Uncertainty in Environmental Economics
نویسنده
چکیده
An introductory course in environmental economics typically teaches students that the design and evaluation of a policy to deal with an environmental problem boils down to cost-benefit analysis. The instructor might proceed as follows. Left to their own, humans (i.e., producers and consumers) do bad things to the environment, such as polluting rivers and lakes, spewing sulfur dioxide into the air, and releasing ozone-depleting chlorofluorocarbons (CFCs). Government intervention—restrictions or taxes on emissions, banning CFCs—prevents some of this destructive behavior, and thereby reduces the amount of environmental damage. But it does so at a cost (e.g., electric power producers must install expensive scrubbers, and air conditioners must be made with a more expensive or less efficient refrigerant). So the policy problem boils down to deciding whether the benefit in terms of less environmental damage is at least as large as the cost of the policy. Of course, the benefits (and often some of the costs) usually occur in the future, and therefore must be expressed in present value terms. So, given a discount rate, it is all quite simple: calculate the present value of the benefits of a policy, subtract the present value of the costs, and see whether the difference (the net present value, or NPV) is positive. And if one is comparing several alternative policies, choose the one with the highest NPV.1 The student, however, may start to realize that the problem is in fact more complicated:
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