EC238 Chapter 1 – What is Environmental Economics? Week 1
What is Environmental Economics?
-Environmental economics is the study of environmental problems with the perspective and analytical
ideas of economics.
-Environmental economics draws from both sides, but primarily from microeconomics.
-Environmental economics focuses on how economic activities affect our natural environment – the
atmosphere, water, land, and an enormous variety of living species
-Why don’t people take into account the effects of their economic activity on the natural
-What inhibits economic systems from using its resources wisely and efficiently to protect the
sustainability of our plant and people’s livelihoods over time?
-Environmental economics examines these questions by focusing on was society can reduce its
degradation of the natural environment.
-Economic efficiency remains the central criterion for evaluating outcomes and policies
-Economic efficiency is all about using resources wisely
-Equity is about how the economic ‘pie’ is divided up
-Horizontal equity treats similarly situated people the same way
-Vertical equity refers to how a policy impinges on people who are in different circumstances, in
particular on people who have different income levels
-Intergenerational equity looks at whether future generations have the same opportunities as current
The Economic Approach
-Environmental degradation comes about from human behaviour that is unethical or immoral.
-‘People pollute because it is the cheapest way they have of solving a certain very practical problem:
how to dispose of the waste products remaining after production and consumption of a good’
-People make decisions on production, consumption, and disposal within a certain set of economic and
social institutions; these institutions structure the incentives that lead people to make decisions in one
direction and not in another
-An incentive is something that attracts or repels people and leads them to modify their behaviour in
-An economic incentive is something in the economic world that leads people to channel their efforts at
production and consumption in certain directions
-Any system will produce destructive environmental impacts if the incentive within the system are not
structured to avoid them
-Lack of ownership rights to environmental resources me