Bio-asset portfolios

As environmental issues become ever more prominent in the political sphere and in the ensuing attempts at understanding and solving environmental problems, it is clear that money is an ever-increasing consideration. These two textbooks make significant contributions to the study of environmental economics. Both follow a similar pattern, starting with economic precepts followed by chapters that provide stimulating applications of theory and show how these principles can be used to address various pressing environmental problems.

Introduction to Environmental Economics attempts to show how economic concepts can aid in understanding the nature of environmental problems and considers ways in which such ideas can facilitate their solution. Nick Hanley, Jason Shogren and Ben White consider a wide range of applications including to transport, rainforests, water, climate change, biodiversity and energy resources. The analysis in The Economics of Nature: Managing Ecological Assets by Cornelis Van Kooten and Erwin Bulte revolves around the motif of society managing a portfolio of biological assets and examines the efficiency conditions under which investment in these assets would be beneficial to society. The authors consider this framework in the context of managing endangered species, tropical and temperate forests, and biodiversity.

The text by Hanley et al was mainly prepared for undergraduate students taking introductory courses in environmental economics. The use of mathematical exposition of economic ideas is kept to a minimum, relying instead on a more intuitive presentation coupled with numerous helpful illustrations and examples. These features, along with the book's assumption of minimal prior knowledge of economics, also make the book highly suitable for undergraduate students from other disciplines, such as geography, as well as graduate interdisciplinary courses such as development studies. The introduction benefits from suggestions for further reading at the end of each chapter, making it a useful companion for students and instructors.

The exposition in the volume by van Kooten and Bulte is equally endowed with intuitive appeal and illuminated with a multitude of examples. But it follows a much more analytical approach, including topics that utilise dynamic optimisation and optimal control theory, and therefore would be best appreciated by graduate students taking courses in environmental, natural resource and forestry economics. Yet, the gist of the ideas developed along with the less technical chapters, such as those on project valuation, sustainable development and the applications in biological diversity and forest management, would be highly beneficial to senior-level undergraduates as well.

Both texts would serve as effective reference manuals to researchers and policy experts. The chapters on the principles of environmental and natural resource economics cover territories found in most comparable textbooks. But their overall exposition is refreshingly more critical and balanced than most, including the ecological, ethical and political dimensions and arguments regarding their economic analyses. Whereas in Hanley et al there is a discussion of non-economic-sustainability indicators, in van Kooten and Bulte we are introduced to "fussy logic" in the discussion of contingent valuation.

The textbooks are unusually novel in many more ways. Hanley et al include separate chapters on risk and game theory - a rarity in similar introductory-level textbooks - signalling the importance the authors attach to understanding uncertainty and strategic interaction between agents. The inclusion of a separate chapter on trade is equally noteworthy. Finally, a distinguishing feature is that the book allocates separate chapters to only the most fundamental economic concepts of environmental economics and then discusses other more involved topics within the application chapters. For example, an adequate introductory understanding of non-renewable resource economics can be found in the chapter on energy, while tradable permits are discussed in the chapter on managing water pollution.

Van Kooten and Bulte's text is perhaps unique in providing comprehensive coverage of the fundamentals of environmental and natural resource economics at such an in-depth level. The text also includes three chapters on the basic micro-economic and welfare principles used in cost-benefit analysis. Another chapter reviews the concept of rent, offering a useful taxonomy and clarification of various definitions since Ricardo, as well as looking at the theory of rent capture. Such thorough coverage was missing from other graduate texts in environmental economics.

Finally, the chapters on managing tropical and temperate forests are exceptionally thorough and well documented, providing a self-contained reference manual on forest management.

Both texts are essential readings for students, researchers and policy experts who wish to examine how economic reasoning can address contemporary environmental issues, albeit operating at different depths of analysis.

Andreas Kontoleon is research fellow, centre for social and economic research on the global environment, University College London.