Environment and Risk: The Problem of Risk Assessment

Nature always presented risks to mankind and to all life Living beings have adapted to those by

developing survival strategies These are not conscious but have been acquired

in an evolutionary way Human beings have done the same over the ages

except that conscious strategies have replaced unconscious ones

What is new is that humans can modify significantly and quickly their environment

This is not new

Focus on Society-Environment Interactions What behavioral and institutional factors

mediate relations with natural system? What features create vulnerability or

resistance to certain natural events or processes?

What mechanisms are available to different types of society to adapt or mitigate change.

Environment-Society Issues

Level of resource use

Population size Even with constant level of use, attain limits

as population increases Could these be related?

Environment-society issues What behavioral and institutional factors

mediate relations with natural system? What features create vulnerability or

resistance to certain natural events or processes?

What mechanisms are available to different types of society to adapt or mitigate change?

Environment and Society. A Critical Issue for our Future? At issue is relation between natural

processes and human populations To what extent does human agency matter? If human choices affect natural processes,

can we identify some problems crucial enough to address now?

How can cooperation about environmental issues be organized?

General Issue: Environmental Influences and Human Control Immediate environmental influences high in past:

very high risks for humans, examples of collapse

Less important with technological progress: cushioning and spreading of risks

Some troubling aspects remain: mastering Climate change

The Assessment of Environmental Risks

The studies of society collapse show the importance of knowing the environment in order to assess the risks it presents: knowledge of two aspects are important: 1) The evolutionary dynamics of the crucial resource 2) The initial resource stock (ex. climate change)

It also shows the importance of social responses to the problems involved in terms of a) control of access b) charging for use in proportion

3 Types of risk management have therefore to be considered:

Risk management types 1. Risks due to nature 2. Risks due to the consequences of

uncoordinated and non-cooperative human activities, present and future

3. Risks due to problems of coordination and cooperation of social institutions present and future

Risks due to nature can be assessed in terms of expected utility 2 elements: uncertainty measure p (probability) of

an outcome and its subjective value or utility U: P(o)U(o)

This formulation suggests a cost benefit analysis. Suppose there are only 2 outcomes, o1 and o2: Total value is:

P(o1) U(o1) + (1 –P) U(o2) Present value: [P(o1) U(o1) + (1 –P) U(o2)]/r

where r is a discount rate (interest rate)

Risk analysis Suppose we have several other outcomes

resulting from different plans of action

Possibilities

Actions Do Nothing Build small levee

Build big dike

Minor flooding: P

U1 U3 U5

High flooding: 1-P

U2 U4 U6

Risk analysisStates of Nature a1 a2 a3

r1

Extreme bad weather

7000 4000 2000

r2

Nice weather

1000 4000 5000

Risk analysis continuedState of nature r p (r )

r1

Extreme bad weather

0.40

r2

Nice weather

0.60

Solution of the minimization of expected losses: Min L(a) =Min (aij p + aij (1 –p))

Expected losses of a1 are inferior to all others: 3400 instead of 4000 and 3800

This conclusion holds only if one cannot update informations

Cost Benefit Analysis Previously take the PiUj which is largest

(or smallest if the U’s represent costs) Climate change: Choose where Marginal

Damage of CC = Marginal Cost of Abatement

Risks from Nature, Risks from Society

As seen from the Stephens text in Cashdan, risk analysis can help us understand animal behavior and thus raise our knowledge about nature This is necessary for estimating stocks of

natural resources and their evolution Risks from Society involve the positive or

negative influences (externalities) people can exert on each other

Complexity of Human Behavior

Human behavior is obviously complex. One can analyze it with the help of general concept such as the one of collective good. A collective good characterized by two aspects: Non excludability and some times non-rivalry. Collective goods that are rival, so called commons, thus 2 types of collective goods: welfare generating and welfare preserving

Welfare preserving collective goods In welfare preserving (rival) collective goods,

users represent a negative externality with respect to each other. The risk comes from others! The purpose of institutions is to limit use. This is difficult to achieve because there is a first mover advantage of non cooperation with the institution which then often leads to conflict and coercion

This model cannot easily be followed at the inter-institutional level

Welfare Preserving Collective Goods: Dasgupta and Heal Economic Theory and Exhaustible

Resources (1979) Graciela Chichilnisky’s Trade Theory between Regions

with Different Property rights Regimes (1994) The choice is not really only between different types of

rights but between different types of hierarchies of collective goods: Even private property rights have to be protected!

Problem: 2 strategies•Adhere or not to a strategy depending on what others are doing.

•This problem can have a stable (Nash ) equilibrium

•The equilibrium is only efficient if a sufficient number participate.

•Non- Efficient Accord Efficient Accord

Coop. Strat a(t)

Non Coop. Strat b(t)

Stable Nash Equ.

Min fraction of total to sustain accord

0 t 1

Stable Nash Equ.

Min fraction of total to sustain accord

Non Coop. Strat b(t)

Coop. Strat a(t)

0 t 1

U(t)U(t)

Theory of Collective Goods and Theory of the Open Access The importance of jointness: Behavior

driven by average product: F(Nx)/N(x) Open access as opposed to private

marginal product dF(Nx)/dN(x) As emphasized by Dasgupta and Heal open

access problems are not PD problems

Open access resource use Open access situations are characterized by

an overuse of Resources at any price. This is due to the fact that one can show that the open access marginal product is always superior to the “restricted access” marginal product

Open access and “private” supply

Graphical Illustration

Role of a Market for Externalities

Mechanisms developed by society To set limits on resource use before

diminishing returns set in To meet needs across space and

through time with greatest efficiency

Market for externalities solution

Conclusion There are several ways of solving the open

access question Markets for externalities, the most efficient

solution might not always be possible The structuring of authority associated with

the open access problem is quite important

Property rights

Role of Property Rights

Mechanisms developed by society To set limits on resource use before

diminishing returns set in To meet needs across space and

through time with greatest efficiency

Property Rights solutions

Standard economic view of property rights Well-defined property rights Market mechanisms and a pricing system No transaction costs No income effects

Assumes collective action problems solved

Private property solves production (and environmental) problems Can anticipate diminishing returns:

incorporate foregone benefits into present production decisions (Hotelling)

Private property rules provide means to maintain efficiency even when environmental externalities exist (Coase)

Possible problems

Definition of the property itself

Enforceability of exclusionary rights

Optimality

Common Property: Tragedy of the Commons

Resource that is:

Depletable Non-exclusive Rival Joint, fugitive

Common Property

Resource unit defined Well-delineated user group Multiple users Explicit rules of extraction

Why Common Property?

Nature of resource

Economies of scale

Maintenance or capital demands

Enforcement

The Example of water Common good aspects Competitive use Particular spatial distribution creates

asymmetries Upstream-downstream Common pool: technology differences lead

to differential access Unequal political power

International aspects compound problems

Debates about water

Debate over nature of resource Symbolic aspects: natural right Water as economic good

Debate about most effective management strategies

Symbolic aspects: natural right Open access?

BUT Demographic growth

Urbanization: concentration of demand Agricultural intensification

70% of water used for irrigation

Changing demands: economic development Quality/quantity

Health issues: water borne diseases Pollution: overuse and salinization

Nature of resource debate

Nature of resource debate

Water as commodity: evaluate costs Supply costs: exploitation, maintenance,

investments Opportunity costs Externalities Goal: promote efficiency and avoid "tragedy

of commons" type outcome

Management problems

How to balance equity issues raised by "right to water" approach with efficiency aspects raised by "water as commodity" view?

Aral Sea 1985

A view of the problem

Aral Sea 1997

Causes of shrinking Aral Sea

Since 19e century, Russia, and later Soviet Union emphasized cash crops: cotton and rice Reduce dependence on imports Acquire hard currency

After 1960, consequence of policy was reduction in volume of water flowing to Aral Sea

Soviet system

Quotas specifying quantities of water available for each region

Exchange fossil fuels and energy for water Coordination by central government

Present context

Water allocation is no longer an domestic issue within a centralized state but has become an international problem New source of conflict

Current management structure

Almaty Agreement 1992 Based on former Soviet allocation system Creation of interstate commission where

decisions taken by consensus Establish quotas Assure their implementation

Management problems

Maintenance of old Soviet system Not all states accept previous allocation

criteria Favors richer downstream countries

Enforcement problems: quotas not respected

Exchanges between energy and water have been maintained but also not always respected

Persisting common good problems

Lack of information on quantities really available Thus cannot determine sustainable rate of use

Costs of water use not distributed fairly Downstream users of Toktogul dam do not

contribute to maintenance costs

Reaction

After independence , Uzbekistan and Kazakstan introduced market prices for gas and coal.

Kyrgyzstan couldn't pay: increased electricity production to increase revenues but then the amount of water available for downstream irrigation in Uzbekistan and Kazakstan was also reduced

Response

2001: Kyrgyzstan passed law to regulate transborder water use: Water belongs to state Has economic value Kyrgyzstan owns water "created" within it

borders Users must pay

Water: International efforts

Dublin Conference and Rio Summit, 1992 Broad often contradictory principles

Slow definition of international water law: UN Convention 1997 on non-navigational uses

Relevance of different property regimes to other current environmental issues Confrontation of regimes is occurring

South/North Common property characteristics of

environmental resources Institutional solutions are adopting

common property arrangements

Problems of environmental regulation; solution through definition of property rights

Atmosphere rival at global level Consumption interdependent Command and control difficult to achieve

because deal with countries Introduce market solution to create incentives Raises problems of initial allocation

Efficiency, the Environment and Property Rights What is efficiency in economic, social,

environmental, and technical terms? Are they equivalent? What is the relation with property rights? Is the problem simple to solve?

Efficiency Economic and social efficiency: use

resources in such a way that they minimize costs and maximize profits

Technical efficiency: minimizing inputs with respect to outputs minimizing energy use

There should not be any contradiction between the 2 above

If contradiction: not internalized externality, ill defined property rights

The Coasian analysis Problem of property rights, efficiency and

externalities raised by Coase Argument: What matters is the overall cost and

benefit Compensation schemes can be built around this

principle It depends who has the biggest loss The issue can be resolved by negotiation All allocations based on Coasian principle

optimal

What do property rights provide? Demsetz claims that they are an

internalization of externalities Adjustment of property rights are an

adjustment to externalities Example: forced labor Property rights originate under scarcities in

particular environmental scarcities

Problems raised by Dasgupta and Heal Property rights are not created in a vacuum Problem often comes from partially

defined property rights Coase and Demsetz assume symmetry

which might not exist They implicitly assume unique equilibrium Problem: Multiple equilibria

Multiple equilibria

Solutions In these cases, solutions have to be

revealed to producers Sometimes solutions have to be imposed

Sustainability and exhaustible resources In some basic sense nothing is truly sustainable

since finite resources are continuously exhausted by man but also by nature

Sustainability has thus evolved to mean a “correct” relationship between generations

Dasgupta has suggested that net wealth rather than income should be considered in this relation

Net wealth is accumulated social, economic and institutional capital minus depreciation for natural resources exhausted

Sustainability continued Sustainability means that resources should be as much

as possible preserved for future generation’s use The net wealth criteria tells us that some countries like

India have GDP growth but decreasing net wealth while Western countries have increasing net wealth and income Africa, decreasing net wealth and income

Clearly this means that slowly renewable and exhaustible resources should be depleted at an optimal rate.

Theory of slowly renewable resources Slowly renewable resources have to be

evaluated as an evolving stock such as a population minus withdrawals

( ) ( ) ( , )1dz

d tH z F z N x

Evolution of z = Natural Dynamics of z minus catches

Slowly renewable resources: Production Producers will be drawn into using the

stock by profits:

( )( , )

2dx

d t

qF z N x pN x

N

Evolution of inputs x, if average profits are positive, if F is production, q unit price, p unit costs

Equilibrium conditions In equilibrium there should be an optimal

level of the resource z if:

( )( , )

ex p30

qF z N x pN x

Nrt d t

Is maximized subject to the relation before and where r is a discount rate: The discounted sum of all future profits is maximized with a discount rate r, the spot price of the resource is thus dependent on availability of z in nature and the discount rate

Exhaustible Resources Hotelling Principle: An exhaustible resource is an asset and its net

price (market price - extraction costs) should increase exponentially with the interest (or discount rate, to some extent a socio-political construct), i.e.:P(t) = P(0)eit or (dP/dt)/P = I

Indeed if for the resource Z, the price is P.Total value of resource:PZ. Compare to other assets, P has to grow as P(0)eit to stay competitive.

Hotelling’s Principle: Competitive resource owners will

deplete at a socially optimal rate Take r the rate if return to the

owner of natural resources. In equilibrium : r = i

Whenever, r … i, we have a conservationists dilemma.

Conditions for Hotelling principle 1. No externalities 2. No uncertainty about future sales,

exploration prospects, etc. 3. No extraction with environmental

externalities (ex. Gold Rush). 4. Not too big differences between

private and market (social) discount rate (for instance due to dangers of transfer within society)

Example:Deforestation processes According to Hotelling principles a forested area

is a particular type of asset whose capitalized value should grow with the interest rate. If this growth is not achieved other assets including agricultural ones will be closer and the forested land will either sold for development or transformed into another agricultural asset.

In particular:If the income flow stemming from the forest is lower than the income flow from other activities then deforestation will occur!

This can be due to: subsidies for agricultural production income subsidies or welfare cost of property rights enforcement prohibition of trade unclearly defined property rights

Graphical analysis

Population Dynamics

Fundamental problem of global environmental change:

Balance supply of resources from physical system with demand for these resources from human populations over time

Population dynamics

Fertility Mortality Migration Population size Age distribution

Measuring Population Static: characteristics

Total Age distribution Genders Urban/rural Geographic distributions

Dynamic: use various extrapolation techniques to predict future trends

Measuring Population Challenges in achieving accurate

assessment Completeness and accuracy Census comparability Different interpretations of categories Different areas/levels of aggregation Different time periods Size of area Units

Projections Dependent on accuracy of initial conditions

(i.e. count) Need techniques of projection

Postulate relationships among the different aspects of population so you can have internally driven system.

But projections assume smooth path. Also need to introduce mechanisms to account for changes in rates

Malthusian theories of population Assumptions

Constant "passion between the sexes" Finite earth

Argument: Left unchecked, population grows and, by

definition, grows exponentially (passion) After an initial period of strong growth,

output as a function of population (labor) exhibits diminishing returns

Preventive checks Late marriage

Celibacy

Low marital fertility (spacing)

Contraception

Migration

Positive check: Mortality

Alternatives to Malthus: Boserup/Simon

Relate technological progress to population growth

Population concentration leads to higher likelihood of technological advance. Population growth longer hours, More labor-intensive techniques eventually

leads to more sophisticated technology.

Multiple influences on population dynamics

Demographic influences on fertility

Institutional controls Property rights Production systems and technologies

Pre-industrial Western European Demographic Regime

High mortality High Fertility

Fertility ControlsCelibacyAge at marriageSpacing behaviorContraception

Limits to Malthusian Approach Explaining emergence of new demographic

regimes How technology might explain shifts

These considerations important, because new regimes have emerged

Synthesis argument: Lee, Ronald, Malthus and Boserup: A Dynamic Synthesis, In David Coleman and Roger Schofield, The State of Population Theory, Oxford: Basil Blackwell, 1986.

Demographic Transition

Characterized by a drop in marital fertility Achieved through "stopping" behavior, i.e.

controlling births after having the desired number of children

Demographic transition

Puzzle Not linked to decreased mortality No obvious link to Industrialization No Malthusian population response to

income growth

Fertility Declines, Real and Projected

1

2

3

4

5

6

7

1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Chi

ldre

n pe

r Wom

an

(2.1

= n

o po

pula

tion

grow

th)

Developing

Developed

Africa

Asia

South and CentralAmerica

Stabilization Remains a Challenge

0

1

2

3

4

1950 2000 2050

Stab

iliza

tion

Ratio

(birt

hs/d

eath

s) (1

= n

o po

pula

tion

grow

th)

Developing Developed Africa Asia South and Central America

Sub-Saharan African Fertility Regime Low age at marriage Polygyny: men have many wives, leaving few

women celibate Acceptance of pre-marital and extra-marital

sexual relations Remarriage after widowhood or divorce is the

norm

These are all factors that make women susceptible to childbearing throughout their reproductive period of 15-49.

Differences Pre-industrial European and African Regimes

Europe: reduce "exposure"

Africa: spacing behavior

Characteristics of Sub-Saharan African Social System Poorly defined or poorly enforced common property

systems Children reared communally (polygyny)

Share “costs” in time or responsibility Weak conjugal bonds Lineage holds land

Large families have access to larger share

References: Dasgupta; Partha, The Population Problem: Theory and Evidence Journal of Economic Literature, 33, 4, 1995: 1879-1902; Chichilnisky, Graciela, North-South Trade and the Global Environment, The American Economic Review 84 (4): 851-874.

Changes in life expectancy in selected African countries with high and low HIV prevalence: 1950 - 2005

with high HIV prevalence:

Zimbabwe

South Africa

Botswana

with low HIV prevalence:

Madagascar

Senegal

Mali

Source: UN Department of Economic and Social Affairs (2001) World Population Prospects, the 2000 Revision.

30

35

40

45

50

55

60

65

Lif

e e

xp

ecta

ncy

(y

ears

)

1950– 1955

1955- 1960

1960-1965

1965-1970

1970-1975

1975-1980

1980-1985

1985-1990

1990-1995

1995-2000

2000-2005

0 10 20 30 40 50 60 70

Cambodia

Haiti

Mozambique

Rwanda

Côte d'Ivoire

Zambia

Kenya

South Africa

Zimbabwe

Botswana

Life expectancy at birth (years)

Predicted life expectancy Loss in life expectancy due to HIV/AIDS

Source: U.S. Census Bureau, 2000

Predicted loss in life expectancy due to HIV/AIDS in children born in 2000

Population and environment: Key points Population dynamics in part create

“demand” for environmental resources by determining population sizes and distributions Other factors: tastes/lifestyles; technology

Importance of understanding mechanisms linking fertility—mortality—migration and relation between these demographic processes and other socio-economic variables

Two views of population—resource interaction

Population grows until limited by resource availability (at all levels of technological development). Ultimately checked by mortality: Malthus

Population growth stimulates technological development which permits higher levels of population: Boserup/Simon

Problem: How to account for new regimes?

Malthus perspective could not account for shift from high fertility—high mortality to low fertility—low mortality first in Europe then, progressively, globally

Demographic transition: the definition “Pre-transition” Western Europe

characterized by high fertility and high mortality

“Transition” defined as a drop in marital fertility that in Western Europe was achieved by “stopping” behavior Conscious limitation of family size once a

desired number of children born

Demographic transition: the evidence

Shift from high to low fertility was a result of deliberate family limitation

Transition occurred rapidly once it began To date, process has been irreversible

Causes: Early theories Link to modernization: Frank Notestein

(1944) “New ideal of the small family arose in the

urban industrial society. It is impossible to be precise about the

various causal factors, but apparently many were important” Individuality Mobility Education Declining mortality Costs of children

The standard model

Transition: the European-US data

Great variation in socio-economic and demographic conditions Timing and extent of decline in mortality

France and USA Infant mortality varied Extent of urbanization differed at transition

France 1800: 70% male labor force in agriculture England 1892: 15% male labor force in

agriculture

Transition: Developing countries

Link to mortality seems more direct Knowledge and treatments not available at

time of initial transition in Europe and often precedes fertility decline Role AIDS epidemic as Malthusian control in high

fertility regions

Sub-Saharan Africa either slow to adopt transition or exhibits special characteristics

Questions for future Evolution of African population patterns Response of regions where population

below replacement rate Lower population levels Pro-natalist policies Role of migration in redistributing population

Prediction difficult since mechanisms of previous transitions are still under debate

Environment and Migration Migration constitutes, as mentioned before,

a significant factor in population dynamics Migration and the environment are linked

in 2 important ways: Some migrations are environmentally

induced: ex. The dust bowls in the US, the Sahel

Migrations create environmental problems: crowding effects

There are two basic theoretical considerations about migration which emphasize either push or pull factors Voluntary migration: migrants decide to move from

one place to the other on the basis of some incentives, wages, quality of life

Involuntary migrations: migrants are excluded from a given society and are forced to leave

This 2 causes can combine themselves

Before we look at these links let’s consider theoretical approaches to

migration

Involuntary migration A description of the multiple aspects of

involuntary migration is included in the Zollberg article: political, racial or religious reasons

The collective good literature helps to understand exclusion processes

Other countries often are reluctant to accept these populations which are then concentrated in relatively small areas and cause environmental problems

Voluntary Migrations Since voluntary migrations are based on

incentives to move, these incentives have to be made explicit in the form of wage differentials for instance

Migration due to wage differential constitutes the main explanation for migrations in economics

A standing puzzle lies in the explanation of overcrowding of big developing country cities

Harris Todaro Model These 2 authors postulate a 2 sector rural

(agricultural) and industrial economy Wages in agriculture are: WA=P.q’ Wages in industry are dependent upon a minimal

wage Wmin They are:

1,min

U

M

U

MU N

N

N

NWW

Equilibrium conditions As long as the following is >0, migration will occur

0','min

Pq

N

NWN

U

MU

N Is a time evolution (derivative)

Other Factors Could Be Important As well The pull aspect of cities exists before

Minimal wage policies are applied The pull aspect is enhanced by existing

social networks that support newcomers Increasing returns to scale in cities High paying but difficult to enter jobs Segmented labor market

Increasing Returns

Other incentive models: The Owen land use model The land use model developed by Owen assumes

only two types of land use, agriculture and dwelling and examines the special case of areas around urban centers

Whether land will be transformed into dwelling will depend on income streams generated by both

Arrival of newcomers increases income streams from dwellings especially if migrants get subsidies

Conclusions of Owen model and further development Even under normal conditions, as long as there is

an attraction to moving into an urban area such as a subsidy or the hope of a job, farm land will be urbanized down to a critical value which can be very close to zero.

Higher interest rate for agricultural investments as opposed to investments for urban dwellings will accelerate the process.

Further conclusions Mass migration which can result from climate

change will accelerate this process.

Foreign aid and relief can accelerate the process An Ill-defined property right regime will initially

slow but then accelerate the process.

Climate change might reduce net profits made from agricultural production and accelerate the process.

Trade and Environment From a general point of view, trade and the

environment should be neutral with respect to each other

Problems come from the different political social and legal structures between countries

These lead to either advantageous or problematic relationships between the two

Positive and negative effects Environmental conditions can be positively affected by

trade liberalization Positive effects can result from the suppression of

distortions which have all kinds of costs including environmental ones

Other legislation than trade legislation might create distortions: environmental standards

A market economy and this is due for trade as well can work optimally only if some structural conditions are similar such as property rights

To make all this explicit lets look at trade theories

Property Rights, the Environment and Trade Changes in the Economic Theory of Trade Traditional Theory Based on the Notion of

Comparative Advantage: Heckscher Olin 2 New Notions:

Importance of Increasing Returns to Scale and Intra-Industry Trade (Helpman, Krugman, Ethier, etc.)

Importance of availability of a factor and factor prices (Chichilnisky)

Characteristics of Trade Importance of increasing returns in

External aspects Monopolistic competition

Some property rights regime lower the price of factor inputs Countries with ill-defined property rights extract too

many natural resources They have thus an "artificial" comparative advantage

in environmental goods

The Chichilnisky Perspective

Chichilnisky (1994) has analyzed trade links between regions with different property rights

Basic conclusions are drawn from her investigation:

The region with undefined property rights will supply more of a resource at any price

This applies to any good that is "fugitive" : rights of ownership established only when captured or freely extractable

Open access and “private” supply

Chichilnisky Perspective This situation creates an "abundance" of the resource in

the region without or with ill-defined property rights The region will "appear" to have a comparative

advantage in the given resource. Abundance is not due to any intrinsic natural

availability of the resource but only to the absence of rights.

The region without property rights will get poorer because it will get rid of its resources at too low a price.

Chichilnisky: Analysis Assumptions about the region without well defined

property rights: elasticity of substitution between leisure and

consumption for harvesters or extractors of the resource good that is lower than 1

extractors consume mostly other goods than the natural resource that are purchased with their harvest or catch

An increase of the relative price of other goods with respect to the resource will result in more extraction

Consequences

Regions with ill-defined property rights are "exploited" those with well defined rights. Resultant lower prices lead to increasingly unfavorable terms

of trade followed by more extraction of the resource

Thus regions with poorly defined property rights grow poorer as a result of trade with regions with better defined property rights

More important, corrective taxes are counterproductive: lower demand and lower prices lead to more extraction

Analysis of Countries with Ill-Defined Property Rights These countries are sensitive to price fluctuations due

to substitution effects or taxation policies Lower prices lead to more extraction of natural

resources due to a lowering of the opportunity cost of labor

This lowers their bargaining power at the international level

Their bargaining power is lowered further by the cost of the artificial "comparative advantage" in terms of natural resources on the society as a whole which might lead to social upheavals.

Environment and trade policies One has to distinguish here between

production and consumption The prevalent norm and WTO rule is that

consumption can be regulated with respect to environmental standards (up to a point) by national legislation

No such leeway exists for production methods (ppm problem)

Conflict, cooperation, and the environment

The relations between conflict, cooperation and the environment are numerous but cannot always be clearly established

Quite clearly early cooperative structures such as early agricultural states were driven by the necessity to better control the human environment

Resource driven conflicts are probable in this context

Relationships between the environment and human production As technology evolves, the relations between the

environment and human activities become more distant

2 types of relations can be emphasized: 1. Cataclysmic Events such as volcano eruptions

Long term changes such as deforestation trends and climate changes: the 2 may be linked

Conflicts over environmental resources may exist but they are difficult to show

Difficulty to disentangle environmental form other conflicts, ex. Rwanda

Here again importance of property and property rights

Similar for conflict over resources: Central Asia and Water in the Jordan river water basin, conflict between Turkey, Syria and Iraq over the Euphrates and Tigris waters

The Central Asian Water Question

Symmetric and Asymmetric

Access to Resources:

The Example of the Middle East

2 Middle Eastern Conflicts: The Jordan and Euphrates River Basins Jordan River: Israel plus Palestinians use about

2300 million cubic meters per annum, only 1950 is considered sustainable

Jordan uses 740 to 750 million cubic meters per annum. Only 730 is considered sustainable

Euphrates: Turkey reduces Euphrates flow to 500 to 300 cubic meters per second, 700 are demanded by Syria

Some Theoretical Notions Goal: tackle problems analytically and suggest responses that

tend to promote strategies to minimize conflicts and promote cooperation

All social interactions and conflicts are not the same. They have to be analyzed according to their incentive structures

Water problems are also common problems Commons lead to asymmetries: Lack of dominant strategies lead

to first mover advantage First, (or second) move advantage can be enhanced by

geographic or technological circumstances

Fundamental Questions to Address

What are the nature of the conflicts

How can one find optimal solutions to solve them?

Water competition has technological and economic limits

Price of Water from Sea: fundamental Given by the cost of a m3of water from sea water

or possibly from pipe lines:Around 65¢ per m3

70% of all consumed water is for agriculture (irrigation)

In the Middle East this proportion can reach 80 to 90 %

Is it worth it?

Symbolic aspects The sharper the conflict and the demands

around it, the more is at stake Giving in on little things is perceived as

signal to give in on big ones

How to get out of the conflict spiral? Emphasize limited worth of conflict

Franklin Fisher approach using pricing Problem: Symbolic aspect Policy of mutual voluntary restraint in use Reduce conflict extensions to other areas

through compensations

Difficulty: The Mid-east population explosion

Graph 6 Population Jordan: Observed and Calculated Values

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

1970

1971

1971

1972

1973

1974

1974

1975

1976

1977

1977

1978

1979

1980

1980

1981

1982

1983

1983

1984

1985

1986

1986

1987

1988

1989

1989

1990

1991

1992

1992

1993

1994

1995

1995

1996

Years

Po

pu

lati

on

(M

illi

on

s)

Calculated Values Observed Values

The Mid-East Demographic Boom

Per capita GDP diminish in the Mid-East

Row

Column

(3,3) (4,1) (2,2)

C

C C

C

Prisoner’s Dilemma

(1,4) (2,2)

Row

C C

Row

Column(3,3)

(4,2) (1,1)

C C

C C

Chicken

Environmental Negotiations The Common problem makes it difficult to

carry out international environmental negotiations

Often countries try to free ride on each other

It is difficult to exclude from environmental benefits

Unit veto and leader problem

Unit Veto makes agreements even more difficult

Particular importance of players One has to find ways to exclude Side payments have to be provided Importance of a leader, US for Montreal,

EU for Kyoto