Pervasive externalities at the population, consumption, and environment nexus

Partha Dasgupta and Paul Ehrlich. Science 340: 324-328. doi:10.1126/science.1224664. Pervasive externalities at the population, consumption, and environment nexus

The population-consumption-environment nexus. Apparently. From

The population-consumption-environment nexus. Apparently. From Dasgupta and Ehrlich.

 


Matt Burgess

Matt Burgess

This paper, which came out in February in Science, received what I would describe as strongly mixed reactions, particularly among economists. In my opinion, many of the negative reactions to this paper are ultimately traceable to the fact that it is misclassified by Science as a Research Article when it is really more of a review. Perhaps in the spirit of this masquerade, it also introduces some superfluous mathematical models that are scantily developed and mostly unnecessary to make the authors’ points. Nonetheless, I think this paper is worth reading, particularly for non-economists interested in environmental and development issues, as it gives one of the more accessible overviews of the concept of externalities I have read, and does an excellent job of highlighting examples of externalities relevant to sustainable development that are not widely appreciated.

In case the banking crisis of 2008 (not to mention the Great Depression) wasn’t evidence enough, it turns out that markets don’t always work well to produce efficient outcomes for society, despite what some libertarians might have you believe. Economists have a precise definition of ‘efficiency’: A particular outcome, X, is ‘efficient’ if no other outcome can be achieved with the same resources in which all stakeholders are at least as well off as they are in X, and at least one stakeholder is better off than they were in X. Though some early economic theories hypothesized that free markets should lead to efficient outcomes, many examples of ‘market failures’ – situations in which free markets failed to produce efficient outcomes – soon emerged.

Externalities are some of the most common causes of market failure. Externalities are consequences of decisions for others that are unaccounted for by the decision-makers. The ‘tragedy of the commons’ is the quintessential example of inefficiency caused by externalities. As a quick cartoon example of the tragedy of the commons, suppose citizens of a city are trying to decide how much to spend on building and maintaining public parks. Each dollar any particular citizen spends on parks provides a benefit of X to both them and each other person in the city, and each dollar a citizen spends on their own private consumption gives them (and them only) a larger benefit, Y (i.e. Y > X). If each citizen decides privately how they want to spend their money, no one will spend anything on parks because, no matter what other people spend on parks or how many other people there are, the benefit to a particular person of spending an additional dollar on private consumption (Y) is always larger than the benefit of spending the same dollar on parks (X). However, as long as the number of people in the city is larger than Y/X, each person would be better off if everyone spent all their money on parks than if everyone spent all their money on private consumption. Thus, the outcome produced by a ‘free-market’ (no parks) is inefficient (provided the number of citizens is greater than Y/X). The externality in this example is the benefit a particular citizen’s money spent on parks has on the other citizens, as this does not get accounted for in the citizen’s private decision on where to spend their money. This externality is what causes the free market outcome (where everyone privately decides how to spend their money) to be inefficient.

There are many well-known examples of externalities leading to adverse environmental impacts and the degradation of natural capital. For example, fisheries are often overexploited because each fisher’s fishing effort reduces the future revenues of both them and other fishers by depleting the stock. This leads to a race for fish among the different fishers, resulting in the overexploitation of the stock. Similarly, companies’ choices to pollute generally don’t consider the negative impacts of the pollution on other stakeholders. This externality leads to higher pollution levels and is a significant obstacle to climate change mitigation.

Dasgupta and Ehrlich highlight some examples of externalities leading to increases in consumption and population growth in this paper that are not as widely appreciated. For example, they discuss how fosterage (sharing of parenting responsibilities among members of extended families or communities) and low paternal investments in parts of sub-Saharan Africa lead to increased fertility rates. The externalities here are the costs of parenting not borne by the parents themselves, and thus potentially unaccounted for in their decision to have additional children. Two general sources of externalities the authors highlight are social conformism and competition. If people have a desire for their reproductive or consumption decisions to conform to the decisions of others, then the private consumption and family planning choices each person makes have impacts unaccounted for (i.e. externalities) on the choices of others. Thus, if everyone is consuming or reproducing a lot, any one person would not be inclined to consume less, even if it was better for them otherwise (e.g. economically). If people consume competitively (e.g. if consuming more than others confers high social status), then each person’s decision to consume more also has unaccounted for effects on the consumption of others, which can cause people to consume more than might otherwise be in their best interest.

Two of the authors’ main conclusions seem to be that externalities at the population-consumption-environment nexus i) present significant challenges for policy, and ii) can result in positive feedback spirals leading to rapid increases in environmental degradation. Races among individuals to consume more (resulting from competitive consumption) or to extract shared resources are examples of such spirals. On the policy side, one point I think they could have made more clearly is that inefficiencies caused by externalities can generally only be overcome by some type of cooperative decision-making at a (geospatial, social, temporal) scale at least as large as the externality itself. This means, for example, that externalities exacerbating climate change likely require global cooperation to overcome. Given the large spatial and temporal scales of many of the environmental externalities, and the increasing geospatial scales of many consumption externalities as a result of globalization, strengthening global cooperation on environmental issues may be one of the most pressing challenges of our time.

Overall, I like this paper, despite the fact that I think it overstates its novelty and introduces superfluous math. I agree with the authors that externalities pervade many facets of human consumptive, reproductive and environmental decisions, and pose serious challenges to sustainable development. There is a very rich literature in economics and political science on externalities and the institutions needed to overcome them, which I encourage any others who enjoyed this paper to dig into.


Will Pearse

Will Pearse

I started thinking a little more seriously about sustainability and economics a little while ago, and so I enjoyed reading this paper as it gave me an opportunity to load up those parts of my brain again. However, I’m still wildly out of my comfort zone with this paper.

Matt mentioned this is more of a review; I’d say it’s more of an essay, and it is an essay I enjoyed very much. I think the general point that cultural systems can drag us further down the route of unsustainability, and that these can be thought of in terms of externalities, is a novel and nice one. I suppose my only problem is I’m not sure how we can move forward and use this framework to help tackle issues. Figure 1 (which is reproduced above) demonstrates my point quite well – all three of these boxes (population, consumption, environment) are linked, and they all affect one-another. I’m not very good with flow-charts, but I find frameworks where all the boxes are linked unappealing because it doesn’t help me break the issue down into sub-components that I can assess, which is exactly the kind of over-simplification I want in order to help me visualise a system. Equally, I find all of the authors’ points compelling, but I’m not sure they give me any pointers as to what new things we should be focusing on in order to fix problems. All of these criticisms are of course unfair, since the first outing of a conceptual framework is hardly going to cover ever conceivable question anyone can have.

I did find the idea that economists have viewed natural capital as inexhaustible interesting. Many of the papers I’ve read (Kenneth Arrow, please take a bow) do recognise that nature is finite, and have put together whole frameworks with that in mind. Indeed, I thought the whole peak oil debate was very much well-known by economists! Maybe there’s a parallel with the non-linear dynamics that Dasgupta and Ehrlich discuss and the uptake of those ideas into biology; several fields (limnology springs to mind) have been well-aware of non-linearities and tipping points in ecological systems, but the rest of ecology seems to have been slower to get on-board. If this paper is bringing together previously un-linked fields of economics under a new framework to look at these issues, then I hope lots of people read it!


Lynsey McInnes

Lynsey McInnes

When Matt suggested this Dasgupta paper I was excited because I’d just started reading ‘A very short introduction to economics’ written by Dasgupta himself. I think my nascent interest in economics comes from a long commute that means I’m much more up to date with current affairs than usual and it turns out the world is in a state. Why?

To be honest, despite ploughing through the first three chapters of my new book, I was still a bit out of my depth with this paper, it could definitely have done with more figures, at least figures of the curves represented by their impenetrable equations. Nevertheless, it was a thoughtful piece especially to a biologist with little to no experience with what is undoubtedly a vast economics literature.

In short, it seems we are a bit screwed because of people’s innate desire to both conform to and be competitive with one another. This initially seems oxymoronic but conforming to competitiveness does kind of make sense. Basically, people have too many kids and eat too much so they ‘stay in the game.’ These behaviours continue because when people weigh up the consequences of their decisions they don’t think how they might impact people and entities external from their immediate unit (‘externalities’). Depressing.

The biggest worry, and the one that Matt explains even better than Dasgupta and Ehrlich, is that as the world becomes more connected, such that these externalities have wider and wider reach, the solutions similarly become more global and this, without much thought, is problematic.

The authors end on a fairly down note that we are spiralling along a route that is totally unsustainable (economically, socially, environmentally, ecologically) and being economists (at least Dasgupta) they don’t even give a falsely optimistic final sentence. What is going to happen unless collaboration and cooperation take root on a global scale pretty damn soon. Is there any likelihood of this kind of cooperation happening? There are plenty of global institutions, but they don’t seem able to penetrate all the places they need to and there seems to be geographical mismatch in places where behaviours need to change versus places where that change will impact.

It might just be me, but I like the cold hard mathematical approach to sustainabilty outlined in this paper. I don’t know whether a good to start to influencing behaviours is to confront the public or local and national institutions with more cold, hard facts or to spend more time trying to work out the biological/psychological underpinnings of destructive behaviours. Probably both.

The next generation of conservation scientists mix social, ecological and economic approaches to understand how human behaviours and population dynamics interact to generate species of conservation concern or conservation successes. But really this seems like a tiny field in relation to sustainability more generally. Is it a good case study to roll out more widely? (Might just be the one I know most about).It’s pretty obvious I don’t know much about this field, but it does feel weird to call it a ‘field’ when surely sustainability of the world’s population is the basis of, well, everything. And yet, frankly, I’m not going to give up my forays into pop gen to save the world, why?

If I take one thing away from reading this paper and writing down this jumble of thoughts is that solutions come from integration, we need the cold, hard numbers, but also cultural and societal insights, understanding of the motivations behind specific behaviours, and an outlook that is temporally and spatially broad. I would also argue for greater regulation, not less, but tempered with an understanding or just some foresight into how those being regulated will respond (just like we model how populations respond to management decisions). We’re still just another species after all.

And there ends the unqualified ramble into economic theory for this week.

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About will.pearse
Ecology / evolutionary biologist

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