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Environmental Economics: Definition and Approach

Understand environmental economics by reading this article.

There is worldwide recognition that natural resources are finite. Hence, if used improperly, resources become scarce and finally get exhausted through time.

Anything in this world that gets scarce becomes more important, much more valuable than when it was in great supply. There is a need, therefore, to manage scarce resources to maximize their utility. This is the realm of economics.

The same applies to natural resources. As human population increases, more natural resources are required to provide for their needs. Thus, natural resources become scarce. Scarce natural resources, therefore, should be managed to ensure their availability not only for this generation but in generations to come. Environmental economics aims to satisfy this goal.

Environmental Economics Defined

Environmental economics is a branch of economics that uses economic principles in the study of people’s behavior in relation to their environment. It examines the way people make decisions that may either lead to environmental destruction or environmental enhancements. It clarifies options for decision-making by using economic tools.

This goes to say that whatever environmental degradation that results nowadays is a result of man’s deliberate disregard of the value of maintaining a viable store of natural resources. This behavior is considered unethical or immoral as it negatively impacts on other people’s welfare. The question of equity arises.

Examples of Unethical or Immoral Behavior Towards the Environment

What are examples of decisions that threaten environmental integrity? The following is a list of things that people do due to lack of ethical standards and immoral behavior:

  • indiscriminate throwing of wastes into waterways,coastal fishing
  • use of dynamite in fishing,
  • clear-cutting of forests especially in steep mountain slopes,
  • use of fine-mesh nets in catching fish,
  • trading of endangered species of plants or animals,
  • cutting of mangroves for charcoal,
  • mineral extraction without rehabilitation,

… and many others.

Why do people behave this way?

In the environmental economics perspective, the above behaviors occur because people have failed to see the value, or cost of their actions. This failure prevents them from making sound, rational decisions that work towards their advantage.

For example, had fishers known that if they have caught only the large or moderate-sized fish using the prescribed mesh size for their nets, there will still be enough fish to catch in the future. Enough fish populations are allowed to reproduce and the young allowed to grow to more valuable sizes, instead of just being dumped as by-catch. This means more profit for fishers as they don’t need to go farther away to catch migrating fish.

Why Use the Environmental Economics Approach?

Appealing to people’s morality or adherence to ethics does not usually appeal to many people. Changing people’s attitude and behavior take time. Actions to save the environment may be too late when finally, behavioral change is instituted among those who directly interact with their environment to make a living.

The economic incentive is one of the main reasons why people behave the way they do. If they realize that their action will have long-term consequences on their livelihood, they will voluntarily exhibit behavior towards adopting a better alternative. Thus, environmental economics help make clear the options by offering tools to balance the costs and benefits of their action.


Field, B. C. and M. K. Field, 2006. Environmental economics: an introduction, 4th ed. London: McGraw-Hill Irwin. 503 pp.

© 2014 June 7 P. A. Regoniel