The Environment and Development

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The Environment and Development

• Chapter 10

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Environment and Development The Basic Issues

• Growth and the environment
• Sustainable development and environmental
  accounting
• Population, resources, and the environment
• Poverty and the environment
• Rural development and the environment

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Environment and Development The Basic Issues,
contd

• Urban development and the environment
• Agriculture and the environment
• The global environment
• Design of environmental policy

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Why do env problems occur?

• Lack of well-defined property rights
• Common property resources (communal lands, water,
  air)
• Externalities market failure

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Common Property Resources and Misallocation
Efficient resource allocation where W MPL
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Public Goods and the Free-Rider Problem
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Pollution Externalities Private versus Social
Costs
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What are standard solutions?

• Assign property rights, reduce transaction costs
• Common property resources
• Emissions rights
• Regulations, taxes to internalize externalities
• Direct regulation
• Pollution tax

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Do these solutions work in LDCs?

• Lack of legal institutions to define, protect
  property rights
• Lack of demand for env regulation due to low
  incomes, lack of knowledge
• Lack of democratic institutions to reflect public
  demand for env protection
• Lack of government agencies to establish, enforce
  regulations

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Economic Growth and the Environment

• Conventional view growth necessarily leads to
  degradation.
• Alternative view economic growth can lead to
  environmental transition with improved env
  quality ecosystem services
• Demand for env quality EQ is a normal good
• Supply of env quality.

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• Natural assets provide valuable services
  (ecosystem services) but unless property rights
  can be assigned, these services will not be
  valued in markets.
• See Millenium Ecosystem Assessment
• Important differences with produced capital
  renewable vs non-renewable thresholds and
  irreversibilities

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Millenium Ecosystem Assessment
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Environmental Accounting Is GNP an adequate
measure of welfare?
Sustainable net national product is
Where GNP is Gross National Product Dm is the
depreciation of manufactured capital
assets Dn is the depreciation of
environmental capital R is expenditure needed
to restore environmental capital A is
expenditure required to avert destruction of
environmental capital Problems how do we value
env capital? What if environmental damages are
irreversible?
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Growth and the Environment does growth
necessarily lead to environmental degradation?
Ecosys Services
Production Possibilities Frontier for Marketed
Output and Ecosystem Services
Output
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Equilibrium when ES are not valued
Ecosys Services
Slope PQ/PE
Equilibrium with PE 0
E0
Output
Q0
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Equilibrium with PE gt 0 Slope of line PQ/PE
indicates public willingness to pay for
environmental quality as reflected in env. policy
Ecosys Services
E1
E0
Output
Q0
Q1
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Equilibrium with Growth various paths possible,
depending on policy and technology
Ecosys Services
E2
E1
E3
E0
Output
Q0
Q1
Q2
Q3
Q4
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Environmental Kuznets Curve If ES are normal
goods, demand for ES will increase with growth.
Environmental regulation or assignment of
property rights is required to express this
demand for ES.
Ecosys Services
Output