ABSTRACT
In this chapter we will concentrate on the possible environmental damage that might occur when certain areas are developed for industrial purposes. A well known example is the regulation of water courses located in recreational areas. Environmental costs related to such regulation of areas reveal several characteristics:
Costs are a result of the alternative use that could be made of these areas either being reduced in scope and/or in quality.
Common areas are involved. The goods and service supplies which are reduced either in scope or in quality in this way acquire the nature of common goods. In most cases no prices exist for these goods, and in any case it is difficult to calculate the willingness to pay among potential users of the area. Some will also be willing to pay today for the option of being able to enjoy recreational services in the future. Irrespective of whether they actually use these services in the future or not, an economy aiming at social efficiency ought to take these option values into account when making plans for the economy.
In some cases irreversible effects may be involved. Discharge of residuals may result in tolerance thresholds being exceeded, in such a way that the natural environment is exposed to lasting change. In the case of hydropower development, damming and the regulation of watercourses may change the character of the countryside, inter alia, as a result of erosion. An ecologist will probably be more likely than an economist to maintain that irreversible damage has been done, since the latter will be more concerned with the more general facilities for use by human beings offered by the area, and in addition he will be more aware of the fact that, by means of investment at any rate, important features of the natural setting may be restored.
Uncertainty is involved. In the first place this may involve uncertainty with regard to the physical effects of interference with the environment. In the second place there may be uncertainty with regard to the value of the goods that have been lost. A typical feature of the uncertainty associated with interference with the environment is that information on expected physical conditions and willingness to pay ‘tomorrow’ depend on realisation ‘today’. After some time has passed and as decisions are taken, decision-maker will receive more and better information.
