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Title: Problems with the Neoclassical Theory for Sustainable Development and Attempts to Fix ThemEnvironmen


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Problems with the Neoclassical Theory for
Sustainable Development and Attempts to Fix
Them-Environmental Economics
  • Bernardo Aguilar-Gonzalez

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Questions
  • 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?

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Elements 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.

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Elements 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.

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Summary 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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Specific 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

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The Properties
  • Private-Traditional
  • Public
  • Communal
  • Forestry
  • Agrarian
  • Environmental

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Over accounting GDP
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The Problem of Distribution
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Substitution
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.
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Discounting
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
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Specialize and Globalize
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Butthe Brundtland Report says we need to fix it?
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Environmental Economics Optimizing Environmental
Damage
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Coases Theorem 1910-
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Pigouvian Taxes 1877-1959
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The problem with Pigouvian Taxes
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Pollution Permit Theory- J.H. Dales Pollution,
Property and Prices (1968)
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Problems
  • 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.

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Costa Ricas System
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The Problem of Renewable and Non-Renewable
Resources Natural Resource Economics
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Opitmal Use for Renewable Resources
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H. 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.
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Non-Renewables
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Do we know of any externalities that are not
accounted for in the price of oil? Is it a Free
Market?
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Did 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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