An analysis is made of the relationship between economic development and water sustainability in Campo de Dalías, in southeastern Spain. What used to be a poor, deserted region based on traditional agriculture has become one of the most prosperous regions in Spain. Economic development has been based on highly productive greenhouse agriculture, but this has resulted in the overexploitation of the aquifer that supplies water to different users in the region. Contradictions are considered between economic development and water sustainability in the area, as well as the plans and policies that have been put in place to improve the status of the aquifer but that have had limited success so far.
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Article
Economic Development and Groundwater Sustainability
Cecilia Tortajada and Francisco González-Gómez
Article
Economic Instruments to Control Greenhouse Gas Emissions: REDD+
Rawshan Ara Begum
Deforestation causes up to 10% of global anthropogenic carbon emissions. Reducing emissions from deforestation and degradation and enhancing forest carbon stocks can contribute to controlling greenhouse gas (GHG) emissions and limit global warming and climate change. However, global warming cannot be limited without decreasing the use of fossil fuel or emission-intensive energy sources. The forestry sector could contribute 7%–25% of global emissions reduction by 2020. Apart from emissions reduction and sink (mitigation), forests also provide cobenefits such as ecosystem services (providing food, timber, and medicinal herbs); biodiversity conservation; poverty reduction; and water quality, soil protection, and climate regulation. In 2005, the UNFCCC introduced a cost-effective mitigation strategy to reduce emissions from deforestation (RED) in developing countries.
The UN’s initiative to reduce emissions from deforestation and forest degradation (REDD+) aims to transform forest management in developing countries, where the majority of tropical forests are located, using finances from developed countries. REDD+ seeks to reward actors for maintaining or restoring forests, acting as an economic instrument by putting a monetary value on every tonne of CO2 that is prevented from entering the atmosphere. Implementation of REDD+ requires economic and policy instruments that can help to control GHG emissions by enhancing carbon sinks, reducing deforestation and forest degradation, and managing sustainable forests.
Payment for environmental services offers opportunities for either cofinancing or economic valuation in regard to REDD+ implementation. The challenge is to identify the most appropriate and cost-effective instrument.
REDD+ fulfills the current needs for economic instruments and incentives that can be implemented with existing land use and forestry policies to control global GHG emissions. However, REDD+ requires forest governance, law enforcement, clarification of land and resource rights, and forest monitoring to work in the long term. REDD+ payments can be made for results-based actions, and the UNFCCC has identified potential ways to pay for them, but challenges remain, such as clarifying financing or funding sources, distribution of funding and sharing of benefits or incentives, carbon rights, and so on. Different aspects pf the implementation, effectiveness, and scale of REDD+ and their interactions with economic, social, and environmental benefits are important for successful REDD+ implementation.
Article
Economic Issues Related to Asian Deforestation
Stefanie Onder, James T. Erbaugh, and Georgia Christina Kosmidou-Bradley
The loss of Asian forests represents one of the most significant changes in contemporary land cover. Between 2000 and 2020 alone, an area twice the size of Malaysia has lost its tree cover as measured by Earth observation data. These trends have significant repercussions for greenhouse gas emissions, carbon storage, the conservation of biodiversity, and the wellbeing of Indigenous Peoples and local communities (IPLCs), making Asian deforestation a phenomenon of global concern.
There are many immediate factors that drive deforestation across Asia, but the conversion to commodity agriculture is the leading cause. Most notably, the expansion of oil palm and rubber plantations by both multinational corporations and smallholders has led to dramatic conversion of forests. The production of timber as well as pulp and paper has further contributed to significant deforestation, with the evolution of each sector often driven by government policies, such as logging bans.
However, it is the underlying drivers (i.e., distal and proximate causes) that determine where and when commodity production displaces forest cover. They are particularly challenging to tackle in a globalized world, where consumption patterns driven by local population and income growth lead to environmental and social change in distant producer countries, including in Asia. Certification programs and legality requirements have been put in place to address these externalities with varying success. Deforestation in Asia is also facilitated by weak governance and regulatory frameworks, where forest rights are often unclear, and financial, technological, and human resources for forest monitoring are limited.
Several contemporary forest governance strategies seek to promote sustainable management of Asian forests. Financial mechanisms such as reducing emissions from deforestation and forest degradation (REDD+) and payments for ecosystem services (PES) schemes seek to provide economic incentives for forest conservation. Pledges and activities to remove deforestation from commodity supply chains seek to respond to consumer demand, promote corporate environmental and social responsibility, and reduce the extent to which commodity supply chains contribute to Asian deforestation. And multiple state-led initiatives across Asia to empower IPLCs aim to align forest management objectives between national governments, subnational administrations, and local people. Assessing the impact of interventions related to financial mechanisms, corporate responsibility, and local forest governance will be critical to shaping the future of Asian forest cover change.
Article
Economics, Agriculture, and Famines
Noel Russell
There are continuing developments in the analysis of hunger and famines, and the results of theoretical and empirical studies of hunger and food insecurity highlight cases where hunger intensifies sufficiently to be identified as famine. The varying ability of those affected to cope with the shocks and stresses imposed on them are central to the development of food insecurity and the emergence of famine conditions and to explaining the complex interrelationships between agriculture, famine, and economics.
There are a number of approaches to understanding how famines develop. The Malthusian approach, which sees population growth as the primary source of hunger and famine, can be contrasted with the free market or Smithian approach, which regards freely operating markets as an essential prerequisite for ensuring that famine can be overcome. A major debate has centered on whether famines primarily emerge from a decline in the availability of food or are a result of failure by households to access sufficient food for consumption, seeking to distinguish between famine as a problem related to food production and availability and famine as a problem of declining income and food consumption among certain groups in the population. These declines arise from the interaction between food markets, labor markets and markets for livestock and other productive farm resources when poor people try to cope with reduced food consumption. Further revisions to famine analysis were introduced from the mid-1990s by authors who interpreted the emergence of famines not as a failure in markets and the economic system, but more as a failure in political accountability and humanitarian response.
These approaches have the common characteristic that they seek to narrow the focus of investigation to one or a few key characteristics. Yet most of those involved in famine analysis or famine relief would stress the multi-faceted and broad-based nature of the perceived causes of famine and the mechanisms through which they emerge. In contrast to these approaches, the famine systems approach takes a broader view, exploring insights from systems theory to understand how famines develop and especially how this development might be halted, reversed, or prevented.
Economists have contributed to and informed different perspectives on famine analysis while acknowledging key contributions from moral philosophy as well as from biological and physical sciences and from political and social sciences. Malthus, Smith, and John Stuart Mill contributed substantially to early thinking on famine causation and appropriate famine interventions. Increased emphasis on famine prevention and a focus on food production and productivity led to the unarguable success of the Green Revolution. An important shift in thinking in the 1980s was motivated by Amartya Sen’s work on food entitlements and on markets for food and agricultural resources. On the other hand, the famine systems approach considers famine as a process governed by complex relationships and seeks to integrate contributions from economists and other scientists while promoting a systems approach to famine analysis.
Article
Economics and the Endangered Species Act
Joe Kerkvliet
Economics plays strong roles in the design, implementation, and evaluation of the Endangered Species Act (ESA). First, the ESA’s language allows for economic analysis of critical habitat designations, recovery plan implementations, listing postponements, and the design of habitat-conservation plans. Extensive administrative changes to the ESA in the 1990s were designed to reduce economic costs and to elicit landowners’ cooperation. These reforms were partly motivated and guided by economic analysis. Second, economic analysis plays a role in providing credible estimates of the economic costs of ESA implementation. Cost estimates are highly variable and likely to depend on species’ characteristics and the effectiveness of recovery programs. Emerging evidence suggests that the 1990 reforms are reducing costs and increasing effectiveness. Third, economic science contributes to estimation of benefits. Because of the “public goods” nature of nearly all ecosystem and species conservation efforts, estimates must be based on stated preference methods. This use leads to difficulties in establishing the authenticity of benefits estimates. Also, research suggests that benefits estimates are highly sensitive to the spatial nature of the market (beneficiaries’ geographic locations). Future research needs to tackle both authenticity and spatial issues. Fourth, benefit–cost analysis (BCA) is required by law to inform many resource decisions affecting ecosystem and species conservation. Four illustrative BCAs show that whether benefits exceed costs is highly dependent on the authenticity of benefits based on stated preference methods and assumptions about the spatial nature of the market. Substantial uncertainty accompanies both benefit and cost estimates.
Article
Economic, Social, and Environmental Costs of the Waste-to-Energy Industry
Jinbo Song, Lulu Jin, Chen Qian, and Yan Sun
With the upgrading of living standards and rapid urbanization around the globe, waste treatment has become a ubiquitous environmental issue. Increased waste generation and narrowed prospects for landfill and composting have brought strong growth prospects for the waste-to-energy (WtE) industry. WtE is considered an effective method for waste treatment because it can significantly reduce the land use and environmental pollutants caused by other methods and can generate energy by means of electricity or heat from the treatment of waste. However, there have been supportive and opposing opinions about WtE from the economic, environmental, and social perspectives. Whether WtE plants are the best option depends not only on associated investment and operating costs but also on the environmental and social costs (termed as external cost) as compared to other waste treatment options.
Economic costs are generally estimated by market price of materials, labor, and equipment. Social costs normally refer to health effects, transportation congestion, and environmental impacts, including the emission of gas and leachate. Qualitative and quantitative methods are proposed to assist in decision making on waste disposal alternatives. The qualitative method relies on the expert experience to rank waste treatment options, such as analytic hierarchy process and multicriteria decision model, while the quantitative method, such as life cycle assessment and social cost-benefit analysis, calculates the economic cost and monetizes the abstract external cost in the light of the historical data. The two methods offer different advantages and disadvantages, and thus cater to different conditions. In developed countries, along with the rapid development of WtE and the increase in available cost data, the estimation of the economic, environmental, and social costs is achievable, which promotes the popularization of quantitative method. In China and other developing countries, quantitative analysis is limited to the estimation of economic cost and the qualitative method is still dominated in the evaluation of environmental and social impacts due to the lack of cost data.
Article
Economics of Campus Sustainability
Kimberly S. Hodge, Jane Stewart, and Lilly Grella
Can sustainability initiatives support positive economics, or are they necessarily cost-additive? With thousands of colleges and universities across the globe actively pursuing sustainability and carbon-neutrality goals, the question of how to balance institutional sustainability priorities and fiscal responsibility hovers in discussions ranging from utility planning to student programming. Educational institutions often heavily weigh the economics and academics of a potential sustainability project. However, pressing issues with long-term implications, such as climate change and rising operations costs, can make campus sustainability projects an appealing option. Institutions will incorporate the environmental, financial, and social aspects of a decision differently and through different avenues of funding. Examples of measures that institutions of higher education are taking to incorporate sustainability include adaptations of campus infrastructure, operations, and administrative leadership, and those measures necessarily intersect with financial planning and outcomes.
An overview of general models and specific institutional examples of sustainability initiatives in the areas of infrastructure, operations and management, education and community engagement, and administration indicate that sustainability measures, especially for environmental sustainability, can contribute to positive campus economics. This outcome, however, is most likely when decision-making considers both long-term and cross-sectoral impacts to evaluate the true cost–benefit profile as it applies to the institution as a whole.
Article
Economics of Climate Change Adaptation
Babatunde O. Abidoye
To view climate change adaptation from an economic perspective requires a definition of adaptation, an economic framework in which to view adaptation, and a review of the literature on specific adaptations (especially in agriculture). A focus on tools for applying adaptation to developing countries highlights the difference between mitigation and the adaptation decision-making process. Mitigation decisions take a long-term perspective because carbon dioxide lasts for a very long time in the atmosphere. Adaptation decisions typically last the lifespan of the investments, so the time frame depends on the specific adaptation investment, but it is invariably short compared to mitigation choices, which have implications for centuries. The short time frame means that adaptation decisions are not plagued by the same uncertainty that plagues mitigation choices. Finally, most adaptation decisions are local and private, whereas mitigation is a global public decision. Private adaptation will occur even without large government programs. Public adaptations that require government assistance can mainly be made by existing government agencies. Adaptation does not require a global agreement.
Article
Economics of Ecological Restoration
Md Sayed Iftekhar and Maksym Polyakov
Ecological restoration is a complex activity that requires integrating biophysical, social, and economic factors. It requires the engagement of various stakeholders with potentially competing interests and goals. Economists have developed methods to elicit peoples’ values and preferences related to restoration. These economic tools provide information that allows decision makers to better understand how to best allocate scarce resources among alternative restoration projects and activities. The field of restoration economics can be traced back to the 1970s, but it did not gain popularity until the late 2000s. A review of the literature indicates that only about 6% of academic papers on ecological restoration have used economic tools and instruments.
Economic tools and instruments can be applied at five stages of a restoration project: (a) understanding the causes and processes of degradation, (b) setting restoration targets and policies, (c) project planning and prioritization, (d) project implementation, and (e) ex-post assessment and evaluation of restoration outcomes. Generally speaking, economic tools and analysis are not extensively applied in all five stages of a restoration project, which potentially limits the effectiveness of investment. Several strategies can be applied to strengthen restoration science and practices, which include the incorporation of economic analysis into the planning of ecological restoration projects, reducing the cost of economic data collection and analysis, addressing social values, establishing links between the causes of degradation and restoration outcomes, understanding of the alignment of incentives and motives, and assessment of large-scale and long-term impacts of restoration projects.
Article
Economics of Environmental Compliance and Enforcement
Wayne Gray and Ronald Shadbegian
Enforcement activity by regulators plays an important and sometimes underappreciated role in the effectiveness of environmental regulation by encouraging regulated entities to comply. Nearly all ex ante cost-benefit analyses assume 100% compliance with regulation. One notable exception is the U.S. Environmental Protection Agency’s 2008 lead renovation rule in which a 75% compliance rate was assumed when estimating the ex ante benefits and costs, based on the literature regarding compliance rates in the construction sector.
Why do entities comply with environmental regulation? Economists typically use deterrence models to explain the incentives for compliance. They began with simple models that used the frequency of inspections and the size of penalties to calculate the expected cost of noncompliance, but the models have since become more sophisticated along several dimensions. Dynamic penalty strategies by regulators can significantly increase the cost of being labeled a serious violator. Stochastic fluctuations in pollution levels with regular self-reporting requirements can lead firms to over-comply on average to avoid the risk of reporting violations. Inspections and enforcement actions at one facility can have general deterrence impacts at other facilities nearby as well as a specific deterrence impact at the inspected facility. Violations and penalties may impose additional costs on firms in terms of loss of reputation and pushback from customers and people living nearby. These differences in reputational costs may help explain observed heterogeneity in compliance behavior by firms.
Compliance and enforcement behaviors are also affected by the institutional, legal, and scientific context in which they occur. Even with regulations set at the national level, enforcement activity is often carried out at the sub-national level, with the possibility of considerable heterogeneity across jurisdictions in terms of enforcement stringency. This is most obvious in federal countries such as the United States, where enforcement responsibilities for many regulations are delegated to state agencies, and with supra-national regulatory systems such as the European Union, where national agencies are responsible for enforcing regulations. It can also arise in a large country, where even a strong central government may have difficulty ensuring similar enforcement behavior in different regions.
Empirical research also developed over time, initially testing whether enforcement activity affected compliance, then testing for heterogeneous impacts across different firms or different enforcement tools, then moving to more robust research designs. Variations in enforcement intensity have also been used to proxy for overall regulatory stringency in empirical studies of the economic impact of environmental regulation.
Article
Economics of Fisheries Conflicts
Ragnar Arnason
Conflicts potentially arise whenever resources are limited relative to what is desired. Conflicts are costly because to engage in them requires resources and they may cause collateral damage. Therefore, humans and other species have developed various means to avoid, deflect, and minimize conflicts. In human society, these means involve (a) customs and traditions, (b) laws and their enforcement, (c) negotiations, and (d) exchange. While analytically separable, these items are clearly interrelated and, in practice, intermingled. Their common element is the delineation and acceptance of property rights. Property rights, if sufficiently enforced, channel conflicts into exchange of valuables, that is, negotiated settlements or trade. This, as is well established in economics, has the added benefit of promoting economic efficiency.
Fisheries conflicts are manifestations of human conflicts in general. It follows that fisheries conflicts are amenable to the same basic analysis as other conflicts. Cases of fisheries conflicts abound in the world. It is probably safe to assert that anytime two or more agents pursue the same fishery conflicts arise. Some of these conflicts are comparatively minor, such as disputes between two fishers about the best fishing spots. Others are more dramatic, involving armed force such as the South Africa abalone conflict. Some involve national states and the application of navies such as the cod wars between Iceland and the United Kingdom and the lobster war between Brazil and France.
Most terrestrial natural resources have long since become subject to property rights, thus reducing conflicts and increasing economic efficiency of their use. This process has been much slower for fish resources, probably due to their relative unobservability and migratory nature. Nevertheless, the past several centuries have seen a creeping expansion of property rights in ocean and aquatic resources. The most noticeable of these developments have been (a) the enlargement of exclusive national economic zones (EEZs) and (b) the establishment of individual harvesting rights, the so-called individual and individual transferable quotas (IQs and ITQs). The enlargement of national EEZs has been going on for centuries. The IQs/ITQs are a much more recent phenomenon emerging in the 1970s. However, since this time, their application has become quite common, with more than a quarter of the global ocean catch being taken under ITQ or ITQ-like systems. It should be noted that an extension of the national EEZ is often a prerequisite for the introduction of ITQs.
Extended EEZs have greatly reduced international conflicts for fish resources. ITQs and similar property-rights based systems have similarly reduced fisheries conflicts between individuals and companies. No less importantly, these individual property rights have promoted cooperation in the joint use of aquatic resources and the gradual transfer of the fishing activity to the most efficient operators, thus greatly enhancing the net economic benefits generated by the fisheries. There are indications that property rights in fisheries are also conducive to a negotiated resolution of conflicts between fishing and other uses of aquatic resources such as mining, recreation, and ecosystem conservation.
Article
Economics of Gender in Resource Dependent Communities
Biswajit Ray and Promita Mukherjee
Gender inequalities exist within commons-dependent communities in developing countries regarding the role of society’s overall attitudes to women as decision-makers. While, in forestry, women have some access to resources and decision-making, in other community resources like fisheries and irrigation water, women are absent and males entirely dominate. Different theories on gender and environment suggest that women’s inclusion is an important step toward reducing their economic marginalization and argue that in reality women’s economic advancement/empowerment may not get carried into home and community spaces as durable empowerment if society holds negative attitudes toward women’s needs, contribution and deservedness in families and beyond.
Due to society’s negative attitudes toward women, women remain trapped in a vicious cycle of exclusion. Breaking this vicious cycle requires combining household assets and income to assess women’s true poverty type. A flat implementation of economic policies toward women’s pathway out of poverty may not yield the desired results and may even be counterproductive if society’s negative attitudes and the poverty characteristics of women or female-headed households are not taken into account. Since all women are not homogeneous and that a few communities hold pro-women attitudes, to promote women’s economic empowerment, the role of society’s attitudes toward women’s participation as decision-makers cannot be ignored as women’s relations to their social, economic, political, and natural environments are itself a culturally and historically specific process, which can be understood only through identifying and understanding gender-specific attitudes and actions toward those environments.
Article
Economics of Hazardous Waste Management
Hilary Sigman
Hazardous waste management involves treatment, disposal, or recycling of a wide range of different waste streams from industry, households, and others. The diversity of wastes and management methods means that many choices affect its environmental harms, which result from possible contamination of groundwater, surface water, soil, and air. Efficient public policies that would fully reflect such varied external costs are unlikely to be feasible. In practice, governments principally apply three policy approaches to hazardous waste: taxes on hazardous waste, liability for environmental damages, and standards-based regulation of waste management facilities. Hazardous waste taxes may help internalize environmental costs but do not reflect all the variability in these costs. By contrast, liability for environmental damage can make waste generators and managers confront environmental costs that vary with their particular choices. However, environmental liability is often linked to programs for cleanup of contaminated sites and may not create efficient incentives for active waste management because this liability does not reflect the social costs of the contamination. Regulation usually takes the form of technology and performance standards applied to treatment, storage, and disposal facilities (TSDFs) and affects generation decisions only indirectly. Research finds that public policies that raise costs of hazardous waste management, such as taxes and regulation, encourage less waste generation, but may also provoke detrimental responses. First, facilities may substitute illegal waste dumping for legal management and thus exacerbate environmental damage. Second, generators may ship waste to jurisdictions with weaker environmental protections, especially developing countries, giving rise to a “waste haven” effect. This effect may create offsetting environmental damage, facilitate destructive policy competition among jurisdictions, and worsen inequities in exposure to environmental harm from hazardous waste.
Article
Ecosystem Services into Water Resource Planning and Management
Phoebe Koundouri, Angelos Alamanos, Kostas Dellis, Conrad Landis, and Artemis Stratopoulou
The broad economic notion of ecosystem services (ES) refers to the benefits that humans derive, directly or indirectly, from ecosystem functions. Provisioning ES refer to human-centered benefits that can be extracted from nature (e.g., food, drinking water, timber, wood fuel, natural gas, oils, etc.), whereas regulating ES include ecosystem processes that moderate natural phenomena (pollination, decomposition, flood control, carbon storage, climate regulation, etc.). Cultural ES entail nonmaterial benefits accruing to the cultural advancement of people, such as the role of ecosystems in national and supranational cultures, recreation, and the spur of knowledge and creativity (music, art, architecture). Finally, supporting ES refer to the main natural cycles that nature needs to function, such as photosynthesis, nutrient cycling, the creation of soils, and the water cycle. Most ES either depend on or provide freshwater services, so they are linked to water resources management (WRM). The concept of ES initially had a pedagogical purpose to raise awareness on the importance of reasonable WRM; later, however, it started being measured with economic methods, and having policy implications.
The valuation of ES is an important methodology aimed at achieving environmental, economic and sustainability goals. The total economic value of ecosystems includes market values (priced) as well as nonmarket values (not explicit in any market) of different services for humanity’s benefit. The valuation of ES inherently reflects human preferences and perceptions regarding the contribution of ecosystems and their functions to the economy and society. The ES concept and associated policies have been criticized on the technical weaknesses of the valuation methods, interdisciplinary conflicts (e.g., ecological vs. economic perception of value), and ethical aspects on the limits of economics, nature’s commodification, and its policy implications.
Since valuation affects the incentives and policies aimed at conserving key ES, e.g., through payment schemes, it is important to understand the way that humans decide and develop preferences under uncertainty. Behavioral economics attempts to understand human behavior and psychology and can help to identify appropriate institutions and policies under uncertainty that enhance ecosystem services that are key to WRM.
Article
The Economics of Institutional Changes in the Water Sector: Methods, Evidence, and a Call for Systems Thinking
Marc Jeuland, Travis Dauwalter, and Omar Hopkins
As water stress increases globally with population, economic growth, and climate change, investments in institutional or management improvements and infrastructure are becoming more and more essential. Water institutions, especially in lower- and middle-income countries (LMIC), typically struggle with performance, because of inadequate capacity, misaligned incentives, or bad policies, but institutional reforms have traditionally received less focus than technical and engineering inputs. Working from a typology of six different institutional changes, the article reviews existing evidence on the impacts of such reforms, focusing on lower- and middle-income country (LMIC) contexts where institutional problems are especially acute. Most evidence pertains to changing consumer incentives in an attempt to improve cost recovery, especially via tariff reform, as well as changing ownership of utilities through privatization. Results vary widely across contexts and over time, and the details of implementation of reforms are often important, but much of the empirical evidence based on statistical or case study evidence is speculative.
A systems dynamic modeling (SDM) approach can be helpful for thinking about this heterogeneity and the complexity of LMIC utility challenges. Water utility systems are a good application for SDMs because they feature complex boundaries, nonlinearities and thresholds, delayed effects, a tendency toward self-organization even if in a low-performance equilibrium, and a high degree of interconnection between a number of performance variables. Indeed, the SDM framework is useful precisely because it requires careful consideration and advances awareness by various stakeholders of the complex social feedback that may exist in water use systems, while conceding that the problems that impede effective water delivery are dynamic and interconnected, and that general optimal solutions to water service provision challenges may be elusive. In the latter portion of the article, the role that SDM can play in clarifying inconsistencies in the literature is explored through a simple illustrative example modelled on a real-world intervention with the Lusaka Water and Sewerage Company in Zambia. This utility suffers from all of the common problems of LMIC utilities, including high nonrevenue water losses, low bill collection, tariffs, poor cost recovery, inadequate maintenance and low investment and therefore poor quality service delivery, and a high dependence on a persistent flow of subsidies to both rehabilitate and extend the water supply and sewer network. The SDM analysis reveals the interdependencies between these variables, and sheds light on the long-term reverberations of external interventions in the system. Nonetheless, the illustrative SDM is relatively simple, and various improvements could be made to add realism on both the utility operations side, and on the water consumer side. Moreover, data limitations preclude a calibration to existing conditions, and there would be additional value in testing the basic framework using richer data and a more engaged stakeholder process.
Article
Economics of Insurance Against Natural Disaster Risks
W. J. Wouter Botzen
Increasing natural disaster losses in the past decades and expectations that this trend will accelerate under climate change motivated the development of a branch of literature on the economics of natural disaster insurance. A starting point for assessing the implications of climate change for insurance and developing risk management strategies is understanding the factors underlying historical loss trends and the way that future risks will develop. Most studies have pointed toward socioeconomic developments as the main cause of historical trends in natural disaster risks. Moreover, evidence reveals that climate change has been a contributing factor, which is expected to grow in importance in the future. Several supply and demand side obstacles may prevent natural disaster insurance from optimally fulfilling its desirable function of offering financial protection at affordable premiums. Climate change is expected to further hamper the insurability of natural disaster risks, unless insurers and governments proactively respond to climate change, for example by linking insurance coverage with risk reduction activities. A branch of literature has developed about how the functioning of insurance should be improved to cope with climate change. This includes industry-level responses, reforms of insurance market structures, such as public–private natural disaster insurance provision, and recommendations for addressing behavioral biases in insurance demand and for stimulating risk reduction. In view of the rising economic losses of natural disasters, this field of study is likely to remain an active one.
Article
Economics of Invasive Species
Mark Eiswerth, Chad Lawley, and Michael H. Taylor
Introductions of nonnative invasive species can harm ecosystems, heighten the risk of native species extinctions and population reductions, and lead to substantial economic damages on a worldwide scale. Increasingly, economists have made contributions that help other researchers, policymakers, and society better understand the economic implications of invasive species as well as the most economically efficient approaches for managing them. The complexity of invasive species management problems has pushed economists to ask novel economic questions and to develop new analytical approaches in order to address specific policy questions. There are three areas, in particular, where the economic analysis of invasive species management has led to significant innovations. First, there are substantial challenges to quantifying economic damages from invasive species for application in benefit−cost analysis. The challenges relate to defining the counterfactual state of an invaded ecosystem with and without management/policy and to the fact that, in a given ecosystem, estimates of economic damages are available for only a subset of the species and for only a subset of damages for any one species. Recent economic research has proposed innovative approaches to systematically dealing with these two issues in the context of invasive species that have implications for applied benefit−cost analysis more broadly. Second, unique among natural resource management problems, invasive species have the feature that their current and future extents are directly tied to a country’s participation in international trade. This feature has led to innovative research into the design of efficient measures to prevent or delay invasive species introductions along national borders, and into the trade-offs between these measures and the use of border controls as protectionist tools. The issues of optimal inspection policy and the use of nontariff barriers as a form of covert protectionism both have implications beyond invasive species management. Third, researchers have developed bioeconomic models that integrate economic and biological factors in order to analyze strategies to more cost-effectively reduce the damages caused by invasive species. These modeling efforts have dealt with issues related to temporal and spatial dynamics of the biological invasions, imperfect information regarding the extent of the invasion and the effectiveness of management, linkages between management applied at different stages of an invasion, and complications arising from ecosystems’ crossing over ecological thresholds due to invasions. In the face of increasingly rapid ecosystem change due to global climate change, increases in extreme weather, urban encroachment into wild lands, and other factors, many of these features of invasive species management problems are likely to become features of ecosystem management more broadly in the near future if they are not so already.
Article
Economics of Low Carbon Agriculture
Dominic Moran and Jorie Knook
Climate change is already having a significant impact on agriculture through greater weather variability and the increasing frequency of extreme events. International policy is rightly focused on adapting and transforming agricultural and food production systems to reduce vulnerability. But agriculture also has a role in terms of climate change mitigation. The agricultural sector accounts for approximately a third of global anthropogenic greenhouse gas emissions, including related emissions from land-use change and deforestation. Farmers and land managers have a significant role to play because emissions reduction measures can be taken to increase soil carbon sequestration, manage fertilizer application, and improve ruminant nutrition and waste. There is also potential to improve overall productivity in some systems, thereby reducing emissions per unit of product. The global significance of such actions should not be underestimated. Existing research shows that some of these measures are low cost relative to the costs of reducing emissions in other sectors such as energy or heavy industry. Some measures are apparently cost-negative or win–win, in that they have the potential to reduce emissions and save production costs. However, the mitigation potential is also hindered by the biophysical complexity of agricultural systems and institutional and behavioral barriers limiting the adoption of these measures in developed and developing countries. This includes formal agreement on how agricultural mitigation should be treated in national obligations, commitments or targets, and the nature of policy incentives that can be deployed in different farming systems and along food chains beyond the farm gate. These challenges also overlap growing concern about global food security, which highlights additional stressors, including demographic change, natural resource scarcity, and economic convergence in consumption preferences, particularly for livestock products. The focus on reducing emissions through modified food consumption and reduced waste is a recent agenda that is proving more controversial than dealing with emissions related to production.
Article
The Economics of Oil Spills
Maria L. Loureiro and Maria Alló
Vessel oil spills are very serious natural hazards that have affected coasts worldwide for many decades. Although oil spills from tankers are highly publicized, very little is known about the role played by the incentives and regulatory instruments in place to prevent them. In order to shed some light on these issues, data were collected worldwide on large oil spills from multiple databases, starting in the 1970s, and merged with other socioeconomic records. A crucial concern is that that large oil spills have been undercompensated over time with respect to the damages caused. A meta-analysis was estimated in order to assess relevant factors affecting the damage claimed in oil spills and the compensations received by the affected parties. Meta-regression results show that the legislation applied (strict unlimited liability versus limited liability) played a crucial role in both the amount claimed and the final compensation received. Also, time-trend variables are shown as determining factors for both the damages and claims that are finally paid. To correct the large gap between damage claimed and compensation scenarios, it is recommended to strengthen compensation funds, while carrying out more comprehensive assessment studies which apply valuation methods comparable with those proposed by green capital initiatives for marine ecosystem services, and which could be used successfully during the litigation process.
Article
Economics of Reforestation and Afforestation
Daowei Zhang
Reforestation is the natural or intentional restocking of existing forests and woodlands that have been harvested or depleted, and afforestation is the establishing of a forest in an area where there were no trees. For economic and practical purposes, reforestation and afforestation have similar goals and processes and thus can be treated as identical activities. Although reforestation and afforestation have a long history, large-scale reforestation and afforestation activities started with industrialization, which caused scarcity in timber and forest-based ecosystem services. In a unified economic model of reforestation and afforestation, factors influencing investments in reforestation and in afforestation on private and public lands include timber prices, unit reforestation cost, interest rate, the responsiveness of tree growth to silviculture, and the value of nontimber benefits, such as ecosystem services. Market and public policies may facilitate, enhance, or hinder reforestation and afforestation activities, and nontimber benefits are an increasingly important motive for reforestation and, especially, afforestation efforts around the world.
