EnviORment [sic]

On September 23, 2011 by Francisco Marco-Serrano

During these last three years I had the greatful experience of lecturing at graduate school on the economics of natural resources and the environment _environmental economics. The challenge, besides being an optional subject that alumni normally take because it fits in the schedule , was to introduce the ‘FM Waves’ way of critical thinking into the pupils’ minds and make them consider economics is all around, even in the trees, lakes, and their cities’ pollution and its social impact.

To start with you need to break the simple models these students are taught about the economic flows, where no problem exists with the inputs definition, specially regarding raw materials, and including a nasty output, that is pollution in diverse forms, from the least problematic and reciclable to the nastiest that would reduce the usability of other inputs (i.e. sulfuric acid). After three terms, I wonder if students really understood the simpler models, or if they just forget-as-you-pass; now I’m replacing this subject by a more quantitative one (Multivariate Statistics applied to Business) I whine if maybe I should have used an equational explanation rather than a descriptive one. At least I would have enjoyed myself!

Once this theoretical background was set we needed to go ahead with the sustainable development, a concept highly linked to Corporate Social Responsibility. In fact, CSR is seen as a soft and gentle way of internalising the costs produced by the existence of market inneficiencies or failures, such as pollution, tagged as an externality from an economic analysis point of view. Nowadays, I would vote for this solution, the self-enforcement of CSR internal policies, rather than empowering more laws, eco-taxes, or even the ‘pollution markets’, such as the emissions markets. Whatever the option you choose, your model needs to be expanded in order to, again, include new inputs and outputs, and this time, new decision-making rules that will change how your model reaches a new optimal solution…

Opss! I forgot to tell you: this is how we economists see the World, as a model. Yes, I do know, you OR-ers too. That’s why I like both economics and OR! Now the problem is in the application: let’s convince business people, politicians, lawyers, sales people, the citizenship, and my students (and yours) that these models… one day… could change the World!