ECON 359 - Intermediate Economic Theory

Running head: ENVIRONMENTAL ECONOMICS
Environmental economics
Name of the student
Name of the university
Author note

ENVIRONMENTAL ECONOMICS
Introduction
The Amazon is considered to be the world’s largest rainforest and largest river basin
on the planet.. The rainforest of the Amazon is known to cover an area of 670 million
hectares. The roads and dams in the Amazon are also known to pose a threat to the rain
forests and indigenous people (Aizaki, Nakatani and Sato 2014). The infrastructures which
are built to link South American countries also resulted in destruction of the rainforests in
Amazon. One such example is the Trans-Amazonian highway which is present in Brazil
(Bennett 2017). The road in South America which is also known to link the Amazon to the
ports of Pacific Ocean poses a great threat to the environment. A new highway will also be
going to take place in the region where in which $70 bn have been invested by Brazilian
Development Bank (Cerri et al. 2018).
Methodology
The methodology used in the paper is known as the stated preference method. There
two kinds of value in forests those are non-timber value and the timber value. The non timber
value is a kind of measure which people usually place on the forest (Torell, Torell. and
Skaggs 2014). There are various ways through which the value of the non timber can be
found out. One such measure is the stated preference method or the contingent valuation.
This particular method comprises of surveying consumers or the users of the forests. The
method of contingent valuation has been used by the economists to find the economic
valuation of the forests. The methods of stated preference are generally applied in order to
evaluate the environmental benefits which includes wetlands and endangered species.
There is presence of number of steps which needs to be followed while using stated
preference experiment (Reis and Guzmán 2015). The first step which is used in the
methodology for experimenting in stated preference is identifying the set of attributes to be

ENVIRONMENTAL ECONOMICS
used along with selecting the different unit of measurement for each attribute. The first step
typically involves es collection of information from various secondary resources in order to
identify various attributes (Kauppinen et al. 2014). The third step of the stated preference
comprises of specifying the number and magnitude of the level of attributes.
Benefits of the highway
The main goal of building the trans Amazonian highway was to connect the rest of the part of
Brazil with Columbia and Ecuador. Another benefit of the highway was that to alleviate
effects of the drought which generally will be affecting the Northeast Region of the country
which will be providing a route to empty lands in the middle of the rainforests.
Environmental cost
The highway has caused a lot of a lot of deforestation in Brazil. The highway was introduced
in the year 1972. After the construction of the highway the deforestation have also
accelerated at a high rate. The construction of the highway was rushed with little concern of
preservation of the rainforest of the Amazon’s fragile ecology. As the soil of the amazon
consisted of mostly sediments, it made the road bed unstable and subject to inundation along
with heavy rains. The nutrients of the soil also got depleted quickly making the layers of the
soil thin which used to cause erosion. The highway was specifically made for opening the
rainforest for economic development. The settlers had to be provided with 250 acres of land
and easy access to the agricultural loans.
Revenue and expenditure of the project
There was also a presence of financial crisis during the construction of the highway. The
highway is usually 4000 Km long. The highway was one of the most ambitious development
projects and also one of the greatest failures.