Tuesday, August 24, 2010

Opportunity costs

Ah yes, one of the first things you learned in economics: opportunity costs are real and affect our decisions.

Here are links to a few articles illustrating a common (though often flawed) theme: "The economy vs. the environment":

From Freakonomics: Two economists suggest that consideration for the environment wanes during times of high unemployment.

From ABC: A March 2010 Gallup poll shows a similar trade off.

From Reuters: It's not all bad news... people create less pollution during economic downturns.

Thoughts? Can you think of micro-level examples of this (i.e household, individual, firm)?


Ryan McKnight said...

“The economy vs the environment” is, in many cases, a false dichotomy. Are there occasions when individuals, firms, and states must, out of physical or monetary necessity, make economic decisions to the detriment of the environment? Certainly. The economic costs sometimes outweigh the environmental costs (e.g. a low-income household will not buy all locally grown, organic food because doing so will consume too much of the budget).

Often, however, the relationship between economic and environmental interests can be viewed as symbiotic. We do not always have to give up one in order to pursue the other. (Read Thomas Friedman’s Hot, Flat, and Crowded for hundreds of examples - $1.50 used on Amazon).

Microeconomic example: Ford Motor Company

(1) “Green roof” on a Dearborn, MI manufacturing plant

Environmental gain: the living roof is carbon neutral, filters storm water runoff, conserves energy, mitigates heat island effect, etc.

Economic gain: The roof lasts twice as long as a conventional roof and Ford does not have to install a $10 million storm water filtration system to meet EPA standards (the green roof does the work of the machine)

(2) Fumes to fuel system – turning paint fumes in the factory into energy

Environmental gain: eliminates a substance that is harmful to humans and other life, less carbon emissions, etc.

Economics gain: “The system costs less to install and maintain than the existing furnaces, it virtually eliminates carbon dioxide emissions and it enables the use of higher-quality, solvent-based paints. Since Ford is producing its own electricity, it also has to shell out less money to buy energy.”

(3) Solar energy system

Environmental gain: clean and renewable energy/less fossil fuel use and green house gas emissions

Economic gain: Ford saves $160,000 a year on energy costs

Read more on Ford…

For more examples of the intersection of economic and environmental interests…

Watch this documentary: http://video.google.com/videoplay?docid=-3058533428492266222#

Read these articles:

Filorux said...

Regarding the last article Dr. Schuhmann linked...It seems to make perfect sense that an increase in unemployment leads to a decrease in pollution creation, assuming we're talking about lost jobs and not simply new job seekers. If those lost jobs are in sectors that pollute, then it isn't a stretch to say there will be less pollution. Even if the jobs themselves created little pollution, the newly unemployed people are not polluting by driving to work. They are also buying fewer goods, causing suppliers to produce less of those goods and any potential by-products from that process. I don't have any articles to back what I'm saying here, but this seems self-evident to me via logic and economic theory.

A perfect micro example of this is when I took my Element in for service at my regular shop last year. This was near the end of the summer, my previous maintenance being sometime in the spring. The service attendant asked me (jokingly) if I had been tampering with the odometer, as I had put so few miles on the car over the summer. Not having much of a life, school is the only place I really ever drive to - no schooling, no driving, no polluting.

Ryan Ham

Rita Russ said...

The economic downturn did cause my household to pollute less this summer. After being laid off from work last August, I now have more TIME, but less MONEY. This meant less money to purchase gas for my vehicle, which in turn meant less driving to places like Topsail and Kure for the beach, Raleigh for the museums and concerts, and
Myrtle Beach for family fun.

The following article from June 2010 discusses the topic of improved health during economic downturns due to healthier lifestyles, less pollution, more time to exercise vs increased death rate due to economic stress.

"Recessions good for health? Maybe not this one
Link seen between economic stress, rising death rates around the U.S."