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Copyright, iv
Preface to the Sixth Edition, xviii
1. Visions of the Future, 1
Introduction, 1
The Self-Extinction Premise, 1
Future Environmental Challenges, 2
Climate Change, 2
Example 1.1 Historical Examples of Self-Extinction, 3
Water Accessibility, 4
Meeting the Challenges, 4
How Will Societies Respond?, 5
The Role of Economics, 6
The Use of Models, 6
Debate 1.1 Ecological Economics Versus Environmental Economics, 7
Example 1.2 Experimental Economics: Studying Human Behavior in a Laboratory, 8
The Road Ahead, 9
Debate 1.2 What Does the Future Hold?, 9
The Issues, 10
An Overview of the Book, 11
Summary, 12
Key Concepts, 12
Further Reading, 12
Additional References, 13
Discussion Questions, 13
2. Valuing the Environment: Concepts, 15
Introduction, 15
The Human Environment Relationship, 15
The Environment as an Asset, 15
The Economic Approach, 17
Normative Criteria for Decision Making, 18
Evaluating Predefined Options, 18
Debate 2.1 Should Humans Place an Economic Value on the Environment?, 19
Example 2.1 Valuing Ecological Services from Preserved Tropical Forests, 22
Incorporating the Timing of Benefits and Costs: The Present Value Criterion, 23
Finding the Optimal Outcome, 26
Static Efficiency, 27
Dynamic Efficiency, 29
Applying the Concepts, 29
Pollution Control, 29
Example 2.2 Does Reducing Pollution Make Economic Sense?, 30
Preservation Versus Development, 31
Example 2.3 Choosing Between Preservation and Development in Australia, 31
Summary, 32
Key Concepts, 32
Further Reading, 32
Discussion Question, 33
3. Valuing the Environment: Methods, 34
Introduction, 34
Risk Assessment, 34
Valuing Benefits for Risk Management, 35
Types of Values, 36
Classifying Valuation Methods, 36
Debate 3.1 Willingness to Pay Versus Willingness to Accept: Why So Different?, 39
Example 3.1 Leave No Behavioral Trace: Using the Contingent Valuation Method to Measure Passive Use Values, 40
Example 3.2 Valuing Damage from Groundwater Contamination Using Averting Expenditures, 44
Using Geographic Information Systems for Economic Valuation, 45
Valuing Human Life, 46
Example 3.3 Using GIS to Inform Hedonic Property Values: Visualizing the Data, 47
Debate 3.2 Is Valuing Human Life Immoral?, 48
Issues in Benefit Estimation, 50
Approaches to Cost Estimation, 50
The Treatment of Risk, 51
Choosing the Discount Rate, 53
Example 3.4 The Historical Importance of the Discount Rate, 54
A Critical Appraisal, 55
Cost-Effectiveness Analysis, 56
Impact Analysis, 57
Example 3.5 NO₂ Control in Chicago: An Example of Cost-Effectiveness Analysis, 58
Summary, 59
Key Concepts, 60
Further Reading, 60
Additional References, 61
Discussion Questions, 63
4. Property Rights, Externalities, and Environmental Problems, 64
Introduction, 64
Property Rights, 65
Property Rights and Efficient Market Allocations, 65
Efficient Property Right Structures, 65
Example 4.1 Pollution in Transition Economies, 66
Producer’s Surplus, Scarcity Rent, and Long-Run Competitive Equilibrium, 69
Externalities as a Source of Market Failure, 70
The Concept Introduced, 70
Types of Externalities, 71
Example 4.2 Shrimp Farming Externalities in Thailand, 72
Improperly Designed Property Rights Systems, 73
Other Property Rights Regimes, 73
Public Goods, 75
Example 4.3 Public Goods Privately Provided: The Nature Conservancy, 78
Imperfect Market Structures, 78
Divergence of Social and Private Discount Rates, 80
Government Failure, 80
The Pursuit of Efficiency, 82
Private Resolution through Negotiation, 82
The Courts: Property Rules and Liability Rules, 84
Legislative and Executive Regulation, 86
An Efficient Role for Government, 86
Summary, 87
Key Concepts, 87
Further Reading, 88
Discussion Questions, 88
5. Sustainable Development: Defining the Concept, 90
Introduction, 90
A Two-Period Model, 91
Defining Intertemporal Fairness, 95
Are Efficient Allocations Fair?, 96
Example 5.1 The Alaskan Permanent Fund, 97
Applying the Sustainability Criterion, 98
Example 5.2 Nauru: Weak Sustainability in the Extreme, 99
Implications for Environmental Policy, 100
Summary, 101
Key Concepts, 102
Further Reading, 102
Additional References, 102
Discussion Questions, 103
6. The Population Problem, 104
Introduction, 104
Historical Perspective, 105
World Population Growth, 105
Population Growth in the United States, 105
Effects of Population Growth on Economic Development, 108
The Population/Environment Connection, 114
Effects of Economic Development on Population Growth, 114
Debate 6.1 Does Population Growth Inevitably Degrade the Environment?, 115
The Economic Approach to Population Control, 118
Example 6.1 Achieving Fertility Declines in Low-Income Countries: The Case of Kerala, 123
Example 6.2 Income-Generating Activities as Fertility Control: Bangladesh, 124
Urbanization, 125
Using GIS to Map Population Data, 125
Summary, 126
Key Concepts, 126
Further Reading, 126
Discussion Questions, 127
7. Natural Resource Economics: An Overview, 128
Introduction, 128
A Resource Taxonomy, 129
Efficient Intertemporal Allocations, 132
The Two-Period Model Revisited, 132
Transition to a Renewable Substitute, 133
Exploration and Technological Progress, 134
Example 7.1 Technological Progress in the Iron Ore Industry, 135
Market Allocations, 135
Appropriate Property-Right Structures, 136
Environmental Costs, 136
Summary, 137
Key Concepts, 138
Further Reading, 138
Additional References, 138
Discussion Questions, 139
8. Energy, 140
Introduction, 140
Example 8.1 Hubbert’s Peak, 141
Natural Gas: Price Controls, 142
Oil: The Cartel Problem, 145
Price Elasticity of Oil Demand, 146
Income Elasticity of Oil Demand, 146
Non-OPEC Suppliers, 147
Compatibility of Member Interests, 148
Fossil Fuels: National Security and Climate Considerations, 149
The Climate Dimension, 149
The National Security Dimension, 150
Debate 8.1 How Should the United States Deal with the Vulnerability of Its Imported Oil?, 152
Example 8.2 Strategic Petroleum Reserve, 153
The Other Depletable Sources: Unconventional Oil, Coal, and Nuclear, 154
Unconventional Oil Sources, 155
Coal, 155
Uranium, 155
Electricity, 158
Example 8.3 Electricity Deregulation in California: What Happened?, 160
Example 8.4 Renewable Energy Credits: The Texas Experience, 162
Energy Efficiency, 162
Example 8.5 Feed-in Tariffs, 163
Transitioning to Renewables, 164
Hydroelectric Power, 165
Wind, 165
Photovoltaics, 165
Debate 8.2 Dueling Externalities: Should the U.S. Promote Wind Power?, 166
Active and Passive Solar Energy, 167
Ocean Tidal Power, 167
Biofuels, 167
Geothermal Energy, 168
Hydrogen, 168
Summary, 170
Key Concepts, 171
Further Reading, 171
Additional References, 171
Discussion Questions, 173
9. Water, 174
Introduction, 174
The Potential for Water Scarcity, 175
The Efficient Allocation of Scarce Water, 178
Surface Water, 178
Groundwater, 179
The Current Allocation System, 180
Riparian and Prior-Appropriation Doctrines, 180
Sources of Inefficiency, 181
Debate 9.1 What Is the Value of Water?, 185
Potential Remedies, 186
Example 9.1 Using Economic Principles to Conserve Water in California, 187
Example 9.2 Water Transfers in Colorado: What Makes a Market for Water Work?, 188
Example 9.3 Protecting Instream Uses Through Acquiring Water Rights, 189
Example 9.4 Water Pricing in Canada, 194
Debate 9.2 Should Water Systems Be Privatized?, 196
GIS and Water Resources, 196
Summary, 197
Key Concepts, 198
Further Reading, 198
Additional References, 199
Discussion Questions, 201
10. Land, 202
Introduction, 202
The Economics of Land Allocation, 203
Land Use, 203
Land Use Conversion, 204
Sources of Inefficient Use and Conversion, 205
Sprawl and Leapfrogging, 205
Incompatible Land Uses, 206
Example 10.1 Using GIS to Analyze Sprawl, 207
Undervaluing Environmental Amenities, 208
Debate 10.1 Should Landowners Be Compensated for “Regulatory Takings”?, 209
The Influence of Taxes on Land Use Conversion, 210
Market Power, 210
Special Problems in Developing Countries, 212
Debate 10.2 What Is a “Public Purpose”?, 212
Innovative Market-Based Policy Remedies, 214
Establishing Property Rights, 214
Transferable Development Rights, 214
Wetlands Banking, 215
Example 10.2 Controlling Land Development with TDRs, 215
Conservation Banking, 216
Safe Harbor Agreements, 216
Example 10.3 Conservation Banking: The Gopher Tortoise Conservation Bank, 217
Grazing Rights, 218
Conservation Easements, 218
Land Trusts, 219
Example 10.4 Using a Community Land Trust to Protect Farmland, 220
Development Impact Fees, 220
Debate 10.3 Does Ecotourism Provide a Pathway to Sustainability?, 221
Property Tax Adjustments, 221
Example 10.5 Tax Strategies to Reduce Inefficient Land Conversion: Maine’s Open Space Program, 222
Summary, 222
Key Concepts, 223
Further Reading, 223
Additional References, 224
Discussion Questions, 224
11. Agriculture, 225
Introduction, 225
Global Scarcity, 226
Examining Global Scarcity, 227
Outlook for the Future, 229
Example 11.1 Growing Corn for Fuel, Not Food: The Expansion of Ethanol, 232
The Role of Agricultural Policies, 236
Example 11.2 Do Mandatory Labels Correct Externalities?, 238
Debate 11.1 When Organic Goes Mainstream: Do You Get What You Pay For?, 238
Summing Up, 240
Debate 11.2 Should Genetically Modified Organisms Be Banned?, 241
Example 11.3 Are Consumers Willing to Pay a Premium for GMO-Free Foods?, 242
Distribution of Food Resources, 242
Defining the Problem, 243
Domestic Production in LDCs, 243
The Undervaluation Bias, 245
Feeding the Poor, 245
Feast and Famine Cycles, 247
Summary, 249
Key Concepts, 249
Further Reading, 250
Additional References, 250
Discussion Questions, 252
12. Forests, 253
Introduction, 253
Characterizing Forest Harvesting Decisions, 254
Special Attributes of the Forest, 254
The Biological Dimension, 254
The Economics of Forest Harvesting, 256
Sources of Inefficiency, 257
Perverse Incentives for the Landowner, 257
Perverse Incentives for Nations, 260
Poverty and Debt, 261
Sustainable Forestry, 262
Public Policy, 263
Changing Incentives, 264
Example 12.1 Producing Sustainable Forestry Through Certification, 265
Debt-Nature Swaps, 265
Extractive Reserves, 266
The World Heritage Convention, 266
Royalty Payments, 267
Example 12.2 Does Pharmaceutical Demand Offer Sufficient Protection to Biodiversity?, 268
Summary, 268
Example 12.3 Trust Funds for Conservation, 269
Key Concepts, 270
Further Reading, 270
Additional References, 271
Discussion Questions, 272
13. Common-Pool Resources: Fisheries and Other Commercially Valuable Species, 273
Introduction, 273
Efficient Harvests, 274
The Biological Dimension, 274
Efficient Sustained Yield, 276
Appropriability and Market Solutions, 277
Example 13.1 Open-Access Harvesting of the Minke Whale, 279
Example 13.2 Historical Example: Harbor Gangs of Maine, 280
Public Policy Toward Fisheries, 281
Aquaculture, 281
Debate 13.1 Aquaculture: Does Privatization Cause More Problems Than It Solves?, 283
Raising the Real Cost of Fishing, 285
Taxes, 286
Individual Transferable Quotas (ITQs), 287
Subsidies and Buybacks, 290
Example 13.3 The Relative Effectiveness of Transferable Quotas and Traditional Size and Effort Restrictions in the Atlantic Sea Scallop Fishery, 291
The 200-Mile Limit, 293
The Economics of Enforcement, 293
Preventing Poaching, 295
Example 13.4 Local Approaches to Wildlife Protection: Zimbabwe, 296
Summary, 297
Key Concepts, 297
Further Reading, 298
Additional References, 298
Discussion Questions, 300
14. Environmental Economics: An Overview, 301
Introduction, 301
A Pollutant Taxonomy, 301
Defining the Efficient Allocation of Pollution, 303
Fund Pollutants, 303
Market Allocation of Pollution, 305
Efficient Policy Responses, 306
Example 14.1 Environmental Taxation in China, 307
Cost-Effective Policies for Emission Reduction, 308
Defining a Cost-Effective Allocation, 308
Cost-Effective Pollution Control Policies, 309
Emission Standards, 310
Emission Charges, 310
Cap-and-Trade, 313
Other Policy Dimensions, 314
Debate 14.1 Should Developing Countries Rely on Market-Based Instruments to Control Pollution?, 315
The Revenue Effect, 315
Example 14.2 The Swedish Nitrogen Charge, 317
Example 14.3 Maine’s Energy and Carbon Savings Trust, 318
Responses to Changes in the Regulatory Environment, 318
Instrument Choice Under Uncertainty, 319
Product Charges: Another Form of Environmental Taxation, 320
Summary, 320
Example 14.4 The Irish Bag Levy, 321
Key Concepts, 322
Further Reading, 323
Additional References, 323
Discussion Questions, 325
15. Stationary-Source Local and Regional Air Pollution, 326
Introduction, 326
Conventional Pollutants, 326
The Command-and-Control Policy Framework, 327
Debate 15.1 Does Sound Policy Require Targeting New Sources via the New Source Review?, 329
The Efficiency of the Command-and-Control Approach, 330
Debate 15.2 The Particulate and Smog Ambient Standards Controversy, 331
Cost-Effectiveness of the Command-and-Control Approach, 332
Air Quality, 334
Example 15.1 Controlling SO₂ Emissions by Command-and-Control in Germany, 335
Innovative Approaches, 337
Smog Trading (RECLAIM), 337
Emission Charges, 338
Regional Pollutants, 339
Example 15.2 Technology Diffusion in the Chlorine Manufacturing Sector, 339
Acid Rain, 340
Example 15.3 Adirondack Acidification, 341
Example 15.4 The Sulfur Allowance Program, 344
Example 15.5 Why and How Do Environmentalists Buy Pollution?, 345
Summary, 346
Key Concepts, 347
Further Reading, 347
Additional References, 348
Discussion Questions, 349
16. Climate Change, 350
Introduction, 350
The Science of Climate Change, 350
Negotiations over Climate Change Policy, 352
Characterizing the Broad Strategies, 352
Debate 16.1 Should Carbon Sequestration in the Terrestrial Biosphere Be Credited?, 353
The Precedent: Reducing Ozone Depleting Gases, 354
The Policy Focus of the Climate Change Negotiations, 355
Example 16.1 Tradable Permits for Ozone-Depleting Chemicals, 356
The Evolution of International Agreements on Climate Change, 357
Example 16.2 The European Emissions Trading Scheme (EU ETS), 358
Complementary Strategies, 359
Controversies, 359
Policy Timing, 359
Debate 16.2 Is Global Greenhouse Gas Trading Immoral?, 360
Creating Incentives for Participation in Climate Change Agreements, 361
Summary, 362
Key Concepts, 363
Further Reading, 364
Additional References, 364
Discussion Questions, 365
17. Transportation, 366
Introduction, 366
The Economics of Mobile-Source Pollution, 368
Implicit Subsidies, 368
Externalities, 368
The Consequences, 370
Policy Toward Mobile Sources, 370
Some History, 370
Structure of the U.S. Approach, 371
Example 17.1 Project XL—The Quest for Effective, Flexible Regulation, 374
European Approaches, 375
Example 17.2 Car Sharing: Better Use of Automotive Capital?, 376
An Economic and Political Assessment, 377
Technology Forcing and Sanctions, 378
Differentiated Regulation, 378
Uniformity of Control, 378
The Deterioration of New-Car Emission Rates, 379
Lead Phaseout Program, 380
Example 17.3 Getting the Lead Out: The Lead Phaseout Program, 381
Possible Reforms, 381
Fuel Taxes, 381
Congestion Pricing, 382
Debate 17.1 CAFE Standards or Fuel Taxes?, 383
Private Toll Roads, 384
Example 17.4 Innovative Mobile-Source Pollution Control Strategies: Singapore, 385
Parking Cash Outs, 385
Feebates, 386
Pay-As-You-Drive (PAYD) Insurance, 386
Accelerated Retirement Strategies, 386
Example 17.5 Modifying Car Insurance as an Environmental Strategy, 387
Summary, 388
Example 17.6 Counterproductive Policy Design, 388
Key Concepts, 390
Further Reading, 390
Additional References, 391
Discussion Questions, 392
18. Water Pollution, 393
Introduction, 393
The Nature of Water Pollution Problems, 394
Types of Waste-Receiving Water, 394
Sources of Contamination, 394
Types of Pollutants, 396
Debate 18.1 Toxics in Fish Tissue: Do Fish Consumption Advisories Change Behavior?, 398
Water Pollution Control Policy, 400
Traditional Water Pollution Control Policy, 400
Early Legislation, 400
Subsequent Legislation, 401
The TMDL Program, 403
The Safe Drinking Water Act, 403
Ocean Pollution, 404
Private Enforcement, 404
Efficiency and Cost-Effectiveness, 405
Ambient Standards and the Zero Discharge Goal, 405
National Effluent Standards, 406
Municipal Waste Treatment Subsidies, 409
Example 18.1 Effluent Trading and the Cost of Reducing Waste Treatment Discharges into Long Island Sound, 410
Pretreatment Standards, 411
Example 18.2 Cost-Effective Pretreatment Standards, 412
Nonpoint Pollution, 412
Atmospheric Deposition of Pollution, 414
The European Experience, 414
Developing Country Experience, 415
Example 18.3 Economic Incentives for Water Pollution Control: The Case of Colombia, 416
Oil Spills, 417
Example 18.4 Anatomy of an Oil Spill Suit: The Amoco Cadiz, 418
Citizen Suits, 418
Water Quality, Watershed Based Trading, and GIS, 419
Summary, 419
Key Concepts, 420
Further Reading, 421
Additional References, 421
Discussion Questions, 423
19. Managing Waste, 424
Introduction, 424
Efficient Recycling, 424
Extraction and Disposal Costs, 424
Example 19.1 Population Density and Recycling: The Japanese Experience, 425
Recycling: A Closer Look, 426
Example 19.2 The Bet, 427
Example 19.3 Lead Recycling, 428
Waste Disposal and Pollution Damage, 428
Disposal Costs and Efficiency, 429
The Disposal Decision, 429
Disposal Costs and the Scrap Market, 431
Subsidies on Raw Materials, 431
Pollution Damage, 431
Toxic and Hazardous Waste, 432
Policies Targeted at Conventional Waste, 433
Example 19.4 Pricing Trash in Marietta, Georgia, 434
Debate 19.1 “Bottle Bills.” Economic Incentives at Work?, 436
Example 19.5 Implementing the Take-Back Principle, 437
Special Policies Targeted at Hazardous Waste, 439
Example 19.6 Regulating Through Mandatory Disclosure: The Case of Lead, 442
International Agreements, 442
Summary, 443
Key Concepts, 444
Further Reading, 444
Additional References, 445
Discussion Questions, 446
20. Development, Poverty, and the Environment, 448
Introduction, 448
The Growth Process, 449
The Nature of the Process, 449
Potential Sources of Reduced Growth, 450
The Natural Resource Curse, 452
Energy, 452
Example 20.1 The “Natural Resource Curse” Hypothesis, 453
Environmental Policy, 455
Outlook for the Near Future, 455
Debate 20.1 Jobs Versus the Environment: Which Side Is Right?, 456
Population Impacts, 457
The Information Economy, 457
The Growth-Development Relationship, 458
Conventional Measures, 458
Alternative Measures, 460
Growth and Poverty: The Industrialized Nations, 464
The Effects on Income Inequality, 464
Poverty in the Developing Countries, 464
The Appropriateness of the Traditional Model, 466
Barriers to Development, 467
Example 20.2 Trading Water for Beehives and Barbed Wire in Bolivia, 468
Example 20.3 Debt-for-Nature Revisited: The Nature Conservancy, the Tropical Forest Conservation Act, and Costa Rica, 471
Summary, 472
Key Concepts, 473
Further Reading, 474
Additional References, 474
Discussion Questions, 476
21. The Quest for Sustainable Development, 477
Introduction, 477
Sustainability and Development, 478
Market Allocations, 480
Efficiency and Sustainability, 480
Example 21.1 Resource Depletion and Economic Sustainability: Malaysia, 482
Trade and the Environment, 484
Example 21.2 Has NAFTA Improved the Environment in Mexico?, 487
Debate 21.1 Should an Importing Country Be Able to Use Trade Restrictions to Influence Harmful Fishing Practices in an Exporting Nation?, 489
A Menu of Opportunities, 490
Agriculture, 490
Energy, 491
Waste Reduction, 492
Managing the Transition, 492
Prospects for International Cooperation, 493
Opportunities for Cooperation, 494
Restructuring Incentives, 495
Example 21.3 Disclosure Strategies for Pollution Control in Indonesia, 501
Forced Transition, 501
Defining the Target, 501
Institutional Structure, 502
Administration, 503
Summary, 504
Key Concepts, 505
Further Reading, 505
Additional References, 506
Discussion Questions, 508
22. Visions of the Future Revisited, 509
Addressing the Issues, 509
Conceptualizing the Problem, 509
Institutional Responses, 511
Example 22.1 Private Incentives for Sustainable Development: Can Adopting Sustainable Practices Be Profitable?, 512
Sustainable Development, 514
Example 22.2 Public/Private Partnerships: The Kalundborg Experience, 516
A Concluding Comment, 517
Key Concept, 518
Discussion Questions, 518
Index, 519

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