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Faculty of Economics

Friday, 1 March, 2024

The Dasgupta Review is an independent, global review on the Economics of Biodiversity led by Professor Dasgupta, commissioned by the UK Treasury in 2019. The review is expected to help set the agenda for the UK Government’s 25-year environment plan.

The BBVA Foundation Frontiers of Knowledge Awards in Economics, Finance and Management has gone in this sixteenth edition was awarded for laying the foundations of environmental economics, through his pioneering work “on the interaction between economic life and the natural environment, including biodiversity,” said the committee in its citation.

His research, dating back to the 1970s, has provided “a basis for analysing how societies with a fixed quantity of depletable resources should allocate resources over time and invest in alternative technologies,” to facilitate their conservation.

Professor Dasgupta provided conceptual foundations “for the definition and measurement of sustainable development,” with “the social value of nature” as a determining factor. “In contrast with measures of well-being based on flows such as GDP,” the citation continues, “Dasgupta proposed measuring sustainable development as the change in the accounting value of total wealth,” including natural capital within this indicator. “These ideas,” it concludes, “have provided a framework for green accounting which is now widely adopted for measuring sustainable development.”

For committee member Lucrezia Reichlin, Professor of Economics at the London Business School, Dasgupta’s approach rests on two lines of argument: firstly, “that the important measure for sustainability has to be based on wealth and the change of wealth over time, and not at a given moment as happens with flow measures like GDP,” and secondly, “that this wealth must be measured not by market prices, because nature is undervalued due to externalities, but by the social value of nature.”

Dasgupta’s work and his proposals for measuring economic well-being “are critical for our time,” remarked Nobel Economics laureate Eric Maskin, chair of the selection committee. “More than any other economist of our time, he has stressed the important interplay between economic life and the natural environment. In all his work, he emphasizes that all economic activity has implications for our natural environment, often negative implications unfortunately (degradation of the environment), and that those implications must be taken account of in order to formulate and carry out economic policy that really makes sense, not just for the people in our world today, but for future generations.”

“Most economists who work on natural resources or the environment think about nature as providing certain types of goods, like food, clean water, timber, fibres or pharmaceuticals,” said Professor Dasgupta “So these are goods. These are objects that you can harvest from nature and transform with our human ingenuity into a final product, like the clothes we are wearing or the painting in the room where you are sitting, and so forth. These are the things we make out of the goods that nature gives us.”

At the core of this conventional line of economic thought, he explains, is that when a good becomes scarce, you can substitute it with another offering the same or similar results. But as he delved deeper into the subject, Dasgupta came to realize that nature supplies something much more important and irreplaceable than goods. It supplies processes (or in more economic terms, services). “My own understanding of economics,” he says, “has moved away from goods to processes. These are the key things we economists should keep in mind. Of course we care about nature’s goods, like water, food and clothing, because without them we wouldn’t be here. But none of this would exist without the underlying processes of nature.”

Climate regulation is among the services, or processes, that Dasgupta uses to illustrate his point: sunlight comes and gets reflected into space, water evaporates and comes down as rain. “You have the water cycle and you get your drinking water from it. And what is not consumed doesn’t disappear, it just evaporates or becomes part of the ocean through the river system and so forth. But if you mess around too much with climate, you also mess around with the water cycle, which will end up weakened. Likewise, if you deforest too much or get rid of biodiversity in the Amazon, you’re going to exacerbate the climate system. So my work has been to bring these issues into economics.”

Dasgupta believes economics has become over reliant on the idea that scarcity can be overcome by substituting goods: “In industrial production, of course, this idea of substitutability has been a great success. Think of all the materials that are produced in engineering departments or material science departments. But there are limits to this, when you tamper with processes. Just think of the human body. You have the metabolic process, which keeps you in a healthy state, and it would be foolish to think you could substitute one process for another. You wouldn’t say let me have less digestive capacity, but more running capacity. It would be silly, because these two things go together.” The problem we now face is that some of nature’s processes are threatened by the climate change and biodiversity losses being driven by human activity.

The BBVA Foundation centers its activity on the promotion of world-class scientific research and cultural creation, and the recognition of talent.

The BBVA Foundation Frontiers of Knowledge Awards recognise and reward contributions of singular impact in physics and chemistry, mathematics, biology and biomedicine, technology, environmental sciences (climate change, ecology and conservation biology), economics, social sciences, the humanities and music, privileging those that significantly enlarge the stock of knowledge in a discipline, open up new fields, or build bridges between disciplinary areas.