What is the environmental economy?

The environmental economy is a relatively new area of ​​the economy that focuses on environmental issues in relation to economic development and sustainability. The environmental economy looks a lot at environmental policies in countries and how they affect the local and global economies, either positively or negatively. The environmental economy is generally perceived as a form of a progressive economy that seeks to explain various forms of market failure in the future to better model markets and lead to more profits between people. Market failure has occurred if resources are not distributed in the most effective way, usually due to imperfect knowledge between market members. The problem is therefore said that the concept of the free market itself is not, but with a limitation of human understanding of market forces. Ideally, the environmental market views as functioning so that all resources are distributed to provide the greatest benefit to society; If this is not the case, the market has failed.

One of the key causes of market failure, as seen in the environmental economy, is the abuse of common property. This was perhaps the best elaborated in 1968 Garrett Hardin as the Commons tragedy. Simply put, the tragedy is that even if it is in the best interest of anyone that is reasonably used by the resource, and ensure that it remains to provide revenues to all, a small handful of individuals can destroy the source by acting from greed. As the technological development increased, it was clear a number of final ordinary inhabitants, which were once considered endless, and the environmental economy looks at them as potential sources of tragedy. For example, air is a common feature shared by all the people of all nations. One nation, howeverthe only nation.

Another cause of market failure from environmental economic perspective is the failure of markets to take into account externalized costs when determining the market value. For example, the air pollution of the discussed may be emitted without adding any cost of the product it creates and thus functionally omitted from determining the price of the market product. Therefore, a product made without pollution and a product made with pollution can find the same market price. Although it can cost more internally, in the form of money, to produce a product without pollution, the actual costs may be much greater for the pollutant product. Long -term costs in terms of health, cleaning and environmental aesthetics of harm can be much, much larger, but at present the market does not have a way to express this larger price.

One of the major missions of the environmental economy is better internalization of external costs so that the market can react appropriately. The theory is such that a healthy market that internalizationIt is all costs, it will be consistently acting in accordance with the greater good of society. However, the unsuccessful market will often act directly against the needs of society, and the environmental economy is trying to emphasize these failures so that nations can implement regulation to better control the market. Things such as carbon carbon and carbon credit trading are one examples of how the externalized costs are artificially internalized in this case, so the market price will change accordingly.