Markets and the Environment is a highly accessible and concise introduction to the mainstream thinking in economics of the environment and natural resource management. The authors target university under-graduate and post-graduate students in economics or interdisciplinary environmental studies as the primary readership, but as they rightly point out, environmental policy professionals would likewise benefit from the book. Markets and the Environment is too short to serve as a stand-alone comprehensive textbook, but this is also its major strength. It summarizes in just over 200 pages the fundamental logic of modern mainstream economics applied to environmental problems without expert jargon or excessive mathematical formalism; this is an achievement.
The authors start by defining what is to become the guiding theme throughout the book, namely economic efficiency, understood as the fundamental criterion for ‘society's interest’. A brief introduction to the ‘marginalist’ thinking is followed by a presentation of the foundations of benefit-cost analysis, and explanation of the arguments for the superiority of market-based instruments as means of achieving efficiency. The authors then explain the concept of ‘market failure’, evoking three types of highly interdependent explanations: externalities, public goods and the ‘tragedy of the commons’. These theoretical concepts are subsequently applied to explain the theory of non-renewable and renewable resource management, and the operation of market-based instruments in practice. The book ends with a brief incursion into the macroeconomics of the environment, optimistically concluding that economic growth and environmental protection can indeed be reconciled, as long as environmental costs are internalized in the price mechanism and economic accounting. Numerous real-life examples are used throughout the book, most of which come from the USA and other Anglo-Saxon countries, ensuring the reader never loses touch with the practical environmental problems at stake.
Markets and the Environment deserves its place among elementary reading for anyone interested in understanding the dominant economic thinking on the environment, yet the book should preferably come with a warning label or at least ‘user's guide’. The book's main shortcoming may well reside in its greatest virtue; the apparently compelling and logical manner in which the case for modern mainstream economics is made seems like the only reasonable perspective in any given environmental policy situation. Admittedly, on many occasions the authors remind the reader of the complexities of the ‘real world’ and call for caution in successfully applying the simplified economic theories, yet the overall thrust remains one of ‘economic rationality’ against the ‘irrationality’ of considerations other than economic efficiency.
In particular, two crucial points deserved a place even in this short introductory textbook. They should at least have been dealt with in the excellent chapter-by-chapter ‘discussion questions’ at the end of the book. First, almost all of the key assumptions of modern mainstream economics are highly contestable. Theoretical and policy conclusions change radically once definitions of, for example, economic efficiency, formation of individual preferences and perfect competition are modified. Notable is the very limited attention given to the problems of environmental valuation, associated particularly with complexities of individual rationality and preference formation. Yet these issues are at the core of lots of environmental economics thinking today, both within mainstream thinking and in the ‘heterodox’ schools of thought, such as the various strands of institutional and ecological economics. Institutionalism is not mentioned in the book and ecological economics is mentioned in passing, falsely reduced to a point of view advocating the ‘strong’ concept of sustainability.
The second omission is perhaps the most problematic one. While the authors rightly argue that economic logic is but one among many to be applied in decision-making, they fail to recognize the unavoidably political role of economics in the broader policy context. By portraying environmental economics as a neutral discipline and arguing that economics simply provides but one logical and rational perspective on complex environmental policymaking, the authors overlook the power of modern mainstream economics in framing the debate and influencing the criteria of ‘rationality’. Hence, this otherwise extremely well written book ends up perpetuating the illusion not only of economics as a neutral ‘scientific’ discipline, but more generally, of the possibility of the expert as a neutral outsider, standing apart from the messy world of politics.
