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Applying Economics to the Environment

Clifford S. Russell

This is a book for an undergraduate or graduate level course in environmental economics. It covers the usual array of topics having to do with pollution of the earth, air, and water. A major feature distinguishing it from competitive texts is its coverage of developmental economics and the environment. The book is also relevant to policy students, however, it gives a relatively sophisticated presentation of economic analysis. For that reason the author includes a full-chapter review of relevant microeconomic concepts. He also presents a contextual chapter on the "science" of environmental studies.

Applying Economics to the Environment

Clifford S. Russell

Description

Applying Economics to the Environment is distinguished from other books on environmental economics by its breadth of coverage and its in-depth discussions of several key topics. The book's broad scope includes a chapter on how models of the natural world interact with economic models in ways that are central to the conclusions economists reach. It devotes a chapter to contingent valuation, currently the hottest topic in the field. It also contains a chapter on monitoring and enforcement, a topic often completely ignored but central to considerations of instrument choice. In addition, the final four chapters deal with the special problems of developing countries and the environment, both their own and our shared global systems. In terms of depth, the book's discussion of contingent valuation and related "direct" damage or benefit estimation techniques is unmatched outside the specialist literature. Its coverage of the choices available among policy instruments goes far beyond the usual simple discussions contrasting what is misleadingly known as "command control" with so-called economic or market-based instruments. This coverage reveals the complexity of the choice and the range of alternatives available. It also presents several of the newer ideas, in particular the use of publicly available information as a tool of environmental policy. Applying Economics to the Environment is intended to serve a dual market of upper-level college course programs in environmental economics as well as engineering and public policy courses that focus on the environment. The book can also provide an enlightening perspective for practicing professionals. Because the text includes a relatively sophisticated presentation of economic analysis, the author includes a full-chapter review of relevant microeconomic concepts. Some other features that further distinguish this book from currently available titles on the subject are: an introduction to the history of environmental policy and legislation; a comparison of approaches to the uncertain choice between development and preservation; and an example of regional cost benefit analysis.

Applying Economics to the Environment

Clifford S. Russell

Foreword
1. What Does Environmental Economics Have to Do With the Environment?
Some Historical Problems
Analyses of Causes and Solutions
Getting Closer to Specifics
A Sketch of Environmental Policy Choices
Development and the Environment
A Concluding Theme
2. Background on Actual Policy Choices
A Little History
Efforts to Deal Legislatively with the Environment in the United States
The 1970s -- A Decade of Environmental Legislation
Summarizing the Place of Economics in Environmental Legislation in the U.S.
A Few Comments on International Comparisons and Global Concerns
Things to Keep in Mind
3. Microeconomics: Review and Extensions
Demand, Willingness to Pay, and Surpluses
Optimization in Microeconomics
Supply/Marginal Cost
Social Welfare Notions: Prices and Optimality
Notes on Optimization and the Choice of Environmental Policy
Optimization in Microeconomics
Reminders
Appendix I. Chapter 3
Rationality
Demand Functions and Willingness to Pay
Time and Uncertainty
Ignorance of the Future
Risk and Uncertainty
Appendix II. Chapter 3
Correcting Market Failures: Is Partial Correction Better Than Nothing?
Optimizing with Inconveniently Shaped Functions
When Available Future Decisions are Changed by Present Decisions
4. An Introduction to the "Environmental" Part of Environmental Economics
Functions of the Environment Relevant to Environmental Economics
Models of the Natural World
More About Space, Time, and Randomness
Ignorance
Concluding Comments and Reminders
5. Cost-Benefit Analysis and the Management of the Environment
Going Beyond the Simplest Optimizing Problem
A More Formal and Complex Model of the Optimizing Problem
Doing Less Than Basin-Wide Net Benefit Maximization
6. Damage and Benefit Estimation: Background and Introduction
Practical Arguments
Ethical Objections and Counter Considerations
Some Important Misunderstandings about Econmics
Some Possible Bases for Valuing Environmental Goods and Services
The Heart of the Econmic Approach
Benefit "Routes" -- A Brief Review
Conclusions and Reminders
7. Indirect Benefit Estimation
Demand Shifts: Complementarity
Cost Shifts: Averting, Replacing, or Curing Expenditure
Travel Cost and Its Relation to Environmental Quality
Comments on Indirect Methods of Benefit Estimation More Generally
Conclusions and Reminders
8. Direct Methods of Benefit Estimation
Strategic Responses
Cognitive Difficulties and Lack of Knowledge
Some Other Challenges for Direct Questioning Methods
Conjoint Analysis
Three Final, Practical Problems
An Attempt at a Bottom Line on Direct Questioning Techniques
9. Policy Instruments I: Some Basic Results and Confusions
Narrowing Down
Bases for Judging Among Instruments
Static Efficiency
Contrasting the Static and Dynamic Cases
A Word About Subsidies
A Summary to This Point
10. Policy Instruments II: Other Considerations and More Exotic Instruments
Comparing Instruments: Other Considerations
General Institutional Demands
Prices, Ethics and Politics in Environmental Policy
Other Dimensions of Judgment
Beyond Administered Prices and Straightforward Regulations
Liability Provisions
The Provision of Information
Challenge Regulation
Concluding Comments and Reminders
11. Monitoring and Enforcement
Characteristics of Various M & E Settings
Elements of a Monitoring and Enforcement System
Some Simple Economics of Monitoring and Enforcement
Monitoring and Complicance as a Decision Under Uncertainty
Conclusions and Reminders
12. Dealing with Risk: The Normative Model and Some Limitations
Rational Models for Dealing with Risk
Cognitive Problems with Risky Decisions
Some Conclusions
13. Risk Analysis and Risky Decisions: Some Applications
Risk Analysis and Risk Management
Irreversible Decisions, Ignorance, and the Techniques for Informing Decisions
Concluding Comments
14. Development and Environment: Descriptive Statistics and Special Challenges
Trying to Understand Economic Growth and Sustainability
Describing Countries and Their Health and Environmental Problems
Back to the Question of Special Challenges
Does Rising Income Lead to Better Environment and Thus to Sustainability?
Concluding Comments
15. Estimating Environmental Quality Benefit or Damages in Developing Countries
Introduction
Benefit Estimation Methods for the Developing Country Setting
Direct, Hypothetical or "Stated Preference" Methods
Some Evidence on Contrasts Between Developing and Developed Countries
Conclusion
16. Choosing Instruments of Environmental Policy in the Developing Country Context
The Institutional Setting in Developing Countries
Are Market-based Environmental Policy Instruments the Best Answer for Developing Countries? Observations and Suggestions
Some Evidence on the Actual Choices of Environmental Policy Instruments Being Made in Latin America
Concluding Comments
Appendix I. Chapter 16
Some Detail on Institutional Capabilities and Market Configurations in Latin America
17. Developing Country Environments and OECD Country Tastes: An Asymmetric Relation
Some Possibilities for Cross-Border Influence
Where Does That Leave Us?