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Where neoclassical economics fails the environment

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Please cite the following paper as:
Aart R. G. Heesterman, (2012), Where neoclassical economics fails the environment, World Economics Association (WEA), Conferences, 2012, Sustainability – Missing Points in the Development Dialogue, n. 2: 24th September to 21st October, 2012.


This paper surveys the points where economics, as conventionally understood and taught, leads to conclusions which are less than helpful in relation to environmental policy decisions, with particular reference to the urgent problem of climate change. In particular, the fact that there is great danger that global warming could pass a ‘tipping point’ where it could run out of control in self-enhancing feedback. It is clearly difficult to integrate moral considerations in relation both to successor generations and populations already suffering from adverse weather events, associated with climate change, within any formal economic theory framework. However, the doctrine of discounting the value of the future, known as cost benefit analysis, is flawed in its own terms. The second point is the professions inability to face the urgency of the income distribution side of carbon pricing. In addition, the current reality is that a large scale investment program in renewable energy generation capacity, would actually support the stability of the market economy as a Keynesian prescription.


One comment submitted:

  • The contribution of neoclassical economics in augmenting the issues of growth and scarcity is very important in promotion of economics as a subject. The real propagation of scarcity versus abundance creates a contemporary verdict of selection of goods and services. As the author mentions about the determination of rate of interest, the price structure, constant returns to scale, inequality etc., are all not only related to the economic factors, but also non-economic, but materialistic attitudes. In fact, the neoclassical approach clearly shown the light on which the ‘equilibrium’ models should be built. Altogether, the paper depicts the reality of reorientation of neoclassical school to the present day world. A new experience of reading the paper.

    Comment by Dr. R. Shashi Kumar at