Introduction
To identify and solve environmental problems, we need to understand what situations are actually problems (somehow formally defined) and what circumstances and behaviors cause them. We might think that it is easy to recognize a problem—pollution is bad, saving natural resources is good. However, critical thinking often reveals snap judgments to be overly simplistic. Some examples help to illustrate this point.
- Running out! Oil is a depletable resource, and many people worry that rapid extraction and use of oil might cause us to run out. But would it really be a bad thing to use up all the oil as long as we developed alternative energy technologies to which we could turn when the oil was gone? Is there any intrinsic value to keeping a stock of oil unused in the ground? Running out of oil someday may not be a problem. However, subsidies for oil extraction might cause us to run out more quickly than is socially optimal. Other inefficiencies arise if multiple companies own wells that tap the same pool of oil, and each ends up racing to extract the oil before the others can take it away—that kind of race can increase total pumping costs and reduce the total amount of oil that can be gleaned from the pool.
- Biological pollution! Horror stories abound in the news about the havoc raised by some nonnative animal and plant species in the United States. Zebra mussels clog boats and industrial pipes, yellow star thistle is toxic to horses and reduces native biodiversity in the American West, and the emerald ash borer kills ash trees as it marches across the landscape. From the current tone of much media and scientific discourse about nonnative species, one could conclude that all nonnative species are problems. But does that mean we should forbid farmers in the U.S from growing watermelons, which come from Africa? Or should we ship all the ring-necked pheasants back to Eurasia whence they originally came, and tell North Dakota to choose a new state bird? The costs and benefits of nonnative species vary greatly – one policy approach is not likely to apply well to them all.
This section first explains the way economists think about whether an outcome is good. Then it describes some of the features of natural resources and environmental quality that often trigger problematic human behaviors related to the environment.
Public Goods and Common-pool Resources
Market outcomes are almost never efficient in two broad kinds of cases: public goods and common-pool resources. The market failures in these settings are related to the problems we saw with negative and positive externalities.
A pure public good is defined as being nonexclusive and nonrival in consumption. If something is nonexclusive, people cannot be prevented from enjoying its benefits. A private house is exclusive because doors, windows, and an alarm system can be used to keep nonowners out. A lighthouse, on the other hand, is non-exclusive because ships at sea cannot be prevented from seeing its light. A good that is nonrival in consumption has a marginal benefit that does not decline with the number of people who consume it. A hot dog is completely rival in consumption: if I eat it, you cannot. On the other hand, the beauty of a fireworks display is completely unaffected by the number of people who look at it. Some elements of the environment are pure public goods:
- Clean air in a city provides health benefits to everyone, and people cannot be prevented from breathing
- The stratospheric ozone layer protects everyone on earth from solar UV radiation
The efficient amount of a public good is still where social marginal benefit equals the marginal cost of provision. However, the social marginal benefit of one unit of a public good is often very large because many people in society can benefit from that unit simultaneously. One lighthouse prevents all the ships in an area from running aground in a storm. In contrast, the social marginal benefit of a hot dog is just the marginal benefit gained by the one person who gets to eat it.
Society could figure out the efficient amount of a public good to provide—say, how much to spend on cleaner cars that reduce air pollution in a city. Unfortunately, private individuals acting on their own are unlikely to provide the efficient amount of the public good because of the free rider problem. If my neighbors reduce pollution by buying clean electric cars or commuting via train, I can benefit from that cleaner air; thus, I might try to avoid doing anything costly myself in hopes that everyone else will clean the air for me. Evidence suggests that people do not behave entirely like free riders – they contribute voluntarily to environmental groups and public radio stations. However, the levels of public-good provision generated by a free market are lower than would be efficient. The ozone layer is too thin; the air is too dirty. Public goods have big multilateral positive externality problems.
In contrast, a common-pool resource (also sometimes called an open-access resource) suffers from big multilateral negative externality problems. This situation is sometimes called the “tragedy of the commons.” Like public goods, common-pool resources are nonexcludable. However, they are highly rival in use. Many natural resources have common-pool features:
- Water in a river can be removed by anyone near it for irrigation, drinking, or industrial use; the more water one set of users removes, the less water there is available for others.
- Swordfish in the ocean can be caught by anyone with the right boat and gear, and the more fish are caught by one fleet of boats, the fewer remain for other fishers to catch.
- Old growth timber in a developing country can be cut down by many people, and slow regrowth means that the more timber one person cuts the less there is available for others.
One person’s use of a common-pool resource has negative effects on all the other users. Thus, these resources are prone to overexploitation. One person in Indonesia might want to try to harvest tropical hardwood timber slowly and sustainably, but the trees they forebear from cutting today might be cut down by someone else tomorrow. The difficulty of managing common-pool resources is evident around the world in rapid rates of tropical deforestation, dangerous overharvesting of fisheries (see Case study: Marine Fisheries), and battles fought over mighty rivers that have been reduced to dirty trickles.
The tragedy of the commons occurs most often when the value of the resource is great, the number of users is large, and the users do not have social ties to one another, but common-pool resources are not always abused. Elinor Ostrom’s Nobel prize-winning body of work, for example, has studied cases of common-pool resources that were not over-exploited because of informal social institutions.
