Chapter 10

The Environment
and Development

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Pearson ©Addison-Wesley. All rights reserved.
2012 Pearson Addison-Wesley. All rights reserved.
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10.1 Environment and Development: The
Basic Issues

• 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

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10.1 Environment and Development: The
Basic Issues
• 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
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10.1 Environment and Development: The
Basic Issues

Sustainable net national product is:

NNI *  GNI  Dm  Dn
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 10-4
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10.1 Environment and Development: The
Basic Issues

More expansively, sustainable net national

product is: NNI **  GNI  Dm  Dn  R  A
Where
NNI** is the revised NNI calculation
GNI, Dm, and Dn are defined as before
 R is expenditure needed to restore
environmental capital
A is expenditure required to avert
destruction of environmental capital
(Note: R and A are components of GNI but not NNI**)

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Poverty and the Environment

• Victims:
– The poor live in environmentally degraded lands which
are less expensive because the rich avoid them
– People living in poverty have less political clout to
reduce pollution where they live
– Living in less productive polluted lands gives the poor
less opportunity to work their way out of poverty
• Agents:
– The high fertility rate of people living in poverty
– Short time horizon of the poor (by necessity)
– Land tenure insecurity;
– Incentives for rainforest resettlement

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10.1 Environment and Development: The
Basic Issues

• Urban development and the environment

• The global environment and economy
• Nature and pace of Greenhouse Gas-
Induced Climate change
• Natural Resource-Based Livelihoods as a
pathway out of poverty: Promise and
Limitations

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Natural Resource Based Livelihoods: Pathways
Out of Poverty?

• 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

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10.1 Environment and Development: The
Basic Issues

• The Scope of Domestic-Origin Environmental

Degradation: An Overview
• Environmental problems have consequences both
for health and productivity
• Loss of agricultural productivity
• Prevalence of unsanitary conditions created by lack of
clean water and sanitation
• Dependence on biomass fuels and pollution
• Airborne pollutants

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 Rural Development and the Environment: A
Tale of Two Villages
•Representative African village
– Desertification
– Low opportunity cost of women’s time
encourages waste
•Representative South American settlement
near the Amazon
– Soil erosion
– deforestation
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10.2 Global Warming and Climate Change:
Scope, Migration, 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
– Using data not yet available to IPCC 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

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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

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 10.2 Global Warming and Climate Change:
Scope, Mitigation, and Adaptation

• Problem primarily but not exclusively caused by

developed countries
– Rapid industrial growth especially in Asia
– Deforestation in developing countries

• Strategies for mitigation

– Taxes on carbons
– Caps on greenhouse gases (with “carbon markets”)
– Subsidies to encourage technological progress

• Types of adaptation
– Planned (or “policy”) adaptation
– Autonomous adaptation (some types are reviewed in Box
10.1)

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10.3 Economic Models of
Environment Issues

• Privately owned resources

• Issues on property rights
• Perfect property rights are
characterized by
– Universality
– Exclusivity or Excludability
– Transferability
– Enforceability

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10.3 Economic Models of
Environment Issues (cont’d)
• 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

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Limitations of the Public Good
Framework
• 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

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10.3 Economic Models of
Environment Issues (cont’d)
• Public goods and bads: regional
environmental degradation and the free-
rider problem
– Internalization of externalities is not easy
– Free rider problems
• Limitations of the public goods framework
– Pricing mechanism

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 Elinor Ostrom’s Common Property Design
Principles Derived from Empirical Studies
• Clearly Defined Boundaries of the resource system
• Proportional equivalence between benefits and costs
for users
• Collective-choice arrangements including those
affected
• Monitoring, with those who audit accountable to users
• Graduated Sanctions
• Conflict-resolution mechanisms
• Recognition of rights to organize
• Nested enterprises when resources are parts of larger
systems

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10.4 Urban Development and the
Environment
• Environmental Problems of Urban Slums
– Health threatening pollutants
– Unsanitary environmental conditions
– Serious impact on poor
• Industrialization and urban air pollution
– Pollution tax
– Absorptive capacity of the environment
– Severity of industrial pollution- impact on
health

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10.4 Urban Development and the
Environment (cont’d)
• Problems of congestion, Clean water, and
Sanitation
– High health and economic costs associated
– Drag on development
– Impact on poor
– Private wells have led to land subsidence and
flooding
– Impact on export earnings

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10.5 The Local and Global Costs of Rain
Forest Destruction

• Rainforest loss contributes to global warming

• Loss of biodiversity
• Loss of livelihoods for people living in poverty who
depend upon them
• Much waste in the process of forest clearing
• Thus, rainforest preservation (and restoration) is
a global public good - a restorative mechanism for
the environment
• Sustainable management of rain forests is a
priority
• Provide funds, debt relief to help enhance
biodiversity
• In addition, support for forest preservation as
climate change mitigation
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10.6 Policy Options in Developing and
Developed Countries

• What Developing Countries can do

– Proper resource pricing
– Community involvement
– Clearer property rights and resource ownership
– Improved economic alternatives for the 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
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10.6 Policy Options in Developing and
Developed Countries (cont’d)

• 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

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10.6 Policy Options in Developing and
Developed Countries (cont’d)

• 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

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Concepts for Review

• Absorptive capacity • Desertification

• Biodiversity • Environmental
accounting
• Biomass fuels
• Environmental capital
• Clean technologies
• Environmental Kuznets
• Climate change curve
• Common property • Externality
resource • Free-rider problem
• Consumer surplus • Global public good
• Debt-for-nature swap • Global warming
• Deforestation • Greenhouse gases

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Concepts for Review (cont’d)

• Internalization • Public bad

• Marginal cost • Public good
• Marginal net benefit • Scarcity rent
• Pollution tax • Social cost
• Soil erosion
• Present value
• Sustainable
• Private costs development
• Producer surplus • Sustainable net
• Property rights national income
(NNI*)
• Total net benefit

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