Economy and Environment: A Theoretical Essay on the Interdependence of Economic and Environmental Systems

by Charles Perrings

• ISBN13: 9780521020763
• ISBN10: 052102076X
• Format: Paperback
• Copyright: 2005-10-06
• Publisher: Cambridge University Press

Summary

Environmental external effects are evidence of the inability of market prices to reflect the interdependence of economic activities undertaken within a common environment. They are an essential - not a peripheral - feature of all market economics. This essay shows how external effects are produced by the interaction of the economy with its environment, using a classical mass-balance model. No matter how efficient the market may seem to be, the use of market prices to determine depletion and pollution decisions creates more problems than it solves. Far from sharing the stable or relatively stable equilibrium properties of most economic models, the market economy is shown to be forced by its environment through a seemingly chaotic sequence of states. Reliance on the market to accommodate each change of direction merely exaggerates the general instability of the system. The 'market solution' to environmental problems is shown to generate only increasing uncertainty, a progressive myopia, and a heightened risk of conflict.

Table of Contents

Preface	xi
Notation Guide	xv
1 Introduction	1	(16)
1.1 The problem of external effects	1	(2)
1.2 The environment in economic theory	3	(4)
1.3 Toward a constructive theory of economy-environment interactions	7	(5)
1.4 "Old wine, new wineskins"	12	(5)
Part I. The physical economy-environment system
2 Closed physical systems: a model	17	(14)
2.1 Elements of the system	17	(4)
2.2 Technology	21	(2)
2.3 The conservation of mass and the "free gifts" of Nature	23	(5)
2.4 The conservation of mass and the "free disposal" of waste	28	(3)
3 Structure and time in the physical system	31	(16)
3.1 The significance of system structure	31	(3)
3.2 Transactions, exactions, and insertions	34	(2)
3.3 Exaction: the depletion of nondurable resources	36	(5)
3.4 Exaction: the depletion of durable resources	41	(1)
3.5 Insertion: durable and nondurable residuals	42	(5)
4 Technological change and the environmental constraints to physical growth	47	(18)
4.1 "The limits to growth"	47	(2)
4.2 Technological change	49	(3)
4.3 Technological change as a control process	52	(3)
4.4 The limits of control	55	(3)
4.5 The paradox of growth	58	(7)
Part II. The economic system
5 The price system	65	(14)
5.1 Value in general	65	(1)
5.2 Elements of the price system	66	(5)
5.3 Prices of production	71	(3)
5.4 The price level under multiple rates of return	74	(1)
5.5 Market prices	75	(2)
5.6 The range of price information	77	(2)
6 Prices, property, and the environment	79	(16)
6.1 Property, possession, and control	79	(4)
6.2 External effects	83	(3)
6.3 Property and price	86	(5)
6.4 The price system and the limits of control	91	(2)
6.5 Property, possession, and control reconsidered	93	(2)
7 Economic conflict and environmental change	95	(16)
7.1 Conflict and change: an historical perspective	95	(3)
7.2 Economic residuals: economic waste and investment	98	(2)
7.3 Economic conflict and the generation of waste	100	(3)
7.4 Economic waste and environmental change	103	(2)
7.5 Economic conflict, environmental change, and uncertainty	105	(6)
Part III. Environmental strategies in an evolutionary economy-environment system
8 Time, uncertainty, and external effects	111	(14)
8.1 Probability and surprise	111	(5)
8.2 Discounting time and uncertainty	116	(3)
8.3 Structure, time preference, and external effects	119	(3)
8.4 Investment, waste, and external effects	122	(3)
9 The market solution	125	(16)
9.1 Resource depletion and pollution	125	(3)
9.2 The market solution: elements of an environmental strategy	128	(4)
9.3 Optimal depletion	132	(4)
9.4 Optimal pollution	136	(2)
9.5 The market solution and environmental equilibrium	138	(3)
10 The stationary state	141	(12)
10.1 The stationary state in political economy	141	(3)
10.2 "Cybernetic savages": the stationary state in primitive economies	144	(4)
10.3 The stationary state of an evolutionary system	148	(2)
10.4 The role of the collectivity	150	(3)
11 Conclusions	153	(15)
11.1 Closing the mind with the model	153	(3)
11.2 The value of market signals	156	(1)
11.3 Economy, environment, history	157	(3)
11.4 Principles for a sustainable environmental strategy	160	(8)
References	168	(7)
Index	175