Innis Lecture: Environmental Crises: Past, Present, and Future

M. Scott Taylor

Canadian Journal of Economics, Vol. 15, No. 2, June 2010, 127-153.

Presentation at the 43rd Annual Conference of the CEA, 2009.

Environmental crises are distinguished by rapid and largely unexpected changes in environmental quality that are difficult if not impossible to reverse. Examples would be major extinctions and significant degradations of an ecosystem. I argue there are three preconditions for crisis: failures in governance, an ecological system exhibiting a tipping point, and an economy/environment interaction with positive feedbacks. I develop a simple model to illustrate how a crisis may arise, and draw on our knowledge of past and present crises to highlight the mechanisms involved. I then speculate as to whether climate change is indeed a crisis in the making.

Important related work:

Davidson, Russell, and James G. MacKinnon (1993) Estimation and Inference in Econometrics (Oxford: Oxford University Press)

Diamond, Jared (2005) Collapse: How Societies Choose to Fail or Succeed (New York: Penguin)

Keith, David W (2000) 'Geoengineering the climate: history and prospect,' Annual Review of Energy and the Environment 25, 245-84

Roe, Gerard H., and Marcia B. Baker (2007a) ‘Why is climate sensitivity so unpredictable?’ Science 318, 629-32

Weitzman, Martin L. (2009a) 'On modeling and interpreting the economics of catastrophic climate change,' Review of Economics and Statistics 91, 1-19

This paper presents a general equilibrium model of renewable resource and population dynamics related to the Lotka-Volterra predator-prey model, with man as the predator and the resource base as the prey. We apply the model to the rise and fall of Easter Island, showing that plausible parameter values generate a "feast and famine" pattern of cyclical adjustment in population and resource stocks. Near-monotonic adjustment arises for higher values of a resource regeneration parameter, as might apply elsewhere in Polynesia. We also describe other civilizations that might have declined because of population overshooting and endogenous resource degradation.

Important related work:

Bahn, Paul and Flenley, John. Easter Island earth island. London: Thames and Hudson, 1992.

Homer-Dixon, Thomas. "Environmental Scarcities and Violent Conflict: Evidence from Cases." International Security, Summer 1994, 19( 1 ), pp. 5-40.

Malthus, Thomas R. An essay on the theory of population. Oxford: Oxford University Press, 1798.

Ostrom, Elinor. Governing the commons: The evolution of institutions for collective action. Cambridge: Cambridge University Press, 1990.

Smith, Vernon L. "The Primitive Hunter Culture, Pleistocene Extinction, and the Rise of Agriculture." Journal of Political Economy, August 1975, 83(4), pp. 727-55.

Authored in Adobe Flash CS4, the Easter Island Modeling Software (EIMS) allows instructors and students to explore Brander and Taylor’s (1998) Easter Island model interactively by changing any of its original six parameters and plotting the resulting dynamic and time paths of each model variant they create.  Users can explore a rich variety of oscillating and direct paths to steady state equilibrium, or investigate the economics of limit cycles and extinction.   EIMS also supports the incorporation of critically depensated resource growth functions and the analysis of Dalton and Coats (2000) institutional response model of Easter Island.  This website includes a user’s guide to the software, bibliographic references, mathematical appendix, and a set of exercises available for download.  Future model enhancements will include the subsistence consumption model of Pezzey and Anderies (2002) and Erickson and Gowdy’s (2002) innovation-enhanced fertility model.

The Trade-induced Degradation Hypothesis

B. Copeland and M. Scott Taylor

Resource and Energy Economics, Vol. 19, No. 4, November 1997, 321-344.

This paper develops a simple two-sector dynamic model to examine the effects of international trade when government policy regarding the environment is short sighted, but still responsive to changes in income levels and in the quality of the environment. We show that free trade can usher in a negatively reinforcing cycle of increased pollution, lower environmental quality, and lower real incomes. Such cycles are not possible in autarky. We link the potential for trade to cause 'large' environmental consequences to the structure of tastes and technologies and the attributes of industrial pollution. 

Important related work:

Bhagwati, J., 1993. The case for free trade. Scientific American 269, 41-49.

Ethier, W., 1982. Decreasing costs in international trade and Frank Graham's argument for protection. Econometrica 50, 1243-1268.

Grossman G.M., Krueger, A.B., 1993. Environmental impacts of a North American free trade agreement. In: Garber, P. (Ed.), The Mexico-U.S. Free Trade Agreement, MIT Press, Cambridge, MA.

Trade, Spatial Separation, and the Environment

B. Copeland and M. Scott Taylor

Journal of International Economics, Vol. 47, No. 1, February 1999, 137-168.

We develop a simple two-sector dynamic model to show how pollution can provide a motive for trade by spatially separating incompatible industries. We assume that the production of ‘‘Smokestack’’ manufactures generates pollution, which lowers the productivity of an environmentally sensitive sector (‘‘Farming’’). Two identical, unregulated countries will gain from trade if the share of world income spent on Smokestack goods is high. In contrast, when the share of world income spent on the dirty good is low, trade can usher in a negatively reinforcing process of environmental degradation and real income loss for the exporter of Smokestack goods.

Important related work:

Baumol, W., Bradford, D., 1972. Detrimental externalities and nonconvexity of the production set. Economica, 39, 160–76.

Helpman, E., 1984. Increasing returns, imperfect markets, and trade theory. In: Jones, R.W., Kenen, P.B. (Eds.), Handbook of International Economics, Vol. 1. North Holland, Amsterdam

Selden, T.M., Song, D., 1994. Environmental quality and development: Is there a Kuznets curve