AGEC/FNR 406 LECTURE 2

Sherpa hauling fodder, Langtang Valley, Nepal

Scarcity, Efficiency, Equity

Lecture Goals:

1. Introduce three basic concepts that will be critical throughout the course.

2. Define a set of terms that provide a “common language” for discussing the links between economic and natural systems.

Scarcity vs. Abundance

1: Scarcity

• relative abundance

• often indicated by price

• the more scarce an item, the higher its price…

BUT... for some goods, especially environmental goods, markets don’t exist or work properly, so prices are absent or misleading.

This is called “market failure”

2: Efficiency

• description of the way a scarce resource is used based on a range of competing uses

• the most efficient use of a resource is that use which provides the greatest value to society

BUT… efficiency says nothing about who owns or controls a resource.

3: Equity

• description of who owns or controls a resource

• subjective indicator of fairness (e.g. income distribution)

Equity is multi-dimensional and is often at the center of the debate regarding environmental

resources(e.g. spotted owl, global warming).

Equity issues involve value judgements.

Often an environmental issue involves aspects of all three concepts:

Four cornerstones of environmental economics:

• Current decisions affect the future.

• For many environmental resources markets fail or don’t exist.

• Economic decisions may have irreversible effects.

• Economic optimality may depend on ecological response. (Uncertainty prevails)