Misestimating of environmental values can impair economic growth

Abstract

One of the reasons why environment is seldom considered in policy appraisal stems from the fact that environmental goods and services are not marketed and therefore do not have prices that can be comparable with development costs and benefits. Economic theory explains the absence of markets for these goods and services with the market and policy failure arguments. The dominant economic theory maintains that free and perfectly competitive markets will lead to optimal allocation of resources, including environmental goods and services, or to economic efficiency. Market failures are defined as those circumstances that prevent the perfect competition, and therefore economic efficiency, from being achieved. The major sources of market failures related to natural resources are externalities; public goods; property rights; ignorance and uncertainty; short-sightedness; and irreversibility. This paper discusses these market failures reasons and tries to give some examples of the existence of these reasons in Palestine, and how to overcome them