Akashdeepsinghjandu6 environment

Environment and Risk: The Problem
of Risk Assessment

Nature always presented risks to
mankind and to all life
 Living beings have adapted to those by
developing survival strategies
 These are not conscious but have been acquired
in an evolutionary way
 Human beings have done the same over the ages
except that conscious strategies have replaced
unconscious ones
 What is new is that humans can modify
significantly and quickly their environment
 This is not new

Focus on Society-Environment
Interactions
 What behavioral and institutional factors
mediate relations with natural system?
 What features create vulnerability or
resistance to certain natural events or
processes?
 What mechanisms are available to different
types of society to adapt or mitigate
change.

Environment-Society Issues
 Level of resource use
 Population size
 Even with constant level of use, attain limits
as population increases
 Could these be related?

Environment-society issues
 What behavioral and institutional factors
mediate relations with natural system?
 What features create vulnerability or
resistance to certain natural events or
processes?
 What mechanisms are available to different
types of society to adapt or mitigate
change?

Environment and Society. A
Critical Issue for our Future?
 At issue is relation between natural
processes and human populations
 To what extent does human agency matter?
 If human choices affect natural processes,
can we identify some problems crucial
enough to address now?
 How can cooperation about environmental
issues be organized?

General Issue: Environmental
Influences and Human Control
 Immediate environmental influences high in past:
very high risks for humans, examples of collapse
 Less important with technological progress:
cushioning and spreading of risks
 Some troubling aspects remain: mastering
Climate change

The Assessment of
Environmental Risks
 The studies of society collapse show the importance
of knowing the environment in order to assess the
risks it presents: knowledge of two aspects are
important: 1) The evolutionary dynamics of the
crucial resource 2) The initial resource stock (ex.
climate change)
 It also shows the importance of social responses to
the problems involved in terms of a) control of
access b) charging for use in proportion
 3 Types of risk management have therefore to be
considered:

Risk management types
 1. Risks due to nature
 2. Risks due to the consequences of
uncoordinated and non-cooperative human
activities, present and future
 3. Risks due to problems of coordination
and cooperation of social institutions
present and future

Risks due to nature can be assessed
in terms of expected utility
 2 elements: uncertainty measure p (probability) of
an outcome and its subjective value or utility U:
 P(o)U(o)
 This formulation suggests a cost benefit analysis.
Suppose there are only 2 outcomes, o1 and o2:
Total value is:
 P(o1) U(o1) + (1 –P) U(o2)
 Present value: [P(o1) U(o1) + (1 –P) U(o2)]/r
where r is a discount rate (interest rate)

Risk analysis
 Suppose we have several other outcomes
resulting from different plans of action
Possibil
ities
Actions Do Nothing Build small
levee
Build big
dike
Minor flooding:
P
U1 U3 U5
High flooding: 1-
P
U2 U4 U6

Risk analysis
States of Nature a1 a2 a3
r1
Extreme bad weather
7000 4000 2000
r2
Nice weather
1000 4000 5000

Risk analysis continued
State of nature r p (r )
r1
Extreme bad weather
0.40
r2
Nice weather
0.60

Solution of the minimization of
expected losses: Min L(a) =
Min (aij p + aij (1 –p))
 Expected losses of a1 are inferior to all
others: 3400 instead of 4000 and 3800
 This conclusion holds only if one cannot
update informations

Cost Benefit Analysis
 Previously take the ΣPiUj which is largest
(or smallest if the U’s represent costs)
 Climate change: Choose where Marginal
Damage of CC = Marginal Cost of
Abatement

Risks from Nature, Risks from
Society
 As seen from the Stephens text in Cashdan,
risk analysis can help us understand animal
behavior and thus raise our knowledge about
nature
 This is necessary for estimating stocks of
natural resources and their evolution
 Risks from Society involve the positive or
negative influences (externalities) people can
exert on each other

Complexity of Human Behavior
 Human behavior is obviously complex.
One can analyze it with the help of general
concept such as the one of collective good.
A collective good characterized by two
aspects: Non excludability and some times
non-rivalry. Collective goods that are rival,
so called commons, thus 2 types of
collective goods: welfare generating and
welfare preserving

Welfare preserving collective
goods
 In welfare preserving (rival) collective goods,
users represent a negative externality with respect
to each other. The risk comes from others! The
purpose of institutions is to limit use. This is
difficult to achieve because there is a first mover
advantage of non cooperation with the institution
which then often leads to conflict and coercion
 This model cannot easily be followed at the inter-
institutional level

Welfare Preserving Collective Goods:
 Dasgupta and Heal Economic Theory and Exhaustible
Resources (1979)
 Graciela Chichilnisky’s Trade Theory between Regions
with Different Property rights Regimes (1994)
 The choice is not really only between different types of
rights but between different types of hierarchies of
collective goods: Even private property rights have to be
protected!

Problem: 2 strategies
•Adhere or not to a strategy depending on what others are
doing.
•This problem can have a stable (Nash ) equilibrium
•The equilibrium is only efficient if a sufficient number
participate.
•Non- Efficient Accord Efficient Accord
Coop. Strat
a(t)
Non Coop.
Strat b(t)
Stable
Nash Equ.
Min fraction of total to
sustain accord
0 t 1
Stable
Nash Equ.
Min fraction of total to
sustain accord
Non Coop.
Strat b(t)
Coop. Strat
a(t)
0 t 1
U(t)
U(t)

Theory of Collective Goods and
Theory of the Open Access
 The importance of jointness: Behavior
driven by average product: F(Nx)/N(x)
 Open access as opposed to private
marginal product dF(Nx)/dN(x)
 As emphasized by Dasgupta and Heal open
access problems are not PD problems

Open access resource use
 Open access situations are characterized by
an overuse of Resources at any price. This
is due to the fact that one can show that the
open access marginal product is always
superior to the “restricted access” marginal
product

Open access and “private” supply

Role of a Market for Externalities
 Mechanisms developed by society
 To set limits on resource use before
diminishing returns set in
 To meet needs across space and
through time with greatest efficiency

Market for externalities
solution

Conclusion
 There are several ways of solving the open
access question
 Markets for externalities, the most efficient
solution might not always be possible
 The structuring of authority associated with
the open access problem is quite important

Role of Property Rights
 Mechanisms developed by society
 To set limits on resource use before
diminishing returns set in
 To meet needs across space and
through time with greatest efficiency

Standard economic view of
property rights
 Well-defined property rights
 Market mechanisms and a pricing system
 No transaction costs
 No income effects
 Assumes collective action problems solved

Private property solves production
(and environmental) problems
 Can anticipate diminishing returns:
incorporate foregone benefits into present
production decisions (Hotelling)
 Private property rules provide means to
maintain efficiency even when
environmental externalities exist (Coase)

Possible problems
 Definition of the property itself
 Enforceability of exclusionary rights
 Optimality

Common Property:
Tragedy of the Commons
Resource that is:
 Depletable
 Non-exclusive
 Rival
 Joint, fugitive

Common Property
 Resource unit defined
 Well-delineated user group
 Multiple users
 Explicit rules of extraction

Why Common Property?
 Nature of resource
 Economies of scale
 Maintenance or capital demands
 Enforcement

The Example of water
 Common good aspects
 Competitive use
 Particular spatial distribution creates
asymmetries
 Upstream-downstream
 Common pool: technology differences lead
to differential access
 Unequal political power
 International aspects compound problems

Debates about water
 Debate over nature of resource
 Symbolic aspects: natural right
 Water as economic good
 Debate about most effective management
strategies

 Symbolic aspects: natural right
 Open access?
BUT
 Demographic growth
 Urbanization: concentration of demand
 Agricultural intensification
 70% of water used for irrigation
 Changing demands: economic development
 Quality/quantity
 Health issues: water borne diseases
 Pollution: overuse and salinization
Nature of resource debate

Nature of resource debate
 Water as commodity: evaluate costs
 Supply costs: exploitation, maintenance,
investments
 Opportunity costs
 Externalities
 Goal: promote efficiency and avoid "tragedy
of commons" type outcome

Management problems
 How to balance equity issues raised by
"right to water" approach with efficiency
aspects raised by "water as commodity"
view?

Aral Sea 1985
A view of the problem
Aral Sea 1997

Causes of shrinking Aral Sea
 Since 19e
century, Russia, and later Soviet Union
emphasized cash crops: cotton and rice
 Reduce dependence on imports
 Acquire hard currency
 After 1960, consequence of policy was reduction
in volume of water flowing to Aral Sea

Soviet system
 Quotas specifying quantities of water
available for each region
 Exchange fossil fuels and energy for water
 Coordination by central government

Present context
 Water allocation is no longer an domestic
issue within a centralized state but has
become an international problem
 New source of conflict

Current management structure
 Almaty Agreement 1992
 Based on former Soviet allocation system
 Creation of interstate commission where
decisions taken by consensus
 Establish quotas
 Assure their implementation

Management problems
 Maintenance of old Soviet system
 Not all states accept previous allocation
criteria
 Favors richer downstream countries
 Enforcement problems: quotas not
respected
 Exchanges between energy and water have
been maintained but also not always
respected

Persisting common good problems
 Lack of information on quantities really
available
 Thus cannot determine sustainable rate of use
 Costs of water use not distributed fairly
 Downstream users of Toktogul dam do not
contribute to maintenance costs

Reaction
 After independence , Uzbekistan and
Kazakstan introduced market prices for gas
and coal.
 Kyrgyzstan couldn't pay: increased
electricity production to increase revenues
but then the amount of water available for
downstream irrigation in Uzbekistan and
Kazakstan was also reduced

Response
 2001: Kyrgyzstan passed law to regulate
transborder water use:
 Water belongs to state
 Has economic value
 Kyrgyzstan owns water "created" within it
borders
 Users must pay

Water: International efforts
 Dublin Conference and Rio Summit, 1992
 Broad often contradictory principles
 Slow definition of international water law:
UN Convention 1997 on non-navigational
uses

Relevance of different property
regimes to other current
environmental issues
 Confrontation of regimes is occurring
 South/North
 Common property characteristics of
environmental resources
 Institutional solutions are adopting
common property arrangements

Problems of environmental
regulation; solution through
definition of property rights
 Atmosphere rival at global level
 Consumption interdependent
 Command and control difficult to achieve
because deal with countries
 Introduce market solution to create incentives
 Raises problems of initial allocation

Efficiency, the Environment and
Property Rights
 What is efficiency in economic, social,
environmental, and technical terms?
 Are they equivalent?
 What is the relation with property rights?
 Is the problem simple to solve?

Efficiency
 Economic and social efficiency: use
resources in such a way that they minimize
costs and maximize profits
 Technical efficiency: minimizing inputs
with respect to outputs  minimizing
energy use
 There should not be any contradiction
between the 2 above
 If contradiction: not internalized
externality, ill defined property rights

The Coasian analysis
 Problem of property rights, efficiency and
externalities raised by Coase
 Argument: What matters is the overall cost and
benefit
 Compensation schemes can be built around this
principle
 It depends who has the biggest loss
 The issue can be resolved by negotiation
 All allocations based on Coasian principle
optimal

What do property rights provide?
 Demsetz claims that they are an
internalization of externalities
 Adjustment of property rights are an
adjustment to externalities
 Example: forced labor
 Property rights originate under scarcities in
particular environmental scarcities

Problems raised by Dasgupta and
Heal
 Property rights are not created in a vacuum
 Problem often comes from partially
defined property rights
 Coase and Demsetz assume symmetry
which might not exist
 They implicitly assume unique equilibrium
 Problem: Multiple equilibria

Solutions
 In these cases, solutions have to be
revealed to producers
 Sometimes solutions have to be imposed

Sustainability and exhaustible
resources
 In some basic sense nothing is truly sustainable
since finite resources are continuously exhausted
by man but also by nature
 Sustainability has thus evolved to mean a
“correct” relationship between generations
 Dasgupta has suggested that net wealth rather
than income should be considered in this relation
 Net wealth is accumulated social, economic and
institutional capital minus depreciation for natural
resources exhausted

Sustainability continued
 Sustainability means that resources should be as
much as possible preserved for future generation’s
use
 The net wealth criteria tells us that some countries
like India have GDP growth but decreasing net
wealth while Western countries have increasing net
wealth and income Africa, decreasing net wealth and
income
 Clearly this means that slowly renewable and
exhaustible resources should be depleted at an
optimal rate.

Theory of slowly renewable
resources
 Slowly renewable resources have to be
evaluated as an evolving stock such as a
population minus withdrawals
( ) ( ) ( , )1
d z
d t
H z F z N x= −
Evolution of z = Natural Dynamics of z minus catches

Slowly renewable resources:
Production
 Producers will be drawn into using the
stock by profits:
( )
( , )
2
d x
d t
q F z N x p N x
N
=
−
µ
Evolution of inputs x, if average profits are positive,
if F is production, q unit price, p unit costs

Equilibrium conditions
 In equilibrium there should be an optimal
level of the resource z if:
( )( )
( , )
e x p3
0
q F z N x p N x
N
r t d t
−





−
∞
∫
Is maximized subject to the relation before and where
r is a discount rate: The discounted sum of all future
profits is maximized with a discount rate r, the spot
price of the resource is thus dependent on
availability of z in nature and the discount rate

Exhaustible Resources
 Hotelling Principle:
 An exhaustible resource is an asset and its net
price (market price - extraction costs) should
increase exponentially with the interest (or
discount rate, to some extent a socio-political
construct), i.e.:
P(t) = P(0)eit
or (dP/dt)/P = I
Indeed if for the resource Z, the price is P.Total
value of resource:PZ. Compare to other assets, P
has to grow as P(0)eit
to stay competitive.

Hotelling’s Principle:
 Competitive resource owners will
deplete at a socially optimal rate
 Take r the rate if return to the owner
of natural resources. In
equilibrium : r = i
 Whenever, r … i, we have a
conservationists dilemma.

Conditions for Hotelling
principle
 1. No externalities
 2. No uncertainty about future sales,
exploration prospects, etc.
 3. No extraction with environmental
externalities (ex. Gold Rush).
 4. Not too big differences between
private and market (social) discount rate
(for instance due to dangers of transfer
within society)

Example:Deforestation processes
 According to Hotelling principles a forested area
is a particular type of asset whose capitalized
value should grow with the interest rate. If this
growth is not achieved other assets including
agricultural ones will be closer and the forested
land will either sold for development or
transformed into another agricultural asset.
 In particular:If the income flow stemming from
the forest is lower than the income flow from
other activities then deforestation will occur!

This can be due to:
 subsidies for agricultural production
 income subsidies or welfare
 cost of property rights enforcement
 prohibition of trade
 unclearly defined property rights

Population Dynamics
 Fundamental problem of global
environmental change:
Balance supply of resources from physical
system with demand for these resources
from human populations over time

Population dynamics
 Fertility
 Mortality
 Migration
 Population size
 Age distribution

Measuring Population
 Static: characteristics
 Total
 Age distribution
 Genders
 Urban/rural
 Geographic distributions
 Dynamic: use various extrapolation
techniques to predict future trends

Measuring Population
 Challenges in achieving accurate
assessment
 Completeness and accuracy
 Census comparability
 Different interpretations of categories
 Different areas/levels of aggregation
 Different time periods
 Size of area
 Units

Projections
 Dependent on accuracy of initial conditions
(i.e. count)
 Need techniques of projection
 Postulate relationships among the different
aspects of population so you can have
internally driven system.
 But projections assume smooth path. Also
need to introduce mechanisms to account
for changes in rates

Malthusian theories of population
 Assumptions
 Constant "passion between the sexes"
 Finite earth
 Argument:
 Left unchecked, population grows and, by
definition, grows exponentially (passion)
 After an initial period of strong growth,
output as a function of population (labor)
exhibits diminishing returns

Preventive checks
 Late marriage
 Celibacy
 Low marital fertility (spacing)
 Contraception
 Migration
Positive check: Mortality

Alternatives to Malthus:
Boserup/Simon
 Relate technological progress to population
growth
 Population concentration leads to higher
likelihood of technological advance.
 Population growth  longer hours,
 More labor-intensive techniques  eventually
leads to more sophisticated technology.

Multiple influences on population
dynamics
 Demographic influences on fertility
 Institutional controls
 Property rights
 Production systems and technologies

Pre-industrial Western European
Demographic Regime
 High mortality
 High Fertility
 Fertility Controls
 Celibacy
 Age at marriage
 Spacing behavior
 Contraception

Limits to Malthusian Approach
 Explaining emergence of new demographic
regimes
 How technology might explain shifts
 These considerations important, because new
regimes have emerged
Synthesis argument: Lee, Ronald, Malthus and Boserup: A Dynamic
Synthesis, In David Coleman and Roger Schofield, The State of
Population Theory, Oxford: Basil Blackwell, 1986.

Demographic Transition
 Characterized by a drop in marital fertility
 Achieved through "stopping" behavior, i.e.
controlling births after having the desired
number of children

Demographic transition
 Puzzle
 Not linked to decreased mortality
 No obvious link to Industrialization
 No Malthusian population response to
income growth

Fertility Declines, Real and Projected
1
2
3
4
5
6
7
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
ChildrenperWoman
(2.1=nopopulationgrowth)
Developing
Developed
Africa
Asia
South and Central
America

Stabilization Remains a Challenge
0
1
2
3
4
1950 2000 2050
StabilizationRatio(births/deaths)
(1=nopopulationgrowth)
Developing Developed Africa Asia South and Central America

Sub-Saharan African Fertility Regime
 Low age at marriage
 Polygyny: men have many wives, leaving few
women celibate
 Acceptance of pre-marital and extra-marital
sexual relations
 Remarriage after widowhood or divorce is the
norm
 These are all factors that make women
susceptible to childbearing throughout their
reproductive period of 15-49.

Differences Pre-industrial
European and African Regimes
 Europe: reduce "exposure"
 Africa: spacing behavior

Characteristics of Sub-Saharan
African Social System
 Poorly defined or poorly enforced common
property systems
 Children reared communally (polygyny)
 Share “costs” in time or responsibility
 Weak conjugal bonds
 Lineage holds land
 Large families have access to larger share
References: Dasgupta; Partha, The Population Problem: Theory and
Evidence Journal of Economic Literature, 33, 4, 1995: 1879-1902;
Chichilnisky, Graciela, North-South Trade and the Global Environment, The
American Economic Review 84 (4): 851-874.

Changes in life expectancy in selected African countries
with high and low HIV prevalence: 1950 - 2005
with high HIV prevalence:
Zimbabwe
South Africa
Botswana
with low HIV prevalence:
Madagascar
Senegal
Mali
Source: UN Department of Economic and Social Affairs (2001) World Population Prospects, the
2000 Revision.
30
35
40
45
50
55
60
65
Lifeexpectancy(years)
1950–
1955
1955-
1960
1960-
1965
1965-
1970
1970-
1975
1975-
1980
1980-
1985
1985-
1990
1990-
1995
1995-
2000
2000-
2005

0 10 20 30 40 50 60 70
Cambodia
Haiti
Mozambique
Rwanda
Côte d'Ivoire
Zambia
Kenya
South Africa
Zimbabwe
Botswana
Life expectancy at birth (years)
Predicted life expectancy Loss in life expectancy due to HIV/AIDS
Source: U.S. Census Bureau, 2000
Predicted loss in life expectancy due to
HIV/AIDS in children born in 2000

Population and environment: Key
points
 Population dynamics in part create
“demand” for environmental resources by
determining population sizes and
distributions
 Other factors: tastes/lifestyles; technology
 Importance of understanding mechanisms
linking fertility—mortality—migration and
relation between these demographic
processes and other socio-economic
variables

Two views of population—resource
interaction
 Population grows until limited by resource
availability (at all levels of technological
development). Ultimately checked by
mortality: Malthus
 Population growth stimulates technological
development which permits higher levels
of population: Boserup/Simon

Problem: How to account for new
regimes?
 Malthus perspective could not account for
shift from high fertility—high mortality to
low fertility—low mortality first in Europe
then, progressively, globally

Demographic transition: the
definition
 “Pre-transition” Western Europe
characterized by high fertility and high
mortality
 “Transition” defined as a drop in marital
fertility that in Western Europe was
achieved by “stopping” behavior
 Conscious limitation of family size once a
desired number of children born

Demographic transition: the
evidence
 Shift from high to low fertility was a result
of deliberate family limitation
 Transition occurred rapidly once it began
 To date, process has been irreversible

Causes: Early theories
 Link to modernization: Frank Notestein
(1944)
 “New ideal of the small family arose in the
urban industrial society.
 It is impossible to be precise about the
various causal factors, but apparently many
were important”
 Individuality
 Mobility
 Education
 Declining mortality
 Costs of children

Transition: the European-US data
 Great variation in socio-economic and
demographic conditions
 Timing and extent of decline in mortality
 France and USA
 Infant mortality varied
 Extent of urbanization differed at transition
 France 1800: 70% male labor force in agriculture
 England 1892: 15% male labor force in
agriculture

Transition: Developing countries
 Link to mortality seems more direct
 Knowledge and treatments not available at
time of initial transition in Europe and often
precedes fertility decline
 Role AIDS epidemic as Malthusian control in high
fertility regions
 Sub-Saharan Africa either slow to adopt
transition or exhibits special characteristics

Questions for future
 Evolution of African population patterns
 Response of regions where population
below replacement rate
 Lower population levels
 Pro-natalist policies
 Role of migration in redistributing population
 Prediction difficult since mechanisms of
previous transitions are still under debate

Environment and Migration
 Migration constitutes, as mentioned before,
a significant factor in population dynamics
 Migration and the environment are linked
in 2 important ways:
 Some migrations are environmentally
induced: ex. The dust bowls in the US, the
Sahel
 Migrations create environmental problems:
crowding effects

 There are two basic theoretical considerations
about migration which emphasize either push or
pull factors
 Voluntary migration: migrants decide to move from
one place to the other on the basis of some
incentives, wages, quality of life
 Involuntary migrations: migrants are excluded from a
given society and are forced to leave
 This 2 causes can combine themselves
Before we look at these links let’s
consider theoretical approaches to
migration

Involuntary migration
 A description of the multiple aspects of
involuntary migration is included in the Zollberg
article: political, racial or religious reasons
 The collective good literature helps to understand
exclusion processes
 Other countries often are reluctant to accept these
populations which are then concentrated in
relatively small areas and cause environmental
problems

Voluntary Migrations
 Since voluntary migrations are based on
incentives to move, these incentives have to be
made explicit in the form of wage differentials for
instance
 Migration due to wage differential constitutes the
main explanation for migrations in economics
 A standing puzzle lies in the explanation of
overcrowding of big developing country cities

Harris Todaro Model
 These 2 authors postulate a 2 sector rural
(agricultural) and industrial economy
 Wages in agriculture are: WA=P.q’
 Wages in industry are dependent upon a minimal
wage Wmin They are:
1,
min
≤=
U
M
U
M
U
N
N
N
NW
W

Equilibrium conditions
 As long as the following is >0, migration will
occur
0','
min
>





−= ψψ Pq
N
NW
N
U
M
U

N Is a time evolution (derivative)

Other Factors Could Be Important
As well
 The pull aspect of cities exists before
Minimal wage policies are applied
 The pull aspect is enhanced by existing
social networks that support newcomers
 Increasing returns to scale in cities
 High paying but difficult to enter jobs
 Segmented labor market

Other incentive models: The
Owen land use model
 The land use model developed by Owen assumes
only two types of land use, agriculture and
dwelling and examines the special case of areas
around urban centers
 Whether land will be transformed into dwelling
will depend on income streams generated by both
 Arrival of newcomers increases income streams
from dwellings especially if migrants get
subsidies

Conclusions of Owen model and
further development
 Even under normal conditions, as long as there is
an attraction to moving into an urban area such as
a subsidy or the hope of a job, farm land will be
urbanized down to a critical value which can be
very close to zero.
 Higher interest rate for agricultural investments
as opposed to investments for urban dwellings
will accelerate the process.

Further conclusions
 Mass migration which can result from climate
change will accelerate this process.
 Foreign aid and relief can accelerate the process
 An Ill-defined property right regime will initially
slow but then accelerate the process.
 Climate change might reduce net profits made
from agricultural production and accelerate the
process.

Trade and Environment
 From a general point of view, trade and the
environment should be neutral with respect
to each other
 Problems come from the different political
social and legal structures between
countries
 These lead to either advantageous or
problematic relationships between the two

Positive and negative effects
 Environmental conditions can be positively
affected by trade liberalization
 Positive effects can result from the suppression of
distortions which have all kinds of costs
including environmental ones
 Other legislation than trade legislation might
create distortions: environmental standards
 A market economy and this is due for trade as
well can work optimally only if some structural
conditions are similar such as property rights
 To make all this explicit lets look at trade theories

Property Rights, the
Environment and Trade
 Changes in the Economic Theory of Trade
 Traditional Theory Based on the Notion of
Comparative Advantage: Heckscher Olin
 2 New Notions:
 Importance of Increasing Returns to Scale
and Intra-Industry Trade (Helpman,
Krugman, Ethier, etc.)
 Importance of availability of a factor and
factor prices (Chichilnisky)

Characteristics of Trade
 Importance of increasing returns in
 External aspects
 Monopolistic competition
 Some property rights regime lower the price of
factor inputs
 Countries with ill-defined property rights extract too
many natural resources
 They have thus an "artificial" comparative advantage
in environmental goods

The Chichilnisky Perspective
 Chichilnisky (1994) has analyzed trade links
between regions with different property rights
 Basic conclusions are drawn from her
investigation:
 The region with undefined property rights
will supply more of a resource at any price
 This applies to any good that is "fugitive" :
rights of ownership established only when
captured or freely extractable

Chichilnisky Perspective
 This situation creates an "abundance" of the resource
in the region without or with ill-defined property
rights
 The region will "appear" to have a comparative
advantage in the given resource.
 Abundance is not due to any intrinsic natural
availability of the resource but only to the absence of
rights.
 The region without property rights will get poorer
because it will get rid of its resources at too low a
price.

Chichilnisky: Analysis
 Assumptions about the region without well
defined property rights:
 elasticity of substitution between leisure and
consumption for harvesters or extractors of the
resource good that is lower than 1
 extractors consume mostly other goods than the
natural resource that are purchased with their harvest
or catch
 An increase of the relative price of other goods
with respect to the resource will result in more
extraction

Consequences
 Regions with ill-defined property rights are "exploited"
those with well defined rights.
 Resultant lower prices lead to increasingly unfavorable terms
of trade followed by more extraction of the resource
 Thus regions with poorly defined property rights grow
poorer as a result of trade with regions with better defined
property rights
 More important, corrective taxes are counterproductive:
lower demand and lower prices lead to more extraction

Analysis of Countries with Ill-
Defined Property Rights
 These countries are sensitive to price fluctuations
due to substitution effects or taxation policies
 Lower prices lead to more extraction of natural
resources due to a lowering of the opportunity
cost of labor
 This lowers their bargaining power at the
international level
 Their bargaining power is lowered further by the
cost of the artificial "comparative advantage" in
terms of natural resources on the society as a
whole which might lead to social upheavals.

Environment and trade policies
 One has to distinguish here between
production and consumption
 The prevalent norm and WTO rule is that
consumption can be regulated with respect
to environmental standards (up to a point)
by national legislation
 No such leeway exists for production
methods (ppm problem)

Conflict, cooperation, and the
environment
 The relations between conflict, cooperation
and the environment are numerous but
cannot always be clearly established
 Quite clearly early cooperative structures
such as early agricultural states were
driven by the necessity to better control the
human environment
 Resource driven conflicts are probable in
this context

Relationships between the
environment and human
production
 As technology evolves, the relations between the
environment and human activities become more
distant
 2 types of relations can be emphasized: 1.
Cataclysmic Events such as volcano eruptions
 Long term changes such as deforestation trends
and climate changes: the 2 may be linked

Conflicts over environmental
resources may exist but they are
difficult to show
 Difficulty to disentangle environmental
form other conflicts, ex. Rwanda
 Here again importance of property and
property rights
 Similar for conflict over resources: Central
Asia and Water in the Jordan river water
basin, conflict between Turkey, Syria and
Iraq over the Euphrates and Tigris waters

The Central Asian Water Question

Symmetric and Asymmetric
Access to Resources:
The Example of the Middle East

2 Middle Eastern Conflicts: The Jordan
and Euphrates River Basins
 Jordan River: Israel plus Palestinians use about
2300 million cubic meters per annum, only
1950 is considered sustainable
 Jordan uses 740 to 750 million cubic meters per
annum. Only 730 is considered sustainable
 Euphrates: Turkey reduces Euphrates flow to
500 to 300 cubic meters per second, 700 are
demanded by Syria

Some Theoretical Notions
 Goal: tackle problems analytically and suggest responses that
tend to promote strategies to minimize conflicts and promote
cooperation
 All social interactions and conflicts are not the same. They have
to be analyzed according to their incentive structures
 Water problems are also common problems
 Commons lead to asymmetries: Lack of dominant strategies lead
to first mover advantage
 First, (or second) move advantage can be enhanced by
geographic or technological circumstances

Fundamental Questions to Address
 What are the nature of the
conflicts
 How can one find optimal
solutions to solve them?

Water competition has technological
and economic limits
 Price of Water from Sea: fundamental
 Given by the cost of a m3
of water from sea water
or possibly from pipe lines:
Around 65¢ per m3
 70% of all consumed water is for agriculture
(irrigation)
 In the Middle East this proportion can reach 80 to
90 %
 Is it worth it?

Symbolic aspects
 The sharper the conflict and the demands
around it, the more is at stake
 Giving in on little things is perceived as
signal to give in on big ones

How to get out of the conflict
spiral?
 Emphasize limited worth of conflict
 Franklin Fisher approach using pricing
 Problem: Symbolic aspect
 Policy of mutual voluntary restraint in use
 Reduce conflict extensions to other areas
through compensations

Difficulty: The Mid-east
population explosion
Graph 6 Population Jordan: Observed and Calculated Values
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
1970
1971
1971
1972
1973
1974
1974
1975
1976
1977
1977
1978
1979
1980
1980
1981
1982
1983
1983
1984
1985
1986
1986
1987
1988
1989
1989
1990
1991
1992
1992
1993
1994
1995
1995
1996
Years
Population(Millions)
Calculated Values Observed Values

Per capita GDP diminish in the Mid-
East

Row
Column
(3,3) (4,1) (2,2)
C
C C
C
Prisoner’s Dilemma
(1,4) (2,2)
Row
C C
Row
Column
(3,3)
(4,2) (1,1)
C C
C C
Chicken

Environmental Negotiations
 The Common problem makes it difficult to
carry out international environmental
negotiations
 Often countries try to free ride on each
other
 It is difficult to exclude from environmental
benefits

Unit veto and leader problem
 Unit Veto makes agreements even more
difficult
 Particular importance of players
 One has to find ways to exclude
 Side payments have to be provided
 Importance of a leader, US for Montreal,
EU for Kyoto

Akashdeepsinghjandu6 environment

More Related Content

What's hot

Similar to Akashdeepsinghjandu6 environment

More from Akashdeep Singh Jandu

Recently uploaded

Akashdeepsinghjandu6 environment

Editor's Notes