Environmental Economics
Environmental economics is a branch of economics that studies how the relationship between men and nature impacts the economy, and tries to help countries grow economically with least damage to the environment .
Contents
1. Problems 2. Solutions 3. References
Problems
Market failure
Market failure takes place when a market cannot find the best way to use the resources of the economy.
Externality
It is the cost or benefit of an action that is not included in the market price. An example of a negative externality is when a company gives waste for somebody else to recycle but this waste has dangerous chemicals. The person that receives the waste can recycle it to make money, but risks his health and the environment of his place .
Public goods and the free-rider problem
A public good is a resource that everybody can use at the same time and it will still be available after it is used, like fresh air. Public goods are free for everyone to use. The free-rider problem says that because public goods are free to use, people will not pay even if there is a cost. Because air is free, people will contaminate without thinking of the consequences.
Common goods and the Tragedy of the Commons
A common good is a resource that everybody can use but there is less of it after each person uses it. The Tragedy of the Commons happens when too many people use a common good, and because there is a limited amount, the resource disappears. For example, there is a certain number of fish in the ocean. Everybody can fish because it would cost too much to regulate all the fishing, but if people fish too much, we will reach the point where there are no more fish.
Solutions
Environmental regulations
Cap and Trade
The government gives out a number of permits that allow companies to produce pollutants. Companies will buy and sell these permits in a market, and based on the supply and demand idea, the companies that need to pollute will pay more money for the permits .
Taxes on pollution
Taxes on pollution are made so that people do not pollute too much. Companies are charged a tax every time they produce chemicals that are bad for the environment. Carbon taxes are an example of taxes on pollution. Companies that want to release carbon dioxide will have to pay an extra cost because of the tax . Taxes serve as a way to discourage companies from polluting too much.
Better-defined property rights References
A Textbook of Environmental Economics
Yokoo and Kinnaman
Goulder and Schein