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Lecture 22:

The Environment and


Development
Economics and the Environment

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
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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

Population, Resources, and the


Environment
Perception that there is a limited population size
which can be sustained with the earths finite
resources
Potential for new technologies may alleviate the
strain on the resources
Growing populations in the LDC have led to land,
water, and wood shortages in rural areas, and
sanitation and water in urban areas
Increasing populations contributes to accelerated
degradation of resources
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Poverty and the Environment


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
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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
Increasing consumption while keeping
environmental degradation low is difficult
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Rural Development and the


Environment
Growing LDC populations will require food
production in LDCs to double by 2010
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
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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
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The Global Environment


As world population grows and incomes rise, net
environmental degradation will worsen
Efficient use of resources can be undertaken via
population abatement technology and resource
management
Trade-offs between output and environmental
improvements will be necessary

The Scope of Environmental


Degradation
Environmental
challenges in
developing countries
will be caused by
poverty
These are common
where households lack
economic alternative
to unsustainable
patterns of living

These include health


hazards created by:
Lack of access to
clean water and
sanitation
Indoor air pollution
Deforestation
Severe soil
degradation
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Principal Health and Productivity


Consequences of Environmental Damage
See Todaro: Ch. 11
Table 11.1

Example:
Water pollution and
scarcity
More than 2m deaths, and
billions of illnesses a year
Effect on productivity:
declining fisheries, rural
household time and
municipal costs of
providing safe water
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Traditional Economic Models of


the Environment
Privately Owned
Resources (11.1)
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
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Optimal Resource
Allocation Over Time (11.2)
Price of a good that is
being rationed intertemporally must equate the
present value of the
marginal net benefit of the
last unit consumed in each
period
Indifferent between
obtaining the next until
today or tomorrow
Efficient allocation of
resources over time must
allow for scarcity rent to
be collected by owner

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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

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