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invalidate the physical scarcity hypothesis. In fact, markets ignore objective phy-
sical scarcity as long as the availability of goods is guaranteed something which
is typified by the statement “only cost and price matter” (Adelman, 1993). This
message contrasts with the old classical economists one from Jevons, Malthus or
Ricardo (with their law of diminishing returns).
A contrary point of view from that of Barnett and Morse (1963) is that of
Krautkraemer (2005), who argued in Scarcity and Growth Revisited that extrac-
tion cost is an inherently static measure; it does not capture future effects that
are important indicators of natural resource scarcity. In addition, when extrac-
tion cost provides information it only considers the supply side. If demand grows
more rapidly than extraction costs decline, then they will give a false indication of
decreasing scarcity (the opposite is also true). Furthermore, extraction costs are
subject to technological learning curves and in-situ political, social and environ-
mental disturbances.
Likewise, different authors such as Ruth (1993) or Reynolds (1999) claim that
scarcity is rarely reflected in prices. This assertion is contrary to Fisher (1979) who
states that prices “summarise the sacrifices, direct and indirect, made to obtain
a unit of the resource”. However, according to Ruth (1993), for this to be accu-
rate, markets must be e
cient and preferences of current and future generations
have to be anticipated. Additionally, current and future technologies must be fully
described. Prices instead reflect the incomplete description of current technologies,
preferences of present generations and current institutional settings. In this respect,
Reynolds (1999) shows that it is possible to have several years of increasing produc-
tion simultaneously with lower prices and costs only to experience suddenly a sharp
increase of prices together with a large cut in production as the resource nears its
commercial end.
Such phenomena probably occur because a commodity's price is more related
to a perceived rather than an objective physical scarcity. That is to say that price
will tend to be stable regardless of the information available pertaining to its real
physical scarcity. To use a well-known example, the price of oil throughout the last
fifty years has fluctuated more intensively as a consequence to political instabilities
rather than to any objective measurements.
2.4.3 The environmental economists' approach
The school of environmental economists was born in the 1950s out of the shadow
of political concern about the future supply of minerals, energy and agricultural re-
sources due to the high demands caused by the Second World War (Pearce, 2002).
Resources for the Future, RFF, was founded in 1952 as a research organisation
to promote discussion about environmental concerns in economic science, amongst
others. The concept of assessing costs of environmental externalities, developed in
its early stages by Pigou (1920), was used by the organisation to analyse negative en-
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