Objections to the Economic Analysis of Pollution

We cannot give anyone the option of polluting for a fee. This comment by former Senator Edmund Muskie reflects the view of some environmentalists. Clean air and clean water they argue are fundamental human rights that should not be debased by considering them in economic terms. How can you put price on clean air and clean water? The environment is so important they claim that we should protect it as much as possible regardless of the cost.

Economics have little sympathy with this type of argument. Certainly clean air and clean water have value. But their value must be compared to their opportunity cost that is to what one must give up to obtain them. Eliminating all pollution is impossible trying to eliminate all pollution would reverse many of the technological advanced that allow us to enjoy a high standard of living. Few people would be willing to accept poor nutrition inadequate medical care or shoddy housing to make the environment as clean as possible.

Economists argue that some environmental activists hurt their cause by not thinking in economic terms. A clean environment is a good like other goods. Like all normal goods it has a positive income elasticity. Rich countries can afford a cleaner environmental than poor ones and therefore usually have more rigorous environmental protection.

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