the environment and development (todaro & smith ch.10) · 2017. 2. 15. · development (todaro...
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The Environment and
Development (Todaro & Smith
Ch.10)
Lecture 7
Prof. Dr. Durmuş Özdemir Department of Economics
Yaşar University
Economics and the
Environment• Environmental issues affect, and are
affected by, economic development
• Poverty and ignorance may lead to non-
sustainable use of environmental
resources
• Global Warming
Environment and Development:
The Basic Issues
• Sustainable development and
environmental accounting
Environment and Development:
The Basic Issues
nm DDGNINNI *
Sustainable net national product is:
Where
NNI* is sustainable national income
GNI is Gross national income
Dm is the depreciation of manufactured
capital assets
Dn is the depreciation of environmental
capital
Environment and Development:
The Basic Issues
ARDDGNINNI nm *
Alternatively, sustainable net national product is:
Where
NNI*, GNI, Dm, and Dn are as before
R is expenditure needed to restore
environmental capital
A is expenditure required to avert
destruction of environmental capital
Environment and Development:
The Basic Issues
• Sustainable development and
environmental accounting
• Population, resources, and the
environment
• Poverty and the environment
• Growth versus the environment
• Rural development and the environment
Environment and Development:
The Basic Issues
• Urban development and the environment
• The global environment and economy
• Nature and pace of Greenhouse Gas-
Induced Climate change
• Natural Resource-Based Livelihoods as a
pathway out of poverty: Promise and
Limitations
The Scope of Environmental
Degradation: An Overview
• Environmental problems have consequences both for health and productivity
– Loss of agricultural productivity
– Prevalence of unsanitary conditions created by lack of clean water and sanitation
– Dependence on biomass fuels and pollution
– Airborne pollutants (especially in Urban areas)
Rural Development and the
Environment: A Tale of Two Villages
• Representative African village
– Desertification
– Low opportunity cost of women’s time
encourages waste
• Representative South American village
– Soil erosion
– deforestation
Global Warming and Climate
Change• IPCC report of April 2007 paints a dire picture for
developing economies
• Impact of global warming likely hardest on the poorest
• Resultant conflicts over natural resources
• Adverse health impacts
• Strategies– Taxes on carbons
– Caps on greenhouse gases
• Not exclusively caused by developed countries – Rapid industrial growth in Asia
– Deforestation
Traditional Economic Models of
the Environment• Privately owned resources
• Inefficiencies result from imperfections in property rights
• Perfect property rights are characterized by– Universality- all resources are privatly owned
– Exclusivity or Excludability-it must be possible to prevent others from benefiting from a privatly owned resources.
– Transferability- the owner of a resource may sell the resource when desired
– Enforceability-the intended market distribution of the benefits from resources must be enforceable.
Figure 10.1 Static Efficiency in
Resource Allocation
Static Efficiency in Resource Allocation
• Total net benefit is maximized when the marginal cost of producing or extracting one more unit of the resources is equal to its marginal benefits to the consumer.
• This occurs at Q*, where the demand and supply curves intersect.
• The resulting producer surplus is called a scarcity rent. Producer surplus area is aPb, and the consumer surplus is area DPb. Together they yield a maximum net benefit equal to Dab.
Figure 10.2 Optimal Resource
Allocation over Time
Optimal Resource Allocation over
Time
• If resources are scarce and are rationed
over time., scarcity rents may arise even
when the marginal cost of production is
constant, as in figure 10.2.
• Assumed, owner has scarce unit of 75 but
for a scarcity rent PsabP supply only 50
unit.
• Ps market price for 50 unit.
Traditional Economic Models of
the Environment• Common property resources
– Inefficiencies arise because resource is not
privately owned
– Traditional models do not concern themselves
with equity and income distribution
– Family farmers can benefit from extended
tenancy or ownership
– Who should buy publicly owned land
Traditional Economic Models of
the Environment• Public goods and bads: regional
environmental degradation and the free-
rider problem
– Internalization of externalities is not easy
– Free rider problems
• Limitations of the public goods framework
– Pricing mechanism
Figure 10.4 Public Goods, Private Goods,
and the Free-Rider Problem
Public Goods, Private Goods, and the Free-
Rider Problem• The MC associated with the preservation of an additional
tree is equal to the forestry maintanence cost plus the opportunity cost of the tree,that is the most valuable alternative use of the tree, such as for firewood, charcoal, lamber etc. Figure 10.4 illustrate the problem of pricing public good.
• Q*: Socially optimal number of trees.
• Pm D C : total net benefit of society from the public good maximized area.
• Due to free rider problem, free market will not lead to this optimal quantitiy.
• At price Pm the free market will satisfy person B’s demand QB while not denying person A’s requirements of QA; A can free ride on B’s contribution. The market will provide a suboptimal level of forest preservation, QB.
• To restore optimality (Q* of public good), some form of government intervention is required.
Public Goods, Private Goods, and the Free-
Rider Problem (Cont.)
• The most effective solution is to charge each
consumer just enough per unit, PA and PB for
individuals A and B, respectively, to entice each
of them to demand the preservation of the
optimal quantity of trees, Q*.
• Their joint payments, PA X Q* for A plus PB X Q*
for B, represent a total contribution equal to PM
X Q* exactly the sum required to purchase the
socially optimal level of preservation.
Urban Development and the
Environment• The ecology of urban slums
– Health threatening pollutants
– Unsanitary environmental conditions
– Serious impact on poor
• Industrialization and urban air pollution– Environmental Kuznets curve
– Pollution tax
– Absorptive capacity of the environment
– Severity of industrial pollution- impact on health
Figure 10.5 Pollution Externalities:
Private versus Social Costs and the
Role of Taxation
Figure 10.6 Increasing Pollution
Externalities with Economic Growth
Urban Development and the
Environment• Problems of congestion, Clean water and
Sanitation
– High health and economic costs associated
– Drag on development
– Impact on poor
– Private wells have led to land subsidence and flooding
– Impact on export earnings
The Need for Policy Reform
• The recognition that action to reduce
environmental hazards has been
insufficient is now widespread
• However, budgets are limited
• Better pricing policies would improve
matters
• Inclusion of women in the design of
environmental policy is important
The Local and Global Costs of
Rain Forest Destruction• Many scientists are alarmed by recent evidence
regarding greenhouse gases
• Economists also are concerned with the costs of global climate change
• Rainforest preservation as a global public good- a restorative mechanism for the environment
• Sustainable management of rain forests
• Reduction of trade barriers to promote developing country exports
• Provide funds, debt relief (not aid) to help enhance biodiversity
Policy Options in Developing
and Developed Countries• What LDCs can do
– Proper resource pricing
– Community involvement
– Clearer property rights and resource ownership
– Improved economic alternatives for the poor
– Improved economic status of women
– Industrial emissions abatement policies
– Proactive stance toward adapting to climate change
Policy Options in Developing and
Developed Countries (cont’d)
• How developed countries can help LDCs
– Trade policies: barriers, subsidies
– Debt relief and debt for nature swaps
– Development assistance
• What developed countries can do for the
environment
– Emissions controls
– R&D
– Import restrictions on unsustainable production
Concepts for Review
• Absorptive capacity
• Biomass fuels
• Clean technologies
• Common property
resource
• Consumer surplus
• Debt-for-nature swap
• Deforestation
• Desertification
• Environmental
accounting
• Environmental capital
• Externality
• Free-rider problem
• Global warming
• Greenhouse gases
Concepts for Review (cont’d)
• Internalization
• Marginal cost
• Marginal net benefit
• Ozone depletion
• Pollution tax
• Present value
• Private costs
• Producer surplus
• Property rights
• Public bad
• Public good
• Scarcity rent
• Social costs
• Soil erosion
• Sustainable development
• Sustainable national
income
• Total net benefit
Conclusion
• Questions
• Discussions