Environmental Economics

WARNING! Excessive use of the Precautionary Principle may be bad for you

The Precautionary Principle basically says that we should not do something unless we are sure it will have no harmful or potentially harmful side-effects.

On the face of it, that may sound reasonable, but in reality it is a one-sided consideration, which completely ignores the benefits or potential benefits of any action/product/invention. The Principle does not weigh benefits against costs; it just says that if there are any costs at all, the action should not be carried out. For example, a new invention which could benefit millions of people, but also might possibly harm a few (people or other species) in the process, should be banned according to the Precautionary Principle.

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Natural Resources: Curse, Disease or Trap?

For many years I thought that the reason why natural resource abundance could turn into a curse was that people and governments reacted in an irrational and counter-productive way when confronted with new natural resource wealth. That seemed logical because it didn’t seem possible that additional money distributed fairly and invested wisely could do any harm.

So I was as perplexed and frustrated as everybody else when confronted with my own research results(1). Using a Computable General Equilibrium Model of the Bolivian economy we found that the current natural gas boom is likely not only to increase inequality, as might be expected, but also to increase poverty.

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Environment versus Development

Bolivia is one of the top 15 countries in the World in terms of biodiversity and endemic species. Consequently, Bolivia is of high priority for the international conservation community and so far more than 16% of the country’s surface has been declared protected area.

However, Bolivia is also one of the poorest countries in Latin America, desperately seeking ways of rapid development. This often involves the exploitation of natural resources, such as land, timber, minerals and petroleum in national parks and other areas that provide important environmental services.

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