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[Chapter 4 - Accounting for decision making]

Accounting for environmental decision making:

Chapter 5

Environmental decision making


5. Environmental decision making

Arnold and Hope (1990) define the managers rôle as:
1. to satisfy their own expectations, ensure rewards > contributions.
2.to keep all other participant groups happy to maintain viability of organisation.
They say that a managers ability to achieve 1. will depend in part on success in achieving 2. We are managers of the Earth's resources because our actions use these resources and convert them into other forms. As managers, our ability to achieve profitable or business, economy, or society is dependent on our ability to maintain the viability of the Earth. Whether our actions have an affect on the viability of the Earth is a question for debate (Beckerman 1995, Simon 1996), but they may have an affect on society and hence the economy. Hamer (1996), using the work of David Pearce says that "sickness, deaths and lost working days caused by particulate pollution cost the country [Britain] £17 billion a year." I will take the view that our actions can affect the viability of the Earth as a home for homo sapiens. This view is based on an extrapolation from the fact that, in order to be economically or biological useful, our actions must at least change our local environment. I am more optimistic about the ability of other organisms to survive any eco-collapse, particularly some of the more exotic forms of bacteria. This is little consolation for those of us that find our fellow humans interesting and sometimes astonishing.

A manager's job has always been complicated by trying to distinguish between what is controllable and what is uncontrollable (Arnold & Hope 1990). In an environmental context this is complicated by many factors, in particular I will concentrate on two. Conflicts between our actions and the actions of other decision makers, and uncertainty as to the results of actions. To some extent the factors overlap, other decision makers create a source of uncertainty as to their actions. If communication is possible, some uncertainty may be reduced, but communication is not always possible.

Problems of conflict: Sources of value

What is source of economic value? To some, value is best expressed by the differences between marginal products of cost and demand for goods (Hicks 1946, Bryer 1994, El Serafy 1991). To others, value is the result of work or labour inputs into the production process (Marx 1976, Odum 1996). What implications for the environment do these two positions create. In marginalist theories, demand has no check, unless production costs become higher than willingness to pay. The demand for dodo meat as a source of food for sailors resulted in its extinction as the increasing costs of hunting the last animals did not overtake the demand. Labour sources of value generally ignore the inputs required to support labour, i.e. food and air. Food being valued on the amount of human work require to produce it, and air generally considered a free good.

If there is such a thing as environmental capital (Ekins & Max-Neef 1992, Ekins 1994), and environmental capital supports the production of economic value, there are two questions. How much input does environmental capital contribute to the production of value, and does this capital have other functions? The first question is difficult to assess, and is linked with ideas of entropy and the current level of technology (Georgescu-Roegen 1971, 1979, Daly 1991, Young 1994). We can calculate more easily the amounts of resources we use, but not their economic value.

The second question, does environmental capital have other functions, must be looked at carefully. Environmental capital finances other processes: life-support processes, regeneration and recycling processes. In the case of renewable resources is there a sustainable level of use? The quick answer is obviously yes. Our planet has been around for billions of years, within this time hundreds of organisms have used the environment for their own internal 'economies'. This fact on its own is not very helpful. It tells that there is sustainable level of use but not what that level is. It doesn't tell us whether it is possible to know that level accurately enough to be of some help in assigning resource allocations.

Part of our problem is to try to calculate how many resources should by allocated to the environment for the upkeep of its functions. This would seem to be a answer of degrees, the less resources allocated to the environment, the more uncertainty would be the prospect of sustainability. The whole of economics is about efficient allocation of resources so we should expect some useful answers to this problem from economists. There is also the scientific angle, that we can investigate environmental functions to find what types of resources they need, want quantities, etc. Here we come across another problem, scientific data is used to handling and quantifying some types of uncertainty. Compared to our perception of economic realities, the danger of environmental collapse seems vague and to long term to be able dealt with in the same frame of reference.

Another part of the problem is the global nature of the environment, how can we measure its sustainability when the Earth as a system has always been sustained. We can compartmentalise into local systems and consider their individual sustainability, but the Earth is not naturally compartmentalised. We always have to deal with the effects of outside influences.

External uncertainty: Measurements

Environmental systems are often complex and it is difficult to know what properties of the environment are relevant to the actions we want to take and the results we want to achieve. We have a problem when trying to model complex situations. Models abstract processes from environment, which means it can often be very difficult to relate these models back to measurable quantities of reality. Additional adjustments of measurable quantities are usually needed in order to allow the models to make quantitative rather than qualitative predictions.

Hannon (1991) investigated the use of an ecological accounting system to handle material, energy and information flows within an ecosystem. This work was mainly to integrate information about ecosystems that had been available due to the work of ecologists, but had been collected with differing methods and criteria. He notes that this work could be extended to include economic inputs and outputs from and ecosystem so that "the economic values of the ecosystems services to the economy could be estimated" (Hannon ,1991, p.250). Hannon's approach is to try to put all this diverse data into a common framework to ease the task of describing ecosystems. He notes analogously, that in biology the use of the hierarchical classification system of organisms advanced the discipline enormously. Although it must be pointed out that this in some ways was due to the congruence between the methodology and the underlying nature of genetic heredity. Conversely, uncertainty underlies ecology.

The down side of using measurables is that important factors may not be measurable. Vital environmental functions may be impossible to quantify and therefore be unrepresented within an accounting system. This can lead to knowledge loss. Example function of forests in providing water, air, food and soil (Shiva 1993). This can lead to an undervaluing of the benefits maintaining areas of standing forest. Månsson and McGlade ( 1993) state that there is a "fundamental problem of trying to describe ecosystems in a framework which has a one-dimensional currency." Market structure may therefore be inefficient at dealing with natural resource allocations due to a one-dimensional framework of value.

Internal uncertainty: Monopolising the environment

Actions, to be economically or biologically useful, must at least change their local environment. For example, respiration requires the extraction of oxygen from the surrounding air and its replacement with carbon dioxide. How these actions affect the global environment brings another dimension to the problem. Diffusion and mixing of gases in the air is usually quite rapid due the relative volume involved. Other actions in the same environment involve reverse processes, photosynthesis replacing carbon dioxide with oxygen. However, not all of our actions are so quickly remediated, in forestry, for example, the typical time scale for a tree to regrow to a commercially useful size is on the order of decades (Shiva 1993).

For sustainability, remedial actions must be accounted for in the values of a resource. As long as results of all actions are contained locally it may be possible for well-specified property rights to internalise all of the value of a resource to a single rational agent (Anderson & Leal 1991). Diffusion makes this unlikely in practice. Different diffusion properties in air, water and land, and for different substances disperse value across many different agents.

Global sustainability may be thought of a more of a process conservation idea. As long as all processes are maintained, it does not matter where these processes occur spatially (of course some spatial patterns of processes may less stable than others). There is also the fact that different sets of processes can fulfil a sustainability criteria, i.e. be substituted for the current processes with no loss of sustainability. How this substitution would be enacted would require analysis of the compatibility of different processes, how much they interfere with other processes.

Our use of natural resources can be considered as processes within this global picture. These resources take part in other processes, i.e. forests which affect climate and water table levels (Shiva 1993, Miller 1996). Unless remedial processes (financed either by our economy or other parts of the biosphere) adjust for our increasing levels of resource use, then these levels may become unsustainable.

The increase in the size of our actions on the environment increases internal uncertainty. We are no longer trying to predict the future as an external, fixed system, but also trying to measure the affects of our actions on that system. This requires models of these systems to include our actions, or aggregates of our actions within them. It may be that only some of our actions need to be included but which ones? Dryzek (1987) outlines some of the failures of trying to abstract our actions in complex systems into single perspectives of reality.


Repsonsibility is the process of assigning a causative action to a result. In internally uncertain systems, a result arise from the aggregation of many actions. How can we assign a responsibility in these cases. We also have the problem that responsibility can only be assigned if a choice a of actions is available. If an actor is limited by a system to only one course of action then the system must be held responsible for the results of that action.

Within an ideal market system, decisions are decentralised across the whole system. In effect this means everyone and no-one is responsible for a the results of the system. When the system produces a result that is 'bad' (as defined by its value system) it can lead to situations where responsibility is shifted from one agent to another. The lack of a single causative decision makes it difficult to change the actions of the system to remediated {remediate} the 'bad' result.

This is not just a problem of market systems, it is a problem for a systems that operate within a situation of internal uncertainty.

[Chapter 6 - New institutions]

Finished 13/9/96
Created 18/9/98