Environmental Economics: Basic Concepts and
Debates By Ethan Goffman
Economic activity that harms the environment creates present or future losses to humans in
the form of
- damaged health,
- lower productivity, d
- epleted natural resources,
- reduced enjoyment of nature.
Environmental economics seeks to quantify these losses and determine the most efficient
way to reduce them, as well as to compare the cost of environmental damage to the cost of
mitigation. To analyze the costs and benefits of reduced environmental damage, economists
must compare changes in economic well being today with changes in economic well being in
the future. This involves judging the extent to which future generations will have higher
income and better methods for mitigating pollution affects.
Introduction
Factors of production in classical economics:
- Labor
- Capital
- Land
Land may be the most difficult to define. The problem is that the way owners use their land
may affect others. Although the field of economics traditionally likes to deal with items that
can be easily demarcated, quantified, and tagged with ownership, this becomes difficult
when dealing with our shared ecosystems. Economics has dealt with this largely by labeling
such items externalities, costs for which the responsible party does not pay. It then becomes
up to the community, and usually the government, to decide how to deal with externalities.
Hardin:
Each man is locked into a system that compels him to increase his herd without limit—in a
world that is limited. Ruin is the destination toward which all men rush, each pursuing his
own best interest in a society that believes in the freedom of the commons. Freedom in a
commons brings ruin to all.
The same case is for a capitalist system. Everybody will pollute if it saves money and if they
think that others gain advantage, so they have to gain advantage as well.
Internalize externalities created common ownership:
- One way is to create an ownership interest for the producer. To regulate
environmental common areas, local, state or national governmental interventions are
often required, balancing the interests of one set of producers and consumers with
the interests of another set who otherwise bear the costs of the first set. The simplest
form of such intervention is to simply prohibit pollution. When this is not possible
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