Economics and the Environment, 10th Edition

5Measuring the Benefits of Environmental Protection

5.1 Introduction

The efficiency framework discussed in the previous chapter appears to give us a very precise answer to the question: Are we polluting too much? Or, in the context of climate change, are we emitting too much carbon? Yes, if the marginal benefits of abatement (reduced pollution), both today and in the future, exceed the marginal costs. However, determining the efficient pollution or emission level requires that we first devise accurate measures of both the benefits and costs of an improved environment.

Many benefits of environmental protection cannot be observed as singular market transactions. For example, additional tree cover in a neighborhood is not bought and sold on the market. Better water quality in our rivers and oceans may lead to increases in recreational use such as for boating, swimming, and fishing, but these environmental goods cannot be purchased directly at a market price.

Economists have devised methods for measuring these types of nonmarket benefits. While the environmental benefits of nonmarket goods are not transacted directly, they can be embedded in and inferred from economic activities and decision‐making. In our example for improved tree cover, these benefits would also include better air quality for children in the playground, and cooler temperatures that may lead to reduced need for air conditioning. Better water quality can also lead to enjoyment of greater species diversity in ...