Journal Issue
Working Paper Summaries (WP/93/1 - WP/93/54)

Summary of WP/93/53: “An Analytical Framework of Environmental Issues”

International Monetary Fund
Published Date:
August 1993
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Environmental effects that were insignificant when fewer concentrations of population or products of modern technology allowed the vast absorptive capacity of nature to act as a sink are quite evident today in air and water pollution, the overuse of potentially renewable fishing or forestry resources, or the wasteful extraction of nonrenewable, mineral resources. Besides the analyses of such problems undertaken by various disciplines, it would be useful to gain an overall understanding of environmental issues through a general analytical framework that encompasses the physical character of environmental problems, the behavioral factors that contribute to them, and the principal approaches to preventing or correcting them.

Downstream environmental problems are the result of physical actions, and are most readily classified by the element initially affected, that is, either soil, air, or water. Actions with an initial impact on one of these elements frequently affect another, reflecting the volume and mobility of the disturbing or polluting elements, their toxicity, their bioaccumulative potential, and their persistence through space and time.

The physical actions that have an impact on the environment have been affected by several behavioral aspects of human interaction with the environment, some with roots lying far in the past. The “scientific revolution” of the sixteenth and seventeenth centuries broke the previously intimate spiritual or magical relationship between people and nature, and with it any earlier inhibition against human manipulation of nature. Some progress In manipulating nature, however, has later proven to be based on incomplete, and therefore mistaken, knowledge, with adverse consequences for the environment. Other adverse effects result from strong time preferences--personal, corporate, or political--and from assigning low or nc priority to avoiding damage to others, referred to as externalities. These pose the public policy issues of what value to place on human life and health and what weight to give to the environment itself, distinct from its economic uses or effects on human health.

One approach to preventing the environmental effects that have become public policy concerns favors increasing private property rights. Another favors mandatory government regulation--the command and control approach, which now predominates--and a third espouses the application of economic incentives to incorporate the social costs of polluters’ actions in their economic calculus, that is, to internalize externalities. One combination of the latter two approaches is found in the system of tradable pollution rights.

When prevention fails, cleaning up past pollution poses a number of issues: priority of each site, minimum acceptable level of cleanliness, cost effectiveness, financial responsibility, and eventual deposit site.

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