Environmental economics is a domain of economics that looks at problems of the environment from an economical perspective. Natural resources, such as clean water are limited, because of pollution. They are also seen as free public goods. This means that if there are no rules on how to use these goods, they will be used too much. There are externalities for using these goods, and there is the problem of free riders. In this perspective, the solution is to convert these resources into economic goods, which are integrated in the market. This will lessen the problem of free-riding, and give incentives to use these goods sparingly. An example for this is a tax which is tied to pollution. Proper legislation and observation of property right on how to regulate the use of these public goods is also another important factor in ensuring that market inefficiencies don't result.
- Geoffrey Heal (December 2016). Endangered Economies; How the Neglect of Nature Threatens Our Prosperity. Columbia University Press. ISBN 9780231543286. Retrieved 23 February 2017.