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On the Increasing Role of Economic Research in Management of Resources and Protection of the Environment


  • William J. Baumol

    () (Professor and Academic Director, Berkley Center for Entrepreneurship and Innovation, Stern School of Business, New York University, New York, NY 10012
    Professor Emeritus, Department of Economics, Princeton University, Princeton, New Jersey 08544)


This paper follows precedent in mixing substantive matters related to resource and environmental economics with an autobiographical framework. Unavoidably, this pushes the contents toward my own contributions to the field—especially those that, in my belief, have not received the attention they merit. After following precedent and beginning with some words on my origins and my subsequent affiliations, I focus on several examples showing how economic analysis has helped to illuminate this subject that is so critical for the general welfare. I begin with the origins of our understanding of externalities and their increasing role in the literature on the subjects under discussion here. Second, I turn to the issue of effective policy measures and the political obstacles that impede their adoption. As part of this, I discuss markets in emission permits as a way to make the Pigouvian taxation approach more palatable. I show that these two are basically equivalent, but the same is not true of the carrot and the stick approaches—i.e., taxes on emissions and subsidy rewards for reducing such environmental damage. Third, I use a Leontief approach to show how the benefits of the use of substitutes for scarce resources are commonly exaggerated and can inadvertently hasten depletion of a scarce resource, despite appearing to contribute to preservation. Finally, I turn to as-yet-unpublished material, which shows that the cost disease model I have used to account for the persistent, cumulative, and rapid rise in the real cost of activities such as health care, education, and the performing arts also describes and explains the pecuniary source of much of the threat that currently besets the environment—paradoxically doing so through the decreasing real costs of other products that are an inescapable companion to the rising costs that beset other economic activities.

Suggested Citation

  • William J. Baumol, 2010. "On the Increasing Role of Economic Research in Management of Resources and Protection of the Environment," Annual Review of Resource Economics, Annual Reviews, vol. 2(1), pages 1-11, October.
  • Handle: RePEc:anr:reseco:v:2:y:2010:p:1-11

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    JEL classification:

    • A11 - General Economics and Teaching - - General Economics - - - Role of Economics; Role of Economists
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy


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