Economics of the environment

TL;DRAbstract

This chapter explores how economics relates to environmental (and related social) concerns. Section 3.1 outlines how environmental degradation is impeding economic development, while human activity is harming the environment. Sections 3.2 and 3.3 expand on economic cost–benefit analysis – a key element of SDA and the project cycle. Important details are explained, including economic decision criteria, efficiency and social shadow pricing, economic imperfections (market failures, policy distortions and institutional constraints), methods of measuring costs and benefits and qualitative considerations. Types of environmental assets and services, and practical techniques of valuing them, are described in Section 3.4. Section 3.5 outlines multicriteria analysis, which is useful for decision making when economic valuation is difficult. Key issues relating to discounting, risk and uncertainty are set out in Section 3.6. Finally, Section 3.7 explains links between economy-wide policies and env

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