Envirodevonomics: A Research Agenda for a Young Field
Environmental quality in many developing countries is poor and generates substantial health and productivity costs. However, existing measures of willingness to pay for environmental quality improvements indicate low valuations by affected households. This paper argues that this seeming paradox is the central puzzle at the intersection of environmental and development economics: Given poor environmental quality and high health burdens in developing countries, why is WTP so low? We develop a conceptual framework for understanding this puzzle and propose four potential explanations: (1) due to low income levels, individuals value increases in income more than marginal improvements in environmental quality, (2) the marginal costs of environmental quality improvements are high, (3) political economy factors undermine efficient policy-making, and (4) market failures such as weak property rights and missing capital markets drive a wedge between true and revealed willingness to pay for environmental quality. We review the available literature on each explanation and discuss how the framework also applies to climate change, which is perhaps the most important issue at the intersection of environment and development economics. The paper concludes with a list of promising and unanswered research questions for the emerging sub-field of "envirodevonomics."
We are grateful to Eric Lewis and Jonathan Petkun for excellent research assistance and to the Editor and four anonymous referees for comments and suggestions. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. Greenstone holds more than $10,000 in stock of various public companies that may be subject to air pollution regulations.
Greenstone, Michael, and B. Kelsey Jack. 2015. "Envirodevonomics: A Research Agenda for an Emerging Field." Journal of Economic Literature, 53(1): 5-42.