Tuesday, March 30, 2010

Ecological Economics

In another of my classes, thinking about natural resources and how they are allocated efficiently in the past is very different from today. Natural resources, both stocks (like fossil fuels and minerals) and services (like the hydrologic cycle and solar energy), are becoming more and more scarce and/or depleted and thus need to be looked at in a different economic light. Many natural resources, especially services, are public goods and are hard to distribute efficiently, especially because there are so many externalities that break them down without an associated user cost. With this, there are market failures. However, these market failures are hard to correct for a few different reasons. With our discussion of Coase's Theorm that can solve the issue of externalities, we cannot because these issues occur all around the world and the financial status of most countries are not equal. But on a national level, the same thing occurs. For example, water is a very valuable resource that is essential and cannot be substituted for. But with the increasing development and spacial expansion of the urban areas, there is less and less clean fresh water to go around. While the model land use patterns may still hold, the bid rent curves for these areas will change drastically as a result of the water use for residential, commercial, and agricultural use of the land, regardless of what zoning is in place for the area. Logically, the externalities of the growing urban areas will flow over into the way water is allocated and become an increasingly scarce good with higher user costs associated with this change. But what happens when these costs are too great that most citizens are unable to pay these costs? When all the ground water from tables under ground are contaminated and purification plants aren't enough to fix the problem, what will user costs be able to pay for? The water problem is just an example of different ecological factors that are taken for granted. But even if they aren't currently being ignored, natural resources should be a larger driving factor in the way we think about sprawl and the policies formed around it. In order to look at the way a city can be run efficiently, we need to find "efficient" levels of pollution that we can put up with in order to prevent a serious market failure due to the collapse of our natural resources we depend on.

1 comment:

Larry Eubanks said...

You make reference to public goods market failure, and I think your discussion of water is presented as though you expect the market provision of water to be characterized by both public goods and externality market failures.

But, water is not a public good because it is both rival and excludable. If there are concerns about the efficient allocation of resources to water provision these days, I believe this is because of government failure to allocate efficiently, not market failure. In most cases, government supplies water to residences and businesses. There are very few instances in which water supply is done without government involvement. As such, the answer to current water supply issues most often would be to privatize water supply, at least if our goal is economic efficiency.