Fundamentals of the Economics of Environmental Resources - PowerPoint PPT Presentation

About This Presentation
Title:

Fundamentals of the Economics of Environmental Resources

Description:

Fundamentals of the Economics of Environmental Resources The Optimal Trade-off between Environmental Quality and Economic Goods ... – PowerPoint PPT presentation

Number of Views:218
Avg rating:3.0/5.0
Slides: 17
Provided by: AhmedM76
Learn more at: http://cc.kzoo.edu
Category:

less

Transcript and Presenter's Notes

Title: Fundamentals of the Economics of Environmental Resources


1
Fundamentals of the Economics of Environmental
Resources
  • The Optimal Trade-off between Environmental
    Quality and Economic Goods

2
Waste Assimilative Capacity three key factors
  • First, like anything else in nature, the waste
    assimilative capacity of the environment is
    limited. Thus, the natural environment cannot be
    viewed as a bottomless sink. With respect to its
    capacity to degrade waste the natural environment
    is, indeed, a scarce resource.

3
continue...
  • Second, the assimilative capacity of the natural
    environment depends on the flexibility of the
    ecosystem and the nature of the waste.
  • Degradable pollutants (municipal waste)
  • persistent or stock pollutants (toxic waste)

4
continue...
  • Third, the rate at which the waste is discharged
    greatly affects the ability of the environment to
    degrade residuals. The implication of this is
    that pollution has a cumulative ecological
    effect--i.e. pollution reduces the capacity of
    an environmental medium to withstand further
    pollution.

5
Lessons from the Simple ModelWf(X,t)
  • The natural environment has a limited capacity to
    degrade waste.
  • A certain minimum amount of economic goods can be
    produced without causing damage to the natural
    environment. Thus, zero pollution not only is a
    physical impossibility, but even on purely
    ecological considerations, it is an unnecessary
    goal to pursue.

6
continue...
  • Although the above simple model does not
    adequately capture this, the cumulative effect of
    waste discharge into the natural environment is
    nonlinear. This is because pollution tends to
    reduce the capacity of an environment to
    withstand further pollution.

7
continue...
  • The ecological threshold of economic activity (Xo
    in Figure 5.1) can be augmented by technological
    means.

8
Conditions for Clearly Defined Ownership Right
  • First, the ownership rights of the resource are
    completely specified.
  • Second, the rights are completely exclusive so
    that all benefits and costs resulting from an
    action accrue directly to the individual
    empowered to take actions.

9
continue...
  • Third, the ownership rights of the resource are
    transferable. In other words, resources can be
    exchanged or simply donated at the will of the
    owners.
  • Finally, ownership is enforceable. That is the
    ownership of resources is legally protected.

10
Implications of Commonly Owned Resources
  • First, for the commons, economic pursuit on the
    basis of individual self-interest would not lead
    to what is best for society as a whole. In other
    words, the principle of Adam Smiths invisible
    hand would be violated.

11
continue...
  • Second, if tragedy is to be averted, the use of
    commons needs to be regulated by a visible hand.

12
Environmental Externalities and Their Economic
Consequences
  • Externality is defined as conditions arising when
    the actions of some individuals have direct
    (negative or positive) effects on the welfare or
    utility of other individuals, none of whom have
    direct control over the activity.
  • Examples The avid gardner and the fish hatchery
    cases.

13
  • The Root Causes of Environmental Externalities
  • Lack of exclusivity (non-exclusiveness) for the
    following reasons
  • the good is non-rival
  • the transaction cost is high
  • the resource is commonly owned

14
continue...
  • The economic consequences of Externality
  • In the presence of real externalities, there will
    be a divergence between private and social
    evaluations of costs and benefits.
  • This would cause what economist recognize as
    market failure.

15
(No Transcript)
16
Final Lesson
  • In the presence of an externality, resource
    allocation through the guidance of a free-market
    system would lead to inefficiency. More
    specifically, because the market lacks a
    mechanism by which to account for external costs,
    it tends to favor more production of goods and
    services from industries inflicting damage to the
    natural environment. Thus, the presence of real
    externality creates a misallocation of societal
    resources.
Write a Comment
User Comments (0)
About PowerShow.com