The Role of Natural Capital in Economic Decision-Making Research Paper

The Role of Natural Capital in Economic Decision-Making
An in-depth analysis of the relationship between ecological resources and economics.
# 129098 | 7,679 words | 25 sources | APA | 2009 | US

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This paper attempts to disentangle some of the issues involved in the relationships between ecological resources and economics. Specifically, it provides an analytical framework through which the role of natural capital in economic performance may be assessed. The paper begins by providing a contextual conceptualization of the term natural capital. It then examines the concept of natural capital within the context of the market framework, employing the rational choice perspective. This section details the function of market failures in an ecological economic framework and then provides several theoretical mechanisms through which the role of natural capital in economic performance may be analyzed. The third section discusses strategies that may be employed to determine the value of economic services, including valuation and willingness to pay (WTP), the safe minimum standard approach (SMS), and other green accounting and investment practices. The final section details an ecological perspective - somewhat more critical in nature than the traditional market perspective - on the role of natural capital in economic decision-making. This section includes discussions on industrialization and sustainability, the latter of which incorporates notions of intergenerational equity, uncertainty and irreversibility, and substitution.

Contextual Conceptualization of Natural Capital
Natural Capital Within the Market Framework
The Valuation of Natural Capital
An Ecological Perspective of the Role of Natural Capital in Economic Decision-Making and Progress

From the Paper:

" Markets involve the allocation of scarce resources. They assume that there is competition (i.e., no monopolies), that there is symmetric information on the part of both parties involved in the transaction, that there are no impacts on parties not involved in the transaction (externalities), and that the goods being exchanged are rivalrous (not accessible to everyone) and excludable (their consumption by one minimizes others' ability to consume). A violation of one of these assumptions is known as a market failure. The market framework assumes that individuals are utility-maximizing--that is, they are rational beings who will choose the means that they believe will lead to desired outcomes (Shepsle & Bonchek, 1997). Turner and Daily (2007), among others, have challenged a strict interpretation of the utilitarian perspective. Turner and Daily (2007) found that citizens in Napa, California favored an ecosystem approach over a physical capital approach to resolve a water quality issue, even though they had to pay for it and it was more expensive than the physical capital approach. The citizens made this choice because they anticipated the long-terms benefits of the ecological approach, including the restoration of fish; aesthetic enhancement; and opportunities for recreation, tourism, and commerce. Their findings, along with results from similar studies suggest that, when it comes to making socially and environmentally conscious decisions, if people are well-informed, they often are willing to accept the additional costs associated with social and environmental causes."

Sample of Sources Used:

  • Bishop, R.C. 1978. Endangered species and uncertainty: The economics of a Safe Minimum Standard. American Journal of Agricultural Economics, 60, 1, 10-18.
  • Ciriacy-Wantrup, S.V. 1952. Resource conservation: Economics and policies. University of California Press: Berkeley.
  • Costanza, R. et al. 1997. The value of the world's ecosystem services and natural capital. Nature, 387, 253-260.
  • Crowe, J. 2008. The role of natural capital on the pursuit and implementation of economic development. Sociological Perspectives, 51,4, 827-851.
  • Daly, H.E. 1991. Towards and environmental macroeconomics. Land Economics, 67, 255-259.

Cite this Research Paper:

APA Format

The Role of Natural Capital in Economic Decision-Making (2010, August 31) Retrieved March 04, 2024, from

MLA Format

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