Munich Personal RePEc Archive

Financial instruments for human development

Chichilnisky, Graciela (1998): Financial instruments for human development. Published in: Human Development Report (December 1998): pp. 1-24.

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Economics often provides the wrong incentives to those who control the assets, such as people in developing countries where most forests are located and who could potentially benefit most from conservation . There is increasing unease about this situation, and an emerging view is that standard economic concepts and prescriptions fail to properly account for the value of environmental assets . Economic values seem to be out of step with social values ; it is clear that the economic science of the future should bridge this gap. This paper develops practical ways and new economic thinking to redress this discrepancy: it creates and develops structures and institutions through which the value embodied in environmental assets can be translated into economic return which encourages the conservation of the asset, and induce more equitable and effective use of resources .

I will introduce a range of different financial instruments, some of which are connected to global environmental assets such as the planet's atmosphere, and others to local or regional assets, such as watersheds . The financial instruments proposed here all share an unusual feature : they provide economic incentives towards environmental conservation. They do so by altering the economic valuation of these assets in a way that is more aligned with their real values to human societies . By doing so, these mechanisms produce incentives towards more efficient use of resources globally, whether for local resources such as water or for global resources such as a stable atmosphere . The ultimate role of these instruments is to offer a way to fund sustainable human development at a global scale, systematically and reliably.

The main message of this article is that we must rethink the foundations of international development to achieve equitable and sustainable economic progress . The Bretton Woods Institutions (World Bank, IMF, GATT) were based on a post World War II model . They encouraged one form of development : resource based industrialization . These organizations are built upon a model funded by voluntary national donations based on taxes, a model that no longer works well .

At the same time the globalization of the world economy brings new demands on the international system, requiring more infrastructure for trading and communication, and the need to develop new standards of human development and environmental protection . The current criticism of the Bretton Woods institutions, and of the United Nations within the US and other industrial nations, comes at a time when international organizations may be more needed than ever .

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