Externalities and the Environment
Study #1: Destruction of the Tropical Rain Forest
Case Study #2: City in the Clouds
Destruction of the Tropical Rain Forest
TIMES, OTHER PLACES
The Rainforest Alliance at http://www.rainforest-alliance.org/ is an international nonprofit organization dedicated to the conservation of tropical forests. Its goal is to promote economically viable alternatives to the destruction of this endangered natural resource. Look through this site to find examples of the role economics plays in the projects and research the group supports. The Rainforest Action Network is another group devoted to rainforest conservation but focuses more on citizen activism. Visit its site at http://www.ran.org/ran/ and compare and contrast the approaches of these two groups.
The tropical rain forests have been called "the lungs of the world" because they naturally recycle carbon dioxide by transforming it into oxygen and wood, thus helping to maintain the world's atmospheric balance. The Amazon rain forest contains the largest collection of plant and animal life on Earth, along with 20 percent of the world's water supply. But the high world demand for timber has caused loggers to cut down much of the tropical forest. Worse yet, farmers burn down these forests to create farmland and pastures. Burning the world's forests has a triple-barreled effect. The loss of trees reduces the atmosphere's ability to cleanse itself, the burning adds yet more harmful gases to the atmosphere, and the forest subsoil usually contains huge quantities of carbon subject to oxidization when the trees are removed. Since the world's atmosphere is a common pool, the costs of deforestation are imposed on people around the globe.
The loss of the tropical forests causes other negative externalities as well. As long as the tropical forest has its canopy of trees, it remains a rich, genetically diverse ecosystem. Tropical forests cover only 6 percent of the Earth's land surface (down from 12 percent 50 years ago), but they contain half of the world's species of plants and animals, and thus represent an abundant source of fruits, crops, and medicines. One-fourth of the prescription drugs used in the United States are derived from tropical plants, such as seeds that may help cure some types of cancer. Biologists estimate that 50,000 species are condemned to extinction each year because of deforestation. Yet most tropical plants have not been tested for their medicinal properties.
Small farmers and wood gatherers and big lumber companies are stripping the tropical forests. Once the forests are cut down, the tropical soil is eroded by rains and baked by the sun and soon runs out of nutrients. When the nutrients are lost, the system is not very resilient. It takes a century for a clear-cut forest to return to its original state. The policy of cutting down everything in sight is of benefit only to loggers, who usually do not own the land and thus have little interest in its future.
The world's rain forests are located in countries that are relatively poor: Brazil, Peru, Indonesia, Zaire, and the Philippines. Environmental quality is a normal good, meaning that as incomes rise, the demand for it increases. In poor countries, however, the priority is not environmental quality but food and shelter. Brazil and other developing countries are destroying their forests to provide jobs. But since the soil quickly loses its nutrients to erosion and the sun, few settlers have become successful farmers.
The tropical rain forests, by serving as the lungs of the world, confer benefits around the globe. But the positive effects that the trees have on the atmosphere tend to be ignored in the decision to clear the land. Worse yet, the taking of timber is often "first come, first served," and government investment programs frequently subsidize the harvesting of timber. It is not the greed of peasants and timber companies that leads to inefficient, or wasteful, uses of resource, but the fact that the atmosphere, and, indeed, the rain forests are open-access resources that can be degraded with little immediate personal cost to those who clear the forests.
What to do? Those who benefit from the tropical rain forest should be willing to pay for the benefits. Government programs that encourage selective cutting and replanting would allow the forest to remain an air filter and a renewable source of forest products. For example, with help from the World Bank and the World Wildlife Fund, Brazil announced plans in 1998 to protect an area of rain forest the size of Colorado. Other ideas are on the drawing board, but a systematic solution is still a long way off.
Sources: Edmund Andrews, "For Europeans, Greenhouse-Gas Issue Is How Much to Cut," New York Times (4 December 1997); "Brazil to Set Aside 62 Million Acres of Forest Lands," Minneapolis Star Tribune (30 April 1998); Thomas C. Schelling, "Some Economics of Global Warming," American Economic Review 82 (March 1992): 1-14; "Argentina Makes Plans to Aid Reduction of Global Warming," Hartford Courant (12 November 1998); and "Saving Rain Forests," San Francisco Examiner (24 April 1998).
Case Study Questions