The Effects of Welfare Economics on the Environment



 Over the past, economic goals have conflicted with the goals of preserving the environment for the benefit of the future generation. In most cases, economic policies have neglected the management of some resources and public goods. This has led to the emergence of unregulated markets that have created negative aspects to the society. The environmental issues brought by microeconomic policies have been examined through environmental and ecological economics. Environmental economics has been concerned with the traditional economic insights to the environment. The desire to increase economic growth has resulted in overexploitation of natural capital, which has proven to be a threat to the environment.



 The primary objective of this paper is to discuss the threats of welfare economics as a branch of microeconomics to the environment so that appropriate policies can be implemented to ensure that as the countries strive to grow economically, the impacts of the decisions made should have minimal effects to the environment.


 The effective methodology for the study is the use of secondary sources of information such as books, articles, newspapers, and other published resources. This is advantageous because most of these sources are readily available and accessible through the internet, which is the most convenient and standardized source of secondary information. Furthermore, secondary sources are effective in clarifying the objectives of a research because it is always used prior to past field studies and they assist in clarifying the focus of a research. Moreover, secondary research is cheaper compared to primary research because it does not require costs similar to those incurred in primary research through field visits and analysis of data to draw relevant conclusions. This is despite the fact that the origins of the secondary sources are often questionable.

 Findings and observations

 From the environmentalist point of view, the goal is to protect the environment and ensure that it is free from damages to the regenerative function that it serves. Thus, environmental policy is aimed at ensuring that ecosystems are sustainable. From the microeconomics point of view, the major concern is the effects of the environment on the wellbeing of humans. Specifically, welfare economics is concerned with the well-being of humans. Over the past, welfare economics has been advancing and the process has had several implications for the environment. The literature on the valuation of the environment has been concerned with sustainability and the environmental economists have constantly invoked the concept of producer price index (PPI) (Gowdy, 2004).

 The policies on strategies of dealing with climate change have been evaluated by comparing “before” and “after” effects of the economic output of the world. The application of the PPI concept reveals that certain environmental protection policies are expensive from the consumer point of view. Welfare economics stresses on cost effectiveness. However, policy makers have proved that aggressive policies for the protection of the environment are not cost effective. Thus, the major impact of welfare economics on the environment is that it discourages the implementation of policies and programs that are effective in tackling the problems affecting it (Gowdy, 2004).

 Based on the change of human behaviors for the conservation of the environment, it has been shown through welfare economics that people prefer what they have to what they do not have. Numerous experiments have shown that even though some practices may be harmful to the environment, people value the losses than what they would gain if they were to give up what they have and acquire new environmental friendly items. This also shows the effects of welfare economics on the environment. It conflicts with the goal of changing behaviors for the protection and preservation of the environment (Gowdy, 2004).

 The standard theory of economics states that people make choices after weighing them using the criteria for welfare maximization. However, this has been contradicted through various studies. Individual consumers are not calculators who can perform the cost-benefit analysis and change their behaviors according to the environmental conditions that are constantly changing due to human activities. Cultural transmission can be used to make good transitions when respected consumers change their behaviors and begin acting with environmental preservation on their mind. The other members of the society can imitate such people; thus, ensuring that environmental preservation is established (Gowdy, 2004).

 If standard theory was to be applied, policies can be designed based on the maximization of welfare. The designed policies can be destructive to the environment because the costs of environmental preservation may be higher than the benefits due to the existence of externalities that are always associated with the free rider problem. The adoption of an innovation in the absence of the principles of welfare economics depends on how consumers conform to the patterns established in a community and not on the results of the cost-benefit analysis. Even though economists insist that incentive-based policies are the most effective, they can have adverse effects to the environment when people are discouraged from changing their behaviors due to the costs associated with it (Gowdy, 2004).

 Welfare economics further stresses on increased production and consumption. The stabilization of climate and the protection of the environment require decreases in the level of production and consumption. The emission of carbon gasses increase with increase in economic growth because higher income leads to increased level of consumption, which is associated with the increase in demand for carbon goods. However, the analysts in favor of market-based policies have argued that the growth of the economy should be declined for sustainability to be achieved. Their arguments have been based on the idea that the production of goods requires the utilization of energy and reducing the use of energy for the sake of the environment would reduce economic growth (Howarth, 2012).

 Such claims have policy implications. The literatures from the past studies have shown that there are complex relationships between the environment and welfare economics. A study by USEIA found that the goals of the protection of the environment could be achieved at lower costs though well designed policies. A review on climate change showed that reducing carbon emissions could be effective in reducing global warming. However, economists have continuously insisted on increased consumption at the household level to facilitate economic growth. Based on the fact that economic growth is associated with the increased demand for carbon goods, it is clear that welfare economics is concerned with the degradation of the environment (Howarth, 2012).

 Moreover, the protection and conservation of the environment requires the regulation of the use of resources. However, regulation has effects on the competitiveness of firms. The effects may take two forms. The first one is that the effect of the nature of a firm is welfare losses such as the loss of monopoly power, which gives most firms a competitive advantage. Furthermore, regulation can affect the cost of inputs and if the same regulations are not applied to other competitors in the global markets, the firms in one country may become less competitive. Consequently, the revenues generated by such firms to the government would decline; thus, reducing the rate of growth of the economy. According to the principles of economics, the profitability of firms and their growth depends on their competitiveness. For firms to be competitive; resources need not to be regulated and this can result in resource exploitations, which are harmful to the environment (Arkinson & Mourato, 2006).

 Welfare economics also insists on the principle of full employment of resources such as land, labor, entrepreneurship, and capital. The level of employment of resources depends on the nature of the economy. Even though economies with underemployment of resources are more sustainable compared to those with full employment, welfare economics has always been aimed at reducing the levels of unemployment of resources. The more the resources are employed in the economy, the lower the levels of sustainability. This reveals how welfare economics leads to the degradation of the environment (Arkinson & Mourato, 2006).


 Welfare economics is a branch of microeconomics, which has various effects to the environment. It is concerned with full employment of resources, economic growth, and the well-being of consumers. The implementation of policies to achieve the objectives of welfare economics has always had negative impacts to the environment. From the environmental point of view, some policies of welfare economics are ineffective. This shows that welfare economics leads to the degradation of the environment.