticides Act 1968 provides regulation regarding manufacture and distribution of insecticides. There are other statutes that have some bearing on environmental pollution, in most cases the environmental concern is incidental to the principal objective of the law. All the statutes are scattered and piecemeal.

During the period of 1970 the Central Government changed its direction from environmental indifference to environmental concern and made different environmental legislations. This period saw the beginning of environmental policy in India. Developments during this decade gave a new dimension and direction to the policy concern in the field of environmental protection.

The year of 1972 marks a distinct event in the history of environmental management in India. It was the year in which a Conference on Human Environment was held at Stockholm at the initiative of United Nations. India being a Member of this Conference influenced the process of environmental management in the following year (Jain & Jain, 1984). To implement the decision taken at the United Nations Conference on the Human Environment the Indian Parliament made tremendous change in the field of environmental management. It was in this decade that environmental protection was accorded a Constitutional status by the Forty Second Constitution Amendment Act, by incorporation of Article. I8A and Article 5 1(A) (g).

Parliament enacted nation wide comprehensives laws; they are The Wildlife Protection Act, 1972 and Water (Prevention and Control of pollution) Act, 1974 in the field of wildlife protection and water pollution.

In the early 1980 nation wide forest conservation and air pollution laws were passed. They were the Forest Conservation Act. 1980 and the Air (Prevention and Control of Pollution) Act. 1981 for the conservation of forest and control of air pollution. One of the most important environmental legislations that deal with all aspects of environmental pollution was the Environmental (Protection) Act, 1986. All these comprehensive enactments made by the Parliament tried to protect environment in one way or the other, to deal with various aspects environmental protection and established different authorities to regulate and control the pollution. To some extent they prevented environmental pollution but their efforts are in vain to achieve the objectives. In this matter the judiciary also played a key role in protecting and preserving environment through its judicial pronouncements. This is the way the Indian Parliament became active to make environmental enactments to protect and preserve environment after the Stockholm conference. We will study more on this aspect in Policy Consideration and Environmental laws section in module VII

India has had a philosophy of environmental policy dating back to the ancient Hindu period. Moral injunctions acted as guidelines towards environmental preservation during the ancient period. Religious scriptures have also preached about environmental preservation. Environmental concern is not a new phenomenon in Indian scenario. It was present in India from time immemorial. It was however not practised to its fullest extent. Now and then people followed this concept by their own moral and ethical deeds. Today environment has become a subject itself which is multidisciplinary in focus and there is an urgent need to make the younger generation aware of this phenomenon.


Components of environment can be analyzed at various levels i.e. At the level of

activities, at the level of processes, and at the level of orientations. Some of these







As discussed in the earlier section in one of the UNESCO reports, the following

activities have been suggested as components of environmental quality.

Fire protection.

Comfort of home.

Electric service.

Privacy in your home.

Relation with fellow workers.

Postal service.


Mechanical helpers in your family.

Telephone services.

Public-water system.

Relation with neighbors.

Gas service.

Freedom to live where you want.

Sewage disposal service.

Availability of food around your living place.

Convenience for getting to important places.

Noise level in the home setting.

Beauty of your home.

Security of your home.

Topography of land around.

Product available to the community.

Medical care in your locality.

Police protection.

Quality of water used by the household.

Natural outdoor recreation.

Variety of wild life in community.

Cleanliness of air around.

Overall weather.

Public information media.

Level of crowding in your residential neighborhood.

Transportation over long distance.

Level of traffic congestion.


Quality of water for recreation.

Product quality and variety.

Relations among group in the community.

Freedom to move from class to class.

Freedom to move form on job to another.

Public services-gas, sewage etc. sec 7,12,10,14 etc.

Unspoiled natures.

Man made environment.

Physical condition of environment at school.

Isolation of your community.

Physical condition of environment where you work.

Amount of open space around.

Access to parks.

Control of dogs and other pets.

Cost of living.

Understanding environment involves studying the complex relationships between the people and the typical physical settings in which they conduct their daily lives. Environmental interest in studying human behaviour in the familiar, everyday physical environment where people live and work as well as its relevance to the

environment design and social planning has made it especially responsive to the demands of today's world. Environmental studies are an area of social sciences where the focus of investigation is the interrelationship between the physical environment and human behavior and experience of man. Fig 1.4 presents this.

environment design and social planning has made it especially responsive to the demands of today's world.

The other perspective of components of environment relates to environmental processes, its multidisciplinary and applied aspects.


Environment is new subject and a complex field of study. Therefore it is important to consider some of the characteristics that describe the what, how and why of the ways environmental processes work. In this section we attempt to explain the adaptation focus, physiological processes, the holistic view, interdisciplinary involvement and applied orientation of the subject matter.

Adaptation focus: The process of adaptation. It is of interest to study how people adapt to the complex demands of the physical environment. For example, how people live in crowded places or overcrowded setting. Robert White (1974) defines adaptation as encompassing all the processes with their environment. This includes most simple ways of dealing with minor environment and irritations to the most complex efforts to cope with major environment changes. These challenges in living

system in interaction with the environment are the adaptation processes. The holistic view of the organism and environment is considered along with the active role of living organism in relation to their environment.

Physiological Processes: - The adaptation focus of the environment emphasizes the process that mediates the effect of physical setting on human activity e.g. the effect of classroom noise on student's grades.

Overall view: - Historically, the analysis of the environment was at very small and molecular levels but now the emphasis has shifted from micro to macro level. It is how environment and behavior must be seen as interrelated parts of an indivisible whole.

system in interaction with the environment are the adaptation processes. The holistic view of the organism

Fig 1.5

The positive and adaptive ways in which people cope with environmental challenges suggest active roles. This view looks into how people have varied and creative ways to cope with their environments.

Fig 1.6 The adaptation process model (Fig 1.6) shows how environment effect on behavior is mediatedClick here to know more about Lewin's theory. environment. For example The study of university housing environment is one research area where theoretical and practical objectives have been successfully combined. Thus one may understand the components of environment at various levels i.e. At the level of activities, at the level of processes and at the level of orientations. " id="pdf-obj-19-3" src="pdf-obj-19-3.jpg">

Fig 1.6

The adaptation process model (Fig 1.6) shows how environment effect on behavior

is mediated by a number of

processes. .

It shows that the direction of effect in the

environment-behavior relationship is reciprocal i.e. people may act on the environmental conditions while the environment in turn also acts on human behavior. The negative effects of situation such as over- crowding may be reversed through effective coping processes.

Multidisciplinary Orientation: The branches of study here have included not only environment but also other fields such as Sociology, Psychology, Geography, Anthropology, Medicine, Architecture and Planning etc (refer to fig 1.2). The study of human behavior in physical settings requires the works of researchers in many social sciences as well as of architects and planners responsible for the design of human settings. The areas of study include.

The Applied Orientation:The environmental study has orientation towards both the resolution of practical problem and the formulation of new theories. Lewins (1974)

action research is a useful model for the intermingling of practical and theoretical





For example The study of university housing environment is one research area where theoretical and practical objectives have been successfully combined. Thus one may understand the components of environment at various levels i.e. At the level of activities, at the level of processes and at the level of orientations.


Ecosystem services performed free provide one most important pillar on which human life and civilization based upon. All human activity (economic) require three function from the environment. Thus, one of the important objectives of the study of Environment and Ecology is to achieve better quality of life for people. This module presents these aspects. They may relate to the following issues, from both micro and macro perspectives.














3. The maintenance of life support system (Such as eliminate regulation, air and

water purification and maintenance of genetic diversity)

Other thing being equal it can be observed that as production increase, increasing stress is placed on these three functions, leading to environment degradation. There exists enough scientific evidence which shows that human activities have already impaired the flow of ecosystem service on a large scale which if continues will dramatically alter mostly the entire ecosystem within a few dealers. Ecosystem services which are essential for economic prospecting and other various aspects of human well-being refer to a wide range of conditions and process. These service, which are fundamental to life, include (Holdren and Ehrlichain Enrich and Ehrilch 1981) things as follows: -

1. Production of ecosystem goods fishes, animal products, vegetation, forest species



























































Control of
















11. Protection on










12. Provision of aesthetic beauty and intellectual simulation that lift the human spirit.

Historically it has been found that the nature and the values of Earth's life support system have largely been ignored until their disruption or loss highlighted their importance. The most important reason behind this is that in most of the cases they are not traded on formula market (non economic goods- free good) and so do not any price rignat that can warn the hanger occurred in their supply or condition. Problem of externally and market failure. Besides lack of awareness and attention also constitute importance reason?

Due to these increasing threats there is an urgent need for identification and monitoring of ecosystem services both locally and globally as well as for the incorporation of their values into decision-making process. Environmental change is an inevitable consequence of economic progress and people's desires to improve their quality of life.

Change in environment and a various human threats

Environmental condition especially environmental change exerts great threats on human welfare having social, economic and ecological dimensions. It extends great influence on health, habitat, infrastructure, economy society and culture. Below we will discuss the environmental treats under three main heading:

Health Food Economic effect






By 'environment' here we mean the physical chemical and biological setting in which

the people live in i.e. soil, air water and climate condition not the social one (life style, food and habit). Environment hazards to health can be classified into the following



The first is a lack of access to essential environmental resources most important

among them being adequate and clean water, food, shelter, fuel and air. The second broad category is exposure to hazards in the environment. These hazards include biological agents like micro-organisms (e.g. bacteria, viruses and parasites),which are the root causes of the huge global problem of infectious diseases. Biological agents are responsible for diseases like diarrhea, acute respiratory infection, malaria, ulcers and even some forms of cancer.

Among the chemical and physical hazards, some pollutants like pesticides, industrial solvents, persistent organic pollutants are generated by human activities. There are some others, like arise or ultraviolet radiation which occur naturally in the environment and increase with human activities. It has been found that environmental changes locally regionally and globally can exacerbate both types of environment health problems. Health impact of climate change can be discussed under two board headings- direct and indirect both of which are equally important. There are both direct and indirect impacts of environment on quality of life.



Increase in the number and divert of heat water is the most expected danger. This becomes more vulnerable especially in cities, which tend to trap heat. In both New York and Shanghais it has been observed that daily mortality rates increase considerably as soon as temperature exceed a certain threshold limit. Besides mid latitude cities include Washington Athens etc where the residents (mainly elderly the very young and the poor) Who are not acclimatized to extremely hot weather are more susceptible to heat waves among them also people with substandard housing previous health problem lack of access to air conditioning facility are more prone to be victims of heat. A major reason behind this is, because ones cardio vascular system must work harder top keep the body cools during hot weather. However the heat stress problem to lower in tropical and subtropical cities where there exist hotter average temperature. On the contrary a potential health benefit of warmer global temperature is that cold related deaths are lesser.

Another consequence of global warming is missing sea level, which can adversely affect the health and well being of coastal inhabitants. This missing level incindates

wealth and other low lying lands river deltas erodes beaches, intensifies flooding storm related and increase the salinity of rivers boys and ground water levels fresh water supplied sixteen of the world largest cities with population more than 10 million are located in coastal tones and coastal population are increasing rapidly world wide. Some example of low lying areas like river delta in Bangladesh, the Nile delta in Egypt or the Niger Delta in Nigeria. A recent study project that a 1 meter sea rise could inundate 17 percent of Bangladesh's total land area and displace near a point 11 million people (at current population densities WRI 98-99). Another important direct impact of climate change is its influence on air pollution profiles. Exposures to polluted air create serious threats.

Higher air temperature increase the concentration of ozone at ground level, which is a harmful pollutant and the main constitutent of smog. Ozone damages lungs tissues and causes serious problems for people with asthma and other lung diseases. Even a fairly moderate degree of exposure to ozone can cause healthy individuals to experience chest pain, nausea and pulmonary congestion.

Indirect Impact of environment on quality of life

Global warming generally increases the risk of some infectious diseases, in particular vector borne diseases. The reason behind this is that temperature and rainfall affect the abundance and distribution of disease causing vectors or contagion spread by mosquitoes and other insects, which includes malaria, dengue fever, yellow fever, and several types of encephalitis. Other vector bone diseases include cnislosomiasis (snake), change disease, sleeping sickness, liver blindness etc. According to some scientists, algal blooms can occur more frequently in warmer temperatures; specifically in the areas with polluted water, one example related to this is cholera by organisms like giardia, salmonella, cayspordium.

Besides climate change, also affected are climate temperature, rainfall, pattern and increased carbon dioxide levels, which in turn have important effects on global agriculture and thus on human nutrition. On the positive side, high levels of carbon dioxide in the atmosphere exert a fertilizing effect on some plants by increasing their growth and reducing transpiration rates and water demand. Increase in temperature

can also bring about larger growing seasons to some high latitude farming regions, increasing yield, and the range of crops .On the other ride of the case, increased temperatures and diminished rainfall can reduce soil moisture in various areas (specially in some tropical and mid continental regions) which in turn reduces the water available for irrigation and impair crop growth in non irrigated areas

In addition to this, warmer temperatures affect plant post and diseases positively the range of many insects will expand or change and new combinations of pests and diseases may emerge or natural ecosystem responds. Any increase in the frequency or severity of extreme weather event like droughts, heat waves wind storms can also disturb the predator-prey relationship, which generally check pest population.

However there exists regional difference in the way human health is vulnerable to

environmental degradation. Water borne and water borne diseases are more common in various parts of central and South America, central Africa and Asia. Air pollution threatens large urban areas and mega cities most of which are in



People in developed countries are more vulnerable to exposure to toxic chemicals and technological accidents. However there is exception like arsenic contamination




It is estimated that about 25-33 percent of the global burden of disease is Attributable to environmental factors (Smith, Corvation, and Kjellstrom 1999). In a study it has been found that environment related premature death and illness account for 18 percent of the total burden ease in the developing world. (Murray and Lopet 1996). This comprises contribution from water. Supply and sanitation 7 percent, indoor air pollution 4 percent ,vector borne diseases 3 percent ,urban air pollution 2 percent, agro industrial waste 1 percent.

In short, final disease due to environmental change generally has more adverse impact on developing countries than on developed. This is so because developed countries devote considerable effort for reducing health threats from dirty water, poor sanitation and using solid fuels in open fires inside homes. The annual global burden

on human health is estimated to equal some 312 million days and to cost world society some U.S. and 10 billion annually (G E SAMP 2001).













acceptable diet at all times through local cal non-emergency sources. This requires

both adequate food production and impact and economic access to food at the

household level,










(VY al 2000).

Environmental change also increases the vulnerability of the portion who are here also all nations are not equally adversely affected poorer nation, tends to be more dependent on climate sensitive sectors e.g. subsistence agriculture and lack the buffer resources required for survival this is due to many factors like less developed technology and less availability of capital non marketability etc. For example even though it has been found that food production in Africa has declined slightly over the past 30 year and decreased significantly in the former Soviet Union since 1990 (UNDP, UNEP, World Bank, RBI 1998).

Economic Losses

Human well-being is inextricably linked with the ecosystem through goods and services that the ecosystem provides. This includes both market goods and services (e.g. food or forest product, fish etc) and non-marketed ones (e.g. water flow regulation).

Thus any degradation or reduction in supply of environmental goods leads to a loss of human welfare. In a study by Suehak 2002, it has been found that U.S $10 billion

a year or 4.5% of G.D.P in 1992 of these, Urban air pollution costs U.S $ 1.3 billion a year, water degradation with its associated health costs U.S $5.7 billion a year. Land degradation causes productivity losses of around U.S $ 2.4 billion and deforestation










The potential economic losses of the non-marketed goods and services and their

impact on human life are most likely to be higher than that for marketed goods and services which can be measured.

Environmental Stress

Sources of stress could be many and human response to stress may also differ. In this section we emphasize on the issues related to environmental stress. In today's competitive world, on every second step, man comes under some stress or the other. Causes range from trivialities such as a lost book or important incidents such as major exams, but the common denominator of all such stress causing agent is the Environment itself! Through time various theories have been put forward to explain this complex phenomenon called stress. Before we look at various types of environmental stressors resulting into poor quality of life, we need to pay some attention to "what is stress?'

Some say Stress is frustrated 'fight or flight' response a basic human survival mechanism remnant of our primordial 'roots' when we would best respond to perceived dangers by either fighting or fleeting; seen in this way, stress behaviours and emotions are sometimes regarded as problematic inappropriate responses to threatening situations in modern civilized society, people who consider stress in the negative sense consider it to be the uncomfortable gap between how we would like our life to be and how it actually is.

Anxiety and fear frustration and depression Anger Anxiety Anxiety Frustration and depression Helpness and depression Depression

"Where it will all end" "Nothing seems to work" "Who is responsible for this situation?" "How much more can I take?" "Can/anyone will help me?" "I feel helpless to stop this!" "No-one seems to care!" "What I have done to deserve this?"

Environmental stress has been defined formally in many ways: The adverse effects on human physical and
many ways:
The adverse effects on human physical and psychological well-being caused by
external factors such as noise, vibration, extremes of temperature and danger.
Stress or systematic stress can be defined as the non-specific response of the body
to any environmental demands made on it.

Stress is an inevitable, invisible, unavoidable consequence of life. When looked at from an environmental point of view, it can because distress can cause disease; it seems plausible that there are good stresses that promote wellness. Stress is not always necessarily harmful.

Increased stress may also results in increased productivity - up to a point. However, this level differs for each of us. It's very much like the stress on a violin string.

In the following presentation we would like to put forward the various aspects of environmental stress, describing first the causes, then moving on to their effects and













The physical environment can often influence how the person is thinking, feeling and interacting with others. Too much or too little stimulation can have profound effects on the well-being of someone. For example, if a room is crowed or noisy, anxiety and agitation may arise from the over stimulating sights and sounds. If a room is too quiet or too dark, similar responses may be seen.

Environmental psychologists observed that - As people become more cognitively impaired they encounter increasing problems with negotiating with the environment. It is important to know what type of environment works best for each person. Providing an area where the person feels safe and secure will greatly improve how he or she interacts with others.



Environmental stresses could be any of the following:

Physiological stressors: These factors produce stress in human body. These are caused due to them physical elements in atmosphere around us. There can be many of these factors. Some of them are given below: -

Physical environment related Noise: - Noise is the sound that the listener does not want to

Physical environment related

Noise: - Noise is the sound that the listener does not want to hear. Noise can the








Surrounding temperatures: - Change in surrounding temperature, feeling of hot or













Traffic and crowding: - Commuting in heavy traffic and meeting the demands of

driving in traffic can be a difficult task and the person is constantly in heavy mental




Pollution: - Pollution (air, water) can cause a stress in humans directly or indirectly.

Light: - Natural light elevates the mood and helps maintain a regular internal body "clock". Deficiency of natural light is an unrecognized environmental stressor.

Work related

Change in working environment: - If a person's working environment is changed

e.g. he is placed in between a new group of people, it can affect its working in either





Colours: - The colour also affects on mood and energy level of a person. It's a very individual choice and varies from person to person that how a color affects him. Workload: - If there is less workload than the person is used to then it makes the person restless and the same is true if there is more. Also if there is more work than

the capability










Condition of workplace: - These factors (e.g. ventilation, sitting arrangement, and architecture or place) can have an effect on the mood and energy of the person.

Social stressors: These are caused due to the society in which the person is living. Some of them are given below -





Society's expectations

Family matters

There are many other factors which contribute to stress. But the above factors were the most common ones. These are interrelated i.e. one of the factor can change the persons attitude towards other.

Environmental stressors for students


We can understand the entire above phenomenon by a simple example. One of the most important and simple example is college life. College is a unique environment that has its own built-in joys and stresses.

the capability of person then it can result in mental breakdown. Condition of workplace: - These

The living situation in many colleges creates a lot of stress. The housing is often crowded, noisy, with an inherent lack of privacy and uncomfortable chairs, desks , and beds. There are the expectations of friends, family, and hometown high school teachers and counsellors to live up to. There may be the stress of being separated from family, home, and close friends the student grew up with. There is usually a fair amount of financial pressure for college students, with limited economic resources for entertainment, transportation, and even food and books.

To meet academic demands, many students may start living a life of all work and no play. They may spend all their free time in the library, studying until later hours but not getting any better grades than do their friends who seem to party all the time. The fact is that without some breaks for relaxation and recreation, they do not study so effectively. Study breaks, whether they are fun distractions like going to a movie, a party, or a football game or going for a jog, are needed to get balance in your life. They will renew their enthusiasm for studying.

Social stressors are common in college. There is a natural desire to be accepted and

liked by a new peer group. There may be pressure to conform in dress, attitudes,

















Another common source of stress

is career


With competition



workplace and in graduate schools, we may think that we don't have much time or










Getting used to living in a new area, adjusting to a different climate, and learning our way around can be stressful as well as exciting. Going to college is an adventure




















2. Social & psychological stress

In order to get the optimal solution economics principles underlying the analysis of non-renewable resource scarcity we will use the model by Hotelling. According to the classic article published in 1931 by Hotelling, for non-renewable resources our main objective should be the allocation of a given amount of resources stock over different moments of time in order to maximize the utility or benefit from consuming the resource. Even though during the last several years the economic analysis become much more complicated but the basic insight remains the same.

Since the size of non-renewable resources is fixed, consuming and extracting a unit of the resources implies that there is less of the stock of resources for future consumption. Thus, in addition to extraction costs, there is another kind of cost associated with it i.e. the reduced level of future benefit due to fewer resources being available called ‘royalty’ or ‘users cost’. Hotelling assumed that.

  • 1. The marginal utility of consuming the resources is decreasing.

  • 2. Marginal extraction cost constant.


This means that along an economically optimal expansion path the marginal utility of consuming the resources must be equal to the sum of constant unit of extraction costs and the royalty. Thus marginal utility of using the resources is greater than the marginal cost of extracting the resources and difference is royalty. It reflects the value of an un extracted marginal resources unit with respect to future consumption possibilities. This ‘Royalty’ cost implies the fact that the society must be much more conservative in consuming non-renewable resources compared to other ordinary goods the production cost of which do not include royalty.

The concept of royalty and optimum utilization decision is explained in fig C1. On the vertical axis we measure marginal utility from consuming the resources marginal cost of extracting the resources whereas the horizontal axis we measure the level of






Here, MU curve shows the marginal utility of consuming the resources, which is diminishing. For normal commodities (whose stock is not prefixed) the optimal

production occurs at Q** where marginal utility of the resources equal marginal cost. How ever for non-renewable resources this will not be the case since today’s consumption of the resources involves opportunity costs, Royalty. At the level of royalty (AB) the optimal level of resources extraction and consumption is Q*


production occurs at Q** where marginal utility of the resources equal marginal cost. How ever for

Fig C1: Optimum Resource Utilization

We need to analyse the question that how the level of royalty evolves over time. According to ‘the Hotelling rule’ royalty must increase wit h time at rate equal to the

rate of discount. This means that the net marginal utility of consuming the resources must also increase at a rate equal to the rate of discount. This implies the fact that from the current point of view the net benefits from the marginal units consumed in every period (the discounted value of net utility) are equal/same. Again the equality emphasizes the fact that it is not possible to increase the total level of discounted net utility from resources consumption via changing the extraction of the resources over time. Thus ‘the Hotelling rule’ established that royalty increases exponentially and the level of resources utilization decrease over the time. The higher (lower) the rate of discounts the higher (lower) the rate at which the level of resource consumption




Up to now we have discussed optimal renewable resource utilization only when the rate of resources utilization can be directly controlled by the government or society.

But in a market economy profit maximizing private firms usually utilize resources.

Now the question is how the level of resource utilization

will be affected

by this



In contrast

to our general

idea, Hotelling shows that private ownership will not

accelerate resources utilization. The reason behind this is as follows since the

marginal utility curve shows the maximum amount that consumers (or firms who use

the resources

as input) are willing to pay for consumption of another unit of the

resources it is also the demand curve of the industry in the market. To maximise the

present value of profit the industry must apply such a rate of extraction that royalty increase exponentially over time. This means that the industry will also follow a resources extraction policy that maximises the profit for the industry “the socially





The higher the level of royalty the higher will be the market price of the resources which implies that market price of non-renewable resources must increase over time.

A project will be profitable if the benefits of the project exceed the costs. The concept of profitability requires calculation of the stream of a project is future benefits and costs period by period and conversation of this stream of benefits and costs into some simple measure expressed as a number. The commonly used measures are the net present value (NPV) and the internal rate of return (IRR). The net present value may be define as:

benefits in year Where are
benefits in year



are costs, including investment in year


r is the rate at which future benefits and costs are discounted ;n is the life of the project

Discounting reduces the value of future benefits and costs. Why future benefits and costs are discounted and how is this rate of discount determined? The answer to the first part of the question is that cash received in the future is less valuable than the same amount of cash received immediately because in the interim the firm could invest these funds and earn interest on them. For a private individual or firm the correct rate of discount is the market rate of interest. If a firm can lend at 10 percent it would have no reason to choose a project that costs Rs. 1000 today and yields only Rs. 1080 next year because by lending this amount it would get Rs. 1100 next year. Similarly if it barrows at 10 percent it would not invest in such a project which fields only 8 percent return. On the other hand a firm would have no reason to reject a project that costs Rs. 1000 today and yields Rs. 1110 next year. Even if it does not

have the money it can borrow it at 10 percent and make net profit of Rs. 10. As long as a project has a positive NPV it is considered desirable. If funds are available a firm should select those entire project which have positive NPV. If however because of resource constraints a firm has to choose one project out of several competing projects the one with the highest NPV should be selected. A positive NPV means that benefits of a project are higher than costs. This ratio of benefits to costs in that















Discounting reduces the value of future benefits and costs. Why future benefits and costs are discounted

Thus serves the same purpose as the NPV a measure of project desirability. An interest rate for which the net present value of a project is zero is called the “internal rate of retrieve (IRR)” of the project. The IRR is an alternative measure of project desirability. A project with an IRR higher than the market rate of interest is considered desirable project. If NPV of project at alternative discounts rates is

Fig as at A in NPV 1: 1 shown plotted point Rates gives Fig. alternative the

One difficulty with the IRR criteria is that it is quite possible that the NPV of a project may become zero at more than one rates of interest i.e. a project may have several internal rates of return. However, if a project incurred negative net cash glows up to a certain point in time (when initial investments are made) and there after yielded

positive net cash flows, its IRR would be unique.

For this reason the problem


multiple internal









Which one of the two measures

NPV or



measure of project

a better

desirability? If choice of one project does not rule out another, we can use either of

the two selection rules they both will give same answer so long as NPV always goes

down as the discount rate is raised. If the market rate of interest is lower than the


the NPV


a project

will be positive.

Such a project

should be selected.

The problem arises when all desirable projects cannot be undertaken. In such a situation the two decision criteria may provide conflicting choices. This is illustrated




Fig. 2: NPV and IRR Criteria Project A has 20% IRR whereas for project B, the
Project A has 20% IRR whereas for project B, the IRR is 15%. Thus by the IRR
criteria project A is better. However at 10% rate of discount, Project B is preferable to
If the market rate of interest at which the firm borrows is known with certainty, it is
better to use the NPV criteria than the IRR. The NPV criteria are better than the IRR
for one more reason: the former provides a measure of total gains which the latter
does not. When cost- benefit analysis is employed by a private firm to assess a
project, market prices of inputs and outputs are used in calculations of costs and
benefits of the project. This commercial profitability criteria is however not suitable
for assessing public sector projects, because for various reasons elaborated below
the market prices of inputs and outputs do not necessarily reflect their social costs
and social value respectively. In order to allocate resources in a way most profitable
to society, social cost benefit analysis in recommended for the appraisal of public
Market prices of goods, labour, foreign exchange and capital may be distorted
through taxes, subsides, tariffs and import quota and government control of various
kinds such as minimum wages, interest rate controls and price controls. Prices set
by monopolists and public utilities are also distorted, as they are different from

competitive market prices. Because of the presence of externalities market prices of goods do not reflect their true social value. The externalities could be positive or negative. Externalities refer to the effects that work outside the market. Positive externalities occur when it is not possible to charge the beneficiaries for the benefits they receive. It may be for several reasons: access to the facilities may be difficult

and costly to control; An example of such a situation is when a firm trains the labour force in the region. This may not enhance the firm’s profits since after training the workers are free to leave. Large infrastructure projects such as dams, roads and railroads have important positive externalities. For example in case of a hydroelectric dam many people not connected with the project also derive substantial benefits. The downstream farmers may witness increased production become the dam prevents floods. May other cases of positive externalities could be cited however it is the negative externalities, which are concern because they are more prevalent, and have very severe adverse social impacts. Negative externalities occur when firms or individual do not pay for damages their actions cause to other industrial firms for example give rise to negative externalities in polluting air and water. It is a serious problem not only in the industrial world but also in the developing countries since the firms do not bear the cost inflicted on the society by pollution, their profits do not decrease. Externalities are very important in social decision-making. Their presence provides a sufficient reason why commercial profitability should not be used as a





Market prices may diverge from their social values because of the fact that the prices of factors of production may not reflect the opportunity costs of using these factors. Take the case of labour in developing countries; unskilled workers in modern sectors often get wages which are much higher than what the opportunity cost criteria would suggest. In these developing countries there is widespread under employment of labour in rural sector. When modern industrial sector or government draws labour from the rural sector its opportunity cost if the loss of output in the rural areas i.e. labour’s marginal contribution to production, which is quite low. The wages paid to these unskilled workers are much higher. The domestic market price of the other primary factor, capital also tends to be distorted in developing countries. The capital market intermediates between those making saving and investment decisions. In a

perfect capital market the social return from one unit of current drawings is equal to the social values of one unit of current consumption at the margin. In the absences of market distortions this equality between the two sides is established through market rate of interest. The distortions are caused by the presence of monopolistic elements and government intervention (fiscal distortions). Further more in many developing countries export earnings and foreign investment are not adequate to meet import requirements. Scarcity of foreign exchange is a serious problem in many developing countries with chronic balance of payment problems. It is observed that in these counties, quite often official exchanges rates over value local currency. It

does not reflect the real scarcity of foreign exchange. There are several interest rates prevailing in the market at the same time. The differences in interest rate are too enormous to be justified as the basis of differential risks. These are caused by




Price distortions can possibily be removed by suitable fiscal methods of lump sum taxes and subsidy. But for various reasons it is very difficult to implement such policies and they are usually not undertaken. If price distortions in the economy cannot be removed then project appraisal method should be such that corrects for price distortions. Instead of using market prices, which are distorted, it is recommended to use imputed values, which reflect real opportunity costs to the society in cost-benefit analysis of the projects. This is referred to as shadow pricing.

Shadow prices are determined by the interaction of national objective of the resource constraints facing the economy. Shadow price, i.e. opportunity costs of a resource, which using scarce tends to be high. The reason for high opportunity costs is that such resource have many competing uses and the forgone benefit in the best alternate that must be given up is high. On the other hand, shadow price of a resource available in abundance will tend to be low. Shadow prices usually differ significantly from market prices in developing countries because for various reasons noted above, market prices are distorted and thus do not correctly reflect scarcity of resources.

As discussed earlier, the opportunity cost of labour in a labour surplus economy is

very low. Labour in modern

sector is, however

paid considerably more than its

opportunity cost. The shadow wage, lies somewhere between the opportunity costs of labour (equal to its marginal productivity) and the industrial wage.To settle on a

particular figure however, requires a great deal of judgement. It is a common practice to use a specific conversion factor (or the standard conversion factor) to convert






As discussed above, official foreign exchanges rate in many developing countries overvalues local currency. In social cost benefit analysis a corrected exchange rate, referred to as shadow exchange rate which reflects the true opportunity costs of foreign exchange is used. One method of calculating shadow exchange rate involve comparison of the domestic prices of imported commodities with the official foreign exchange prices of there commodities. For example, if an import item can be sold in the domestic market at a price which is 50% higher than the price calculated on the basis of official exchange rate, it means that the domestic currency if overvalued by 50%. It should be devalued by 50% to reflect its true value.

In the conventional approach the social cost-benefit analysis all traded and non- traded goods are measured in one currency either foreign or local. Traded goods in foreign prices are converted into domestic prices or alternatively non-traded goods in domestic price are converted into foreign prices using shadow exchange rate.

An alternate approach recommended by Little and Mirrlus requires that all goods should be valued at world prices because these represent a country’s actual trading opportunities. It is argued that is a better measure of the social valuation of goods than the other non-traded goods at domestic price and traded goods at their international price. In the latter method domestic and foreign goods are made comparable using a shadow exchange rate, which may itself be distorted.

There is no need to calculate shadow exchange rate if all goods traded and non- traded are measured at world prices. The values of goods can be expressed in any currency local or foreign. Since all values will retain a constant relationship to each other it does not matter what currency they are measured. The values can be

converted form one currency to other using any exchange rate.

Non-traded goods are those, which normally cannot be imported. For example, electricity, construction, local transport and labour are non-traded goods or inputs. Since these goods are not traded internationally their valuation at ‘world prices’ poses a problem. The way out is to take each non-traded input and break it down into traded and non-traded components. The latter are in turn broken down into traded and non-traded components. This way it is possible, at least theoretically, to reduce all non-traded inputs and goods into traded items. Land is not considered very important in industrial projects. Regarding labour it is argued that it can be valued in terms of its own inputs (i.e. into consumption) which consist of traded items. A detailed input output table for the economy, as a whole is required to conduct these exercises. Such a table will however be available only in a few developing countries. Some critics have pointed out that all this trouble of conversion of non-traded items into traded items in order to avoid using a foreign exchange rate official or shadow, is not worth it. The cure, it is alleged is worse than the disease. It may be just as accurate to use properly adjusted shadow exchange rate to convert values in domestic currency into foreign currency.