environmental economics new

8/8/2019 Environmental Economics New

1/20

Environmental Economics

By-

Radhika Vaish

MBA EB 1st Sem.


2/20

What is Economics ???Economics studies how people use resources to provide goods

and

Services 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.


3/20

The chief sub-areas of environmental economics

are as shown:


4/20

Defining sub-areas of environmental economics :

Environmental Valuation is concerned with the analysis of methods

for obtaining empirical estimates of environmental values, such as

the benefits of improved river water quality, or the cost of losing an

area of wilderness to development.

Externalities mainly deal with the damages caused by them, and

the means of minimizing it.

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.

T9


5/20

Slide 4

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


6/20


7/20

One of the cornerstones of environmental

economics is examining various causes of

market failure.

It occurs when markets do not take into accountthe environments positive effect on economy or

negative effects on environment or people (externalcosts).

T6


8/20

Slide 6

T6 One of the cornerstones of environmental economics is examining various causes of market failure. A market failure is said to have

occurred when resources are not distributed in the most efficient manner, usually because of imperfect knowledge among the

members of the market. The problem, then, is said not to be with the free market concept itself, but with the limitations of human

understanding of market forces. Ideally, environmental economicsviews a healthy market as functioning such that all resources aredistributed in such a way that they provide the greatest benefit to society; when this does not occur, the market can be said to have

failed.TECH-COM, 10/13/2010


9/20

Causes of Market Failure

One key cause of market failure as seen by environmental

economics is a misuse of common property.

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.

One of the big missions of environmental economics is tobetter internalize external costs so that the market can react

appropriately.

T7

T8


10/20

Slide 7

T7 One key cause of market failure as seen by environmentaleconomics is a misuse of common property. This was perhaps best

elaborated in 1968 by GarrettHardin as the Tragedy of the Commons. Simply put, the tragedy is that even when it is in everyones

best interest to use a resource reasonably, ensuring it remains around to deliver yields to everyone, a small handful of individuals can

destroy the resource by acting out of greed. As technological development has increased, a number of finite commons have becomeapparent that were once viewed as infinite, and environmental economics therefore looks at them as potential sources of tragedy. Air,

for example, is a common property, shared by all people of all nations. One nation, however, can emit large amounts of pollution,

thereby damaging the common property for all nations, even those that reaped no economic benefit from the destructive behavior of

the single nation.TECH-COM, 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. The air pollution discussed above, for example, may be emitted without adding any cost to

the product it creates, thereby making the pollution functionally left out of the markets price determination of a product. Therefore, a

product produced without pollution and a product produced with pollution may find the same market price. Although it may cost more

internally, in the form of money, to produce the product without pollution, however, the actual costs may be much greater for the

polluting product. The long-term costs in terms of health, clean-up, and environmental aesthetics from the pollution can make the realcost much, much greater, but currently the market has no way of expressing that larger priceTECH-COM, 10/13/2010


11/20

Conventional view of economic activity

Conventional economics focuses on interactions betweenhouseholds and businesses; views the environment only as

an external factor of production.


12/20

Conventional view of economic activity


13/20

What is Green GDP? ??

Basically, it is an adjustment of traditional GDP, deductingresource and environmental costs in economic activities.


14/20

Environmental view of economic activity

Environmental economists see the human economyas within the environment, receiving resources and

services from it.


15/20

Environmental view of economic activity


16/20

Resources are infinite or substitutable.

Long-term effects are discounted.

Costs and benefits are internal.

Growth is good.

Each of these can contribute to environmental problems.

Precepts of neoclassical economics


17/20

Neoclassical economics are criticized as resources are limited

and so non-stop growth is not sustainable.

Environmental economists - modify the principlesof neoclassical economics to address environmental

challenges. Believes we can attain sustainability within our

current systems.

Reform NOT revolution


18/20

Steady-State Economies

John Stuart Mill- 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- they believe we will need to rethinkassumptions and fundamentally change the way we conduct

economic transactions.


19/20

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).


20/20

Thank you!

environmental economics new

Documents