Poor environmental quality is an inescapable presence in many developing countries. This pollution can lead to sickness and shortened lifespans. The health effects of pollution can also lead to low productivity and high health care costs. Yet despite the high costs of pollution, there are generally low levels of investment in improvements to environmental quality in developing countries. Why? This is the central question of an emerging economics field at the intersection of environment and development economics: envirodevonomics.
“We can’t properly analyze and answer questions about environmental quality in developing countries with the tools of environmental or development economics alone,” says Michael Greenstone, an author of the study, and the Milton Friedman Professor of Economics and director of the Energy Policy Institute at the University of Chicago. “Instead, we must look at the problems with a lens that combines insights from both fields.”
Greenstone and his coauthor Kelsey Jack, an assistant professor at Tufts University, analyze the puzzle underlying envirodevonomics and propose four possible explanations for why environmental quality is so poor. First, they lay out the simple truth: when people are poor, what little money they have frequently goes towards immediate consumption needs.
“In many instances, the immediate need to put food on the table outweighs all the benefits an individual could get from efforts to reduce pollution,” says Jack. “This is because these benefits are usually delayed and they also are shared by others – the environment is a public good. It is also, importantly, because the benefits of higher consumption are large and immediate when you have next to nothing.”
Second, weak policy design, implementation and enforcement raise the cost of environmental improvements, they say. For example, if policymakers lack the means to collect tax revenue efficiently, then the very process of collecting revenue for environmental quality investments may be costly.
Policymakers who don’t place the needs of their constituents ahead of their own could also cause problems in developing countries. Corruption and favoring certain groups may cause worthwhile investments in environmental quality to go unmade.
The types of market failures often seen in developing countries, such as weak property rights and poor access to credit, also distort the costs of improvements to environmental quality. For example, if a family or business cannot take out a loan, then they may not be able to make promising investments in environmental quality that would pay off in the future. Similarly, weak property rights give owners less incentive to make long-run investments like planting trees or installing energy saving technologies because they are uncertain that they will retain the benefits from the investments.
All of these factors are only enhanced by the very real threat of climate change, say Greenstone and Jack. As their populations and energy needs grow, developing countries will be among the greatest contributors to climate change. At the same time, many of the same countries are projected to receive the worst impacts from climate change, including rising sea levels and more frequent and damaging storms that threaten agriculture, infrastructure and more.
“For all of these reasons, climate change is a critical area of focus for the budding field of envirodevonomics,” says Greenstone.
Work is underway to measure the costs of climate change on specific regions and the world as a whole, including increases in agricultural losses, storm damages, civil conflicts, and morbidity and mortality rates. Read more about the Social Cost of Carbon project here.