On the economics of project-induced displacement: A critique of the externality principle in resource development projects

Abstract

Externalities form in market economics because of an assumption that there is no essential relationship between the industrial activity and the host environment. Population displacement caused by resource development projects is a particularly difficult phenomenon to deny responsibility for, given that the originating need for displacement is grounded in an activity endorsed by the nation, for its collective benefit. When developers fail to account for, or “own” the costs of undertaking resettlement work, a large unmeasured portion of this cost is often transferred into the external environment. In this article we argue that in mining, externalisation involves a deferral of risk and financial liability throughout the lifecycle of projects. The high-upfront investment required under the World Bank policy framework is structured to reduce the immediate shock of displacement and provide affected people with the necessary means to rebuild their lives. This stands in clear contra-distinction to the high externality model of financing employed by developers which focuses on securing land access and subsequently deferring resettlement related costs until they reach crisis point. The authors construct a conceptual model to explain the linkages between resettlement financing, project lifecycles and the paucity of outcomes experienced by displaced populations.