Ch. 1 (Stavins) “How Economists View the Environment,” by Don Fullerton & Robert Stavins

Introduction Several prevalent myths about economists’ view of the environment Reasons? 1) Perhaps due to economists’ enthusiasm for market solutions 2) Economists’ failure to clearly state caveats 3) Economists use too much jargon (everyone does this, e.g. computer nerds)

1) Myth of Universal Market Market solves ALL problems Adam Smith “Father of Economics” espoused invisible hand principle: markets are efficient But economists do note several caveats 1) No public goods 2) No externalities, e.g. pollution 3) No monopoly 4) No increasing returns to scale 5) No information problems 6) No transaction costs 7) No taxes 8) No common property , e.g. wildlife 9) No other distortions between costs & benefits

2) Myth of Market Solution Economists always recommend market solutions Economists tend to search for market solutions, e.g. pollution trading permits Conditions needed for successful market 1) No monopoly 2) low cost of measuring emissions 3) SO2 permits have worked well, lowered costs 4) hot spots can be a problem

Economists only look at prices 3) Myth of Market Prices Economists only look at prices Economists are wary of surveys, they like real market data, such as prices, but… Economists also look at “use” & nonuse” values Nonuse: no market, so we must look for indirect measures

Economists only are concerned with efficiency 4) Myth of Efficiency Economists only are concerned with efficiency Equity (distribution of income) is important; Amartya Sen won Nobel prize in 1998 but difficult to measure

Where Does this Leave Us? Need better communication across disciplines E.g. what do these stand for? LASER SCUBA BIOS

The End