Chapter 10: The Environment
and Development
10.1 Environment and Development:
The Basic Issues
Economics and the Environment
 Environmental issues affect, and
are affected by, economic
development
 Classic market failures lead to
too much environmental
degradation
 Poverty and lack of education
may also lead to non-sustainable
use of environmental resources
 Global warming and attendant
climate change is a growing
concern in developing countries
 Global warming Increasing
average air and ocean
temperatures. Used in reference
to the trend that began in the
mid-twentieth century and
attributed largely to human
industrial, forestry and
agricultural activities emitting
greenhouse gases
 Climate change Non-transient
altering of underlying climate,
such as increased average
temperature, decreased annual
precipitation or greater average
intensity of droughts or storms.
Used in reference to the impact
of the global warming
phenomenon.
Sustainable development and
environmental accounting
 Sustainable development has
been defined as “meeting the
needs of present generation
without compromising the
wellbeing of future generations”
 So, running down the capital
stock is not consistent with the
idea of sustainability
 Environmental and other forms of
capital are substitutes only to a
degree; eventually they likely act
as complements
 In developing countries,
environmental capital is generally
a larger fraction of total capital
 To know whether environmental
capital is increasing or
decreasing, we need
environmental accounting
 Environmental accounting The
incorporation of environmental
benefits and costs into the
quantitative analysis of economic
activities.
 Environmental capital The
portion of a country’s overall
capital assets that directly relate
to the environment—for example,
forests, soil quality, and ground
water.
 Sustainable development a
pattern of development that
permits future generations to live
at least as well as the current
generation, generally requiring at
least a minimum environmental
Protection
 Sustainable net national
income (NNI*) An environmental
accounting measure of the total
annual income that can be
consumed without diminishing
the overall capital assets of
 nation (including environmental
capital).
Sustainable net national product is:
NNI
*
 GNI  D m  D n
Where
NNI* is sustainable national income
GNI is Gross national income
Dm is the depreciation of manufactured
capital assets
Dn is the depreciation of environmental
capital
Population, Resources, and the
Environment
 Rapidly growing populations have
led to land, water, and fuelwood
shortages in rural areas and to
urban health crises stemming
from lack of sanitation and clean
water.
 In many of the poorest regions of
the globe, it is clear that
increasing population density has
contributed to severe and
accelerating degradation of the
very resources that these
growing populations depend on
for survival
Poverty and the Environment
 The poor are usually the main
victims of environmental
degradation.
 The poor suffer more from
environmental decay because
they must often live on degraded
lands that are less expensive
because the rich avoid them.
 Moreover, people living in poverty
have less political clout to reduce
pollution where they live.
 And living in less productive
polluted lands gives the poor less
opportunity to work their way out
of poverty.
Growth versus the Environment
 Evidence indicates that the very
poor cause considerable
environmental destruction as a
direct result of their poverty.
 It follows that increasing the
economic status of the poorest
group would provide an
environmental windfall.
 However, as the income and
consumption levels of everyone
else in the economy also rise,
there is likely to be a net increase
in environmental destruction.
 Meeting increasing consumption
demand while keeping
environmental degradation at a
minimum will be no small task.
 Environmental Kuznets curve
A graph reflecting the concept
that pollution and other
environmental degradation first
rises and then falls with increases
in income per capita. There is
evidence that this holds for some
pollutants, such as sulfur dioxide
and particulate matter in the air,
but not for others, such as
emissions of greenhouse gases.
Rural Development and the tends to be lower than that of a
Environment suburban or rural resident.
 The increased accessibility of The Global Environment and
agricultural inputs to small Economy
farmers and the introduction (or
 As total world population grows
reintroduction) of sustainable
and incomes rise, net global
methods of farming will help
environmental degradation is
create attractive alternatives to
likely to worsen
current environmentally
 By using resources more
destructive patterns of resource
efficiently, a number of
use.
environmental changes will
 Land-augmenting investments
actually provide economic
can greatly increase the yields
savings, and others will be
from cultivated land and help
achieved at relatively minor
ensure future food self-sufficiency
expense.
Urban Development and the  Most cumulative environmental
Environment destruction to date has been
caused by the developed world.
 Congestion, vehicular and
 With high fertility rates, rising
industrial emissions, and poorly
average incomes, and increasing
ventilated household stoves also
greenhouse gas emissions in the
inflate the tremendously high
developing world, this pattern is
environmental costs of urban
likely to reverse in the coming
crowding.
years.
 Lost productivity of ill or diseased
workers, contamination of The Nature and Pace of Greenhouse
existing water sources, and Gas–Induced Climate Change
destruction of infrastructure, in
 Environmental scientists and
addition to increased fuel
economists are increasingly
expenses incurred by people’s
appreciating that the impacts of
having to boil unsafe water, are
global warming are likely to be
just a few of the costs associated
felt earlier than expected.
with poor urban conditions.
 The developed countries will
 Research reveals that the urban
have to take the lead and bear
environment appears to worsen
most of the costs in funding both
at a faster rate than urban
remediation and adaptation in
population size increases, with
low-income countries,
the result that the marginal
environmental cost of additional  But developing countries will also
residents rises over time. need to play a significant role in
 However, for a given income, the limiting global warming to
safeguard their own futures.
carbon footprint of a city resident
Natural Resource–Based Livelihoods
as a Pathway out of Poverty: Promise
and Limitations
 In low income countries, high
dependence on natural
resources: agriculture; animal
husbandry, fishing, forestry,
hunting, foraging
 But access to the benefits of
resources often very inequitable
 Poor losing control of natural
resource commons areas
 Many poor lack farmland, forests,
cattle, boats and equipment
 Common village lands may be
“spontaneously” privatized
 Governments may overlook
companies logging, fishing, and
mining, without regard to local
people or traditional rights
 Governments designate lands
“protected,” banning livelihoods,
while corruption remains; no
incentive to take part in
protection.
 A solution: “pro-poor governance”
– empowerment of the poor
The Scope of Domestic-Origin
Environmental Degradation: An
Overview
 Environmental problems have
consequences both for health
and productivity
o Loss of agricultural productivity
o Prevalence of unsanitary
conditions created by lack of
clean water and sanitation
o Dependence on biomass fuels
and pollution, Airborne pollutants
 Biomass fuels Any combustible
organic matter that may be used as
fuel, such as firewood, dung, or
agricultural residues.
10.2 Rural Development and the
Environment: A Tale of Two Villages
Representative African village
 Desertification
 Low opportunity cost of women’s
time encourages waste
 Desertification The
transformation of a region into
dry, barren land with little or no
capacity to sustain life without an
artificial source of water.
Representative South American
village
 Soil erosion
 Deforestation
 Soil erosion Loss of valuable
topsoil resulting from overuse of
farmland, and deforestation and
consequent flooding of farmland.
 Deforestation The clearing
of forested land either for
agricultural purposes or for
logging and for use as firewood.
10.3 Global Warming and Climate
Change: Scope, Mitigation, and
Adaptation
 The benchmark 2007 IPCC
report paints a dire picture for
developing economies
 Recent reports amplify:
 Summary in World Bank 2009 World
Development Report
o Using data not yet available to I-
PCC report, the 2010 U.S. NOAA
 study found evidence of global
warming due to greenhouse gases
on all 11 indicators examined
 Impact of global warming likely
hardest on the poorest
 Agriculture harmed in tropical and
subtropical areas
 Resultant conflicts over natural
resources may grow
 Range of adverse health impacts
Some impacts of climate change in
Developing Countries identified by
IPCC
 prolonged droughts, expanded
desertification
 increased severity of storms with
heavy flooding and erosion
 longer and more severe heat
waves
 reduced summer river flow and
water shortages
 decreased grain yields
 climate-induced spreading
ranges of pests and disease
 lost and contaminated
groundwater
 deteriorated freshwater lakes,
coastal fisheries, mangroves,
coral reefs
 coastal flooding
 loss of essential species such as
pollinators and soil organisms,
forest and crop fires
Problem primarily but not exclusively
caused by developed countries
 Rapid industrial growth especially
in Asia
 Deforestation in developing
Strategies for mitigation
 Taxes on carbons
 Caps on greenhouse gases (with
“carbon markets”)
 Subsidies to encourage
technological progress countries
Types of adaptation
 Planned (or “policy”) adaptation
 Autonomous adaptation
10.4 Economic Models of
Environment Issues
Privately Owned Resources
 Total net benefit The sum of net
benefits to all consumers.
 Marginal cost The addition to
total cost incurred by the
producer as a result of increasing
output by one more unit.
 Producer surplus Excess of
what a producer of a good
receives and the minimum
amount the producer would be
willing to accept because of a
positive-sloping marginal cost
curve.
 Consumer surplus Excess utility
over price derived by consumers
because of a negative-sloping
demand curve.
 Scarcity rent The premium or
additional rent charged for the
use of a resource or good that is
in fixed or limited supply
 Present value The discounted
value at the present time of a
sum of money to be received in
the future.
 Marginal net benefit The benefit
derived from the last unit of a
good minus its cost.
  Property rights The
acknowledged right to use and
benefit from a tangible (e.g., land)
or intangible (e.g., intellectual)
entity that may include owning,
using, deriving income from,
selling, and disposing.
 Perfect property rights markets
are characterized by four
conditions:
1. Universality—all resources are
privately owned.
2. Exclusivity or “excludability”—it must
be possible to prevent others from
benefiting from a privately owned
resource.
3. Transferability—the owner of a
resource may sell the resource when
desired.
4. Enforceability—the intended market
distribution of the benefits from
resources must be enforceable.
Common property resources
 Inefficiencies may arise because
resource is not privately owned
 Traditional models do not
concern themselves with equity
and income distribution
 Family farmers can benefit from
extended tenancy or ownership
 Who should buy publicly owned
land
 Common property resource A
resource that is collectively or
publicly owned and allocated
under a system of unrestricted
access, or as self-regulated by
users.
Understanding the tragedy of the
Commons
 Users fail to take account of an
externality: that as each uses
more of the common resource
the average return is lowered for
other users
 Traditional societies have
sometimes responded effectively
with social enforcement
mechanisms
Public Goods and Bads: Regional
Environmental Degradation and the
Free-Rider Problem
 Externality Any benefit or cost
borne by an individual economic
unit that is a direct consequence
of another’s behavior.
 Internalization The process
whereby external environmental
or other costs are borne by the
producers or consumers who
generate them, usually through
the imposition of pollution or
consumption taxes.
 Public good An entity that
provides benefits to all individuals
simultaneously and whose
enjoyment by one person in no
way diminishes that of another.
 Public bad An entity that
imposes costs on groups of
individuals simultaneously.
Compare public good.
 Free-rider problem The situation
in which people can secure
benefits that someone else pays
for.
10.5 Urban Development and the
Environment
Environmental Problems of Urban  Private wells have led to land
Slums subsidence and flooding
 Impact on export earnings
 Health threatening pollutants
 Unsanitary environmental 10.6 The Local and Global Costs of
conditions Ra Rainforest loss contributes to
 Serious impact on poor global warming
Industrialization and urban air  Loss of biodiversity
pollution  Loss of livelihoods for people
living in poverty who depend
 Environmental Kuznets curve
upon them
 Pollution tax
 Much waste in the process of
 Absorptive capacity of the
forest clearing
environment
 Thus, rainforest preservation
 Severity of industrial pollution-
(and restoration) is a global
impact on health
public good - a restorative
mechanism for the environment
 Clean technologies
 Sustainable management of rain
Technologies that by design
forests is a priority
produce less pollution and waste
 Provide funds, debt relief to help
and use resources more
enhance biodiversity
efficiently.
 In addition, support for forest
 Private costs The direct
preservation as climate change
monetary outlays or costs of an
mitigation in Forest Destruction
individual economic unit
 Pollution tax A tax levied
 Biodiversity The variety of life
on the quantity of pollutants
forms within an ecosystem.
released into the physical
 Global public good A public
environment.
good, whose benefits reach
 Social cost The full cost of
across national borders and
an economic decision,
population groups
whether private or public, to
society as a whole 10.7 Policy Options in Developing and
 Absorptive capacity The Developed Countries
capacity of an ecosystem to
assimilate potential pollutants What Developing Countries can do

Problems of congestion, Clean water,  Proper resource pricing

and Sanitation  Community involvement
 Clearer property rights and
 High health and economic costs resource ownership
associated  Improved economic alternatives
 Drag on development for the poor
 Impact on poor
  Improved economic status of
women
 Investments that yield returns
regardless of the shape of climate
change, such as a better road
network
 Industrial emissions abatement
policies
 Proactive stance toward adapting
to climate change
How developed countries can help
developing countries
 Lower developing country costs
for environmental preservation
 Trade policies: reduce barriers,
subsidies
 Debt relief and debt for nature
swaps
 Development assistance
What developed countries can do for
the global environment
 Emissions controls, including
greenhouse gases
 Research and Development on
green technology and pollution
control
 Transfer of technology to
developing countries
 Restrictions on unsustainable
production