1. Lecture 20: The Environment and Development
Economics and the Environment

2. 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

3. 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

4. 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

5. 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

6. 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

7. Rural Development and the Environment
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

8. 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

9. Traditional Economic Model of the Environment
Privately Owned Resources
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

10. 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

11. 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?