Principles of Environmental Economics

373 Pages·2011·2.94 MB·English

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
‘Thisisawellresearchedandcomprehensivetextthatoffersanalternativeandrefreshing
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 stud ies and examples,this book will prove an excellent choice
for introducing both students and other academics to the world of environmental
economics.
Ahmed M.Hussenis 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 ofCongress 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 vii
Figures xiii
Tables xv
Case studies xvi
Exhibits xvii
Preface xviii
Acknowledgements xxiv
Introduction xxv
PART 1
Fundamental assumptions,concepts,and theories of economics and
ecology essential for understanding the links between the natural
environment and the human economy 1
1 The natural environment and the human economy:the neoclassical
economics perspective 3

2 The natural environment and the human economy:an ecological
perspective 18
PART 2
The economics of the environment:theories and alternative public policy
instruments 43
3 Fundamentals of the economics of environmental resources:the
‘optimal’trade-off between environmental quality and economic
goods 45
4 The economic theory of pollution control:the optimal level of
pollution 67
5 The economics of environmental regulations:regulating the
environment through judicial procedures 88
vi Summary contents
6 The economics of environmental regulations:pollution taxes and
transferable emission permits 106
7 Global environmental pollution:acid rain,ozone depletion and global
warming 126
PART 3
Valuing the environment 141
8 Economic valuation of environmental services 143
9 A framework for assessing the worthiness of an environmental
project:cost–benefit analysis and others 172
PART 4
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 5

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 xiii
Tables xv
Case studies xvi
Exhibits xvii
Preface xviii
Acknowledgements xxiv
Introduction xxv
PART 1
Fundamental assumptions,concepts,and theories of economics and
ecology essential for understanding the links between the natural
environment and the human economy 1
1 The natural environment and the human economy:the neoclassical economics
perspective 3
1.1 Introduction 3
1.2 The market as a provider of information on resource scarcity 5

1.2.1 Price as an indicator of absolute scarcity 5
1.2.2 Price as an indicator of relative scarcity or opportunity cost 5
1.2.3 Price as a signal of emerging resource scarcity 8
1.3 Factor substitution possibilities,technological changes and resource
scarcity 9
1.3.1 Factor substitution and its implications for resource scarcity 9
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
2 The natural environment and the human economy:an ecological perspective 18
2.1 Introduction 18
2.2 Ecosystem structure 20
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 2
The economics of the environment:theories and alternative public policy
instruments 43
3 Fundamentals of the economics of environmental resources:the ‘optimal’
trade-off between environmental quality and economic goods 45
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
4 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
5 The economics of environmental regulations:regulating the environment
through judicial procedures 88
5.1 Introduction 88
5.2 Environmental regulation through liability laws 89
5.3 The property rights or Coasian approach 92
Contents ix
5.4 Emission standards 95
5.5 Chapter summary 103
Review and discussion questions 104
6 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
7 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 3
Valuing the environment 141
8 Economic valuation of environmental services 143
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