Environmental economics
Particular issues include the costs and benefits of alternative environmental policies to deal with air pollution, water quality, toxic substances, solid waste, and global warming.
[3] One survey of German economists found that ecological and environmental economics are different schools of economic thought, with ecological economists emphasizing "strong" sustainability and rejecting the proposition that human-made ("physical") capital can substitute for natural capital.
[4] The modern field of environmental economics has been traced to the 1960s[5] with significant contribution from Post-Keynesian economist Paul Davidson, who had just completed a management position with the Continental Oil Company.
[6] Empirical methods Prescriptive and policy Central to environmental economics is the concept of market failure.
[9] Another example concerns how the sale of Amazon timber disregards the amount of carbon dioxide released in the cutting.
A classic definition influenced by Kenneth Arrow and James Meade is provided by Heller and Starrett (1976), who define an externality as "a situation in which the private economy lacks sufficient incentives to create a potential market in some good and the nonexistence of this market results in losses of Pareto efficiency".
[12] The basic problem is that if people ignore the scarcity value of the commons, they can end up expending too much effort, over harvesting a resource (e.g., a fishery).
Hardin theorizes that in the absence of restrictions, users of an open-access resource will use it more than if they had to pay for it and had exclusive rights, leading to environmental degradation.
[12] The mitigation of climate change effects is an example of a public good, where the social benefits are not reflected completely in the market price.
The values of natural resources often are not reflected in prices that markets set and, in fact, many of them are available at no monetary charge.
[14] Almost all governments and states magnify environmental harm by providing various types of subsidies that have the effect of paying companies and other economic actors more to exploit natural resources than to protect them.
Another context in which externalities apply is when globalization permits one player in a market who is unconcerned with biodiversity to undercut prices of another who is – creating a race to the bottom in regulations and conservation.
This, in turn, may cause loss of natural capital with consequent erosion, water purity problems, diseases, desertification, and other outcomes that are not efficient in an economic sense.
These more radical approaches would imply changes to money supply and likely also a bioregional democracy so that political, economic, and ecological "environmental limits" were all aligned, and not subject to the arbitrage normally possible under capitalism.
"[25] A strategy for better understanding this correlation between a country's GDP and its environmental quality involves analyzing how many of the central concepts of environmental economics, including market failures, externalities, and willingness to pay, may be complicated by the particular problems facing developing countries, such as political issues, lack of infrastructure, or inadequate financing tools, among many others.
The economic analysis of environmental law studies instruments such as zoning, expropriation, licensing, third party liability, safety regulation, mandatory insurance, and criminal sanctions.
