ENVIRONMENTAL ECONOMICS ENVIRONMENTAL ECONOMICS ENVIRONMENTAL ECONOMICS

ENVIRONMENTAL ECONOMICSENVIRONMENTAL ECONOMICSENVIRONMENTAL ECONOMICSENVIRONMENTAL ECONOMICSENVIRONMENTAL ECONOMICS

1. Biophysical Limits toBiophysical Limits to
Economic GrowthEconomic Growth
The Malthusian PerspectiveThe Malthusian Perspective

2. Malthusian Model of Economic GrowthMalthusian Model of Economic Growth
Thomas Malthus (1766-
1834) developed a growth
model that relates the
association of resource
scarcity and the prospect
for long-run human
economic growth.

3. Malthusian Model of Economic GrowthMalthusian Model of Economic Growth
1.Resources are scarce in absolute terms.
That is, humanity is endowed with a finite
amount of material resources.
2.If uncontrolled, the tendency of human
populations is to grow exponentially.
3.Technology should not be perceived as
the ‘ultimate’ escape from the problem of
resource scarcity.

4. Assumptions of Malthusian ModelAssumptions of Malthusian Model
the total amount of land available for
agriculture (arable land) is immutably
fixed;
the growth of population is limited by the
amount of food available for subsistence;
human population will invariably increase
where the means of subsistence increase.

5. ““The power of population is indefinitely The power of population is indefinitely
greater than the power in the earth to greater than the power in the earth to
produce subsistence for man.”produce subsistence for man.”
““Population, when unchecked, increases in Population, when unchecked, increases in
a geometrical ratio. Subsistence increases a geometrical ratio. Subsistence increases
only in an arithmetical ratio.” only in an arithmetical ratio.”
““A slight acquaintance with numbers will A slight acquaintance with numbers will
show the immensity of the first power in show the immensity of the first power in
comparison with the second.”comparison with the second.”
Malthusian Model of Economic GrowthMalthusian Model of Economic Growth

6. Law of diminishing marginal product
“Iron Law of Wages”
“vices” and “virtues” in the Malthusian
period

11. Ricardian Model of GrowthRicardian Model of Growth
David Ricardo (1772–1823)
Human material progress would not be
hampered in the long run by explosive
growth of human population as Malthus
had envisioned, but by the progressive by the progressive
decline in the quality and quantity of decline in the quality and quantity of
extractive resources, most importantly, extractive resources, most importantly,
agricultural landagricultural land.

12. Agricultural land varies in its natural
productive capacity.
Plots of land with high natural fertility (or
mines containing high-grade ores) are put
to use first because their real cost is low.
(Real cost: the amount of factors of
production needed to make a farmland
available for cultivation.)
Ricardian Model of GrowthRicardian Model of Growth

14. Ricardian scarcityRicardian scarcity

A steady increase in rent (and real cost) as quality A steady increase in rent (and real cost) as quality
of land (or any other extractive resources) decline. of land (or any other extractive resources) decline.

It is the steady increase in rent as land use It is the steady increase in rent as land use
expands that would ultimately stifle human long-expands that would ultimately stifle human long-
term economic progress. term economic progress.

Population is relevant only to the extent it has an Population is relevant only to the extent it has an
effect on what happens to demand.effect on what happens to demand.

The major impediment to human material progress The major impediment to human material progress
would emerge not so much from demand as rather would emerge not so much from demand as rather
from supply side constraints.from supply side constraints.

15. Neo-Malthusian Models

Incorporate the effects not only of Incorporate the effects not only of
population and resource scarcity but also of population and resource scarcity but also of
technology and human institutions in their technology and human institutions in their
consideration of environmental consideration of environmental
sustainability. sustainability.

The emphasis has been shifted from The emphasis has been shifted from
concerns about limits to economic growth to concerns about limits to economic growth to
worries about worries about environmental sustainabilityenvironmental sustainability..

16. increased human activities would lead to
increasing stress on the functioning of the
environment and in so doing ultimately lead
to environmental degradation.
if degradation of the environment is not
restricted to the point that it is considered
sustainable, biophysical limits will eventually
place bounds on the growth of human
activity.
Neo-Malthusian Models

17. Neo-Malthusian Models:
Ehrlich–Commoner Model
I I = = P P x x FF
I: total environmental effect or damage, measured I: total environmental effect or damage, measured
in some standard units.in some standard units.
P: population sizeP: population size
F: an index that measures the per capita impact (or F: an index that measures the per capita impact (or
damage) to the environment. damage) to the environment. (ecological footprint (ecological footprint
of the average person)of the average person)

18. Ehrlich–Commoner ModelEhrlich–Commoner Model
at any given point in time, the total
environmental impact of human activities is a
product of the underlying population size, P,
and the per capita damage to the
environment.
total environmental impact equals total
population multiplied by the average impact
that each person has on the environment.

19. F = f[P, c, g]F = f[P, c, g]
c: per capita consumption or production
g: composition of inputs and outputs in an
economy, expressed in terms of their
impact on the environment
δF/δc > 0
δF/δg > 0
δF/δP > 0 (the law of diminishing marginal
returns)
Ehrlich–Commoner ModelEhrlich–Commoner Model

21. Shows the fundamental positions of neo-Malthusians
regarding the link between environmental sustainability
and economic growth.
Neo-Malthusian starts with a view that the current rate of
world economic growth, (in terms of GDP), cannot be
environmentally sustainable.
The major issues of interest have been to identify the
causes and possible remedies for the damages that
have been inflicted on the natural environment from
various forms of human activity over the past century.
Ehrlich–Commoner ModelEhrlich–Commoner Model

22. The Ehrlich–Commoner (E-C) model The Ehrlich–Commoner (E-C) model
suggests that neo-Malthusians would tend suggests that neo-Malthusians would tend
to claim that;to claim that;
the steady increases in population the steady increases in population
the steady increases in per capita consumption the steady increases in per capita consumption
the proliferation of products that are harmful to the proliferation of products that are harmful to
the environment the environment
are the major factors contributing to are the major factors contributing to
continued global environmental continued global environmental
degradation.degradation.

23. No consensus on the relative impacts these No consensus on the relative impacts these
three key variables have on the three key variables have on the
environment. environment.

Ehrlich and his followers:Ehrlich and his followers:
rising human population is a predominant factor rising human population is a predominant factor
in accelerating pollution and other resource in accelerating pollution and other resource
problems in both the developed and the problems in both the developed and the
developing countries of the world. developing countries of the world.

24. 
Commoner and his associates:Commoner and his associates:
population growth plays only a minor role in population growth plays only a minor role in
explaining the environmental and resource explaining the environmental and resource
condition of the modern era, especially in the condition of the modern era, especially in the
developed world. developed world.
Instead, a major part of environmental damage Instead, a major part of environmental damage
results from inappropriate applications of results from inappropriate applications of
modern technologies in the extraction, modern technologies in the extraction,
production and consumption sectors of the production and consumption sectors of the
economy. economy.
Technological choices are often made purely on Technological choices are often made purely on
the basis of profitability considerations rather the basis of profitability considerations rather
than environmental sustainabilitythan environmental sustainability

25. Neo-Malthusian Policy ImplicationsNeo-Malthusian Policy Implications
Policies are directed to achieving a Policies are directed to achieving a
combination of: combination of:
(i)(i)Control population growth; Control population growth;
(ii)(ii)Moderate or reduce per capita resource Moderate or reduce per capita resource
use; and use; and
(iii)(iii)Promote the development of Promote the development of
technologies that are environmentally technologies that are environmentally
benign.benign.

26. use policy instruments that permit use policy instruments that permit direct direct
government interventiongovernment intervention

ending environmentally damaging subsidies by ending environmentally damaging subsidies by
government decree, government decree,

penalizing wasteful consumption habits by means penalizing wasteful consumption habits by means
of income redistribution,of income redistribution,

implementing family planning programs with implementing family planning programs with
considerable governmental supervision, considerable governmental supervision,

providing subsidies to promote the development providing subsidies to promote the development
of environmentally benign technology such as of environmentally benign technology such as
solar energy,solar energy,

putting broadly based strict quotas on the amount putting broadly based strict quotas on the amount
of fish to be harvested or forest area to be cleared of fish to be harvested or forest area to be cleared
on an annual basis, etc…on an annual basis, etc…

27. 
Neo-Malthusians are skeptical about the notion Neo-Malthusians are skeptical about the notion
that all resource allocation problems can be that all resource allocation problems can be
solved by market or extra-market mechanisms. solved by market or extra-market mechanisms.

The private market tends toward over-The private market tends toward over-
exploitation and degradation of resources that exploitation and degradation of resources that
are externality-ridden (environmental resources)are externality-ridden (environmental resources)

Not all technological changes favor the Not all technological changes favor the
environment. Thus, environmental sustainability environment. Thus, environmental sustainability
requires specific consideration of the impacts requires specific consideration of the impacts
new technologies have on the environment, not new technologies have on the environment, not
just on the production and delivery of goods and just on the production and delivery of goods and
service.service.

28. Weaknesses of the Weaknesses of the
Neo-Malthusian ModelNeo-Malthusian Model

No clear definition of ‘sustainability’ in the E-C No clear definition of ‘sustainability’ in the E-C
model.model.

Ignore the potential for resource conservation Ignore the potential for resource conservation
through technological means, such as factor through technological means, such as factor
substitution and technical progress.substitution and technical progress.

Consider resources, consumption and Consider resources, consumption and
population only at an aggregate level, without population only at an aggregate level, without
adequate reflection on the social, technological adequate reflection on the social, technological
and political aspects of resource use.and political aspects of resource use.

Predictions of catastrophe politically not useful.Predictions of catastrophe politically not useful.

29. ‘‘If the present growth trends in world If the present growth trends in world
population, industrialization, pollution, food population, industrialization, pollution, food
production, and resource depletion production, and resource depletion
continue unchanged, the limits to growth continue unchanged, the limits to growth
on this planet will be reached sometime on this planet will be reached sometime
within the next one hundred years. The within the next one hundred years. The
most probable result will be a rather most probable result will be a rather
sudden and uncontrollable decline in both sudden and uncontrollable decline in both
population and industrial capacity’population and industrial capacity’
The Limits to Growth (Meadows et al. 1971)

30. ‘‘Let us face the uncomfortable truth. The Let us face the uncomfortable truth. The
model of development we are accustomed model of development we are accustomed
to has been fruitful for the few, but flawed to has been fruitful for the few, but flawed
for the many. A path to prosperity that for the many. A path to prosperity that
ravages the environment and leaves a ravages the environment and leaves a
majority of humankind behind in squalor majority of humankind behind in squalor
will soon prove to be a dead-end road for will soon prove to be a dead-end road for
everyone’everyone’
Kofi Annan, 2002

31. How should we deal with the existence of How should we deal with the existence of
the seemingly perennial Malthusian the seemingly perennial Malthusian
specter?specter?
Sustainable Sustainable economic growth thateconomic growth that will will
necessitate the design and implementation necessitate the design and implementation
of socialof social and technological conditions that and technological conditions that
ensure both environmental and economic ensure both environmental and economic
stabilitystability concurrently.concurrently.
Which view? Neo-classical or ecological?Which view? Neo-classical or ecological?