Environmental Economics

ByRadhika Vaish MBA EB 1st Sem.

What is Economics ???
Economics studies how people use resources to provide goods and Service s in the face of variable supply and demand. Most of the times environmental and economic problems are linked.

What is Environmental Economics ???
Environmental economics is a subfield of economics concerned with environmental issues. The field of environmental economics had its beginnings in the early 1950s but it really took off in the 1970s and has been gaining importance ever since.

The chief sub-areas of environmental economics are as shown: .

. or the cost of losing an area of wilderness to development. and the means of minimizing it. such as the benefits of improved river water quality. T9 Externalities mainly deal with the damages caused by them. Environmental regulation involves the government trying to induce a polluter to take socially desirable measures to control pollution by making use of a variety of policy instruments.Defining sub-areas of environmental economics : Environmental Valuation is concerned with the analysis of methods for obtaining empirical estimates of environmental values.

For instance.Slide 4 T9 . a firm emitting pollution will typically not take into account the costs that its pollution imposes on others TECH-COM. 10/13/2010 .

Attempt to make market prices reflect real costs and benefits.Sustainable development is the core of environmental economics. Sustainability is often considered as the goal of environmental economics.Sustainable development. . Strategies for Sustainability Identify external costs.

It occurs when markets do not take into account the environment s positive effect on economy or negative effects on environment or people (external costs). .T6 One of the cornerstones of environmental economics is examining various causes of market failure.

The problem. the market can be said to have failed. when this does not occur. but with the limitations of human understanding of market forces. Ideally. then. environmental economicsviews a healthy market as functioning such that all resources are distributed in such a way that they provide the greatest benefit to society. usually because of imperfect knowledge among the members of the market.Slide 6 T6 One of the cornerstones of environmental economics is examining various causes of market failure. 10/13/2010 . TECH-COM. A market failure is said to have occurred when resources are not distributed in the most efficient manner. is said not to be with the free market concept itself.

One of the big missions of environmental economics is to better internalize external costs so that the market can react appropriately. Another cause of market failure from an environmental economics perspective is a failure for markets to take externalized costs into account when determining a market value. T8 .T7 Causes of Market Failure One key cause of market failure as seen by environmental economics is a misuse of common property.

the actual costs may be much greater for the polluting product. for example. in the form of money. 10/13/2010 . much greater. but currently the market has no way of expressing that larger price TECH-COM. Therefore. is a common property. and environmental aesthetics from the pollution can make the real cost much. As technological development has increased. 10/13/2010 T8 Another cause of market failure from an environmental economics perspective is a failure for markets to take externalized costs into account when determining a market value. thereby damaging the common property for all nations.Slide 7 T7 One key cause of market failure as seen by environmentaleconomics is a misuse of common property. a product produced without pollution and a product produced with pollution may find the same market price. clean-up. The air pollution discussed above. however. to produce the product without pollution. One nation. The long-term costs in terms of health. the tragedy is that even when it is in everyone s best interest to use a resource reasonably. TECH-COM. may be emitted without adding any cost to the product it creates. Simply put. ensuring it remains around to deliver yields to everyone. a number of finite commons have become apparent that were once viewed as infinite. can emit large amounts of pollution. however. Although it may cost more internally. thereby making the pollution functionally left out of the market s price determination of a product. even those that reaped no economic benefit from the destructive behavior of the single nation. and environmental economics therefore looks at them as potential sources of tragedy. a small handful of individuals can destroy the resource by acting out of greed. This was perhaps best elaborated in 1968 by Garrett Hardin as the Tragedy of the Commons. Air. shared by all people of all nations. for example.

Conventional view of economic activity Conventional economics focuses on interactions between households and businesses. . views the environment only as an external factor of production.

Conventional view of economic activity .

. deducting resource and environmental costs in economic activities. it is an adjustment of traditional GDP.What is Green GDP? ?? Basically.

. receiving resources and services from it.Environmental view of economic activity Environmental economists see the human economy as within the environment.

Environmental view of economic activity .

Long-term effects are discounted. Growth is good. Each of these can contribute to environmental problems. . Costs and benefits are internal.Precepts of neoclassical economics ‡ Resources are infinite or substitutable.

Neoclassical economics are criticized as resources are limited and so non-stop growth is not sustainable. Environmental economists - modify the principles of neoclassical economics to address environmental challenges. Reform NOT revolution . Believes we can attain sustainability within our current systems.

they believe we will need to rethink assumptions and fundamentally change the way we conduct economic transactions.predicted that as resources become harder to find and extract. economic growth would slow and eventually stabilize. Modern economists (Herman Daly) do not think steady state will evolve on its own.Steady-State Economies John Stuart Mill. .

.Professional Bodies The main academic and professional organizations for the discipline of Environmental Economics are: Association of Environmental and Resource Economists (AERE) European Association for Environmental and Resource Economics (EAERE).

Thank you! .

Sign up to vote on this title
UsefulNot useful