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Economics of Conservation. Adam Smith. Theorized that economic systems were based on each individual acting with enlightened self-interest – everyone involved in an economic exchange seeks to improve their position
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Adam Smith • Theorized that economic systems were based on each individual acting with enlightened self-interest – everyone involved in an economic exchange seeks to improve their position • Smith assumed that all costs and benefits of free exchange were accepted and borne by the participants in an economic exchange
External Cost • External Cost, a cost to society not paid by the manufacturer or its customers
Market Failure • Where externalities exist, we have a market failure – society fails to realize the full benefits of economic activity. Some individuals or businesses benefit at the expense of larger society – as a result, society as a whole becomes less prosperous rather than more prosperous
Discounting • Often economists will discount the value of a good to be used in the future, thus giving it a lower current value. This comes about from the idea that it is better to harvest the benefits of economic activity today and invest the profits than to wait and use that resource later
Internalization of pollution costs in US • 1970 – Clean Air Act (and later amendments) • 1972 – Clean Water Act (and later amendments) • 1976 – Resource Conservation and Recovery Act • 1977 – Surface Mine Control and Reclamation Act
Cost Benefit Analysis • marginal cost of pollution - added cost to all present and future members of society of an additional unit of pollution • marginal cost of pollution abatement - added cost to all present and future members of society of reducing a given type of pollution by one unit
Risk Acceptability • Risk acceptability is measured as the cost a society will bear or accept - Ideally the benefits of controlling a pollutant should be equal to the costs of control
Resources • nonrenewable resources - resources for which the supplies are finite and exhaustible • renewable resources - resources which renew themselves and which will last indefinitely if they are used wisely
Value of Renewable Living Resources • Plants and animals (and algae and fungi) harvested from the earth’s farmlands, rangelands, forests and waters and sold at market account for a sizable portion of the world’s total economic activity - In the US, they represent about 15-20% of our total economy, about $2.25 to 3 trillion per year
Value of Wild Species • the harvest of wild species accounts for about 4.5% of the US gross domestic product – about $675 billion per year today
Goods and Services • Goods usually refer to something that can be consumed by humans – thus goods have consumptive uses • Services refer to things provided to us exclusive of consumption – thus services have nonconsumptive uses
Contingent Valuation • One way of determining the value of species is to use a method called contingent valuation - this is a survey-research method in which people are asked direct questions that attempt to determine the values of people with regard to a particular issue
Costs of Conservation • Explicit costs - this is the price we pay to restore or maintain a species or ecosystem • Implicit costs are costs that arise because of a lost economic opportunity; the loss of an opportunity to use a resource to make money
Explicit Costs –Restoration of the Everglades - $465-700 million over 20 years
Northern Spotted OwlRequire ~ 1000 hectares old growth forest
