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The Economics of Environmental Quality¹

ABSTRACT

The economics of environmental quality is characterized in two dimensions. These are resource allocation and income distribution. The optimum allocation of resources leads to economic efficiency. Environmental problems that involve externalities may involve resource use at less than optimal economic efficiency and suggest a need for reallocation. Externalities result from jointness of production of "goods" and "bads" and from the end products of consumption and persist due to market failure. As resources are reallocated to improve environment quality, the relative prices of resources are shifted which can result in changing incomes for resource owners. This redistribution of income is related to property rights and will be opposed by those whose rights are restricted. People are more concerned about income distribution than optimal resource allocation. Externalities can be internalized and economists should outline the consequences of various alternatives for efficiency and income distribution.

Key Words: resource allocation • income distribution

¹ Contribution of Missouri Agr. Exp. Sta. Journal Series No. 6518.

² Associate Professor, Dep. of Agricultural Economics, Univ. of Missouri, Columbia.

Received for publication February 10, 1972.

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