Transcript Chapter 3
Chapter 3 MEASURING RISK Decisions in life ruled by Risk and Cost Take Hwy at 70 or side road at 35? • How likely will someone or something be hurt? • How much will it cost to prevent? • Probability versus Possibility Chapter 3 RISK ASSESSMENT • Facts and assumptions to estimate probability of harm. • Well known versus little known actions. • Animal tests versus human responses. (example: carcinogens) – Estimates of probabilities. – Not all people respond the same. – Err on the side of safety. Chapter 3 • RISK MANAGEMENT • Decision making process: 1. Which risks have highest priorities? 2. Cost to reduce risks? 3. Where to spend limited dollars? • 4. How much risk is acceptable? • 5. How to enforce? • Answers to questions are controversial • Science is often incomplete • We often don’t understand the risks we accept and those we won’t. Chapter 3 TRUE AND PERCEIVED RISKS • Daily, common events and infrequent but dramatic events. • “Experts” and the “public” often differ. – public trust of experts • Degree of risk that is acceptable – zero risk vs. negligible risk – voluntary vs. involuntary risk • What is the proper balance? Chapter 3 ECONOMICS AND ENVIRONMENT • To achieve long-term economic growth while improving/sustaining the environment. Whose goal? • Economics are associated with environmental issues---Resource Allocation Chapter 3 ECONOMIC CONCEPTS • “Goods” or “services” are those things that are scarce. • “Resources” make goods and services available. • “Supply” is the amount of goods or services available. – – – – – – 1. 2. 3. 4. 5. 6. raw materials amount available cost to utilize raw material competition for raw material feasibility of recycling material societal costs Chapter 3 Demand is the amount of goods or services that consumers are willing/able to buy at various prices. Supply is amount available. Demand When supply exceeds demand, must lower prices to sell product Supply Chapter 3 • MARKET-BASED INSTRUMENTS • Supplement but do not substitute • Require open dynamic market system, other aspects of more developed nations. – – – – – 1. 2. 3. 4. 5. Information Program Tradable Emissions Programs Emission Fees, Taxes and Charges Deposit-Refund programs Subsidies Chapter3 COST-BENEFIT ANALYSIS • 1. ID the project. • 2. Determine all impacts (+ and -). • 3. Value of impacts. • 4. Calculate cost/benefit ratio -- profits? CONCERNS • Does everything have economic value? • How can you determine all impacts (both + and -)? • Assumes that money is the most important thing. Chapter 3 SUSTAINABLE DEVELOPMENT • “Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” – Is economic growth necessary to finance investments in environmental improvements? – Will technological advances solve environmental improvements? – These two approaches view the environment as part of the allocation of resources process. – Are economic and environmental well-being mutually reinforcing goals? Chapter 3 • Economic growth may create its own failing. • Healthy economies are necessary to invest in environmental protection. – Can economic growth be managed such that the environment is not damaged? • Different abilities in different countries. Chapter 3 Sustainable development will require change in our economic policy: • GNP currently does not include environmental costs and benefits. • Short term gains often have long term effects. • Politicians are on 2 to 6 year terms. • Investors have 3 month to a year outlook. Chapter 3 Sustainability requires: • 1. Use renewable resources. • 2. Substitute renewable resources for nonrenewable ones. • 3. Recognize the interdependence of the large system. • 4. Adaptability of system requires diversity. • 5. Institutional commitment. Chapter 3 EXTERNAL COSTS (Externalities) • Expenses generated by producer, but borne by someone else. That would be you and I. • Pollution-prevention costs are passed on to others. – Sewage treatment • Pollution costs: – 1. Expenditures to avoid or remove damage once pollution has occurred. – 2. Increased health costs or loss of use of a resource. Chapter 3 THE PROBLEM WITH “COMMONS” • When something belongs to everyone, it will almost always be aggressively exploited. – Burn wastes because air is free. – Dump in the ocean. – Fish the ocean. • Garrett Hardin’s “Tragedy of the Commons” Chapter 3 ECONOMICS AND THE BIOPHYSICAL ENVIRONMENT • Humans change the environment for human gain. • Population size cause changes such as loss of biodiversity and climate change. • Time for biodiversity to develop. • Rate for reduction in biodiversity. • Market decisions cannot take into account the innerconnectivity of the environment. • Uniqueness of some locations is not considered in many economic decisions. Chapter 3 DEVELOPING NATIONS • Most ecological diversity now occurs where developing nations occur. • Developing nations borrow money for large development projects. – Debt for Nature exchanges • Tremendous debt forces short-term returns. • Environmental protection is ignored. • Long term future is jeopardized.