Knowledge that Transforms

The recent article in this Review by Anthony Fisher, John Krutilla, and Charles Cicchetti (F-K-C) is an important step towards the development of a general method of analysis of the economics of environmental preservation. They are also commended for their attempt to adapt their model to the investigation of an important environmental policy question concerning the advisability of hydroelectric development in the Hells Canyon region of the Snake River. We feel, however, there is room for improvement in their theoretical models and perhaps in the presentation of empirical results. Sections I and II of their article consist of the development of an allocation model of some degree of sophistication from which some general conclusions are drawn which are not necessarily true. For instance, in Section I, it is stated that .... the marginal opportunity costs of development, the benefits from preservation, are increasing as development increases (p. 607). This certainly follows from the assumptions upon which their model is based; i.e., from their assumptions it follows BPD>0. It is not completely relevant, however, for as their later analysis indicates, the important question is what happens to total benefits rather than marginal. With respect to the portion of Hells Canyon in question, the present level of developed area is very small. Since almost all of the area is in a preserved state, i.e., P_L their assumptions BD> 0 and BDD <0 imply the marginal benefits of development are relatively large. Thus in seeking an optimal allocation of the land between preservation and development, we would seek to increase marginal benefits from preservation and decrease marginal benefits from development. Thus we would seek to increase the developed area D. We might also point out an undeveloped Hells Canyon may be so unique a natural resource that, as F-K-C suggest, there are no adequate substitutes of like quality and as such their procedures are justified. In general, however, we should note theirs is basically a suboptimization procedure in it isolates its analysis upon a single area without regard to other areas. Thus, if such a method were to be used in a piecemeal area by area decision process, the end result may be far from optimnal for the total environment. In Section II, F-K-C use the concept of total benefits and conclude . . as benefits from preservation increase relative to benefits from development, the optimal short-run level of development D*(t) decreases (p. 611). The justification for this statement is provided in their footnote 17. There they correctly derive the relation

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I shall begin this brief discussion of the policy issues of the 1970's by taking a look backward, rather than forward, reviewing some of the major issues of the I should have raised were I speaking in the early 1950's instead of the early 1970's. With perfect foresight, I would, of course, have mentioned the issue of economic growth, clearly visible as the central thrust of all the advanced industrial societies; the recalcitrant problem of inflation; the constraint of the environment as a wholly new and important element for both micro and macro policy; the difficulties implicit in Japan's remarkable reentry into the world economy; the emergence of the multinational corporation as a new agency for the conduct of international economic relationships; the problem of economic development, stubbornly resisting attempts to move traditional societies off dead center by the application of standard economic nostrums; and the problem of the dollar and what to do about it. Three aspects are common to all these future problems of the past. First, these are unmistakably economic, rather than political or sociological. Second, they are all deep-seated rather than accidental or superficial economic problems. Last, and most important, every one of these problems was invisible in the 1950's. In point of fact, had I really been holding forth on the outlook in the early 1950's, I doubt that I would have mentioned a single one of them. For in those earlier years, it was not growth but the threat of chronic recession that still absorbed the attention of the profession. Inflation was a matter on which no sessions were organized, because we knew that it could not occur as long as unemployment was 4 or 5 percent of the labor force. The Sierra Club may have been exercised over the deterioration of the environment, but not the American Economic Association. No one had heard of the multinational corporation. Japan was considered by all to be a hopeless economic invalid. The prevailing attitude toward economic growth in the less-developed countries was one of encouragement, not to say enthusiasm: I believe the 1950's were officially dubbed the Decade of Development. The problem of the dollar, you will remember, was that it was deemed to be in more or less permanent short supply. Now I do not mention this extraordinary myopia to take the profession to task. I raise it, rather, to inject a cautionary note in making our projections and predictions today. Like everyone else, I have my list of expected policy issues of the 1970's-a surprise-free list, in Herman Kahn's terminology. It includes the very problems I have just enumerated: growth, inflation, the environment, the multinationals, the failure of development, the international monetary situation. But I am moved to ask, reflecting on the past, whether this list of problems is likely to be as miscon* Norman Thomas Professor, New School for Social Research.