ENVIRONMENTAL ECONOMICS

ESDM 2109
LECTURE:3
 Prisoner's Dilemma
❖ The prisoner's dilemma is a paradox in decision analysis in which two
individuals acting in their own self-interests do not produce the optimal
outcome.
❖ The typical prisoner's dilemma is set up in such a way that both parties
choose to protect themselves at the expense of the other participant.
❖ As a result, both participants find themselves in a worse state than if they
had cooperated with each other in the decision-making process.
❖ The prisoner's dilemma is one of the most well-known concepts in
modern game theory.
❖ A prisoner's dilemma is a situation where individual decision makers
always have an incentive to choose in a way that creates a less than
optimal outcome for the individuals as a group.
❖ Prisoner's dilemmas occur in many aspects of the economy.
❖ People have developed many methods of overcoming prisoner's
dilemmas to choose better collective results despite apparently
unfavorable individual incentives.
 Prisoner’s Dilemma and the Environment
▪ The general public’s concern and awareness for environmental issues
have been issues of concern in recent years; the issues of climate
change and sustainability are often on the forefront of current news.
▪ For the most part, people are increasingly acknowledging the
importance of protecting the environment, and that society would be
better off as a whole if everybody were more environmentally
conscious
▪ The prisoner’s dilemma can also be applied to climate change talks,
as discussed in the Scientific American article. According to
mathematician Peter Wood, an inherent prisoner’s dilemma arises
when addressing greenhouse gas emissions, because “every country
wants global emission reductions, but would prefer that someone else
take on the burden.” If all nations involved in climate change
negotiations worked together and committed to the end goal of
reduction of emissions, they would always be better off in terms of
long-term benefits. However, most negotiations either fall through or
are not kept up because there are more short-term economic benefits
for a country to simply allow other countries take on the work while not
burdening themselves with the changes and regulations necessary to
achieve the emissions reductions.
 Relationship Between Human Economy and Natural
Environment

• Environmental resources are “Essential Factors “ of

Production

• Environmental Resources are of economic concern to the

extent that they scarce

• The Economic Value of natural resources is determined by

Consumers’ Preferences.

• These preferences are best expressed by freely operating

private market system.

• Market Price can be used as an indicator of resource

scarcity
 Links between the economy and
the environment

 As a supplier of natural resource inputs

 As a supplier of environmental or amenity goods
 In its capacity as a waste sink
 Supplier of Resource Inputs
 Land, water, and stocks of raw materials are important inputs to
production. These resources frequently vary between countries
and so will affect the country's economy. Some countries will
have large stocks of minerals, while others have good arable
land.

 Natural resources are either renewable (eg trees) or non-

renewable (eg crude oil). This distinction is important as it
influences the way the resources have to be managed in
production.

 These resources are used by the production sector to create

goods and services for use by consumers, or as inputs for
another part of the production sector, but in the process waste
products will also be produced.
 Supplier of Environmental or Amenity Goods

 Economic benefits (ie increased utility) may be directly derived

from the consumption of the flow of services that are
forthcoming from a stock of environmental goods. There are
many examples of where the environment provides amenity
benefits for society. For example, some countries enjoy beautiful
landscapes and the public benefit from these via their
associated recreational services and tourism.
 Environmental stocks of trees can offer global services such as
climatic regulation because the trees absorb carbon dioxide,
which might otherwise contribute to climate change.
 Many people get enjoyment from the biodiversity that exists in
the world, and this can also be considered a form of public
consumption of an environmental good.
 Waste Sink Capacity
 This is the capacity of the environment to assimilate the waste
products of production and consumption and convert them into
harmless or ecologically useful products.
 The environment is not only affected by waste products but also
by intentional releases of chemicals, such as pesticides, wood
preservatives, paints, and lubricants.
 The impact of human activity on the composition of chemicals
since 1750, the pre-industrial period, carbon dioxide
concentrations have changed from 280 parts per million in 1750
to 380 parts per million in 2000.
 There have also been significant increases in other gases such
as methane and nitrous oxide.
 There are serious concerns being expressed about these
increasing concentrations in the atmosphere and climate
change
• In both production and consumption sectors of an
economy a specific natural resource can always be
replaced by the use of other resources that are either
man-made or natural.

• Technological advances continually augment

(increase) the scarcity of natural resources.

• Physical, Chemical and Biological surroundings that

humans and other living species are dependent on it.
 The Ecosystems Services
❖ Provisioning services – products obtained from ecosystems,
including freshwater, food, fiber, genetic resources, biochemical,
natural medicines, and pharmaceuticals.
❖ Regulating services – benefits obtained from the regulation of
natural processes, including air quality, climate, water/flood,
erosion, water purification, disease and pest control, pollination,
and buffering pollution.
❖ Cultural services – non-material benefits people obtain from
ecosystems through spiritual enrichment, cognitive development,
reflection, recreation, and aesthetic enjoyment.
❖ Supporting services – services that are necessary for the
production of all other ecosystem services, including soil
formation, photosynthesis, primary production, nutrient cycling
and water cycling.
 Environmental Quality
 Environmental Quality" is a set of properties and characteristics of the
environment, either generalized or local, as they impinge on human beings
and other organisms.

 It is a measure of the condition of an environment relative to the requirements

of one or more species, any human need or purpose.

 Environmental quality includes the natural environment as well as the built

environment, such as air, water purity or pollution, noise and the potential
effects that such characteristics may have on physical and mental health.

 A reduction in anthropogenic contamination to a level that is acceptable to

society. Some common factors which are related to the environmental quality,

 Human health and eco-system, expenditure needed to achieve reduction,

availability of technology and relative risk of given environmental hazard.
 Scope and Nature of Environmental
Economics

• The causes of environmental degradation

• Relationship between Ecology and Economy
• Assessing the Monetary value of environmental
damage
• The interrelationship among population, poverty,
and environmental degradation.
• The necessity and viability of sustainable
development.
Thank You!