The sudden collapse of the centrally planned economies of Central and Eastern Europe (CEE) and the former Soviet Union (FSU), has created economic and environmental disequilibria of historically unprecedented dimensions throughout the region, as well as a process of gradual transition from plan to market. This historical ‘experiment’ provides a unique opportunity to study economyÐenvironment interactions and the adjustment process towards a new equilibrium, as well as the implications for conventional and novel policy instruments under transitional conditions. The changes that have taken place have been so many and so large that they defy many of the tools of marginal analysis. Privatization, industrial restructuring, market competition, price reform, and trade liberalization among others have suddenly been introduced where none existed and have so radically altered the fundamentals of these economies that they could be considered as new economies rather than simply reformed economies. However, underlying these radical changes, are many legacies of the centrally planned economy that persist or change only gradually. Furthermore, not all countries in CEE and the FSU have reformed their economies at the same pace. The northern tier countries of CEE moved faster than the southern tier and the latter faster than most FSU republics.

Background to structural adjustment The oil price increases of the 1970s, the worldwide recession, and developing country debt crisis of the 1980s, led to the adoption of so-called structural adjustment policies (SAPs). These economic reform packages which included stringent monetary and fiscal measures, sought to restore conditions for growth and development by a combination of short-term ‘stabilization’ and more medium-term ‘adjustment’ policies for the macro-economy. SAPs have not always achieved their economic goals, for a variety of reasons. Of greater relevance is the fact that even where economic gains have been realized through structural adjustment, both environmental and social problems have persisted in several countries. The growing sustainable development literature is seeking to identify and remedy development strategies that lead to the unsustainable use of natural resources and the environment. One key question is whether the very economic policies being prescribed to alleviate economic problems are perhaps undermining the environmental resources and social fabric on which the long-term development of nations will ultimately depend.

Under a General Equilibrium model of International Trade, industrialized countries export capital intensive goods, while developing countries export natural resource intensive goods. Biodiversity is viewed as the number of species conserved while producing these goods. Higher conservation increases demand, but lowers goods supply. Consumers value biodiversity as the weighted sum of all the different species. If producers of both goods conserve more species, the South's terms of trade will rise in relation to the North's. Furthermore, we believe that a switch in consumer preferences, to a more homogeneous valuation of the species, is likely. This change would drop the South's terms of trade. Therefore, under these circumstances, this region is facing a risk. In conserving additional species, the South would be better off, both because its terms of trade increases and because the risk associated with a switch in preferences decreases.

This paper analyzes the underlying determinants of rural land conflicts in Brazil involving squatters, landowners, the federal government, the courts and INCRA, the land reform agency. A model is presented whereby squatters and landowners strategically choose to engage in violence. Landowners use violence as a means of increasing the likelihood of successful eviction of squatters, and squatters use violence to increase the probability that the farm will be expropriated in their favor as part of the government's land reform program. The model's predictions are tested using state level data for Brazil for 22 states from 1988 through 1995. It is shown that the government's land reform policy, which is based on expropriation and settlement projects, paradoxically may be encouraging both sides to engage in more violence, rather than reducing conflicts.

In many countries, and particularly in the economies in transition in Central and Eastern Europe, public environmental funds play an important role in financing environmental investments. These funds provide subsidized financing through grants and soft loans in response to market failures that limit environmental investors' access to capital markets or poorly account for the benefits of environmental improvements. The principal question explored in the paper is whether environmental funds are too generous or too selective in co-financing environmental projects. The authors conducted a survey of applicants whose applications to Polish environmental funds were rejected following appraisal by the funds in 1994. Applicants were contacted to determine whether they had been able to close the financing 'gap' by the end of 1995 that had resulted from the rejection of their application by the Fund. Survey results indicate that a large majority of respondents have secured substitute gap financing and proceeded with their planned investments, suggesting that the fund's assistance was not essential for these projects to be implemented. Generally, the financing gap had been closed by financing from another environmental fund, from own resources, and less frequently from the same fund (after resubmitting a modified proposal). Only in few instances have proposed projects been abandoned.

In this project, an attempt is made to estimate the costs and benefits of managing forested catchments in Malaysia. Three land use options are simulated for four selected catchments in the Hulu Langat Forest Reserves (HLFR), Selangor, Malaysia. These options are no logging or catchment protection (CP), reduced impact logging (RIL) and conventional logging (CL). The potential sedimentation impacts of each option on the dam and water intake ponds in the catchments are calculated. The benefits derived from logging, hydro-electric power (HEP) generation and the water regulatory dam for water treatment and the external costs emanating from the sedimentation under the three options are estimated. The computations are based on data collected from previous studies conducted in adjacent areas with similar hydrological parameters, secondary data from published reports by various departmental agencies and from on-site personnel surveys.

This paper explores the interrelationship between poverty, risk, and deforestation by small farmers in the low-income tropics. A nonseparable household model reveals how exogenous shocks to the mean or variance of a food price distribution might affect peasants' incentives to clear forest. The resulting links between food price policy, farmer behavior, and deforestation offer an innovative explanation of the vicious cycle of peasant immiserization and tropical deforestation. An intriguing, testable hypothesis also emerges: that market-oriented reforms that increase the mean and variance of food prices may inadvertently stimulate deforestation in economies in which a sizable proportion of farmers are net buyers.

This paper investigates the impact of structural adjustment policies on deforestation taking place when the agricultural frontier advances into forest reserves in Nicaragua. A computable general equilibrium model incorporating deforestation by squatters is used for policy simulations. The opportunity cost of migrating to the frontier does not simply depend on wage income opportunity, but also on market prices of basic grain which determine the capacity to consume beyond subsistence food-level given a certain real wage. Reducing public expenditures both conserves forests and enhances economic growth, while showing positive distributional effects. On the other hand, a strong conservation trend following a sales tax increase is driven by increasing poverty in rural areas. Noticeably, there are policies which initially intensify deforestation, but turn out to ease the pressure on forests over time. Rapid economic growth does not ensure less pressure on forest reserves.

This study addresses the role of multilateral development banks and their effectiveness in bringing environmental considerations, issues and consequences into structural and sectoral adjustment programmes in developing countries. It addresses a series of complex generic issues showing that such programmes cannot be meaningfully studied in isolation from other aid cooperation and government development programmes. The study proposes and discusses alternative explanations on how the multilateral development banks may have influenced thinking in borrowing countries. By looking more closely at the Philippines the study provides an insight into the dynamics and diversity of such programme lending and how its design can affect resource management and the environment in benign or adverse ways. It shows what complementary remedial action can be taken when institutional barriers, policy failures and market failures threaten the environment. It provides an analysis of how awareness of such interlinkages has emerged since 1980 and manifested itself in aid cooperation in general and in economy-wide adjustment lending in particular since 1987, while gradually being absorbed in governmental development plans and programmes with varying degrees of domestic ownership. In particular, we find that there seems to have been shifts in the World Bank and the Asian Development Bank's environmental policies after the publication of the Brundtland Commission Report in 1987.

It is often claimed that pollution reductions can be achieved at lower cost in Central and Eastern Europe and the former Soviet Union, because more possibilities exist to update production processes and reduce waste. To date, however, there has been little or no systematic evaluation of what the costs actually are in these countries. The main purpose of this paper is to partially fill this research gap using firm-level data from Lithuania. Abatement cost estimates for key air pollutants are presented based on investments made in Lithuania during 1993–4. The paper also attempts to estimate the demand for pollution directly using data on pollution charges from 1994. Using both methods, it is shown that for at least some key pollutants marginal and average abatement costs are probably substantially lower in Lithuania than in western countries.

This article summarizes a comprehensive series of country studies in Latin America and the Caribbean (LAC), addressing experiences with market based instruments (MBIs) and command and control (CAC) approaches. First, MBIs can be an important means for introducing some added efficiency to existing CAC mechanisms. The scope of the MBIs must, however, match the institutional capacity to implement them. MBI approaches that introduce gradual and flexible reforms are therefore more likely to be consistent with ongoing institutional changes. Second, while the revenue collection task of MBIs is often highlighted, there is a strong need to channel revenues to local authorities to assist in building institutional capacity. Finally, international donor agencies are most prone to recommend OECD solutions with little regard to institutional issues. Moreover, most of the information flow regarding MBIs has been of a 'north-south' variety, whereas increased information sharing in a 'south-south' dialog would benefit all parties.

This paper examines the causes of agricultural land expansion and deforestation in Tanzania. In the theoretical section, two different—and partly contradicting—sets of hypotheses are outlined. These are based on a subsistence approach, emphasising the food or income requirements of farm households, and a market approach, focussing on the relative profitability of agriculture. The statistical analysis shows that increased agricultural output prices, in particular for annual crops, is a major factor behind agricultural expansion. An increase of 1 per cent in output prices leads to about 1 per cent increase in agricultural area. Other factors such as input prices, technology and economic growth are tested and discussed, but the conclusions are less robust. The controversial role of population growth in explaining deforestation is addressed. Generally the results lend support to the market rather than the subsistence approach. JEL classification code: Q12, Q23, C23

Village economies and peasant households represent the main link between the economy and the environment in sub-Saharan Africa. The links from the macro level and down to the household level and further to the natural resource base are complex. It may therefore be difficult to predict the impact of macro policies and external shocks on the environment. This paper presents a typology of village economies and village economy-wide models. The framework is applied to a special case where a model is proposed and estimated to examine the impacts of external shocks, including structural adjustment policies, on cash-crop production and chitemene (shifting cultivation) in a remote Zambian village characterized by a missing (or negligible) labour market, input supply constraints, and credit rationing. Our findings indicate that structural adjustment policies, by decreasing the profitability of maize production, may encourage households to increase their chitemene production, resulting in more rapid deforestation.

This paper adopts soil scientific models of soil productivity and degradation in Tanzania into an intertemporal optimisation framework. The farmers choose labour input, capital investment and fertiliser input to maximise soil wealth, i.e., the present value of soil rent. First we focus exclusively on soil mining, considering the nutrient stocks as determinants of land productivity. Next, we focus on soil erosion, and include rooting depth as determinant of land productivity. We compute the soil wealth under the assumption that the opportunity cost of labour is equal to current wages, or alternatively equal to zero. Our estimates suggest that the potential gains from change in agricultural management are considerable. Moreover, the shadow price on root depth and hence the returns to land conservation investments are highly sensitive to our labour market assumptions. We also find that the value of the eroded soil amounts to 12–17 per cent of the value of Hicksian income, and the savings required to maintain consumption amounts to 13–29 per cent of the contribution to GDP.

For local public goods, supply or demand shocks may create periods during which it is welfare enhancing for households to undertake spatial arbitrage by relocating residentially. We point out that the magnitude and direction of the average benefit estimate obtained during such a transition period is likely to vary systematically depending upon the magnitude of the shock, the level of transaction costs and the extent to which other affected goods are substitutes or complements. We test a subset of our model's predictions using cross-sectional data on household demand for improved municipal services in post-socialist Romania. Our preliminary empirical analysis suggests that there have been substantial gains in welfare resulting from spatial adjustment following the opening up of housing markets. Furthermore, our results indicate that benefit estimates for improved water services during the transition may be substantially higher than long-run estimates. This limited evidence supports our concern that economists may recommend non-optimal levels of long-run investment, regulation, or user fees if they are unaware of the implications of future readjustment to supply or demand shocks.