Download The Environment and Development

Lecture 21:
The Environment and
Development
Economics and the Environment
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Environment and Development:
The Basic Issues
• The concept of sustainable development, and
linkages between the environment
• Sustainability: a development path is sustainable
‘if and only if the stock of overall capital assets
remains constant or rises over time’
• Environmental accounting: the preservation or
loss of valuable environmental resources should
be factored into estimates of economic growth and
well-being
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• NNP* =GNP –Dm –Dn – R –A
• NNP*: sustainable net national product
• Dm: depreciation of manufactured capital assets
• Dn: depreciation of environmental capital:
monetary value of environmental decay over a
year
• R: expenditure required to restore environmental
capital (forests, fisheries etc.)
• A: expenditure required to avert destruction of
environmental capital
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Population, Resources, and the
Environment
• Perception that there is a limited population size
which can be sustained with the earth’s finite
resources
• Potential for new technologies may alleviate the
strain on the resources
• Growing populations in the LDC have led to land,
water, and wood shortages in rural areas, and
sanitation and water in urban areas
• Increasing populations contributes to accelerated
degradation of resources
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Poverty and the Environment
• Relationship between environmental destruction
and high fertility which are both out growths of
absolute poverty
• Preventing environmental degradation is linked to
providing institutional support to the poor
• Insecure land rights, lack of credit and inputs and
absence of information often prevent poor from
marking resource augmenting investments which
would help preserve the environment
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Growth versus the Environment
• Question of whether or not it is possible to achieve
growth without environmental damage
• The worst environmental damage by the richest
billion and poorest billion of the world
• Therefore idea that increasing incomes of the poor
would decrease environmental damage
• Increasing consumption while keeping
environmental degradation low is difficult
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Rural Development and the
Environment
• Growing LDC populations will require food
production in LDCs to double by 2010
• Land in LDC are already being overworked
by the existing population
• Increased accessibility of agricultural inputs
and introduction of sustainable methods of
farming are need to decrease destructive
patterns of land use
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Urban Development and the
Environment
• Rapid population increase and rural-urban
migration has led to increasing urban population
growth
• Strain on existing urban water supplies and
sanitation facilities, high costs of urban crowding
• Resulting in health hazards as circumstances allow
for epidemics and health crises
• Research reveals that urban environment tends to
worsen at a faster rate than urban population size
increases so that the marginal environmental cost
of additional residents rises over time
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The Global Environment
• As world population grows and incomes rise, net
environmental degradation will worsen
• Efficient use of resources can be undertaken via
population abatement technology and resource
management
• Trade-offs between output and environmental
improvements will be necessary
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The Scope of Environmental
Degradation
• Environmental
challenges in
developing countries
will be caused by
poverty
• These are common
where households lack
economic alternative
to unsustainable
patterns of living
• These include health
hazards created by:
• Lack of access to
clean water and
sanitation
• Indoor air pollution
• Deforestation
• Severe soil
degradation
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Principal Health and Productivity
Consequences of Environmental Damage
• See Todaro: Ch. 11
Table 11.1
• Example:
• Water pollution and
scarcity
• More than 2m deaths, and
billions of illnesses a year
• Effect on productivity:
declining fisheries, rural
household time and
municipal costs of
providing safe water
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Traditional Economic Models of
the Environment
• Privately Owned
Resources (11.1)
• Static Efficiency in
Resource Allocation
• Where total net benefit is
maximized when the
marginal cost of
producing/extracting one
more unit of the resource
is equal to its marginal
benefit
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• Optimal Resource
Allocation Over Time (11.2)
• Price of a good that is
being rationed intertemporally must equate
the present value of the
marginal net benefit of the
last unit consumed in each
period
• Indifferent between
obtaining the next until
today or tomorrow
• Efficient allocation of
resources over time must
allow for scarcity rent to
be collected by owner
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• Common Property
Resources and
Misallocation (11.3)
• Potential profits or scarcity
rents will be competed away
• Misallocation or resources
under a common property
system
• Implication of model is the
where possible privatization of
resources will lead to an
efficient allocation of resources
• Example: relationship between
the returns to labor on a given
piece of land
• Scarcity rent: Green area
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