480

Arner. J. Agr. Econ.

May 1996

J.N. Wolfe ed.

Fisher, A.C., and E Peterson. "The Environment in
Economics: A Survey." J. Econ. Lit. 14(March
1976):1-33.
Peterson, E, and A.C. Fisher. "The Exploitation of
Extractive Resources: A Survey." Econ. J.
87(December 1977):681-721.

Holley H. Ulbrich
Clemson University

Goldin, Ian, and L. Alan Winters, eds. The Economics of Sustainable Development. Cambridge UK: Cambridge University Press,
1994, xx + 306 pp., price unknown.
In May 1993 an international conference was convened on the subject of sustainable development.
The papers presented were edited and collected into
a volume by Ian Goldin and L. Alan Winters under
the title The Economics of Sustainable Development.
There certainly is a large demand for innovative
analysis and guidelines for policy and program design to promote sustainable development. But since
Our Common Future appeared in 1987 (World Commission), the supply of articles and conferences and
books dealing with different variants of sustainability has also been large. Readers are rightly sceptical.

Downloaded from http://ajae.oxfordjournals.org/ at University of Connecticut on May 25, 2015

Foldvary, Fred. Public Goods and Private Communities: The Market Provision of Social Services. Brookfield VT: Ashgate Publishing,
1994, 288 pp., $59.95.
This volume combines a theoretical explanation for
successful private provision of shared goods (not social services, as the title promises) with case studies
of actual provision by proprietary communities ranging from Disney World to condo associations to
planned communities. In both the model and the
cases, the shared goods are territorial in nature, the
type generally provided by local governments-open
space, street lights, solid waste collection, recreational facilities, etc. In general, the case studies are
more informative and original than the theory, which
creates a straw man of traditional public goods
theory that is allowed to slowly twist in the wind before being hanged, quartered, and burned for good
measure.
The straw man is that public goods will not be
provided by any other arrangement but compulsory
taxation through government because of the freerider problem. Yet the most widely cited models' of
public provision, the Samuelson and Lindahl models, do not imply nonprovision, just less than optimal provision. These models also imply that the degree of suboptimality will depend on certain characteristics of the good in question; in general, local
public goods are much less vulnerable to free-riding
than those that are less territorial. Thus, the "proof'
in each of Foldvary's case studies that local public
goods are in fact successfully provided through contractual arrangements and financed in many cases by
site rents merely contradicts a hypothesis that has
little, if any, currency, particularly for shared goods
that are territorial in nature.
With this caveat, there is much of interest in this
small volume. There are some useful extensions and
integrations of taxonomy that help to counter a tendency to occasional sloppiness in thinking about
public goods, a carelessness that results in part from
not giving concrete embodiment to the kinds of public goods being modeled. There is a useful discussion of the work of Heath and McCallum on proprietary communities as diverse as resident community
associations, hotels, and even shopping malls. There
is an excellent discussion of the role of territorial
site rents as a payments mechanism. And the casesDisney World, a condominium association, two
planned communities, and some private provision of
shared services in St. Louis-are a most useful addi-

tion to the stories economists tell.

But the case that Foldvary attempts to make for
proprietary over sovereign provision of local public
goods is not compelling, and it fails to address some
important concerns. How applicable is contractual
provision of shared services in an established community rather than a newly created one? What happens to those who are excluded from these proprietary communities by the cost of both private housing and shared amenities? Which shared services are
successfully provided, and which still require local
government? (Most of his cases still rely on local
government for certain services.) Do proprietary
communities represent a case of "skimming," taking
the most attractive residents and the most easily provided services and leaving the difficult cases for local government? In what sense is the ability to
modify an unsatisfactory contract different from the
town meeting or the ability to vote out of office
those whose management is unsatisfactory? Are not
the options of voice and exit equally effective
mechanisms in the local public sector as they are in
residential associations or other forms of proprietary
governance? How fundamental are the differences
between funding shared services by a mix of condo
association dues and site rents in the private case,
and funding those same services by property taxes
and municipal fees in the public case?
There is clearly a strong trend toward proprietary
communities of many kinds-retirement communities, gated residential communities, condominium
associations-c-all representing proprietary governance that either replaces or supplements the services of the local public sector. Much more work is
needed to understand the implications of this trend
for the provision and financing of local public services. Despite its flaws, Foldvary's contribution
raises some provocative issues and offers some insights into how we provide shared goods and services in a variety of nontraditional settings.

Publications

481

ships between economic activity and environmental

quality: (i) reductions in the pollution output of an
economy are stimulated more by changes in policy
than by endogenous changes in economic activity;
(ii) the positive effects of growth on environmental
quality are most pronounced for pollutants that have
negative effects on human health; and (iii) the positive effects of growth on environmental quality are
least pronounced for pollutants whose negative impacts are dissipated across large areas.
The discussant of Grossman's paper, Gilles SaintPaul, offers an alternative proposition for the inverted- U relationship between emissions and income: poor countries are likely to be net exporters
and rich countries net importers of pollution-intensive goods. Richard Baldwin, in chapter 3, accepts
the humped-shaped relationship as a general result
and couches a discussion of the environmental effects of economic growth in a more general argument about the dynamics of population growth and
environmental impact. Simply put, "people make
pollution and poverty makes people." Baldwin presents some empirical results on the relationship between economic activity and air pollution to support
this argument and discusses the need for economic
development to bring down population growth rates
and, thereafter, negative environmental effects. What
he does not say so eloquently, but which is suggested by his analysis, is that poverty constrains the
amount and type of pollution that people make.
In some ways the Grossman and Baldwin papers
are as notable for the issues they do not cover as for
those they do. The chapter titles imply generalities
about economic activity and the environment; the
large majority of the empirical results are for the relationships between economic activity and air pollution. Baldwin (p. 66) acknowledges the possible importance of soil degradation, deforestation, and reduced biodiversity, for example, but his discussion
implies that it is reasonable to generalize on the relationship between growth and the environment from
results on the relationship between per capita income and air pollution. Both Grossman and Baldwin
could have enhanced their contributions with discussions of how the intensity and form of human impacts on the natural environment-impacts on soils,
forests, biological diversity, surface water, ground
water, air-might change as economies change. We
know, for example, that emission and sequestration
of greenhouse gases depend, inter alia, upon landuse, agricultural production, industrial production,
and energy consumption, and that each of these depend in turn upon the level and type of economic activity (e.g., poor people consume wood; industrialists consume coal and petroleum; wealthy consumers
consume petroleum and electricity). Both contributions could have been further enhanced with more
discussion of the social-political processes through
which countries, "turn the corner" from having positive to negative income elasticities of pollution.
Most of the environmental effects of concern are external to the decisions made by individual firms or

Downloaded from http://ajae.oxfordjournals.org/ at University of Connecticut on May 25, 2015

So what distinguishes this book from its competitors

or complements? First, the approach is deliberately
unidisciplinary: we see sustainable development as
viewed through economists' spectacles. Second,
most of the contributors have eminence in macroeconomics and growth rather than the usual conception of resource or environmental economics: we
see sustainable development from the perspective of
overall economic change. Third, most of the authors
are uncommonly bold in their interpretation of facts
and presentation of concepts and models: from
chapter to chapter we see authors stating strong
cases for novel and thought-provoking theses.
Fourth, each paper is directly followed by well-articulated comments by a discussant: we see immediate counterpoint and reaction to the papers by the
authors' peers. The overall result is a contribution
that deserves to be read and discussed by advanced
students, theoreticians, applied economists, and development planners in all regions of the global commons. It may not be very accessible to undergraduate economics students nor to specialists in the other
disciplines-ecology, botany, zoology, engineering-who are interested in better understanding the
long-term relationships between people and their
natural environment.
The ten contributed chapters deal with four
themes: (i) the relationships between economic
growth and pollution, (ii) the prospects for sustaining economic growth from one generation to the
next, (iii) the effects of macroeconomic and sectoral
policies on water use and air pollution, and (iv) possible solutions to international public good and externality problems related to air pollution. After an
introduction prepared by the book's editors, the ten
substantive chapters are arranged by theme, with
two or three papers dealing with each theme.
To begin chapter 2 and part I of the book, Gene
Grossman presents a simple accounting equation to
disaggregate the pollution associated with aggregate
economic activity. Greater economic activity, measured by real GDP, will increase emissions through
scale increases, but will either reduce or increase
emissions through changes in technologies and the
composition of economic activity. Grossman discusses recent studies of the relationships between
per capita GDP and pollution, most of which were
conducted by Grossman and his colleagues. In crosscountry analyses they found evidence of inverted-U
relationships between per capita income and concentrations of sulphur dioxide and suspended particular
matter. Emissions are lowest for the lowest-income
countries; they increase with income and are highest
in countries with per capita incomes on the order of
U.S. $5,000; they tend to decrease with income in
countries whose per capita income exceeds U.S.
$5,000. Grossman presents several other results
from analysis of data from small numbers of countries and county-level data for the United States, but
these results show no consistent relationship between pollution and economic activity. He concludes
with several propositions about the overall relation-

Books Reviewed

482

May 1996

ture that has accumulated over the last few years on

transaction costs, risk, and multiple market failure in
the economies of developing countries.
I found Dasgupta's discussion of the definition of
sustainable development to be one of the most important sections of the entire volume. He argues (p.
116) that the Pearce, Barbier, and Markandya definition of sustainable development, as the constancy of
the natural capital stock, makes sustainable development an impossible goal. This is an important point
and it would be interesting to know the reaction of
Pearce and colleagues. Dasgupta recasts sustainability in terms of a model of optimal development
paths under uncertainty. "Uncertainty about future
possibilities and the fact that economic decisions
can have irreversible impacts together provide us
with a reason to value flexibility .... The underlying
idea is that the present generation should choose its
policies in a way that helps preserve future generations' options" (p. 122).
Dasgupta makes another important contribution
with his discussion of environmental accounting
prices. Systemic market failure in many developing
countries means that market prices are nonexistent
or are strongly biased measures of the values of environmental goods. One approach to this problem is
to estimate the value of the goods in production of
some output that is produced with it. There are several problems with this approach: (i) it is easy to
understate the value of resource stocks such as forests or wetlands that have multiple uses; (ii) resource stocks often have intrinsic worth as living resources; and (iii) changes in the state of environmental resources are often irreversible and thus
there is option value associated with their preservation. The discussant of Dasgupta's paper, Philippe
Aghion, makes several useful comments about
Dasgupta's model of optimal development and
implementation of an optimal development path.
In chapter 6, Andrea Beltratti, Graciela Chichilnisky,
and Geoffrey Heal offer a model of the optimal use of
a renewable resource that is based on an intertemporal
welfare criterion consisting of the discounted sum of
utilities over an infinite time period and the limiting
properties of future utility streams. Instantaneous utility is assumed to depend upon consumption of a good
whose production depends upon the stock of the environmental resource and upon the stock of an environmental resource itself. The welfare function is based on
two appealing axioms regarding the ranking of utility
streams; neither the present nor the future should dictate the outcome. The authors compare outcomes of resource use problems for societies that are more or less
concerned with the very long-run values of consumption and environment, that is, place more or less weight
on the limiting properties of future utility streams. I
agree with the discussant, Alistair Ulph, that the contribution of this paper, and the new model it presents, is
not fully evident from the paper itself. The magnitude
of the contribution will emerge as the model is applied
to a wider class of resource use problems.
The authors of chapters 7 and 8 analyze the ef-

Downloaded from http://ajae.oxfordjournals.org/ at University of Connecticut on May 25, 2015

consumers and thus it is not sufficient that individual firms or consumers would like to reduce environmental damage. Groups, societies, and polities
must find ways to solve the externality and public
good problems. How do economic growth and other
factors shape those solutions? Deacon has taken a
first step toward an answer to this question with his
"Deforestation and the Rule of Law."
Maurice Scott is concerned with that type of question in his chapter 4 entitled "What Sustains Economic Development?" His thesis is that " ... continuing future development mainly depends on the ability of different nations, and on different groups
within nations, to coexist peaceably and to organize
collective action effectively" (p. 83). He provocatively poses this as a counterpoint to others' concerns for the "effects of growth on the environment." I doubt that many of those who are concerned with the environment would deny the importance of peace and effective collective action. In
fact, most environmental organizations are now convinced of the need for community involvement in
natural resource management. Security of food, person, and property may be necessary conditions for
collective action. Scott carries this provocative style
through part one of his paper, touching briefly upon
topics such as (i) the meaning of economic development-growth in per capita income; (ii) natural
capital-confusing and irrelevant; and (iii) option
value-not important and a poor guide for collective
action. His arguments about maintenance costs and
investment expenditures (maintenance costs are incurred to restore existing assets used in producing
income; investment expenditures are those incurred
to increase income) are most convincing. In part 2,
Scott discusses the environmental impacts of economic activity from the perspective of maintenance
costs: " ... there has been an increase in required
maintenance for the whole world economy, but that
it is not very big in relation to world output. .. .It is in
developing countries that environmental problems are
likely to be most acute in the coming years" (p. 96).
And in part 3 he returns to his thesis about the central
importance of peace and effective collective action for
sustained economic growth, with emphasis on the roles
of national governments. Again, I doubt that many
"environmentalists" will disagree; they might want
to sharpen the point with an emphasis on collective
action at the community, national, and international
levels for solution of environmental problems.
Of all of the contributions to the book, Dasgupta's
chapter 5 is most focused on the economic and environmental issues that are most relevant in developing countries, for example, land use to maintain vegetative cover and soil and water quality, forest management to optimize multiple direct uses and indirect functions, and water use that maintains the future value of aquifers. Dasgupta's list of important
environmental issues largely ignores a favorite of
environmentalists: the maintenance of plant, animal, and ecosystem diversity with increasing population pressure. His approach draws upon the litera-

Amer. J. Agr. Econ.

Publications

483

eration issue is picked up by Ravi Kanbur, Michael

Keen, and Sweder van Wijnbergen in chapter 11:
countries with different types of economies have different incentives to enforce environmental standards
on their industries. Kanbur et al. consider a plausible
situation in which (i) polluting industries are internationally mobile and move to the country where
they can earn the highest profits; (ii) industrial profits depend upon the size of the economy, the amount
of pollution they generate, and the amount of tax
they pay; and (iii) national governments like the tax
revenues they obtain from polluting industries and
dislike the pollution those industries cause. Everything else being equal, a smaller country will prefer
looser environmental standards than a larger country. This difference in benefit-cost calculations may
cause a downward spiral of competitive loosening of
environmental restrictions. Kanbur et al. go on to
show that common environmental standards are unlikely to succeed in such conditions. More likely to
succeed is an agreement on a minimum environmental standard across small and large countries. The
small country will adhere to that minimum while the
large country will set higher standards.
I deliberately forestalled comment on the introductory material until I had discussed all of the substantive chapters. The summary comment, presented
inside the front cover and before the title page, uses
key terms like "sustainable development" and
"sustainability" more loosely than many of those
who the authors rightly criticize. Animation of "the
book," as in the first sentence, "The book applies
rigorous economic analysis ... ," creates the impression of coherence and consensus among the many
authors. In fact the different perspectives and approaches of the authors of the ten substantive chapters gives the book a richness that ought to be drawn
out rather than muted.
Chapter 1 suffers some of the same ills. The first
paragraphs provide a definition of sustainable development-"an economy in which future growth is not
compromised by that of the present" (p. I )-that is
not generally accepted by the authors, nor is it likely
to be generally accepted by the book's readers. Perhaps Goldin and Winters would have been better off
to suggest that sustainable is an adjective that usually implies a concern for the preservation of future
options (following Dasgupta), and that authors who
use the term are often concerned about the sustainability of different objects, for example, food security, economic growth, and ecosystem use. The remainder of chapter I was very readable, but in retrospect, I think that, again, there is an impression of
coherence and consensus that detracts from the richness of the different contributions. I would have preferred a format in which the editors used the first
chapter to present their own ideas and took personal
responsibility for those ideas. The four themes addressed in the book could have been identified, as I
did above, and a road map to the chapters provided.
Then the editors could have written a concluding
chapter highlighting the contributions, the strengths,

Downloaded from http://ajae.oxfordjournals.org/ at University of Connecticut on May 25, 2015

fects of domestic macroeconomic and sectoral policies on natural resource use and pollution in two
specific contexts: water use in Morocco and energy
use in China. Both papers illustrate the importance
of trade, macro, and sectoral policies on economic
activity and resource use. Elimination of the distortions caused by current policies creates opportunities
for policy changes that have positive consequences
for economic growth and the use of environmental
resources. This type of outcome is, of course, of
great interest to national governments and organizations that sponsor structural adjustment and market
liberalization. In chapter 7 Ian Goldin and David
Roland-Holst use a calibrated general equilibrium
model of Morocco to simulate the effects of different policy combinations on water use in Morocco.
They conclude that a combination of changes in
economywide and sectoral policies is necessary for
this type of win-win solution to obtain. In chapter 8,
Rosemary Clarke and Alan Winters use an input-output model to simulate the effects of different
sectoral policies on energy demand in China. They
conclude that, although the existing distortions are
large, their structure provides no opportunities for
welfare improvement with abatement in carbon dioxide emissions. Their results would undoubtably
have been different had they modeled the simultaneous change of trade and macro policies.
Chapters 9, 10, and 11 form a section entitled "International Policy Coordination." The three chapters
deal with a component of the issue raised by
Maurice Scott, that is, the ability of autonomous national governments to engage in collective action for
air pollution control. In chapter 9 Jean-Marc
Burniaux, John Martin, Joaquim Oliveira-Martins,
and Dominique van der Mensbrugghe concentrate on
carbon dioxide emissions and the type of international mechanisms that could achieve specified targets. They focus particularly on the prospects for
joint implementation of emission targets through
transfer of energy-conserving techniques from
OECD to less-developed countries. They use the
OECD GREEN model, which they describe. They
conclude that it is unlikely that those transfers
would have much effect on global emissions of carbon dioxide.
Carlo Carraro and Domenico Siniscalco address a
very similar issue, but with a different approach, in
chapter 10. Particularly, they employ a game theoretic approach to assess the prospects for small and
large environmental coalitions of countries to sustain agreements on carbon emissions through mechanisms within the pollution abatement arena (small
coalitions) and through mechanisms that link pollution abatement to other policies. Their results indicate that the latter approach has the greatest potential for ensuring compliance. Observations about the
current use of trade sanctions support this result but
imply that countries will be cautious in their use of
cross-compliance mechanisms that could set off a
sequence of tit-for-tat punishments.
A particular dimension of the international coop-

Books Reviewed

484

May 1996

Brent Swallow
International Livestock Research Institute

References
Deacon, R.T., "Deforestation and the Rule of Law in
a Cross-Section of Countries." Land Econ.
70(1994):414-30.
Pearce, D., E. Barbier, and A. Markandya. "Sustainable Development and Cost-Benefit Analysis."
Paper presented at the Canadian Assessment
Workshop on Integrating Economic and Ecological Assessment, Toronto, 1988.
World Commission. Our Common Future. New
York: Oxford University Press, 1987.

HeImberger, Peter G., and Jean-Paul Chavas. The

Economics of Agricultural Prices. Upper
Saddle River NJ: Prentice Hall, 1996, 356
pp., $74.00.
How many times has a student or a novice economic
analyst forlornly admitted to you that, despite having completed coursework in economic theory and
econometrics, she or he hasn't the first idea how to
go about setting up an economic model for actual
analysis? I suspect that most of us have lost count,
as it is the rare individual who is able to independently make the leap from economic theory to applied economic modeling. At present, my first response to such individuals is to supply an armload of
applied studies for their perusal. That step could,
and perhaps should, follow a trek through The Economics ofAgricultural Prices. The student or novice
professional could then approach the studies with an
appreciation for the distinction between structural
and reduced form equations, with an understanding
of what it takes to complete an equation system, and
with a sense for how the model equations relate to
the theory of the firm, including considerations of

risk and uncertainty. This textbook fills an important

gap, providing an otherwise missing link between
theory and practice in the area of farm commodity
price analysis. Access to this organized treatment of
applied theory of the farm firm could reduce the
length of time the novice economist is consigned to
spend searching for a productive analytical path.
The authors' twin goals are to introduce some of
the more recent developments in the theory of the
firm from the agricultural economics literature into a
textbook, and to use agricultural price analysis as a
vehicle to "help students to learn to think like
economists ... " (p. xvii). A solid grounding in intermediate economics is a necessary background for
readers, as is exposure to differential calculus and
statistics. While such a background forms a part of
most undergraduate curricula, it is arguable that the
standard undergraduate course work would assure a
sufficient foundation to enable the average student
to make good use of this textbook. Advanced undergraduate students in departments and universities
with a tradition of mathematical prowess and sophistication should be able to follow the exposition, as
will the more mathematically oriented student elsewhere. The exposition is predominantly mathematical and verbal in its orientation, with graphic portrayals serving in a less central capacity. This treatment may place the book beyond the grasp of many
undergraduates, but it adds to the text's suitability
for master's-level students and for those practitioners with a master's degree. Visual learners and spatially oriented thinkers will find this book more of a
challenge than will those who think algebraically.
Although not explicitly intended as such, the volume could also serve as a reference for more experienced agricultural economists who do not regularly
work in the area of farm commodity price and policy
analysis or whose training in industrial organization
is absent or rusty. The book is a good starting point
for analysis in these areas, and is sufficiently clearly
written to be useful.
Theory of the U.S. farm firm-taking into account
risk, uncertainty, storage, farm commodity programs, aggregation to market supply, and market
welfare-is the central focus of this text. The chapter covering industrial organization represents the
major deviation from this focus. Where necessary to
complete a model, demand and marketing margins
are considered, and the role of international trade is
given some attention. An overview of the ten chapters and the appendices should serve to provide a
broad brush picture of the topics covered.
In the introduction, chapter 1, the authors use the
energy crisis of the late 1970s and associated market
changes to motivate a discussion of the complexity
of economic relationships, causality, interdependence, risk, and uncertainty. This is accompanied by
a several-page review of selected elements of statistics and the presentation of a family farm model.
Topics in demand (elasticity and aggregation) are included as appendices. Farm production under uncertainty, both in the short and the long run, is covered

Downloaded from http://ajae.oxfordjournals.org/ at University of Connecticut on May 25, 2015

and the weaknesses of theoretical and empirical

analysis, the discussions, and the debate that inevitably occurred during the course of the conference.
And finally, it would also have been refreshing if
the authors had acknowledged the biases and gaps in
the book's contributions. Almost all of the applied and
empirical studies focused on air pollution, and even
particularly on carbon dioxide emissions. How much
should one really generalize from CO2 to the gamut of
environmental problems that bedevil the OECD and
the developing nations? Most of the discussion of
solutions focused on collective action as taken by
national governments or as coordinated between national governments. But what about the roles of governments in facilitating collective action by communities and in shaping the set of incentives to which
individuals and communities respond? This book
represents a major contribution to some, but far from
all, of the most important issues of our time.

Amer. J. Agr. Econ.