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Ecology and Economics
Chapter 16
Economics
 The scientific study of the choices made by individuals and societies in regard
to the alternative uses of scarce resources which are employed to satisfy
wants
 Put otherwise, economics studies what, how and for whom society produces.
This involves analyzing the production, distribution and consumption of goods
and services.
Economics
 Emerged from moral philosophy
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Is a social science
Focus on good of society as a whole
 Historically, material security is reward for good moral conduct
 Now, morals cannot be contemplated until material goods are met
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Individual materialism has become an end in itself
Classical economics
 Adam Smith
 Founder of economics
 Argued that markets induce people to behave in the common interest as if they
were guided by a higher authority
 “Invisible hand”
Classical economics
 1800’s
 de Sismondi questioned the view of growth in economic activity as an end in
itself
 “Water, just as much as work, as much as capital, is necessary for life. But
one can have too much, even of the best things in life.”
Classical economics
 Ruskin stated “The real science of economy..is that which teaches nations to
desire and labor for the things that lead to life, and which teaches them to
scorn ...the things that lead to destruction.”
 To Ruskin, wealth was more than the measurement of a man’s possessions; it
included the capability to use them in an appropriate manner
Neoclassical economics
 Neoclassical economics emerged in late 19th century
 Saw economic growth as perpetual, desirable and necessary condition of
economic activity
Perceptions of nature in neoclassical economics
Problems in neoclassical economics
 A. C. Pigou defined an externality as a phenomenon that is external to markets
and thus does not affect how markets operate
 Biodiversity loss and pollution are externalities to markets
 True environmental costs are not included
Problems in neoclassical economics
 Substitution
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Human capital and natural capital are considered substitutable
Assumes that production cannot be diminished by lack of one
Problems in neoclassical economics
 Common access resources
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“Tragedy of the Commons”
Tragedy will happen if access to lands is not controlled
Costs of exploitation are shared by many, but benefits of exploitation are
accrued by those who exploit
(Hardin 1968)
Commons = rights or property owned by a group, i.e. not private property
Community-owned grazing lands
 20 farmers, each with 5 cows
 Available grass supports 1000 kg milk/day
 Each cow = 10 kg milk/day, each farmer gets 50 kg milk
Community-owned grazing lands
 One farmer adds a cow, increasing herd to 101
 Average milk production = 9.9 kg/day (1000 kg/day distributed among 101
cows)
 But, this farmer now has six cows, so his production has increased!
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6 cows * 9.9 kg/day = 59.4 kg/ day
 Grazing on public land in the west costs 1/5 of grazing on private land
 Government (taxes) pays costs of overgrazing
Distribution of costs and benefits
Problems in neoclassical economics
 Short term gains (benefits for current people) valued over long term gains
(benefits for future generations)
Steady-state economics
 1800’s
 John Stuart Mill envisioned economies becoming mature and reaching a
steady state
Steady-state economics
 Sees economy as “an open subsystem of a finite and nongrowing ecosystem
(the environment)”
Steady-state vs. neoclassical economics
 Steady-state recognizes that:
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The ecosystem is the ultimate source of all products and services
Individuals exist in communities, and community values must, in some
cases, supercede individual values if the community is to persist
Intermediate ends of material wants are superceded by ultimate ends to
develop virtue and character that distinguish the highest and best condition
of being human
Environmental economics
 Seeks to integrate economic considerations with ecological considerations
more fully
Natural resouces
 Non-renewable resources can be depleted
 Renewable resources will last indefinitely if used wisely
How can we place a monetary value biodiversity?
Direct values
Indirect values
Values of goods from species
 Species harvested and sold $2 trillion, 6% of global domestic product
 Wild species = 24.4 % of total
Value of fisheries
 Annual world catch = $50-100 billion
 Most important source of animal protein
 US sport fishery was $38 billion in 2001
‘Ecosystem services
 Purification of air and water
 Mitigation of drought and floods
 Generation and preservation of soils and fertility
 Decomposition of wastes
 Crop pollination
 Control of agricultural pests
 Protection from uv radiation
 Estimate of total value of services: $33 trillion/year
Global ecosystem services
 Totalled $33 trillion per year (Coxtanza et al. 1997)
Ecotourism
 $101 billion per year in US in nature-centered recreation
Potential values
 Species or genes that could be valuable in the future
Existence values
 Value of knowing species exists
 How much would you pay?
Uses
 Consumptive versus non-consumptive
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Generally, goods are consumptive, while services and existence values are
non-consumptive
Costs of conservation actions
 Direct
Opportunity costs
 Loss of possible revenue
 1 hectare of forest = $20,000
 1 pair spotted owls needs 1000 hectares = $20 million to provide 1 pair
habitat
Distributions of benefits
 Goods - producers then consumers
 Services - everyone, especially clean air and water
 Potential values - future generations
Distribution of costs
 Direct costs - taxpayer, consumers, owners, volunteers
 Opportunity costs - those directly involved with resource (e.g. farmers, loggers,
developers)
Opportunity costs
 Often higher for local, poor people
 Example: Government establishes a national park to protect gorilla habitat
 Costs Europeans and Americans relatively little to join a conservation group or
visit the park
 Can cost an African farm family their livelihood
Solutions
 Have regulations and privatize resources to prevent the “tragedy of the
commons”
 Share costs
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Conservation easements, Debt-for-nature swaps, international aid