LECTURE 1
The schools of thought about SCARCITY
Environmental economics = Neoclassical economics
See scarcity relative => To what extent do resources become scarce to one
another? ( => as an input becomes scarcer => its price increase relatively to other
inputs => may substitute and use other less scarce resources )
• Applied to environmental topics à focuses on relative scarcity
• Hold theories that natural capital can be substituted by human made capital
• Scarcity of natural resources is relative and often assumes can be substituted
by man-made capital
• Price system is key in correcting for scarcities
Vs
Ecological economics
• Emphasizes that the economy is a subsystem of ecosystem Earth =>
economy is embedded in the ecosystem
• and recognize absolute scarcity in the economy its use of the environment as
resources pool and pollution sink
• Sees scarcity as absolute
,An essay on the principle of population
Thomas Robert Malthus (absolute scarcity):
There is a tendency of potential population outgrows the carrying capacity of the
environment to provide subsistence to this population
• A population without any policy => exponential growth of the population
while subsistence would tend to grow only linear => “A slight acquaintance
with numbers will shew the immensity of the first power in comparison of the
second”
• Explanation of the quote: any economic rinse will stimulate for the population
growth and at some point, the population reaches the carrying capacity or
overshoots it, followed by a correction in population death rates - Malthusian
catastrophe
• Debated: ideas on which fears are based are criticized
o Shown that fertility rate drops with increasing income levels
o Global food productions have increased (comes with ecological cost,
claiming more land and using more destructive practices to increase
production) faster than population
Pierre Francois Verhulst was inspired about the idea of carrying capacity
• Introduced it for the first time mathematically
𝑑𝑁 𝑁
= 𝑟𝑁 '1 − +
𝑑𝑡 𝐾
, • Formula explanation
o r = natural growth rate of population
o N = size of the population
o K = mathematical expression of
carrying capacity
A possible path of how it reaches the carrying capacity
Solow: through higher prices,
scarce resources will become more
expensive => people will seek
substitutes to cut costs
=> the price system will correct the
expected bad future of growth
HOWEVER, once absolute scarcity
becomes the problem, the price system may be insufficient to obtain a sufficiently
sustainable level of resources
Crutzen: more recent proposal
• We may have entered a new geological epoch
Planetary boundary: Climate change
1. Global carbon budget
Market failure public goods and commons
Public goods (bads) are underprovided (overprovided) and global common is
overconsumed
• Climate stability, absorptive capacity of greenhouse gasses
, • Marine biodiversity
• Air quality and freshwater availability
• Forests habitat provision and soils quality integrity
Tragedy of the commons
• When there are NO property rights => individually rational to extract and
consume resources beyond the social optimal
• Deforestation
Policy instruments
• Awareness and information campaigns
• Nudges (defaults)
• Taxes and subsidies
o Emissions tax, natural resource fees, luxury tax
• Cap and trade
o Markets for emission allowances, transferable fish quota
• Command and control
o Input controls, product bans, technology controls
Stiglitz about carbon pricing aligns with Solow’s idea
ð What levels of carbon prices are optimal and what levels of carbon prices are
Paris-consistent?
Discounting
Arrow: Rationales for discounting
• Investment based: if returns on investments are positive => one needs less
than $1 now to have $1 in the future
The schools of thought about SCARCITY
Environmental economics = Neoclassical economics
See scarcity relative => To what extent do resources become scarce to one
another? ( => as an input becomes scarcer => its price increase relatively to other
inputs => may substitute and use other less scarce resources )
• Applied to environmental topics à focuses on relative scarcity
• Hold theories that natural capital can be substituted by human made capital
• Scarcity of natural resources is relative and often assumes can be substituted
by man-made capital
• Price system is key in correcting for scarcities
Vs
Ecological economics
• Emphasizes that the economy is a subsystem of ecosystem Earth =>
economy is embedded in the ecosystem
• and recognize absolute scarcity in the economy its use of the environment as
resources pool and pollution sink
• Sees scarcity as absolute
,An essay on the principle of population
Thomas Robert Malthus (absolute scarcity):
There is a tendency of potential population outgrows the carrying capacity of the
environment to provide subsistence to this population
• A population without any policy => exponential growth of the population
while subsistence would tend to grow only linear => “A slight acquaintance
with numbers will shew the immensity of the first power in comparison of the
second”
• Explanation of the quote: any economic rinse will stimulate for the population
growth and at some point, the population reaches the carrying capacity or
overshoots it, followed by a correction in population death rates - Malthusian
catastrophe
• Debated: ideas on which fears are based are criticized
o Shown that fertility rate drops with increasing income levels
o Global food productions have increased (comes with ecological cost,
claiming more land and using more destructive practices to increase
production) faster than population
Pierre Francois Verhulst was inspired about the idea of carrying capacity
• Introduced it for the first time mathematically
𝑑𝑁 𝑁
= 𝑟𝑁 '1 − +
𝑑𝑡 𝐾
, • Formula explanation
o r = natural growth rate of population
o N = size of the population
o K = mathematical expression of
carrying capacity
A possible path of how it reaches the carrying capacity
Solow: through higher prices,
scarce resources will become more
expensive => people will seek
substitutes to cut costs
=> the price system will correct the
expected bad future of growth
HOWEVER, once absolute scarcity
becomes the problem, the price system may be insufficient to obtain a sufficiently
sustainable level of resources
Crutzen: more recent proposal
• We may have entered a new geological epoch
Planetary boundary: Climate change
1. Global carbon budget
Market failure public goods and commons
Public goods (bads) are underprovided (overprovided) and global common is
overconsumed
• Climate stability, absorptive capacity of greenhouse gasses
, • Marine biodiversity
• Air quality and freshwater availability
• Forests habitat provision and soils quality integrity
Tragedy of the commons
• When there are NO property rights => individually rational to extract and
consume resources beyond the social optimal
• Deforestation
Policy instruments
• Awareness and information campaigns
• Nudges (defaults)
• Taxes and subsidies
o Emissions tax, natural resource fees, luxury tax
• Cap and trade
o Markets for emission allowances, transferable fish quota
• Command and control
o Input controls, product bans, technology controls
Stiglitz about carbon pricing aligns with Solow’s idea
ð What levels of carbon prices are optimal and what levels of carbon prices are
Paris-consistent?
Discounting
Arrow: Rationales for discounting
• Investment based: if returns on investments are positive => one needs less
than $1 now to have $1 in the future
