COLLOQUIUM INTRODUCTION

INTRODUCTION
COLLOQUIUM
Role of economics in analyzing the environment
and sustainable development
Stephen Polaskya,b,1, Catherine L. Klingc,d, Simon A. Levina,c,e, Stephen R. Carpentera,f,
Gretchen C. Dailya,g,h,i, Paul R. Ehrlicha,g, Geoffrey M. Healj, and Jane Lubchencoa,k

The environmental sciences have documented large consumption while securing the life-support systems un-
and worrisome changes in earth systems, from climate derpinning current and future human well-being” (24).
change and loss of biodiversity, to changes in hydro- The discipline of economics arguably should play a
logical and nutrient cycles and depletion of natural central role in meeting the sustainable development
resources (1–12). These global environmental changes challenge. The core question at the heart of sustainable
have potentially large negative consequences for fu- development is how to allocate the finite resources of
ture human well-being, and raise questions about the planet to meet “the needs of the present, without
whether global civilization is on a sustainable path or compromising the ability of future generations to meet
is “consuming too much” by depleting vital natural their own needs” (25). A central focus of economics is
capital (13). The increased scale of economic activity how to allocate scarce resources to meet desired goals;
and the consequent increasing impacts on a finite Earth indeed, a standard definition of economics is the study
arises from both major demographic changes— of allocation under scarcity. More specifically, econom-
including population growth, shifts in age structure, ics studies the production, distribution, and consump-
urbanization, and spatial redistributions through mi- tion of goods and services, which are both a key driver
gration (14–18)—and rising per capita income and of development (increasing standards of living through
shifts in consumption patterns, such as increases in providing food, housing, and other basic human re-
meat consumption with rising income (19, 20). quirements) and a main cause of current changes in
At the same time, many people are consuming too earth systems. Economics, combined with earth system
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little. In 2015, ∼10% of the world’s population (736 mil- sciences, is crucial for understanding both positive and
lion) lived in extreme poverty with incomes of less than negative impacts of alternatives and the trade-offs in-
$1.90 per day (21). In 2017, 821 million people were volved. Economics, combined with other social and be-
malnourished, an increase in the number reported havioral sciences, is crucial for understanding how it
malnourished compared with 2016 (22). There is an might be possible to shift human behavior toward
urgent need for further economic development to lift achieving sustainable development. Economics has
people out of poverty. In addition, rising inequality well-developed fields in development economics, eco-
resulting in increasing polarization of society is itself logical economics, environmental economics, and nat-
a threat to achieving sustainable development. Elimi- ural resource economics, with large bodies of research
nating poverty (goal 1) and hunger (goal 2), achieving relevant to the sustainable development challenge.
gender equality (goal 6), and reducing inequality (goal The application of economic principles and empirical
10) feature prominently in the United Nation’s Sustain- findings should be a central component in the quest to
able Development Goals (23). A recent special issue in meet the aspirations of humanity for a good life given
PNAS on natural capital framed the challenge of sus- the finite resources of the earth.
tainable development as one of developing “economic, Indeed, an extensive body of work by economists
social, and governance systems capable of ending pov- provides key insights into aspects of sustainable de-
erty and achieving sustainable levels of population and velopment. At its best, this work integrates work by

a
The Beijer Institute of Ecological Economics, Royal Swedish Academy of Sciences, SE-104 05 Stockholm, Sweden; bDepartment of Applied
Economics, University of Minnesota, St. Paul, MN 55108; cResources for the Future, Washington, DC 20036; dDyson School of Applied Economics
and Management, Cornell University, Ithaca, NY 14853; eDepartment of Ecology and Evolutionary Biology, Princeton University, Princeton, NJ
08544; fCenter for Limnology, University of Wisconsin–Madison, Madison, WI 53706; gDepartment of Biology, Stanford University, Stanford, CA
94305; hWoods Institute, Stanford University, Stanford, CA 94305; iNatural Capital Project, Stanford University, Stanford, CA 94305; jGraduate
School of Business, Columbia University, New York, NY 10027; and kDepartment of Integrative Biology, Oregon State University, Corvallis,
OR 97331
This paper results from the Arthur M. Sackler Colloquium of the National Academy of Sciences, “Economics, Environment, and Sustainable
Development,” held January 17–18, 2018, at the Arnold and Mabel Beckman Center of the National Academies of Sciences and Engineering in
Irvine, CA. The complete program and video recordings of most presentations are available on the NAS website at www.nasonline.org/economics-
environment-and.
Author contributions: S.P., C.L.K., S.A.L., S.R.C., G.C.D., P.R.E., G.M.H., and J.L. wrote the paper.
The authors declare no conflict of interest
Published under the PNAS license.
1
To whom correspondence should be addressed. Email: polasky@umn.edu.

www.pnas.org/cgi/doi/10.1073/pnas.1901616116 PNAS | March 19, 2019 | vol. 116 | no. 12 | 5233–5238

 other natural and social sciences into a policy-relevant framework by the natural sciences necessary to understand the complex
and demonstrates the rich potential for collaborations among ecological systems within which the economic system operates
economists, natural scientists, and other social scientists on sustain- and on which economic activity causes impacts. Progress in
able development challenges. For example, economists have de- sustainable development requires collaboration between social
veloped integrated economic and climate models to address scientists, including economists and natural scientists. Of course,
important climate change policy questions, such as how much and achieving sustainable development requires institutions and
how fast greenhouse gas emissions should be reduced (26–31). In political alignment that go well beyond assembling the science
2018, William Nordhaus shared the Nobel Prize in economics, in knowledge arising from integrated scientific knowledge.
large part for his seminal work on such models. These models have Numerous examples show the incomplete nature of collabo-
sparked large debates within economics over fundamental issues ration between economists and other disciplines engaged in the
such as the proper discount rate (32–35), and with the natural sci- analysis of sustainable development. To take one recent example,
ences over the likely scale of damages from climate change (36, 37). there were no economists involved in a special section on “Eco-
Another Nobel Prize winner in economics, Elinor Ostrom, used eco- system Earth” published in Science in April 2017 that contained
nomic models to highlight the importance of governance and insti- discussions of population, consumption, agricultural production,
tutions for sustainable use of common property resources (38–40). land use, human behavior, collective action, and policy (56). The
Another important area of work by economists directly relevant to lack of involvement by economists in ongoing discussions of sus-
sustainable development defines and measures inclusive wealth tainable development leads to gaps in understanding production
(13, 41–49). Ken Arrow, yet another Nobel Prize winner in econom- and consumption decisions, the resulting market outcomes that
ics, was a leader in this field. It is also notable that the intellectual drive global environmental change, and how to regulate or re-
roots of inclusive wealth trace to work in the 1970s of two Nobel duce negative environmental impacts from economic activities.
Prize winners in economics, William Nordhaus and James Tobin The incomplete engagement of economists mirrors the struc-
(50). Inclusive wealth is a measure of the aggregate wealth of soci- ture of the economics discipline. The fields of ecological, environ-
ety, including the value of natural capital along with the values of mental, and resource economics are not core fields within economics.
human capital, manufactured capital, and social capital. Inclusive There are few ecological, environmental, or resource economics
wealth is a sufficient statistic for showing whether or not global publications in flagship journals within economics. For example, in
society is on a sustainable trajectory. For the past two decades, 2018 only two papers published in the American Economic Review
the Beijer Institute of Ecological Economics, part of the Royal Swed- listed classification codes for renewable resources and conservation,
ish Academy of Sciences, has held annual meetings bringing to- nonrenewable resources and conservation, energy economics, or en-
gether leading economists and ecologists to discuss issues at the vironmental economics (57, 58). Only a small minority of the top
intersection of ecology and economics, which have resulted in a economics departments have fields in ecological, environmental, or
number of high-impact papers (51). The idea for a forum to high- resource economics. In contrast, virtually every top economics pro-
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light work in economics on environment and sustainable devel- gram offers fields in labor economics, industrial organization, and in-
opment originated at one of these meetings. ternational trade. Ecological, environmental, and resource economics
Despite these examples and many others, the center of gravity programs often are in schools of the environment or natural resources,
in the analysis of sustainable development remains in the natural schools of public policy, or in departments of agricultural economics.
sciences, and the center of gravity in economics remains far removed In addition, economics is notable among academic disciplines for its
from the challenge of sustainable development. The natural sciences relative isolation: “Though all disciplines are in some way insular. . .this
that form the core of earth systems science, including ecology, trait peculiarly characterizes economics” (59). Compared with other
geology, climatology, hydrology, and oceanography, are a social scientists, economists have far lower citation rates for work in
logical place to start to build understanding of the current state other disciplines. Jacobs (60) found that the percentage of within-field
and the evolution of earth systems. Natural scientists have taken citations in economics was 81%, versus 59% for political science, 53%
the lead in prominent analyses of pathways to achieve sustain- for anthropology, and 52% for sociology. In addition, the core of the
able development. For example, Pacala and Socolow (52) outline economics discipline is relatively isolated from the natural sciences
feasible methods using existing technology to reduce green- that have played a large role in sustainability science to date, ecology,
house gas emissions to secure a livable climate. Foley et al. geology, climatology, hydrology, and marine biology. Network maps
(53) analyze how to meet growing food demand without expand- of disciplines using citations patterns often show economics and
ing the footprint of agriculture. Costello et al. (54) suggest how fields, such as ecology and geosciences, at opposite ends of the
extensive fishery reform could result in improved productivity spectrum (figure 3 in ref. 61).
and ecosystem health. Tallis et al. (55) analyze how to improve Given the large role of economic activity in causing rapid change
material standard of living for a growing population in ways that in earth systems, and the scale of the sustainable development
simultaneously sustain biodiversity, reduce greenhouse gas challenge, there is an urgent need for more rapid integration of
emissions, and reduce water use and air pollution. These works economics into the core of sustainable development, and for
show that it is feasible to achieve multiple sustainable develop- more rapid integration of sustainable development into the core
ment goals with existing technology. The harder challenge of economics.
is combining what is feasible in a biophysical sense with the
difficult economic, political, and social hurdles that prevent so- Sackler Colloquium on “Economics, Environment, and
ciety from getting to sustainable outcomes (55). In other words, Sustainable Development”
natural science understanding is necessary but not sufficient to This special issue contains a collection of articles presented at the
achieve sustainable development. Sackler Colloquium on “Economics, Environment, and Sustainable
While natural science understanding is insufficient on its own Development” held at the Beckman Center in Irvine, California in
to achieve sustainable development, the same is true of econom- January 2018. The colloquium focused on 21st century challenges
ics. Economists alone do not have the knowledge base supplied requiring advances in fundamental economics at the nexus of

5234 | www.pnas.org/cgi/doi/10.1073/pnas.1901616116 Polasky et al.

 global environmental change and sustainable development. The the difficulties of valuing natural capital and ecosystem services.
main purpose of the colloquium was to highlight work by talented Estimating the social cost of carbon involves predicting future
economists working in ecological, environmental, or resource impacts, requiring integrated natural science and economic
economics on sustainable development challenges. Part of the modeling, and understanding potentially catastrophic events (72).
motivation for the colloquium, and the publication of this col- Constructing an estimate of the social cost of carbon also involves
lection of articles, is to convince economists that sustainable valuing nonmarket benefits, and classic economic problems, such
development challenges are vitally important to global society as choosing an appropriate discount rate and degree of risk
and pose intellectual challenges that are the equal of any aversion (e.g., refs. 73 and 74). Economic analysis can increase
subject currently analyzed by economists. knowledge of how various forms of capital, including natural
The symposium had four major themes: (i) ecosystem services capital along with human and manufactured capital, combine to
and natural capital; (ii) behavioral economics, policy, and institu- produce goods and services of value to people (13, 44). To what
tional design for sustainable development; (iii) economic devel- degree can other types of capital substitute for natural capital, and
opment and sustainability; and (iv) issues in empirical economics what kinds of natural capital are irreplaceable?
relevant for sustainable development. Papers in this special issue Incorporating dynamics and uncertainty. Making predictions about
address at least one, and in many cases several of these themes. earth systems is more difficult with the potential for tipping points
involving large and sudden shifts (75). How can economic models
Ecosystem Services and Natural Capital. Ecosystem services are incorporate notions of tipping points and the value of resilience
the contributions that nature makes to human well-being. Eco- and what data are needed to support empirical applications of such
system services include regulating services (e.g., filtering pollu- models (72, 76)? An additional issue arises with the combination of
tion, coastal protection, pest regulation, pollination), material uncertainty and potential irreversible outcomes (e.g., species ex-
provisioning services (e.g., food, energy, materials), and non- tinction) that gives rise to option value (77, 78). Issues are made more
material services (e.g., aesthetics, experience, learning, physical complex by the fact that most environmental–economic problems
and mental health, recreation). Various types of natural capital— are characterized by ambiguity rather than risk, meaning that the
often in conjunction with other forms of capital—and human labor familiar expected utility paradigm may not be applicable.
provide ecosystem services. Destroying or degrading natural
capital can result in reduced flow of ecosystem services, with Behavioral Economics, Policy, and Institutional Design for
consequent negative impacts on human well-being. Sustainable Development. Achieving sustainable development
Research by economists, in conjunction with ecologists and will require changes in human behavior and actions in relationship
other natural scientists, is essential for going beyond merely listing to the environment. Many important environmental and resources
the types of ecosystem services and natural capital, to un- issues have elements of the “tragedy of the commons” where in-
derstanding the value of the flow of services or the stock in capital dividuals following their own self-interest results in highly inefficient
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in terms of their contribution to human well-being. Integrated outcomes because individuals ignore external costs (or benefits) of
economic–ecological modeling can generate understanding of their actions on others. Both standard and behavioral economics
the trade-offs resulting from actions that alter ecosystems, and have much to offer in understanding what motivates individual and
show how changes in ecosystems result in changes in the value group behavior, how to structure incentives to shift behavior in
of the flow of ecosystem services and the stock of natural capital. desirable directions, and how to design policies and institutions to
Examples of integrated work examining the value of ecosystem achieve desirable societal outcomes (79–81).
services and trade-offs exists at the national level (e.g., refs. 62 Some of the pressing issues and questions that would benefit
and 63) and local to regional levels (e.g., refs. 64 and 65), but from greater involvement of economists are discussed below.
much work remains to be done. Some of the pressing issues and Behavioral economics and individual choices involving environ-
questions that would benefit from greater involvement of econo- mental outcomes. What does behavioral economics teach us
mists are discussed below. about trying to change behavior to overcome the tragedy of the
Measuring the value of ecosystem services. What are the best commons, provide public goods, or internalize externalities? Are
ways to apply market and nonmarket valuation methods to appeals to being good environmental stewards, information about
translate biophysical indicators into a common monetary metric performance relative to peers (e.g., energy or resource use relative
measuring the welfare contribution of ecosystem services? One to similar households), financial incentives, laws, and regulations
promising avenue to valuation links environment to health (66, more effective in promoting more proenvironmental behavior (82)?
67). Difficult issues include integrating natural science and eco- Do financial incentives crowd out nonfinancial motivations for pro-
nomic models to understand how changes in ecosystems lead to tecting the environment or strengthen intrinsic motivation (82, 83)?
changes in the flows of ecosystem services (68, 69) and how to Social interactions and group behavior involving environmen-
measure the value of nonmaterial ecosystem services, such as tal outcomes. Humans are a social species. Economics has long
aesthetics, experience, learning, and mental health (70). Even studied individual behavior in isolation but there is ample evi-
where benefits measures exist, such as for improving water dence from social science that social interactions influence individual
quality, it is not clear that all relevant benefits are accurately choices. How group interaction affects choices and environmental
measured (71). Furthermore, it is often important to understand outcome, including cooperation to overcome the “tragedy of the
who benefits from ecosystem services and the distribution of commons,” is a rich area of investigation (82, 84, 85).
benefits and costs of potential management and policy options. Risk, uncertainty, and long-term consequences. How do people
Measuring the value of natural capital. Valuing natural capital process risk, uncertainty, and ambiguity and what lessons does this
involves making predictions about the future flows and values of hold for environmental issues that are inherently complex, with out-
ecosystem services (69). As baseball great Yogi Berra once said, comes that are difficult to assign probabilities (76)? Are people my-
“It’s tough to make predictions, especially about the future.” opic, and even if they are, can they be motivated to undertake
Recent efforts to estimate the social cost of carbon aptly illustrate current sacrifices to provide future generations with benefits?

Polasky et al. PNAS | March 19, 2019 | vol. 116 | no. 12 | 5235
 Design of environmental policy and institutions. Environmental Equity issues. Aggregate measures like inclusive wealth often
issues span the gamut from quite local (e.g., communal use of a hide distributional issues of who benefits and who does not from
fishery, forest, or grazing lands) to global (e.g., climate change additional economic growth. Are there ways to represent distri-
and ozone depletion) and involve complex feedbacks between butional issues in a fair manner in aggregate economic measures
social and ecological systems (86). Well-designed institutions can like inclusive wealth or gross domestic product? Alternatively, is it
create incentives that drive performance toward desirable out- better to disaggregate benefits and costs by group, and focus
comes, or if ill designed can lead to poor outcomes (87). How can special attention on the poorest groups in society? If the world
we design effective international environmental agreements for benefits from protecting habitat types in developing countries
global environmental issues in a world of nation states? How can (e.g., tropical rain forests), what approaches would enable de-
we effectively provide public goods and internalize externalities veloping countries to protect these global public goods?
where governments are absent, weak, corrupt, or inefficient? The role of innovation. Since the start of the Industrial Revolu-
When do payments for ecosystem services (88) or contributions to tion, innovation and technology have fueled economic growth
environmental groups (89) deliver desirable outcomes? What and rising material standards of living. However, because there is
does the evidence from behavioral economics teach us about no price for most ecosystem services and natural capital, in-
proper design of environmental policy and institutional design? novation incentives skew against maintaining or enhancing natu-
ral capital and the ecosystem services they provide. To promote
Economic Development and Sustainability. Sustainable devel- proenvironment innovation, is it necessary to price ecosystem
opment is not just about sustainability in the sense of how to services and natural capital or, alternatively, is it better to provide
maintain the environment. Sustainable development is about how direct incentives for innovation to enhance natural capital and
to simultaneously alleviate poverty/improve material standards of ecosystem services?
living and maintain or enhance vital natural capital necessary for
future well-being. Much of the work in environmental sciences Issues in Empirical Analysis. The past two decades have seen a
focuses on environmental sustainability while much of develop- major shift in empirical methods used by economists, with in-
ment economics focuses on alleviating poverty. Making progress creased emphasis on research design using random assignment
on sustainable development requires integration of research in and quasi-experiments to better capture causal relationships (90).
development and environment.
Although the “credibility revolution” was somewhat slower to
Some of the pressing issues and questions that would benefit
take hold in environmental and resource economics than in some
from greater involvement of economists are discussed below.
other fields, such as labor economics, recent years have seen an
Integrating development and environment. What is the re-
increased application of randomized control trials and quasi-
lationship between poverty alleviation and the environment? Are
experiments, particularly in applications involving individual or
there win–win outcomes that reduce poverty and improve envi-
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household decisions around use of land use, water, resources, and

ronmental quality (e.g., ref. 54) or are there inevitable trade-offs?
energy. In addition, the increasing availability of large, spatially
Are payments for ecosystem services a promising approach for
detailed datasets along with increased computational power has
promoting environmental outcomes in developing countries (88)? Is
opened the door to many new opportunities for rigorous in-
the main effect of economic development to impose more stress on
vestigation (91). Machine learning and other computationally rich
the environment through increased resource use and pollution from a
greater scale of production and consumption, or are leap-frogging approaches hold significant potential.
options available that will result in cobenefits vs. trade-offs? Will in- Some of the potential areas for innovation at would benefit
creased stress lead to crossing tipping points and catastrophic future from greater involvement of economists are discussed below.
outcomes, and how should society manage in the face of such Application of randomized control trials and quasi-experiments.
prospects (72, 76)? Alternatively, does greater technological im- Economists use randomized control trials and quasi-experiments to
provement and investment in pollution control, along with lower analyze individual or household decisions (92). A challenge is using
population growth that occurs at higher income levels outweigh the such approaches to study larger-scale issues in sustainable devel-
scale effect? What is the key role of protected areas in safeguarding opment at regional, national, or international scales (86). There is a
biodiversity and potential adaptation to climate change vs. conver- need for wider application of rigorous empirical methods for large-
sion of habitats to direct human uses? What different financing scale sustainable development issues.
models might be developed to facilitate transitioning from un- Reduced form data intensive analyses. Use of large datasets
sustainable uses of natural resources to sustainable uses of those with observations that vary across space and time offers an al-
resources (e.g., fisheries), where the biggest financial impediment is ternative approach to providing credible evidence on the impact
making the transition, not sustaining the reformed fisheries? of environmental policies when randomized control trials are ei-
Measures of sustainable development. Economists have de- ther impossible or prohibitively expensive. The increase in geo-
veloped measures of inclusive wealth that attempt to measure the graphically delineated data through time makes this approach
value of all assets, including natural capital, human capital, and applicable to a wider range of applications (66, 67, 93–95).
manufactured capital (13, 41–49). A difficult problem with em- Integrated assessment models. The use of integrated assess-
pirical measures of inclusive wealth is correctly valuing natural ment models has become well accepted in the context of
capital for which there is no market value (see the above challenge greenhouse gas emissions and, increasingly, air-quality fate and
on valuing ecosystem services and natural capital). At present, transport (96), but needs exist for extensive application of these
attempts of measure inclusive wealth include only a fraction of methods in other areas including water quality, water quantity,
natural capital, typically only including natural capital values as- habitat, and so forth (97). Incorporation of both the drivers of
sociated with natural resource commodities and carbon. Can we change that can be impacted by policy so that costs of policy
estimate comprehensive measures of inclusive wealth that include change can be included (63, 98), as well as downstream impacts,
even difficult-to-value forms of natural capital? are also needed.

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 Scenarios and future trends. Global assessments of environmental but similar issues arise in other social and behavioral science disci-
status and trends conducted by such entities as the Intergovern- plines. There is an urgent need for more rapid integration of social
mental Panel on Climate Change, the Millennium Ecosystem As- and behavioral disciplines into the core of sustainable development,
sessment, and the Intergovernmental Science-Policy Platform on and for more rapid integration of sustainable development into the
Biodiversity and Ecosystem Services make use of scenarios to de- core of these disciplines.
scribe future trajectories. These scenarios are often based on expert The papers in this special issue collectively represent a cross-
opinion and do not have estimates about the likelihood that such a section of work illustrating progress by economists on important
trajectory will occur. Can economists apply econometric tools and
issues in environment and sustainable development. These papers
integrate economic data and principles with natural science to pro-
tackle many of the themes and challenges discussed in sustainable
vide a more rigorous grounding on which to base future projections?
development and provide positive examples of the type of work
needed to address sustainable development challenges. By pro-
Summary
The challenge of achieving sustainable development is large and viding a spotlight on the research frontiers, at least as they appear
pressing. Major on-going changes in earth systems could cause currently in economics, we hope to change the ecology of the
potentially large negative consequences for human well-being. economics profession in ways that stimulate further research and
How to reduce poverty and address rising inequality in the face of the involvement of economists in integrated research relevant to
these environmental changes raise important social and economic environmental and sustainable development challenges.
aspects of sustainable development in addition to the environ-
mental dimensions. Strong arguments exist for devoting greater Acknowledgments
efforts to increase our understanding of the environmental, social, We acknowledge Partha Dasgupta for his help at the planning stage in setting
major themes of the Sackler Colloquium. We dedicate this special issue to the
and economic dimensions of sustainable development, which will memory of Kenneth Arrow and Elinor Ostrom, two intellectual giants who
require greater integration of economics, social sciences more championed the integration of economics with other disciplines in pursuit of
generally, and the natural sciences. Here, we focused on economics, sustainable development.

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