Economic valuation of Natural Resources
Name
Institution
Introduction
The survival of the humanity largely depends on how its utilizes its natural resources. However, most societies actively pursue the path of their self-extinction by failing to evaluate the ‘good’ and the ‘bad’’ of exploiting their natural resources and this charts the path towards self-destruction. The desire to overexploit natural resources to meet the ever-rising demand and production needs exceeds the land’s ability to replenish its stock that can potentially threaten earth’s survival. Hence, it is important to understand the supply and demand of our natural resources, as well as their allocation to understand their role in the economy. A greater understanding of the importance of natural resources in the economy helps in developing more sustainable ways of managing these resources to ensure that they are protected for the sake of the future generations (Rarick & Feldman, 2008). Understanding the valuation and allocation of natural resources using economic models is crucial as it helps societies respond appropriately to environmental challenges in the quest of creating a sustainable economy in the long-run. Water, land, agriculture, and forests are among the most important natural resources that are shrinking rapidly and it important to understand their economic valuation to understand the dynamics of their current use and generate sustainable ways of exploiting them to avert the possibility of future scarcity.
Water
Water is among the most essential resources of life and its generally accepted that water is life. Humans depend on this resource to replenish their body fluids and their food sources require it to survive. However, inefficient allocation and bad management can lead to its scarcity in future. Water is a renewable resource that uses the hydrologic cycle to maintain a continuous circulation (Callan & Thomas, 2013). Although the hydrologic cycle circulates large quantities of water every year, only a small amount of it goes to human consumption. Humans derive their water from surface water that comprises of water sourced from reservoirs, lakes, and rivers or ground water that collects in the aquifers. The world has a large amount of ground and surface water but only a small percentage of this amount is renewable while the larger percentage is finite and depletable, and this sets the potential for the scarcity of the resource.
The current allocation is based on the traditional riparian rights and later, the prior appropriation policy where the government played a minimal role in the allocation of water resources. Currently, the government is very active in the allocation of water through constructing inland waterways, dams, and provision of marketable water. However, this system of allocation is inefficient because it is based on the traditional setting that does not emphasize on using water based on its highest value for use. It restricts transfers and this causes a ripple effect that does not equalize the marginal benefits across all water uses (Tietenberg & Lewis, 2018). The allocation system is poorly constructed where it allocates more water to uses that have low net benefits as opposed to uses that have higher net benefits due to transferability inhibitions. The system, coupled with projects that have lower net benefits such as reclamation projects, water pricing doctrines, and common property issues further threaten sustainable water usage. However, it is possible to remedy the existing situation through minimizing the number of prohibitions on water transfer to ensure that it is allocated to high-value uses, establishing instream flow rights to ensure that such waters are not diverted to consumption purposes, and revising the current pricing system to incorporate the marginal costs involved in distributing water to households to change the notion that water is a free good.
Land
Land is a part and parcel of the human soul and provides a habitat for every terrestrial creature. It is a fixed resource whose value depends on its location and its supply serves a variety of contagious uses. Land is basically treated as private property and market allocations play a major role in determining whether it is allocated for socially-desirable purposes. Currently, land is allocated based on whether it is used for residential use, agriculture, or wilderness. residential allocations attract a high value while wilderness occupies the lowest land-usage value (Tietenberg & Lewis, 2018). The main inefficiencies of land allocation occur during land usage conversion as countries try to balance meeting the needs of high urbanization and feeding the growing population. Land use conversion leads to leapfrogging and sprawling that creates massive environmental problems. Other inefficiencies that arise due this allocation method include incompatible land usage, negative environmental amenities, market power, rigid taxation system that hinders land conversion, and ineffective government policies. It is important to come up with innovative ways of addressing these inefficiencies to enhance sustainable land use. These measures include developing appropriate property rights, development rights, conservation banking, and coming up with appropriate policies that advance individual as well as conservation rights in a manner that benefits the whole ecosystem.
Agriculture
Agriculture is at the core of meeting today and future food needs but a large number of people remain underfed or starved. Global scarcity of food arises due to the fact that the population is growing that increase the demand for food and agriculture occurs on a fixed resource namely land (Gopal, 2016). The amount of arable land is fixed and the demand for food continues to increase, thus setting a real scenario of food scarcity. The problem is compounded by rising poverty levels where the poor cannot meet the cost of food. Thus, it is crucial for developed and developing countries to come up with collaborative efforts to combat the problem. Developing nations should work towards increasing food production with the assistance of developed countries who should share food production technology and allow such countries to enter their markets. Developing countries should also adopt favorable pricing policies that promotes output. The poor should be allowed to access employment opportunities that will ensure that they meet food costs. Countries should also have adequate food stockpiles to enhance global food security.
Forests
Forests are a vital resource that promotes the production of various goods and services such as fuel, housing, air purification, and wood products, among others. It is easy to overlook the benefits of forests in the economy because they cover large land masses, and this leads to massive deforestation without considering that trees take a long time to mature and make a forest. Forests, or trees are a unique economic resource because they can be harvested immediately and be utilized as capital goods or be allowed to grow further in the subsequent years where they increase their value and utility (Yearley, 2018). It is difficult to establish efficient allocation on forests because trees take a long time to mature. It is difficult to establish when it is the most optimal time to harvest trees and this limits their efficient allocation. The landowner faces perverse incentives that often lead to unsustainable outcomes and threaten biodiversity. In addition, nations face perverse incentives that limits their allocation efficiency allocation including the need to address climate change and biodiversity while sustaining production needs (Tietenberg & Lewis, 2018). Poor people view forests as unclaimed land that can turn them into landowners, and this increases pressure on the existing forests. Nations and landowners should adopt models of sustainable forestry to avert a scenario of future scarcity through making harvesting decisions based on maximum benefits, replanting the cut trees to ensure perpetual continuity, and planting species that grow rapidly. Countries should also incentivize forest restoration efforts, minimize land given out to squatters, and uphold the rights of the indigenous population.
Conclusion
Proper allocation and management of natural resources plays a major role in the development of sustainable economies. Unless the society takes appropriate measures to allocate its natural resources properly, it is carving its path towards self-destruction. Economic models are an important resource that will help in current allocation to ensure that we maintain our natural resources for the future generations. Our important resources that include Water, land, agriculture, and forests are being allocated in an inappropriate manner that threatens economic sustainability and threatens our survival. Hence, it is important to adopt adequate measures to enhance their allocation to promote sustainable development for now and in future.
References
Callan, S. J., & Thomas, J. M. (2013). Environmental economics and management: Theory, policy, and applications. Cengage Learning.
Gopal, B. (2016). A conceptual framework for environmental flows assessment based on ecosystem services and their economic valuation. Ecosystem Services, 21, 53-58.
Rarick, C. A., & Feldman, L. S. (2008). Patagonia: Climbing to new highs with a smaller carbon footprint. Journal of the International Academy for Case Studies, 14(7), 121-124.
Tietenberg, T. H., & Lewis, L. (2018). Environmental and natural resource economics. Routledge.
Yearley, S. (2018). Economic Valuation of the Environment. In Environment and Society (pp. 143-165). Palgrave Macmillan, Cham.