Ch. 1 (Stavins) “How Economists
View the Environment,”
by Don Fullerton & Robert
Stavins
Introduction
• Several prevalent myths about
economists’ view of the environment
• Reasons?
–1) Perhaps due to economists’
enthusiasm for market solutions
–2) Economists’ failure to clearly state
caveats
–3) Economists use too much jargon
(everyone does this, e.g. computer
nerds)
1) Myth of Universal Market
• Market solves ALL problems
• Adam Smith “Father of Economics”
espoused invisible hand principle:
markets are efficient
• But economists do note several caveats
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1) No public goods
2) No externalities, e.g. pollution
3) No monopoly
4) No increasing returns to scale
5) No information problems
6) No transaction costs
7) No taxes
8) No common property , e.g. wildlife
9) No other distortions between costs & benefits
2) Myth of Market Solution
• Economists always recommend
market solutions
• Economists tend to search for market
solutions, e.g. pollution trading permits
• Conditions needed for successful market
– 1) No monopoly
– 2) low cost of measuring emissions
– 3) SO2 permits have worked well, lowered
costs
– 4) hot spots can be a problem
3) Myth of Market Prices
•Economists only look at
prices
• Economists are wary of surveys,
they like real market data, such as
prices, but…
• Economists also look at “use” &
nonuse” values
• Nonuse: no market, so we must
look for indirect measures
4) Myth of Efficiency
•Economists only are
concerned with
efficiency
• Equity (distribution of
income) is important;
Amartya Sen won Nobel
prize in 1998
• but difficult to measure
Where Does this Leave Us?
•Need better
communication across
disciplines
• E.g. what do these stand for?
–LASER
–SCUBA
–BIOS
The End