Environmental Engineering Reference
In-Depth Information
that the current policy of continuing fire suppression with limited treatments is both
ecologically and economically irrational.
Why are we behaving so irrationally? We can attribute some of the irrationality of
public policy to institutional barriers and politics of interests that prevent us from act-
ing rationally as a group. Additionally, behavioral economists have long argued that
the unbounded rationality assumption is at odds with empirically observed human be-
havior (Gowdy 2004). In laboratory and field experiments, individuals demonstrate
“targeting” or “satisficing” behaviors (choosing an option that is good enough) instead
of “maximizing” behaviors (choosing the option that would give maximum satisfac-
tion). There are many possible reasons for this bounded rationality. Mainstream econ-
omists tend to attribute the observed behavioral anomalies to cost-effective strategies
for minimizing the costs of information gathering, transaction and commitment, re-
sulting from uncertainty, irreversibility, and limited learning opportunities. However,
many behavioral economists argue that there are fundamental biases in the human
psyche that place bounds on rationality. For example, individuals place greater value
on preventing the loss of what they already have than on potential gain (endowment
effects). Humans also tend to prefer the status quo over change (status quo bias or in-
ertia in behavior) and respond to a kindness or meanness of others with matching acts
(reciprocal behaviors) (Venkatachalam 2008). The concept of bounded rationality
helps us understand irrationality (and resistance toward ecological restoration), and
suggests ways to counteract our collective inertia.
MARGINALISM
Marginalism is another premise of neoclassical economic analysis. In many situations
in life, decisions are not about having all or nothing, but about making small incre-
mental changes. Comparing marginal benefits and marginal costs helps us evaluate
the trade-offs of having one more widget. The intensity of wants and needs for each
good declines as we acquire more units of the good, which is the economic principle of
diminishing marginal utility. In this framework, the economic value of each good is de-
termined by its utility and abundance/scarcity. Thus, the classic paradox of economic
value was born: water versus diamonds. This means that until a valuable ecosystem ser-
vice hits a critical threshold, its economic value is determined by its scarcity rather than
its innate importance in sustaining our lives.
However, because substitutability is assumed, scarcity is only evaluated in relative
terms. If we can ignore the limits of economic activities imposed by ecosystems (i.e.,
absolute scarcity), evaluating marginal benefits and marginal costs based on relative
scarcity would be perfectly valid in deriving important decisions in our personal or col-
lective lives. Anyone with an anthropocentric view could agree nothing should be
wasted and everything should be used to maximize our utility. Nobel Laureate econo-
mist Robert Solow once stated, “If it is very easy to substitute other factors for natural re-
sources, then there is in principle no 'problem.' The world can, in effect, get along
without natural resources, so exhaustion is just an event, not a catastrophe” (1974, 11).
Ecological economists have been arguing that the concept of scale and limits should be
