Environmental Economics

3 Pages 736 Words

The first subject that comes up in Environmental Economics is private versus social costs. Private costs means costs are borne exclusively by the ones who incur them. Social costs means the full costs borne by a society whenever a resource use occurs. They can be measured by adding private costs to external costs. Some economic participants don’t pay the full social costs of their actions but only the smaller, private costs. Their actions are considered “socially unacceptable.” In the situations where there is divergence between social and private costs, we see too much steel production, automobile driving, beach littering and many more examples. When private and social costs differ, it is called an externality because the individual decision-makers are not paying all the costs. One method for correcting this problem is by making the decision-makers aware of their situation. For example, in the event of automobile pollution, taxes could be placed according to the amount of pollution they cause. But is it appropriate to place a tax on the amount of physical quantities of pollution one causes? A better choice in some situations might be to measure the amount of economic damages rather than the amount of physical pollution.
When pollution is defined, most people think of it as dirty air or water, but in reality, it involves noise and other concepts such as aesthetic pollution. While most people would agree that the world would be a better place without pollution, we forget that growing and distributing food and producing consumer products creates pollution and there is no way around that. How do you measure how much pollution is too much? The “perfect” amount is defined as the optimal quantity of pollution, where the marginal benefit of one additional unit of clean air just equals the marginal cost of that additional unit of clean air. Recognizing that the optimal quantity is not zero becomes easier when we reali...