Environmental Economics

The subdisciplines of natural resource economics and environmental economics have different origins in what can be described as modern mainstream economics. Natural resource economics emerged mainly from neoclassical economics; environmental economics emerged out of welfare economics and the study of market failure. It may be necessary to recall that the original neoclassical growth function did not include land or natural resources but focused exclusively on labor and capital. As part of economic theory, and as described by William J. Baumol, welfare economics investigates the nature of policy recommendations made by economists.

Two basic concepts lie at the core of welfare economics, namely the concept of efficiency and optimality. Both efficiency and optimality relate to the problem of allocation. Allocation issues may be institutionally addressed by the ...