This document discusses the relationship between the environment and economic development. It covers topics such as sustainable development, environmental accounting, the impact of population growth and poverty on resources, and the tradeoffs between economic growth and environmental degradation. The key issues addressed are how to increase development in developing countries while preserving environmental capital and ensuring patterns of production and consumption are sustainable.

1. 1
Lecture 22:
The Environment and
Development
Economics and the Environment

2. 2
Environment and Development:
The Basic Issues
• The concept of sustainable development, and
linkages between the environment
• Sustainability: a development path is sustainable
‘if and only if the stock of overall capital assets
remains constant or rises over time’
• Environmental accounting: the preservation or
loss of valuable environmental resources should
be factored into estimates of economic growth and
well-being

3. 3
• NNP* =GNP –Dm –Dn – R –A
• NNP*: sustainable net national product
• Dm: depreciation of manufactured capital assets
• Dn: depreciation of environmental capital:
monetary value of environmental decay over a
year
• R: expenditure required to restore environmental
capital (forests, fisheries etc.)
• A: expenditure required to avert destruction of
environmental capital

4. 4
Population, Resources, and the
Environment
• Perception that there is a limited population size
which can be sustained with the earth’s finite
resources
• Potential for new technologies may alleviate the
strain on the resources
• Growing populations in the LDC have led to land,
water, and wood shortages in rural areas, and
sanitation and water in urban areas
• Increasing populations contributes to accelerated
degradation of resources

5. 5
Poverty and the Environment
• Relationship between environmental destruction
and high fertility which are both out growths of
absolute poverty
• Preventing environmental degradation is linked to
providing institutional support to the poor
• Insecure land rights, lack of credit and inputs and
absence of information often prevent poor from
marking resource augmenting investments which
would help preserve the environment

6. 6
Growth versus the Environment
• Question of whether or not it is possible to achieve
growth without environmental damage
• The worst environmental damage by the richest
billion and poorest billion of the world
• Therefore idea that increasing incomes of the poor
would decrease environmental damage
• Increasing consumption while keeping
environmental degradation low is difficult

7. 7
Rural Development and the
Environment
• Growing LDC populations will require food
production in LDCs to double by 2010
• Land in LDC are already being overworked
by the existing population
• Increased accessibility of agricultural inputs
and introduction of sustainable methods of
farming are need to decrease destructive
patterns of land use

8. 8
Urban Development and the
Environment
• Rapid population increase and rural-urban
migration has led to increasing urban population
growth
• Strain on existing urban water supplies and
sanitation facilities, high costs of urban crowding
• Resulting in health hazards as circumstances allow
for epidemics and health crises
• Research reveals that urban environment tends to
worsen at a faster rate than urban population size
increases so that the marginal environmental cost
of additional residents rises over time

9. 9
The Global Environment
• As world population grows and incomes rise, net
environmental degradation will worsen
• Efficient use of resources can be undertaken via
population abatement technology and resource
management
• Trade-offs between output and environmental
improvements will be necessary

10. 10
The Scope of Environmental
Degradation
• Environmental
challenges in
developing countries
will be caused by
poverty
• These are common
where households lack
economic alternative
to unsustainable
patterns of living
• These include health
hazards created by:
• Lack of access to
clean water and
sanitation
• Indoor air pollution
• Deforestation
• Severe soil
degradation

11. 11
Principal Health and Productivity
Consequences of Environmental Damage
• See Todaro: Ch. 11
Table 11.1
• Example:
• Water pollution and
scarcity
• More than 2m deaths, and
billions of illnesses a year
• Effect on productivity:
declining fisheries, rural
household time and
municipal costs of
providing safe water

12. 12
Traditional Economic Models of
the Environment
• Privately Owned
Resources (11.1)
• Static Efficiency in
Resource Allocation
• Where total net benefit is
maximized when the
marginal cost of
producing/extracting one
more unit of the resource
is equal to its marginal
benefit

13. 13
• Optimal Resource
Allocation Over Time (11.2)
• Price of a good that is
being rationed inter-
temporally must equate
the present value of the
marginal net benefit of the
last unit consumed in each
period
• Indifferent between
obtaining the next until
today or tomorrow
• Efficient allocation of
resources over time must
allow for scarcity rent to
be collected by owner

14. 14
• Common Property
Resources and
Misallocation (11.3)
• Potential profits or scarcity
rents will be competed away
• Misallocation or resources
under a common property
system
• Implication of model is the
where possible privatization of
resources will lead to an
efficient allocation of resources
• Example: relationship between
the returns to labor on a given
piece of land
• Scarcity rent: Green area