Jamieson on Economics and Environment, pp. 14-20

1.      ECONOMICS (Role of economics in causing and solving env problems)

2.      An important solution to env. problems is changing economic incentives away from env. harmful to env. friendly behavior

         a.      Env harmful examples:

                  i.      One price for as much garbage as you can produce versus charging by the amount of garbage (size of trash can)

                  ii.     Also, cheap gas, free subsidized roads, subsidies for use of public lands (artificially low prices for grazing, timber, mining leases)

         b.      Env friendly examples: Tax credits for hybrid cars, subsidized inexpensive rail and bus systems, higher parking fees

3.      Env good are inefficiently allocated

         a.      That is, they could be redistributed so that some can be made better off w/o making anyone else worse off

4.      Env. goods inefficiently allocated because they have some dimensions of “public goods”

5.      Pure public goods:

         a.      Non-rival: one person consuming it does not diminish another person’s consumption

         b.      Non-excludable: Available to everyone and can’t exclude people from benefitting from such goods even if they don’t pay for them

         c.      E.g., national defense or bird watching

6.      “Env. good are relatively non-excludable, but significantly rivalrous” (in many cases)

         a.      It is hard to exclude people from using them, but this use often diminishes another’s ability to use

         b.      Example: People’s use of env. goods (e.g., air as a pollution sink), diminishes their value to others (e.g., polluted air less valuable) without paying the full costs of their use

7.      Car example

         a.      If I want your car, I have to buy it from you (and this increases efficiency–we are both better off by our own lights)

         b.      But I get to drive it away and spew pollution out the tailpipe, causing air pollution (and harming many innocent people) and global warming--neither of which I have to pay for

8.      Public goods like the environment will tend to be over exploited

         a.      Markets allocate privately owned goods (cars, houses) well enough, but

         b.      Public goods like the atmosphere will be over-exploited

         c.      Cost of consuming a public (environmental) good is “externalized” onto the entire community

                  i.      Full cost of using a public (environmental) good not reflect in its price

                  ii.     So public goods like env will be over-exploited

         d.      Example: Which is cheaper? $5.00 for recycled paper or $4.00 for virgin paper? It would seem virgin paper is cheaper, but not when one factors in the environmental cost of deforestation

9.      One solution to internalize these externalities

         a.      By regulating or taxing externalities

                  i.      E.g., force businesses who pollute to prevent their pollution

                  ii.     E.g., Tax businesses (or individuals) for their pollution; force car manufacturers to put catalytic converters on cars

         b.      By making the public goods private

                  i.      E.g., Endangered species sold to highest bidder, privatize parks

                  ii.     Harm to these things would violate private property rights and owners would prevent this and owners have an incentive to take care of them

10.    Objections to economic approach to solving env problems

         a.      Economic solutions can lead to env destruction

                  i.      “Clear cut economics”: If the interest rate in banks is higher than the growth rate of whales, it makes economic sense to stop harvesting whales sustainably and harvest them all at once and put the money earned in the bank

         b.      Those who don’t participate in markets are ignored:

                  i.      Animals, plants (nature at large), poor, and future generations (ignored except to extent valued by current people)

         c.      Use of discount rate to value effects on future generation is problematic (p. 19)

                  i.      The benefits or costs in the further future become trivial (worth almost nothing now)

                  ii.     Some economists think preventing the worst impact of global warming that will be felt over centuries is not worth sustaining even a small loss to the economy today

                           (1)    Because discounting future costs makes them of little value today

         d.      Economic rationality can be morally irrational

                  i.      Lawrence Summer’s memo (need more pollution in developing world)

         e.      Some costs not compensable at all

Study Questions

1.      In your own mind how important is economics as a cause of environmental problems and as a possible solution to them?

2.      Explain the following concepts and given environmental examples of each: pure public goods, externalities, internalizing externalities, discount rate.

3.      In what way does Jamieson think env goods are and are not pure public goods.

4.      Why do env goods tend to be over-exploited, according to Jamieson?

5.      Identify and explain three objections to the economic approach to solving env problems.

6.      Do markets work well in allocating public goods? Why or why not?

7.      Why did Larry Summer’s argue that we need more pollution in the developing world?

8.      Which (if any) does Jamieson think is key in causing and solving env. Problems: technology, economics, religion/values?