Economics of Regional Resources The historical development of environmental economics (1:1)

Dr. Maurizio PROSP R! (PhD) "niversit# of $o%%ia Dept. Pr!M & $acult# of '%riculture (ia )apoli *+, -11.. $o%%ia tel. /012.3312+31.0+4 email: m.prosperi5unif%.it

Preface

Stud#in% environment from a social science perspective causes some pro6lems to students:

man# have (almost) no social science trainin% at all those 7ho have social science trainin%, have 6een raised on 8mainstream economics8, and therefore are mainl# focused on economic efficienc#, rather than sustaina6ilit#

The course 7ill focus on 8sustaina6le development8, 7ith some lin9s to some 8deviations8 from mainstream economics (e.%. nvironmental ethics: colo%ical conomics, etc.) ;e 7ants to understand modern environmental pro6lems, 7ith small emphasis on 8real8 social issues of the da#, and stron% interest to7ards lon% term horizon (e.%. ne<t 1.2+. #ears) This approach is (usuall#) of little interest to polic# ma9ers, 6ut more important to ne<t %enerations 22= a contri6ution to the 6uildin% up of the critical mass for approachin% at lar%e pro6lems (e.%. >limate chan%e: immi%ration: desertification) *

;ho cares a6out sustaina6ilit#?

mpirical evidence sho7s us that povert# is a ma@or cause and effect of environmental pro6lems Povert#

denies poor people of the means to act in their o7n lon%2term interest creates environmental stress (e.%. Over%razion% of ran%eland: soil erosion: desertification) 22= resources de%radation 22= povert# 7orsenin%

rror in economic plannin% ma# lead to irreversi6le chan%e on the natural assett nvironmental conomics is the ne7 economic paradi%m incorporatin% a diversit# of economic doctrines (i.e. >lassical, Mar<ist, )eoclassical, Aumanistic, nvironmentalistic, etc.)

conomic paradi%ms and nvironment

;hat is a 8paradi%m8?

B!t is a fundamental economic 6elief, a 6asic unchan%in% economic principle, that %overns the 7a# economists vie7 the 7orldC

>lassical conomic Mar<ist )eoclassical Aumanistic De#nesian nvironmentalism

>lassical conomic paradi%m

'dam Smith (1-*021-1.) Binvisi6le handC Thomas Malthus (1-442130E) Ba6solute scarcit# limitC David Ricardo (1--*213*0) Bdiminishin% returns, due to the need to move to less fertile landC

mphasis on the po7er of the mar9et to stimulate %ro7th F innovation Pessimism a6out lon%2run %ro7th prospectus The technical pro%ress is not considered
Ghon Stuart Mill (13.4213-0) Btechnical pro%ress 7ould provide man9ind8s individualistic material 7antsC

Ricardo8s simple commodit# production model

Total )et product P1 P ;1

Stationar# state S

>onstant Real 7a%e Total product

Ps

Total population

Mar<ist paradi%m
Darl Mar< (131321330) Bcriticism to the capitalistic societ#, a%%ravatin% environmental contraintsC

Ha6our theor# value: B;or9ers are the sole source of net productC Pro%ress defined in terms of material and technolo%ical advance made possi6le 6# e<ploitation of nature )ature to 6e BconIueredC via science, to serve human needs Modern capitalist economic s#stems lead to environmental destruction (pollution F 7astes)

)eoclassical paradi%m
;illiam Stanle# Gevons (130+2133*) BGevons8 parado<: an improvement in the efficienc# of resource2use leads to an increase in its use Heon ;alras (130E2111.) B%eneral eIuili6rium theor#C

conomics is transformed into a ri%orousl# mathematic scientific discipline (a social BscienceC) mphasis moved a7a# from suppl#, and turnin% to demand Mar9et is supposed to 6e neutral and value2free ' particular mode of human: rational F e%oistic
'lfred Marshall (13E*211*E) Bintroduction of differential calculus into economicsC (ilfredo Pareto (13E3211*0) Boptimum situation: it is impossi6le to ma9e someone 6etter off 7ithout ma9in% 3 someone else 7orse offC

Aumanistic paradi%m
rnst Shumacher (1111211--) Beconomic thin9in% is compati6le 7ith spiritualit# as opposed to materialismC

Mar9 Hutz (11E12 ) Beconomic for the >ommon Jood, in the era or %lo6alizationC

Re@ection of the 8rational economic person8 model Preferences are not static, independent and determined 6# %enetics: instead the# are interdependent !ndividuals are capa6le of altruistic acts: self2interested / altruistic preferences !ndividuals possesses a sense of communit# (extended rationality) Jovernment intervention reIuired to promote a more e%alitarian distri6ution of income amon% people
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Post ;orld ;ar !! economics

conomic %ro7th driven 6# technical innovation appeared to offer limitless pro%ress (i.e. B%reen revolutionC in the 84.s, in the "S) Ao7ever, startin% from the 84.s, increasin% a7areness of pollution pro6lems Rachel >arson Rachel >arson (114*): BSilent Sprin%C. Aou%hton Mifflin.
(11.-211E.) (Marine 6iolo%ist)

The 6oo9 inspired 7idespread pu6lic concerns 7ith pesticides and pollution of the environment. !t facilitated the 6an of the pesticide DDT in 11-* in the "S.

Still most of mainstream (neoclassical) economists claim that optimal resource allocation is possi6le 7ith an efficientl# functionin% price s#stem. Technical chan%e 7ill miti%ate the ris9 for resources e<haustion 22= optimistic vie7 of technocentrists 'nti2%ro7th ar%uments raised 6# ecocentrists
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nvironmental conomics (1) BtechnocentricC

KTR M >OR)">OP!')

)atural resources are spontaneousl# created, and servin% at man9ind purposes conomic %ro7th conceived in material value terms Prioritar# o6@ective: M'K (J)P) $ree mar9et mechanism and central plannin%, in con@unction 7ith technolo%ical innovation, 7ill miti%ate lon%2run ph#sical resource scarcit# )ature has a mere Binstrumental valueC (use value)

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nvironmental conomics (*) BtechnocentricC

'>>OMOD'T!)J

Resource conservationism, throu%h %overnmental plannin% Re@ection of the infinite su6stitution amon% resources Pursuin% of a sustaina6le %ro7th, throu%h the settin% of resource mana%ement rules )ature has still a mere Binstrumental valueC (use value)

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nvironmental conomics (0) BecocentricC >OMM")'H!ST

Resource should 6e preserved The ri%ht of the %overnment to fi< environmental constraints, limitin% economic %ro7th, to compl# 7ith ph#sical and social limits (e.%. !nte%rated farmin%) Decentralization of socio2economic s#stem, to pursue sustaina6ilit# Loth instrumental and intrinsic value in nature are considered

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nvironmental conomics (E) BecocentricC D P >OHOJM

<treme preservationist position The socio2economic s#stem should ta9e the minimum resource (e.%. Or%anic a%riculture and de2 industrialization) 'cceptance of 6ioethics: non2human species detains moral ri%hts !ntrinsic value in nature mphasis on a distinction 6et7een instrumental value (useful for human purposes) or intrinsic value (non2 preference2related value, 7hich e<ists also if humans 7ere e<tinct)

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!nstitutional conomics paradi%m

Ronald A. >oase (111.2 ) )o6el in 1111 Btransaction costs to e<plain the limits and the nature of firmsC

linor Ostrom (11002 ) )o6el in *..1 Bcommon propert# can 6e successfull# mana%ed 6# local communitiesC

This is a minorit# doctrine, emer%ed at the 6e%innin% of the *. th centur# (Aamilton ;.A., 1111, 'merican conomic Revie7). Mar9et is conceived as a result of the comple< interaction of various institutions: individuals, firms, states, social norms. The Bne7 institutional economicsC, in late *.th centur#, inte%rates later neoclassical economics into the anal#sis conom# is vie7ed as a d#namic process, and its evolution is 6ased on cultural determinism. (8cultural person8, and not 8rational economic person8) !ndividual preferences are learned, and chan%e over time, and one individual holds 6oth, private and pu6lic preferences nvironmental pro6lems are @ud%ed to 6e an inevita6le result of economic %ro7th in advanced industrial economies. State intervention is reIuired 1+

(ariants of )eoclassical paradi%m (!): The propert# ri%ht approach

Pu6lic decision ma9er, similarl# to private individual, is pursuin% self2interest 22= M'K his o7n utilit# The pu6lic sector provides no incentives for politicians or 6ureaucrats to resist pressures from interest %roups Misallocation of environmental resources cauesd 6#:

Mar9et failures Jovernment failures

>oase theorem (>oase, 114.): %iven certain assumptions, the most efficient solution to pollution dama%e situations is a 6ar%ainin% process 6et7een polluter and sufferer: each could compensate the other, accordin% to 7ho possesses propert# ri%hts

Polluter has the ri%ht: the sufferer can compensate him not to pollute Sufferer has the ri%ht: the polluter can compensate to tolerate the dama%e
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(ariants of )eoclassical paradi%m (!!): The materials 6alance approach

Pollution is a pervasive and inevita6le phenomenon, reIuirin% %overnment intervention (re%ulation or incentives) 'n optimum (efficient) level of pollution can 6e defined:

Min (pollution) , such that: mar%inal net private 6enefits N mar%inal e<ternal dama%e cost

Pro6lem: difficult# to define the 8accepta6le8 levels of environmental Iualit# Pollution control polic# 6ecomes an iterative search process 6ased on a 8satisf#in%8 (e<tended rationalit#), rather than an optimizin% principle

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Polic# anal#sis (alternative) frame7or9s

>ost26enefit (>L'): it implies

Monetar# valuations (not al7a#s possi6le) !nfinite su6stituta6ilit# Positive rates of discount Hon%2term resilience capacit#

$i<ed standard: it implies

Plannin% activit#, 6ased on settin% of environmental constraints (i.e. Hand use zonin%: am6ient environmental Iualit# standards for air, 7ater, radiations, etc.) Re@ection of infinite su6stituta6ilit# >onstraints ma# 6e refined over time (fle<i6ilit#) 'nal#sis 6ased on cost2effectiveness approach (instead of >L') '7areness of the irreversi6ilit# of localized dama%e to ecos#stem

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conomic and nvironmental values

Mainstream economics assi%ns values to o6@ects, dependin% on their attitude to satisf# human needs: There ma# e<ist a lot of assi%ned values to the same o6@ect, 7hich ma# 6e

;illin%ness to pa# (;TP) ;illin%ness to accept (;T')

Ao7ever, environmental economics has identified 0 6asic t#pes of values:

(alues e<pressed via individual preferences Pu6lic preferences value, e<pressed via social norms $unctional ph#sical ecos#stem values

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Total economic value

>onsists of t7o main elements: use value and nonuse value Direct use value: ;TP or ;T' for onl# an actual use of the %ood or service. !t tends to dominate the total value of most ordinar# (non environmental) %oods !ndirect use value: special functions of some ecos#stems Option (alue: Joods and services are valued for their potential to 6e availa6le in the future <istence value: reflects 6enefits from simpl# 9no7in% that a certain %ood or service e<ists LeIuest value: refers to 6enefits from ensurin% that certain %oods 7ill 6e preserved for future %enerations
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Sustaina6le conomic %ro7th and development

Aistorical development of environmentalism

114.s: re6irth of environmentalism, confined to the )orth 11-*: esta6lishment of the ") nvironmental Pro%ramme, and creation of national environmental protection a%encies in the )orth. Pessimistic ve7s of the Meado7s Report (Meado7s et al., 11-*) 113.: contradictin% si%nals, 7ith pessimistic vie7s of the "S Jlo6al *... Report (Larne#, 113.), and optimistic 8cornucopian technocentrist8 approach, and the pu6lication of the Resourceful arth report (Simon nd Dahn, 113E) The term 8sustaina6ilit#8 has appeared in the ;orld >onservation Strate%# (!">), 113.) Mid of 113.s: principle that 7orld8s resources are sufficient to meet lon%2term human needs (Our >ommon $uture, ;> D, 113-: The Jlo6al Possi6le, Repetto, 113+). De6ate a6ut the uneven distri6ution of resources uses across re%ions and population

' 7or9in% definition of sustaina6le development: ma<imization of the net 6enefits of economic development (real per capita income F social 7elfare), su6@et to maintainin% the services F Iualit# of natural resources over time This implies: a) use rate for rene7a6le natural resources O re%eneration rate 6) optimize efficienc# of natural resources use, su6@ect to su6stituta6ilit# 6et7een resources and technolo%ical pro%ress

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colo%ical F >o2evolutionar# economic paradi%m

Richard L. )or%aard (11E02 ) Bor%anisms activel# see9 alternatives in their environment or chan%e 7hat the# findC

ver#thin% is interloc9ed, #et ever#thin% is chan%in% accordance 7ith the interloc9edness conomic development vie7ed as a process of adaptation to chan%in% environment, 7hich 7ill also 6e a source of environmental chan%e: 0 sources of chan%e (none of them alone e<plain all chan%e:

Lreac9do7n of ecolo%ical eIuili6rium Demands of technical consistenc# Development of ne7 forms of need

>o2evolutionar# perspective: provides a lin9 6et7een ecolo%ical and economic anal#sis

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volutionar# conomics paradi%m

Richard R.)elson (110.2 ) Btechnolo%ical and institutional histor# 7ith profound concerns for the role of technolo%# in societ#C Sidne# J. ;inter (110+2 ) Bevolutionar# economics, and especiall# technolo%ical chan%e (strate%ic mana%ement)C

The rational 6ehaviour of individuals is replaced 6# 6ounded rationalit#, 7hich can ta9e the form of ha6its, routines, m#opia and imitation ()elson F ;inter, 113*) The economic s#stems evolves under the effect of t7o strivin% forces:

The creation of diversit#, throu%h the application of various mechanisms The reduction of diversit# (e.%. natural selection)

mphasis on shoc9s and technolo%ical innovation

Geroen van den Ler%h (114+2 ) Bunderstandin% ho7 to foster a social2technolo%ical transition to a sustaina6le ener%# s#stemC

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$inal remar9s

nvironmental conomics deals 7ith

Suppl# F demand of non2mar9eta6le %oods !ncomplete information volvin% s#stems (economic: ecolo%ical) "ncertaint# >omple<it# (ever#thin% is mutuall# interconnected) Pro6lems affectin% other 8or%anisms8 and future %enerations Pu6lic, rather than private costs F 6enefits

conomists have a 7ide choice amon% alternative paradi%ms: orthodo< (e.%. )eoclassical) vs. etherodo< (ne7 paradi%ms 7hich 8the frontier8 for researchers) conomists tend to 6e fascinated either 6# too o6solete models, or too naive tools: each tool ma# 6e suita6le for a certain anal#sis, dependin% on the settin% of assumptions and h#pothesis underl#in% the case of stud#
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