Environmental Dilemmas

by Elaine Schwartz    •    Nov 2, 2010    •    664 Views

It’s the same question. Economic development or conservation?

During April, the headline said, “Uganda Seeks to Reconcile Oil-Nature.” Now, in Tanzania, “Proposed Serengeti Highway Is Lined With Prospects and Fears.” The places differ but the issues are the same. In Uganda, the debate concerns oil drilling. In Tanzania, it is road building. Privately and publicly, oil will generate revenue for Uganda. Similarly, northern Tanzania will benefit from a new road that will bisect the Serengeti Park. It will facilitate medical care, carry much-needed goods, enable the spread of electricity and cell phone service. And, both projects, will irreparably harm priceless wildlife.

What to do? An economist would suggest assessing the externalities.

The Economic Lesson

Economists see positive externalities wherever a transaction between two parties affects a third individual or group in some beneficial way. They see negative externalities when the impact on a third party is harmful. Vaccines usually have positive externalities while pollution is the typical example of a negative externality.

Taking externalities an economic step further, we can look at cost. On a demand and supply graph, the equilibrium price of a decision that has a positive externality is too high because of the benefits experienced by society. Correspondingly, the equilibrium price of a decision with negative externalities is too cheap because of the associated costs that result.



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