Introduction

Chapter 3 explains the roots of environmental degradation in terms of private market and government policy failures. Private market failure invites government intervention to improve social welfare. Government policies that inadvertently damage environmental and natural resources need to be modified. Before action is taken, however, it is necessary to refine the objectives of policy. Measures to protect and conserve environmental resources involve substantial economic costs. The opportunity cost of pollution abatement, or the protection of wilderness areas and endangered species, is the output of conventional economic goods and services foregone, while the benefits are, of course, environmental damages avoided. The shorthand question can be framed as “how clean is clean enough?”

Section 2 provides an analytical framework for answering this question. Not surprisingly, it concludes that at a high level of abstraction the optimal level of environmental protection is such that the marginal costs of protection equal the marginal benefits of damages avoided. This is equivalent to saying that total social costs (abatement costs thought of as opportunity costs plus residual environmental damage costs) are minimized. To operationalize this goal requires knowledge of pollution abatement (environmental protection) technologies and their costs. But it also requires linking pollution abatement to environmental quality; investigating the effects of environmental quality on human health, biological and ecological systems, and other resources; and establishing monetary values for environmental damages (or damages avoided).