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Lecture 22: The Environment and Development. Economics and the Environment. Environment and Development: The Basic Issues. The concept of sustainable development, and linkages between the environment - PowerPoint PPT Presentation
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Lecture 22: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 LDCs have led to land, water, and wood shortages in rural areas, and sanitation and water crisis in urban areas
• Increasing population contributes to accelerated degradation of resources
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Poverty and the Environment
• There exists a 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
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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 are be caused by poverty
• Poor 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 Model 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 inter- temporally 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 (green) 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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Economic Solutions
• Allow scarcity rent to be collected
• Tradable rights to pollute: – Individuals incorporate externalities
• SMC=Private marginal cost+pollution=MR
– Requires a cap to constrain individual and world wide totals
– Should all countries be required to participate