Not Just Water

… also resource economics, policy analysis and why not, music!

The economics of ecology reconciliation*

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The rapid development of Environmental Economic theories and applications in the 20th century, from the early works of Pigou (1932) and Leopold (1934) stating the foundations of the field, passing through the essential studies of Coase (1960) and Hardin (1968), to the generalized implementation market-based programs for pollution abatement in the late nineties, does not avoided the huge ecology degradation directly related with human domination of earth’s ecosystems (Vitousek et al., 1997). Neoclassic approach to environmental economics has based fundamentally on internalization of externalities via taxation or market-based approaches, and the development of tons of different cost-effectiveness analyses that include environment valuation within their variables.

In the same way that traditional reservation and restoration ecology approaches insist on protecting habitat from human uses, it looks like most of the conventional environmental economic analyses embedded a differentiation between human and environmental goals. Recent development of reconciliation ecology (Rosenzweig, 2003) needs a new economic approach that conciliates economic and ecological management accounting for full environmental costs and benefits with the same weight than traditional priced goods and services are accounted.

Theoretical framework

The general approach for an economic analysis of ecology reconciliation starts from the definition of the current scenario. We are assuming that this scenario is affected by humans, and most of the times, exploited by them in order to get some resources. The new theoretical framework has to include the economic goals, and within them, valuate the costs and benefits to obtain an improved ecological system.

Necessities of the field

What is the cost of the extinction of a particular specie? What is the value of an ecosystem? Who is going to burden the costs of the environmental services and how? Although there are many studies trying to solve these and much many other questions recently (i.e. McCarthy et al., 2012), we are just in a starting point in the field of ecological valuation and more research is needed to assess and

Beyond the technical necessities, there is a requirement to change the main approach, from the rivalry between human and environmental goals to the inclusion of economical and ecological complementary management. Probably rather than answer the existential questions mentioned above it would be useful to pose which are the complementary ecological management options that human economic exploitations could be applying in order to minimize environmental costs or even to maximize environmental benefits.

Available tools

As we aforementioned, environmental economics has developed many applications that are currently in the toolbox of a decision-maker. Some of the main and best-developed tools are the assignation of environmental property rights —used mostly in pollution abatement programs—, methods of ecosystem valuation (revealed willingness to pay that includes market price method, productivity method, hedonic pricing method and travel cost method; imputed willingness to pay that contains damage cost avoided methods, replaced cost methods and substitute cost methods; and expressed willingness to pay methods, that are basically contingent valuation and contingent choice methods), Cost-Effectiveness or Cost-Benefit analyses, and finally Pareto-Optimal decision choice (ask Jay about this last one).

Effective application

Most of the success histories come from agriculture or timberlands, occurred deliberately or by accident. For that reason a lot of potential applications could be identified taking into account that a large part of the anthropic land transformation is used in agriculture use, with an actual rate of 13 million ha annually converted mostly from forests (FAO 2002).

Increased environmental sensitivity could drive governments in appropriate rewards for decisions to promote sustainable agricultural practices, and it could be necessary for the long-term sustainability of the agricultural system itself, if we take into account that clean water and air, habitat and food sources for animals and other organisms are a valuated input (Robertson and Swinton 2005).

Other type of encouraging application observed lately in the Eropean Union is the valuation of agricultural “multifunctionality” as an umbrella term that includes ecosystem services, rural culture, employment, local food and other aspects of a certain classic style of farming (Maier and Shobayashi, 2001)

Local versus global; developing versus developed countries

Local policies might be restricted and isolated in a particular location or they can be interrelated ecologically with other locations; even if these regions are completely isolated, the global economic relations could have ecological implications.

As an example of these kind of relations are that a subsidy in a wealthy country to reduce some sort of pollution could have a decrease in the yield of certain type of crop that should be maintained with less production or substituted for another, and this policy will increase the incentives for poorer countries without these regulations to produce in a more intensive manner as a consequence of general market equilibrium, driving to a probably worst global scenario if we compute the total ecological benefits.

*This is an ongoing work for ECI298: Reconciling Ecology and Economics Seminar at UC Davis (this is the first draft, but it must be edited later).


Author: Alvar Escriva-Bou

Civil engineer and resource economist focused on water and energy management. Researcher at the Public Policy Institute of California. From Fortaleny, València.

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