The Government, Environmental Policy and Business: Questions for Thought

For students applying for an Economics or Social Sciences degree, it is important to understand the linkages between adjacent fields. The following questions were asked to an Economics candidate at Cambridge during his interview. In this Curious Economics Minds digest, we encourage you to interrogate and explore the following questions in detail, thinking about how Governments, Environmental Policy, and Business intertwine.

Question 1: Why is the environment and sustainable development an economic issue?

The subject of environmental degradation is clearly within the realms of economics since it is a direct consequence of production and consumption decisions. Can you think of some specific examples?

Question 2: What forms of economic analysis need to go into environmental policy making?

In order to ensure that the environment is taken sufficiently into account by both firms and consumers, the government must intervene with an appropriate environmental policy. Such policies will involve measures to ensure that at least a specified minimum level of environmental quality is achieved. How can economic analysis aid in this process? Ideally the policy would ensure that all externalities are fully internalised. Firms and consumers should be forced to pay the full costs of production or consumption i.e. their marginal private costs, plus any external costs.

N.B. This form of question often comes up in Oxbridge Economics Interviews! It is crucial that you are comfortable producing diagrammatic illustrations.

Question 3: What are the problems with policy intervention?

One must think about:

1. Valuing the environment

   • If policy is based upon the principle that the polluter pays, then an accurate assessment of pollution costs is vital if the policy is to establish a socially efficient level of production.

2. Spatial issues

   • The place where pollution is produced and the places where it is deposited may be geographically very far apart. Think about it: pollution crosses borders e.g. the impact of greenhouse gases is global.

   • National policies may therefore be of little value, especially if you are a receiver of other's pollution. In such cases international agreements are needed but are difficult to reach.

3. Temporal issues

   • The full effect of pollution on the environment may be identifiable only in the long term. Policy initiatives therefore need to be forward looking and proactive, if the cummulative effects of pollution are to be avoided.

   • Most policy tend to be reactive however, dealing only with problems as they arise. In such cases, damage to the environment may have already been done.

4. Irreversibility issues

Thinking Task

Sub-questions for thought:

• Why does a lack of coherence in environmental matters harm global and environmental governance?

• Is it too late to form a World Environmental Organisation (WEO)?

• What would the WEO have to look like?

---

Are you considering an Economics or Social Science degree?

• We are hosting an Economics Summer School for university applicants from June-August: With MU’s Economics experts, all educated at either Oxford or Cambridge, you will engage in critical issues within the field

• Check out our range of Economics masterclasses and research projects

• Looking for an Oxbridge-educated Economics application mentor? Our on-curriculum division, U2 Tuition, offers application support for all components. Also check out our articles on Preparing for Economics at university, particularly Oxbridge!