An Intellectual History of Environmental Economics Review

Class Writeup #1                Energy and Environment Economics                        

An Intellectual History of Environmental Economics

This paper serves as an essential introduction to the field of environmental economics. It starts with stating the origins of environmental economics and emphasizing on the emergence of this area post World War II in the 1950s. This area was highly focused on in research in the 1960s due to the realization that economics should have a lot to do with environmental concerns, for example, the agrochemicals business was booming which had significant threat to the environment, the use of chemicals such as DDT had done a lot to raise agricultural productivity and protect human health, and economists were already familiar with the idea that there are likely costs and benefits from any form of economic activity.

Then, the paper moves on to explain the idea of an externality and how important it is in this field as well as in other precursor fields. An externality by definition exists when a person makes a choice that affects other people in a way that is not accounted for in the market price. An externality can be positive or negative, but environmental economics is usually associated with negative externalities. These externalities play a significant role when it comes to evaluating policies, as environmental policies are evaluated in terms of their costs and benefits, with costs and benefits defined in terms of human preferences and willingness to pay. Also, a clear distinction is made between natural resource economics and environmental economics. The difference between the two is that the former is mainly concerned with rates of exhaustible resource depletion and the determination of optimal harvest rates for renewable resources, while environmental economics focused on pollution.

This paper concentrates on the concept of sustainable development and how to measure it, which is defined as the development that meets the needs of the present without compromising the ability of the future generations to meet their own needs. As for measuring sustainable development, a brief history of various steps used was introduced, starting with the gross national product (GNP) measure called for in the Rio Summit in 1992, to net national product (NNP), and some additional modified empirical attempts for NNP. After that, economic policy valuation efforts were explained, in order to value environmental policies in monetary terms, all of these attempts (e.x. Hotelling travel cost model) revolved mainly around the concept of appraising policies in terms of costs and benefits, even that the cost and benefits approach was founded way earlier in other fields according to the paper, but it was modified in various events in order to fit the area of environmental economics and aid in the process of policy instruments selection as the article summarizes such efforts and contributions.