How Much Pollution Is Too Much?

Ethics and Economics

Introduction

Normative vs. PositivePositive issues focus on what isNormative issues focus on what should beThe question “How Much Pollution Is Too

Much?” is a normative issueNormative analysis requires clearly stating

underlying ethical assumptions

Three standards

To answer the question, “How Much Pollution is too Much?” we will examine three different pollution standards:1. Efficiency standard

2. Sustainability standard

3. Safety standard

Utility and Utilitarianism

Utilitarianism argues that environmental cleanup is important solely for the happiness (utility) that it brings to people alive today and in the future

Utilitarianism is the ethical foundation of economics

An alternative View: Environmental Ethic=Biocentrism

Independent of the utility of doing so, people have a moral responsibility to treat the earth with respect

Important, but not traditionally

the focus of economic analysis

What Makes People Happy?

“Goods” include any and all things people desire, includingMarket goods (tomatoes, DVDs, basketball shoes)Nonmarket goods (clean air, charitable deeds, the

view from a mountaintop)

The positive relationship between the consumption of goods and utility can be represented in a “utility function”

Utility Function

A utility function for a person named Aldo on a given day could beUtilityAldo = UAldo(# of tomatoes, # of DVDs, # of

basketball shoes, lb of clean air, # of charitable deeds, # of mountaintop views)

We can bundle these goods into a consumption bundle (XA) and express Aldo’s utility in this way:

UtilityAldo = UA(XA)

Adding Pollution

Producing the goods Aldo consumes causes pollution to which Aldo is exposed (PA)

Aldo’s utility function:

UtilityA = UA(XA,PA), where Aldo’s utility declines as PA increases

Illustrates a trade-off between growth in consumption and improvements in environmental quality

More is Better

Economists often make the assumption that more is better (i.e. Aldo is always happier with more “goods”)

Is this a reasonable assumption? More on this in Chapter 11….

Social Welfare

Do increases in individual consumption increase the overall welfare of a society?

To answer this question and make explicit their assumptions about fairness, economists specify a “social welfare function”

Social Welfare Function In a society including Rachel (R), John (J),

and many others (…), we can writeSW = ƒ(UR(XR, PR), UJ(XJ, PJ), …)

○ Where increases in X increase social welfare and increases in P decrease social welfare

Here is an important example: the unweighted sum of individual utilities.SW = UR(XR, PR) + UJ(XJ, PJ) + …

1. The Efficiency Standard The above is the “adding up” mechanism

underlying an efficiency standard for pollution control

Under an efficiency standard, the idea is to maximize the net benefits of economic growth

This is done without reference to who bears the costs or gains the benefits

Efficiency: An example

Pesticide use on strawberries causes human sickness that costs members of society $100 million per year.

Pesticide use also lowers strawberry prices to consumers by $150 million per year.

More on strawberries In this case, the Net Benefits of

pesticide use (benefits minus costs) are $50 million.

Since the net benefits are positive, banning the pesticide would be inefficient.

(For simplicity, assume no other benefits or costs)

Defending the Efficiency Standard

Proponents of an efficiency standard argue that, over time, most people will benefit if the net economic benefits from pollution control are maximized

Lower prices of consumer goods for the majority must be balanced against protection of environmental quality and health

Efficiency: Digging Deeper To determine the “correct” level of pollution

from a social standpoint, we need to weigh one person’s consumption against another’s

The assumption of equal marginal utility of consumption says that additions to consumption are valued equally by all individualsThis is implicit behind the efficiency standard

Potential Problems with Efficiency

No allowance for issues of fairness in the distribution of income for this generation

No special protection for the well-being of future generations

No unique rights for pollution victims

2. The Sustainability Standard

Designed to protect the welfare of future generations

Social welfare does not rise if increases in consumption today come at the expense of the welfare of our children

To account for this, in our social welfare function, we would use a “fairness weight” to ensure fairness to future generations

The Sustainability Social Welfare Function Suppose Rachel is an “average” person

not yet born and that John is an “average” person alive today

Using a sustainability rule, we can write our social welfare function as:

The Sustainability Social Welfare Function

SW = w * UR(XR, PR) + UJ(XJ, PJ)

Where w is a weighting number big enough to insure that increases in John’s consumption do not substantially penalize Rachel Here, increases in individual happiness today cannot come at the expense of future generations

3. The Safety Standard

Proponents of a safety standard argue that people have a right to protection from unsolicited damage to their health

To account for this in our social welfare function, we would use a fairness weight on pollution

The Safety Standard Social Welfare Function Suppose Rachel lives downwind from

John’s steel factory and, as a result, is exposed to air pollution, PR

Using a safety standard, we can write our social welfare function as

The Safety Standard Social Welfare Function

SW = UR(XR, w*PR), + UJ(XJ) + …

Here, using a large enough w would essentially refuse to balance the polluting steel process (cheaper steel, and all the products the steel contains) against the harmful impact of pollution

Which Standard is Correct?

No social welfare function is “correct;” their use helps clarify underlying assumptions in normative debates over the right level of pollution

By examining the ethical foundations of different views about the appropriate levels of pollution, we can develop a better understanding of why people disagree about environmental protection targets.