Tragedy of the Commons – when people share a community resource, such as a pasture for cattle grazing, people make decisions that are individually rational, but collectively irrational. The individual gets the whole gain, but only gets some of the loss. The loss is shared equally
another example is fisheries – the individual over-fishes and gets all the gain of the extra fish, but the fact that there are less or no fish is divided between everybody
community pasture that can only sustain a certain number of cows, an individual adds another cow, makes sense for him. His cows don’t produce as much meat but he has a whole extra cow so he benefits
Problem of Externalities – Example, coal power plant, the plant owner makes all the money but the owners of the plant don’t live in the community so they pay none of the cost, their kids don’t have asthma and health issues. Solution: internalize the environmental costs
Ecosystems as a market
Why are markets hard to set up?
i. Ignorance of what the eco system provides
ii. institutional inadequacy – laws not designed with ecosystems in mind
iii. Problems inherent in public goods – there are no direct price mechanisms to signal the scarcity and degradation o these public goods.
Cap and Trade programs – example of a market based environmental plan
i. Everyone gets a certain number of emissions credits that they can buy or sell. Then every year the number of emission credits goes down by say 2%
ii. Has been used to limit SO2 emissions
1. With SO2 you get “hot spots” where a company buys a bunch of extra emissions credits. This would not be a problem with CO2
Cost – Benefit analysis
How do we calculate the cost and benefits
i. What is the value of a life?
ii. Emotional and psychological well being – people fear dying of cancer because of some exposure
iii. Discounting lives saved – costs incurred today but benefits may not be realized for years
1. At a 3% discount rate saving a life today is worth $5 million. Saving a life 500 years from now is worth $1.91
2. This means the value of future generations
– How much is a life worth
– What is an “unreasonable risk to human health?”
Human benefit and ecological benefits – In the past EPA has only looked at the human benefits but ecological benefits are important too. NY Watershed example – It would cost 6-8 billion to build a new water filtration system but only 1.5 billion to protect the watershed
Madison v. Ducktown Sulphur (1904) – owners of small farms around Ducktown, their crops being destroyed by the smoke. Court balances the interest and gives damages but no injunction, injunction granted at court discretion, damages are a right. Court does not want to destroy this mining operation and thousands of jobs and dollars because of a few farmers.
Missouri v. Illinois (1906) – Chicago dumped their raw sewage into the Mississippi and St. Louis wants to stop the discharge claiming that typhoid