CLEMENT A. TISDELL
Today economists have considerable interest in environmental and natural resource economics. But the upsurge of this interest is relatively recent and dates approximately from the beginning of the 1970s. Before that time interest in environmental economics was slight; to the extent that it was discussed, it was as a special aspect of welfare economics ( Tisdell 1990a, chs. 2 and 3; Tisdell 1990b).
Economists recognized as an aspect of welfare economics that environmental externalities, spillovers, or side effects from economic activity could lead to market failure--that is, failure of a market economy (in which economic agents pursue their own self-interest) to promote maximum economic welfare. When an externality exists, the social cost of benefits of an activity differ from the private costs and benefits. For example, a company, which operates a factory polluting its neighborhood or contributing to acid rain and not compensating those adversely affected by its pollution, imposes a cost on others that is a part of the social cost of its operation. Ideally, from a social viewpoint, its spillover cost should be taken into account in determining its economic activity--that is, its level of production and the type of techniques that it uses, assuming that different techniques give rise to different degrees of pollution or environmental spillover. However, these spillover costs are not a part of the private costs of the company's operation.
If the company follows its own self-interest and, say, maximizes its profit, then it will not take into account the environmental costs____________________