Economics of the Environment

'The IIlbor of nature is paid, not because she does little. In proportion as she becomes niggardly in her gifts, she exacts a greater price for her work. Where she is munificently benefi- cient, she always works gratis. ' David Ricardo * This book interprets nature and the environment as a scarce resource. Whereas in the past people lived in a paradise of environmental superabundance, at present environmental goods and services are no longer in ample supply. The environ- ment fulfIlls many functions for the economy: it serves as a public-consumption good, as a provider of natural resources, and as receptacle of wastes. These dif- ferent functions compete with each other. Releasing more pollutants into the environment reduces environmental quality, and a better environmental quality implies that the environment's use as a receptacle of wastes has to be restrained. Consequently, environmental disruption and environmental use are by nature allocation problems. This is the basic message of this book. If a resources is scarce and if a zero price is charged for its use, then misal- location will result. The environment as a receptacle of wastes is heavily over- used, and consequently environmental quality declines. Scarcity requires a price. This book analyzes how this price should be set, whether a correct price can be established through the market mechanism, and what role the government should play. The book offers a theoretical study of the allocation problem and describes different policy approaches to the environmental problem.