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to Environmental
and Resource Economics
Instructor:
Mohammad A. Ashraf
Associate Professor and Former Head
Department of Economics
United International University
Chapter 1: Visions of the Future
Introduction:
The Self-Extinction Premise
• About the time (?) the American colonies won independence,
Edward Gibbon (1737 -1794) wrote his book, The History of
the Decline and Fall of the Roman Empire (5th Century), 6
vol.(1776-1788): A tale extended from the 2nd Century AD to
the Fall of Constantinople
(Byzantium>Constantinople>Istanbul) in 1453.
What could cause the demise of such a powerful society?
Gibbon answered: The seeds for Rome’s destruction were sown
by the Empire itself.
The premise that societies can germinate the seeds of
their own destruction has long been fascinated
scholars. Among them, Thomus Malthus is very
prominent and highly influential to note.
• In 1798, Thomas Malthus published his treatise, An
Essay on the Principle of Population.
Malthus foresaw a time when popn growth will
exceed food supply. This shortage of food will raise
human hunger, starvation and death.
• In his view: Mother Nature would adjust itself which
is called self-adjusting mechanism.
• This adjustment mechanism would rather involve
rising death rates caused by environmental
catastrophes than either by “innovation” or “self-
restraint”.
• Generally our society seems remarkably robust
surviving wars and natural calamities, while
surprisingly increasing living standards and life
expectancy. Yet, actual historical instances suggest
that Malthus’ “self-extinction vision” may have merit.
• Historical Examples: The Mayan Civilization &
Easter Island.
• Thus, according to Malthus:
Future societies will be confronted by two ways:
(i) Resource Scarcity
(ii) Environmental Constraints
Future Environmental Challenges
Who is responsible?
- developing countries/ developed world?
- who is the hardest bit?
Solution:
• It will require a coordinated global response.
The problem is world system – “nation – state” system
which is supreme and international cooperation is
relatively weak.
Example: “Bangladesh – India relationship”
Water accessibility
Another threat is loomed by the interaction of an
increasing demand for resources in the face of a
finite supply. For instance, “water” which is vital
to life.
According to the UN:
About 40% of the world’s population lives in
areas with moderate – to - high water stress.
Moderate: >20% human consumption of all accessible
renewable fresh water resources.
High: >40%
It is estimated that, by 2025, about 2/3 of the world’s
population (about 5.5 b people) will live in areas facing
either moderate or high water stress.
This stress is not uniformly distributed around the
globe. For instance:
In the USA, Mexico, China and India, groundwater is
being consumed faster than it is being replenished
and aquifer levels are steadily falling.
Some rivers, such as the Colorado in the western
United States and the Yellow in China, often run dry
before they reach the sea.
Glaciers that feed many Asian rivers are shrinking.
According to the UN data:
Africa and Asia suffer the most from the lack of access
to sufficient clean water.
Up to 50% of Africa’s urban residents and 75% of the
Asians lack adequate access to a safe water supply.
Human activity:
• Water is getting contaminated by human activities.
According to UN:
90% of sewage and 70% of industrial wastes in
developing countries are discharged by without
treatment
Some countries with arid areas have compensated for
their lack of water by building dam and large reservoirs.
For example:
The reservoir behind the Three Gorges Dam in China is
so vast that the pressure and weight are causing tremors
landslides.
Discussion:
Bangladesh - India Farakkah dam and others.
Meeting the challenges
• Poverty
• Climate change
• OZONE (O3) depletion
• Loss of biodiversity
Future generations cannot speak for themselves,
the current generation must speak for them.
Global Environment Problems :
• Low – lying countries could be submerged by the
rising sea levels predicted by some climate change
models.
• Arid nations could see their marginal agricultural
lands succumb to desertification.
How to respond Socially?
Intensify shortages
Ex. Map
Chapter 2: The Economic Approach: Property
Rights, Externalities and Environmental
Problems
The Human-Environment Relationship
The Environment as an Asset:
Air Pollution
Energy Firms: Y
Solid Waste
Air Recycling
Inputs Outputs
MCs
MCp
P* Loss to society
Pm
Q
Q* Qm
Why?
Price
Person A
D
Quantity
Price
Person B
D
Quantity
Price
Market Demand
OA + OB MC
OB
OA
D
0 Quantity
Q*
• Marginal willingness to pay is different for each
consumer. So efficient pricing system would requare
a different price to each consumer.
• In this condition, producers would have no bases for
figuring out how to differentiate the prices.
• In the absence of excludability, no consumer would
express his/her strength of preference for this
commodity.All consumers have an incentive to
express low level of preference and to try to shift the
cost burden to the other consumer.
Free rider
Inefficiency results.
Imperfect market structures (monopoly)
Monopoly violates the definition of efficiency in the
goods market
Price
Marginal cost
E
F
J C
G
D
H
MR Demand
0 Quantity
A B
Figure: Monopoly and inefficiency
CS : I G C
PS : G C H
Monopoly would produce and sell 0A where MC = MR
and charge price 0F. At this point of production,
PS = HFED which is maximized. And this is not equal
to CS + PS, because there is a dead- weight loss to
society which is equal to EDC.
It leads to inefficiency.
Government failure
Market processes are not the only sources of
inefficiency . Political processes are fully as culpable.
What is that and how?
Govt. failures share with market failure the
characteristics that improper incentives are the root of
the problem.
Special interest groups use the political process to
engage in what has become known as “rent seeking”.
Rent seeking is the use of resources in lobbying the
political group. Successful rent seeking activity will
increase the net benefits going to the special interest
Group, but it will also lower the surplus to society as a
Whole.
Main reason : voters’ ignorance .
Rent seeking can take many forms. Producers can take
price floor to hold prices above their efficient levels.
Consumers can seek price- ceilings to transfer part of
their costs to the general body of taxpayers.
MCp
MCp
P* A B
C (with govt. subsidy)
Pm
Q
Q* Qp
Figure : The markets for steel (with subsidy from Govt.)
Production
Q* Qm
C + D = Bribe to steel company
If they accept :
PS = A + B + C + D
If they refuse :
PS = A + B + D
Acceptance would be better off.
If negotiation is in practiced?
Then Court system is the answer