Title: Problems with the Neoclassical Theory for Sustainable Development and Attempts to Fix ThemEnvironmen
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2Problems with the Neoclassical Theory for
Sustainable Development and Attempts to Fix
Them-Environmental Economics
- Bernardo Aguilar-Gonzalez
3Questions
- Is the discussion between government and private
initiative sufficient? - What are common problems with the Keynesian or
the Hayek Approach? - Do you think economics is a value free science
after seeing this video?
4Elements of the Success Argument-from the Zedillo
report
- Foreign Trade is one of the main motors of
economic growth. Mexico quadrupled its exports
and increased its imports by more than 300
between 1989 and 1999 - Commercial aperture brings with it investment.
Currently more than 60 of Mexicos FDI comes
from the US and Canada. This investment leads to
new jobs, technology transfer, indirect export
opportunities through chains of suppliers, and
training for workers and executives.
5Elements of the Success Argument-from the Zedillo
report
- The NAFTA gives producers and exporters from
Mexico, the US and Canada a considerable degree
of certainty as regards market access and
transparency in the application of regulations
and institutional mechanisms for the solution of
disputes.
6Summary of problems of the Neoclassical Approach
- A. Emphasizes theoretical modeling over reality,
ignoring information that does not fit theory.
This methodological purity results in - B. The environment is a factor of production
only relevant in its relative scarcity in the
market. The role of the environment as a supplier
of energy and materials and as a waste deposit is
generally ignored. - C. Even when they can receive some valuation,
environmental services are not considered
essential because of infinite substitutability
assumption. - D. The belief in infinite substitutability takes
to a rejection of the limits to growth.
Continuous growth is not only possible but the
only solution to poverty and environmental
degradation. Population and economic growth go
hand to hand and their interaction is the only
possible way to maintain the standards of living. - E. Human welfare is conceptualized using a
mechanistic view of the human being (economic
molecules). This human being seeks to achieve
personal interest through free markets. This
collection of individual welfares adds up to
general welfare. - F. Thus there is no need to consider factors
that are beyond the economy.
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9Specific Issues for Neoclassics Relative to
Sustainable Development
- The Notion of property and prices and the
evolution in the understanding of property. - Externalities and Development Do we over account
GDP? - The Issue of Distribution
- Capital Substitution
- Risk and Discounting
- Specialization and Globalization- Gobalizing the
Limitations of the free market
10The Properties
- Private-Traditional
- Public
- Communal
- Forestry
- Agrarian
- Environmental
11Over accounting GDP
12The Problem of Distribution
13Substitution
Table 3.1. Evolution of Select Mineral Prices
1980-1990 Mineral quantity 1980 price 1990
price copper 196.56 lb. 200
163 chrome 51.28 lb.
200 120 nickel 65.32
lb. 200 193 tin
229.1 lb. 200
56 tungsten 13.64 lb. 200
86
if manufactured capital was a perfect substitute
for nature, we would not need manufactured
capital. If trees grew in eight by four boards,
there would be no need for chain saws, lumber
yards or measuring tapes.
14Discounting
Table 3.2 And Example of Discounted Costs and
Benefits for An Agricultural Investment.
1997-2000. After discounting the costs and
benefits with a 10 discount rates, the net costs
and benefits and the benefit cost ratios
are Year Costs Disc Costs Income Disc Income
Benefit-Cost Ratio 1997 1981972.00 1801792.73 967
735.00 879759.09 0.49 1998 1441092.00 1190985.12
972000.00 803305.79 0.67 1999 1586194.00 1191731.
03 1836300.00 1379639.37 1.16 2000 1601636.00 109
3938.94 2373205.00 1620930.95 1.48
15Specialize and Globalize
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17Butthe Brundtland Report says we need to fix it?
18Environmental Economics Optimizing Environmental
Damage
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21Coases Theorem 1910-
22Pigouvian Taxes 1877-1959
23The problem with Pigouvian Taxes
24Pollution Permit Theory- J.H. Dales Pollution,
Property and Prices (1968)
25Problems
- Large polluters are not as many as to avoid the
problems of oligopolies where the situation would
resemble more a Nash-Cournot equilibrium type
situation. - Special interests.
26Costa Ricas System
27The Problem of Renewable and Non-Renewable
Resources Natural Resource Economics
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30Opitmal Use for Renewable Resources
31H. Hotelling (1895-1973)
In a famous paper called "The Economics of
Exhaustible Resources", Harold Hotelling pointed
out that deposits of exhaustible resources are an
asset, just like money in the bank or shares of
common stock. This simple idea has an immediate
and powerful implication the owners of oil will
want to sell oil when its price is rising more
slowly than the interest rate and hang on to
their oil when its price is rising faster. In
equilibrium, therefore, oil prices should rise
over time at a percentage growth rate equal to
the interest rate. However, that is precisely the
condition for efficient allocation of oil over
time. In other words, Hotelling showed that oil
owners have a powerful incentive -- their own
profits -- for not using up their supplies of oil
too fast.
32Non-Renewables
33Do we know of any externalities that are not
accounted for in the price of oil? Is it a Free
Market?
34Did we resolve any of these problems?
- The Notion of property and prices and the
evolution in the understanding of property. - Externalities and Development Do we over account
GDP? - The Issue of Distribution
- Capital Substitution
- Risk and Discounting
- Specialization and Globalization- Gobalizing the
Limitations of the free market
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