Principles of Environmental Economics Second edition ‘The second edition builds on the strengths of the first It is well written, well organized, and provides a broad survey of environmental economics from a range of perspectives.’ Jo Crotty, Aston Business School, UK ‘This is a well researched and comprehensive text that offers an alternative and refreshing perspective on environmental economics.’ J Bussel, University of Teesside, UK ‘This is a logically organized, well written text Its distinguishing element is its explicit consideration of ecology, ecological economics, and sustainable development.’ Douglas E Booth, Marquette University, Wisconsin, USA Can economic growth be environmentally sustainable? This crucial question goes right to the heart of environmental economics and is a matter of increasing concern globally The first edition of this popular textbook was the first introductory textbook in environmental economics that truly attempted to integrate economics with not only the environment but also ecology This new version builds and improves upon the popular formula with new material, new examples, new pedagogical features and new questions for discussion With international case studies and examples, this book will prove an excellent choice for introducing both students and other academics to the world of environmental economics Ahmed M Hussen is Professor of Economics, Kalamazoo College, Michigan, USA Principles of Environmental Economics Ahmed M Hussen First edition published 2000 by Routledge 11 New Fetter Lane, London EC4P 4EE Second edition published 2004 Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 Routledge is an imprint of the Taylor & Francis Group This edition published in the Taylor & Francis e-Library, 2004 © 2000, 2004 Ahmed M Hussen All rights reserved No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data A catalog record for this book has been requested ISBN 0-203-50742-8 Master e-book ISBN ISBN 0-203-57050-2 (Adobe eReader Format) ISBN 0-415-27559-8 (hbk) ISBN 0-415-27560-1 (pbk) Summary contents Contents Figures Tables Case studies Exhibits Preface Acknowledgements Introduction vii xiii xv xvi xvii xviii xxiv xxv PART Fundamental assumptions, concepts, and theories of economics and ecology essential for understanding the links between the natural environment and the human economy The natural environment and the human economy: the neoclassical economics perspective The natural environment and the human economy: an ecological perspective 18 PART The economics of the environment: theories and alternative public policy instruments 43 Fundamentals of the economics of environmental resources: the ‘optimal’ trade-off between environmental quality and economic goods 45 The economic theory of pollution control: the optimal level of pollution 67 The economics of environmental regulations: regulating the environment through judicial procedures 88 vi Summary contents The economics of environmental regulations: pollution taxes and transferable emission permits 106 Global environmental pollution: acid rain, ozone depletion and global warming 126 PART Valuing the environment 141 Economic valuation of environmental services 143 A framework for assessing the worthiness of an environmental project: cost–benefit analysis and others 172 PART The perennial debates on the biophysical limits to economic growth and the emerging paradigm of sustainable development 199 10 Biophysical limits to economic growth: the Malthusian perspective 201 11 Biophysical limits to economic growth: the neoclassical economics perspective 221 12 Biophysical limits to economic growth: the ecological economics perspective 243 13 The economics of sustainable development 266 PART The problems of poverty and environmental sustainability in the developing countries of the world 289 14 Population, development and environmental degradation in the developing world 291 Appendix A: Resource scarcity, economic efficiency and markets: how the Invisible Hand works 323 Appendix B: List of important websites 335 Index 338 Contents Figures Tables Case studies Exhibits Preface Acknowledgements Introduction xiii xv xvi xvii xviii xxiv xxv PART Fundamental assumptions, concepts, and theories of economics and ecology essential for understanding the links between the natural environment and the human economy The natural environment and the human economy: the neoclassical economics perspective 1.1 Introduction 1.2 The market as a provider of information on resource scarcity 1.2.1 Price as an indicator of absolute scarcity 1.2.2 Price as an indicator of relative scarcity or opportunity cost 1.2.3 Price as a signal of emerging resource scarcity 1.3 Factor substitution possibilities, technological changes and resource scarcity 1.3.1 Factor substitution and its implications for resource scarcity 1.3.2 Changes in production technology and its implications for resource conservation 11 1.4 The human economy and the natural world: the neoclassical worldview 12 1.5 Chapter summary 16 Review and discussion questions 17 The natural environment and the human economy: an ecological perspective 2.1 Introduction 18 2.2 Ecosystem structure 20 18 viii Contents 2.3 Ecosystem function 22 2.3.1 Materials recycling 24 2.3.2 Energy and thermodynamics: why ecosystems need continuous flows of energy from an external source 26 2.4 Ecological succession 29 2.5 Ecology and its implications for the human economy 32 2.6 Applying the tools: sustaining vision 35 2.7 Chapter summary 39 Review and discussion questions 40 PART The economics of the environment: theories and alternative public policy instruments Fundamentals of the economics of environmental resources: the ‘optimal’ trade-off between environmental quality and economic goods 3.1 Introduction 45 3.2 The economic process and the assimilative capacity of the natural environment 46 3.3 Why markets may fail to allocate environmental resources optimally 51 3.3.1 Common property resources and the economic problem 51 3.3.2 Environmental externalities and their economic consequences 54 3.4 The macroeconomic effects of environmental regulation: an overview 58 3.5 Chapter summary 63 Review and discussion questions 64 43 45 The economic theory of pollution control: the optimal level of pollution 67 4.1 Introduction 67 4.2 Minimization of waste disposal costs 68 4.2.1 Pollution control (abatement) costs and their salient properties 68 4.2.2 Pollution damage costs and their salient properties 70 4.3 The optimal level of pollution 73 4.4 Changes in preferences and technology and their effects on the optimal level of pollution 76 4.5 An alternative look at market failure 79 4.6 The optimal level of pollution: an ecological appraisal 80 4.7 Chapter summary 85 Review and discussion questions 86 The economics of environmental regulations: regulating the environment through judicial procedures 5.1 Introduction 88 5.2 Environmental regulation through liability laws 89 5.3 The property rights or Coasian approach 92 88 Contents ix 5.4 Emission standards 95 5.5 Chapter summary 103 Review and discussion questions 104 The economics of environmental regulations: pollution taxes and markets for transferable pollution permits 106 6.1 Introduction 106 6.2 Effluent charges 106 6.3 Transferable emission permits 113 6.4 Applying the tools: an evaluation of the emissions trading programs in the United States 118 6.4.1 Programs to phase out leaded gasoline and ozone-depleting chlorofluorocarbons 118 6.4.2 The acid rain control program 119 6.5 Chapter summary 122 Review and discussion questions 124 Global environmental pollution: acid rain, ozone depletion and global warming 126 7.1 Introduction 126 7.2 Causes and consequences of acid rain 127 7.3 Causes and consequences of the depletion of the ozone layer 127 7.4 Causes and consequences of global warming 128 7.5 International responses to acid rain, ozone depletion and climate change 131 7.6 The economics of atmospheric pollution 135 7.7 Chapter summary 138 PART Valuing the environment Economic valuation of environmental services 8.1 Introduction 143 8.2 Valuation of benefits: the methodological issue 144 8.3 Practical methods for measuring the benefits of environmental improvement 147 8.3.1 The market pricing approach 148 8.3.2 The replacement cost approach 149 8.3.3 Hedonic pricing approaches 150 8.3.4 The household production function approach 154 8.3.5 The contingent valuation method 156 8.4 Critical assessment of the economic approach to environmental valuation 163 8.5 Chapter summary 168 Review and discussion questions 169 141 143 ... and other academics to the world of environmental economics Ahmed M Hussen is Professor of Economics, Kalamazoo College, Michigan, USA Principles of Environmental Economics Ahmed M Hussen First.. .Principles of Environmental Economics Second edition ‘The second edition builds on the strengths of the first It is well written, well organized, and provides a broad survey of environmental economics. .. PART The economics of the environment: theories and alternative public policy instruments 43 Fundamentals of the economics of environmental resources: the ‘optimal’ trade-off between environmental