Indrawan Permana

Background of the Study

Urban space is a product of three principal developments. The first is the growth of settlements in terms of size and number, including their spreading. The second is an increase in the population living in urban areas. The third is the transformation of society attributable to the realm that people who live in towns and cities follow an urban lifestyle, which can be distinctive from a rural lifestyle.

Conclusion and Policy Recommendations

This study developed urban economics models, namely, the partial equilibrium model and the general equilibrium model, to analyze illegal settlements in Palangkaraya city in the Central Kalimantan Province, Indonesia. The partial equilibrium model is aimed at developing a preliminary theoretical analysis. The models are developed by employing the bid rent approach. Because the city is in a tropical region surrounded by river basins and has suffered massive deforestation of its surrounding forest, frequent floods and their corresponding damage to household assets in the city are inevitable.

Conclusion, Discussion, and Recommendations for Future Research

This dissertation studied environmental economic analysis based on an AHP using a structural economic model to establish efficient economic and environmental policy. Economic and environmental policy is efficient if the achievement is obtained with the minimum possible environmental impact without compromising its economic purposes. This study achieved its three primary objectives. The first contribution of this study is its normative importance of evaluating the economy and the environment to achieve sustainable development. Theoretically, this study evaluated an environmental economic system through the efficiency of economic and environmental integration. The second achievement is its application of a standard approach to policy-making and the efficiency is demonstrated by sharing it with other approaches. This study empirically evaluated decision-making based on the economic and environmental indicators of community preferences for a regional road construction project in Makassar, Indonesia. The third achievement is its empirical simulation of how to reduce CO2 emissions through carbon tax policy without sacrificing Makassar City’s economic welfare. The final chapter summarized the primary results of this study.

Database for a Computable General Equilibrium

The primary data used in this study are based on an input–output (I–O) table for Makassar City. Data from the social accounting matrix table along with other data sources such as elasticity values, exchange rate, and others are used to complete the I–O table data. The integration of sector aggregation in input–output and social accounting matrix tables uses mapping between the sectors contained in the primary data sources. This chapter explains how to construct the data for a CGE model. The explanation will be started with an understanding of the data structures of the I–O and social accounting matrix tables. The model’s coefficients and exogenous variables are estimated using the social accounting matrix tables. The CGE model requires elasticity parameter data and several of parameters.

Theoretical Development of the Partial Equilibrium Model

The partial equilibrium is a type of economic equilibrium model commonly used to analyze cities and urban areas from an urban economics point of view. In a partial equilibrium model, clearance on the market of certain specific goods is obtained independently from prices and quantities demanded and supplied in other markets. In other words, the prices of all substitutes and complements, as well as consumers’ income levels, are constant. This constancy enables a dynamic process that allows prices to be adjusted until supply equals demand. This powerfully simple technique allows one to study equilibrium, efficiency, and comparative statics. The stringency of the simplifying assumptions inherent in this approach makes the model produce results that do not effectively reflect real-world economic phenomena, although seemingly precise.

Issues of Illegal Settlements in Palangkaraya City

The last millennium marked a symbolic transition in the evolution of human settlements through which the world’s people become more urban than rural. The rapid population growth in cities gives rise to concerns about the changing nature of the relationship between rural and urban. In 2003, people who live in city areas of developing countries accounted for 48%, or approximately three billion people, of the world’s population; moreover, by 2035, half of the world’s poor people are projected to live in urban areas (UN-HABITAT 2006, 2010).

Constructing a CGE Model for Economic and Environmental Policies in Makassar City

Our study introduces a standard structure of CGE model that conforms to a basic of the Walrasian equilibrium to perform a joint analysis of economic and environmental policies; moreover, the model incorporates information about both the key economic variables and the environmental impact of economic activity. Taxes and government activity are taken to be exogenous for households and industries, whereas they are considered as decision variables for the government.

General Equilibrium Analysis

In Chap. 3, a partial equilibrium urban economics model was constructed, hence explaining the existence of illegal settlements in the flood-prone areas in Palangkaraya City in the Central Kalimantan Province. The model employed the EFDR on household assets, hence constituting land quality in the city. Applying the model leads to the conclusion that, in the flood-prone areas, the bid rent of high-income households can become lower than that of low-income households. Nevertheless, the partial equilibrium model is slightly lacking in reality because income is assumed to be exogenously given. In contrast, a general equilibrium model takes into account firms at which the households can endow available working time to obtain income. For that matter, income can be endogenously determined.

Economic and Environmental Issues in Makassar City

Every economic action can have some effect on the environment, and every environmental change can have an impact on the economy: every economic change is usually associated with a change in the welfare of society (Meadows 1972; Hanley et al. 1997; Wainwright and Barnes 2009). Human activity in the environment impacts human welfare. There is an interaction between the economy and the environment. This interaction is dynamic because the economy and the environment continually change one another.

An Analytic Hierarchy Process (AHP) Approach to Economic and Environmental Policy

Environmentalists and economists agree that indifference to the environment has caused environmental degradation and the depletion of natural resources. The underlying reason for the underestimation of assets is that not all environmental goods and services are included in the economic analysis of programs and policies. Many of the advantages provided by natural resources are public goods with no market price. When natural resources are supplied to one person, they are also available to others.