The Regulated Market and Cost-Benefit Analysis (Blog 10)

Myrick Freeman III is an economist who specializing in cost-benefit and risk analysis as applied to environmental issues. The question that Freeman focuses on is both an economic and sustainability question, “how to manage our activities so as to meet our material need and wants in the face of scarcity.”[1] Freeman introduces the concept of Pareto Optimality, which places economic value in efficiency in that it considers efficiency to be when an action makes at least one or more persons better offenvironmental curve but also makes no one person worse off. This criterion would the necessarily rule out any policy or action that places any cost on an individual because this would be perceived as making them worse off. Freeman concludes that through taxes and compensation the government and its citizens could remedy this loss and therefore there is always the potential for a Pareto Improvement concerning the adoption of economics in to environmental policy. The article titled, “Economics, Ecological,” makes the point that critics are not sold on the idea of substitutability that Freeman proposes. Replacing what is natural with something that is artificial continuously puts us in a dangerous position. “The theories of academic economists ignore the complex interconnections among things, proposing to solve each problem separately.”[2] The ideas of Herman Daly are also present in this article that once again state that endless growth is not a goal we should be striving for. Finally, Robert Rapetto points out the ecological blind spot that exists when measuring countries gross domestic investments and their losses and gains.

In the Environmental Economics article it says, “In the real world environmental externalities persist because environmental problems involve large numbers of parties whose actions are too costly to coordinate through private negotiations.”[3] I think that this is why the Pareto criterion is too optimistic and unrealistic in its goals for environmental ethics and policy. We’re in the position of environmental degradation and unsustainability now because of this Pareto Optimistic ideal that people are only allowed to be better off and not one person can be worse of due to a policy. It’s a justification for inaction. But what does harm really mean? And is it ok to harm certain groups? These are the questions that I had when reading about Pareto Optimality and smokestack-dollarsthe type of cap and trade ideas of substitutability. Obviously, in terms of economics, which is what were are discussing in this section, harm would be some type of economic or monetary loss. There is no doubt that certain policies would require an amount of economic loss for some. But who are these people that are being harmed. Right now, due to the inaction in the sphere of environmental policy and ethics, the ones that are being harmed are the poor and less fortunate. They are the ones that are living in the areas filled with technological and nuclear waste. They are bearing the burden of the cost for our ecological inefficiencies. Therefore, if policies were implemented for sustainability and ecological awareness, we would be bettering these peoples lives, while “making worse” those who are wealthier. But I don’t think of it as making these peoples lives worse, I think of it as finally sharing the burden for the damage that we have done. In terms of offering incentives it was said, “Because the owner of the power plant do not bear these costs, they have an economic incentive to ignore these effects in making business decisions. This incentive prevails even when the private costs of pollution control are less than the monetary value of the associated environmental benefits. In principle, this means that both the polluter and the victims would benefit if the pollutant emissions were cut and the victims compensated the polluter for any foregone profits.”[4] I don’t necessarily agree with the idea of offering incentives or monetary retribution for any losses that a business may forego by practicing greener policies. However, I do think that this is at least the first step that will get us moving in the right direction. Some action needs to be taken and if this is the quickest way to do it then it must be done. But I don’t think that this is a good practice overall because I don’t agree that, as per the example, the owners of the power plant don’t bear the costs. While they might not bear the immediate costs, like living in an over polluted city with high repertory disease rates doesn’t mean that they aren’t bearing the costs. Everyone in this Earth community is bearing the ecological costs of the choices we as individuals and corporations are making; no one is exempt. Therefore, I don’t think it’s fair to ask the “victims” to have to compensate these greedy businesses. Going green and being ecological conscious isn’t a burden, it’s an awakening.

Question: Is the policy of incentives the same as the cap and trade program that the Keyoto Protocol tried to implement?


[1] Donald VanDeVeer and Christine Pierce, The Environmental Ethics & Policy Book (Belmont, CA: Wadsworth/Thomas Learning, 2003), 319.

[2], 272.

[3], 274.

[4], 274.


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