Ecological Economics 40 (2002) 217 – 233

www.elsevier.com/locate/ecolecon

SPECIAL SECTION: ECONOMICS OF URBAN SUSTAINABILITY

City management and urban environmental indicators

Kenneth Button *
The School of Public Policy, George Mason University, Mail Stop 3C6, Fairfax, VA 22030-4444, USA

Abstract

Cities are complex and dynamic entities. They are also nodes in spatial economic, social and political geographical
networks. They are focal points for many of the concerns that underlay current debates about sustainable
development. The aim of this paper is to focus on the local environmental effects of urbanization and to consider
ways in which they may be effectively treated within the confines of an isolated city context and more generally when
urban areas are seen as part of a wider economic system. Particular attention is focused on information systems of
all types and on feedback mechanisms (including automatic mechanisms) which help, in particular, the integration of
economic and environmental considerations at the urban level. The underlying question being posed is that of
deciding on the role that urban indicators (both economic and environmental) can play in assisting to improve the
management of cities. The points made are general and conceptual rather than being of a quantitative and empirical
nature. There is no effort to try and provide comment on the existing indicators which various urban actors use in
their efforts to manage urban affairs. © 2002 Elsevier Science B.V. All rights reserved.

Keywords: Urban development; City management; Feedback mechanism

1. Introduction change and evolution of urban structures makes

Cities never have been, and never will be static
entities. Indeed, one of the reasons for their very
existence is the internal communications networks
that they provide for those living and producing
in urban areas. These networks, by supplying and
disseminating information about new technolo-
gies, products, lifestyles and opportunities,
provide the dynamics through which cities, and
often national economies, evolve. This continual
* Tel.: + 1-703-993-4647; fax: + 1-703-993-2284.
E-mail address: kbutton@gmu.edu (K. Button).
static analysis difficult and equilibrium concepts
almost irrelevant other than as counterfactuals in
policy evaluation exercises.
From a policy perspective, the interactions be-
tween changing economic, environmental and so-
cial parameters makes it difficult to track issues
and to develop both short-term reactive initiatives
or longer-term strategic plans. To be able to deal
with short-term difficulties it is generally impor-
tant to have early indications of the problems
and, in particular, turning points in on-going
trends. In both the short- and longer-term, poli-
cies require understanding of the inherent inter-

0921-8009/02/$ - see front matter © 2002 Elsevier Science B.V. All rights reserved.
PII: S 0 9 2 1 -8 0 0 9 (0 1 )0 0 2 5 5 - 5
218 K. Button / Ecological Economics 40 (2002) 217 – 233
linkages and structures that affect city develop-
ment and to appreciate where intervention is de-
sirable and where there are self-correcting loops.
This paper is concerned mainly with the types on
indicators that can be helpful in this process
within the context of economic, environmental
and social interactions.1 For ease of exposition,
the focus is primarily on the economic and envi-
ronmental dimensions. It also takes the view that
much can be learned from more traditional ap-
proaches to some of these topics and that, in
particular, there are important parallels in welfare
economics that are sometimes forgotten.
The paper initially looks at the concept of
sustainable development from a narrow geograph-
ical perspective of a city. It draws parallels be-
tween the way that efforts at refining sustainable
development policies are moving at the city level
and the more traditional notions of welfare eco-
nomics. It then moves to consider issues of spatial
responsibility; this influences not only the types of
economic and environmental indicators that are
germane to effecting a sustainable urban strategy,
but uses to which they may be put. The nature of
economic indicators, and their desirable attributes
at the urban level, is considered along with poten-
tially useful indicators. Particular attention is paid
to the nature and role of feedback mechanisms
that need to be considered in order for useful
indicators to emerge.
2. Cities and sustainable development
The idea of sustainable development, involving
environmental, economic and social consider-
ations, places a central role in the ways that many
policies are now defined.2 The inherent dynamism
of cities, however, combined with extensive inter-
urban spatial economic linkages, makes it particu-
1
The papers concern themselves mainly with cities in the
industrial world. In fact many of the really serious issues are in
lower income countries; see Burgess et al. (1997), Atkinson et
al. (1999), Polèse and Stren (2000).
2 4
A discussion of some of the problems of defining sustain-
able development is contained in Rees (1998).
larly difficult to think of the urban environment
within the context of sustainable development as,
for instance, defined by the Brundtland Report
(World Commission on Economic Development,
1987). In this case, sustainable development is
generally treated in temporal rather than geo-
graphical terms and is concerned with inter gener-
ation effects.3 This poses problems.
It is quite sensible to talk at the global level of
meeting economic development and other aspira-
tions within a set of constraints consistent with
those required to meet sustainable environmental
conditions, but this is difficult at any other geo-
graphical levels. In particular, there may be any
number of spatial development paths, any one of
which may be consistent with global sustainable
development — the selection comes down to ques-
tions of how one defines distribution rather than
efficiency. Indeed, this is to some extent illustrated
at a more macro level by the on-going ‘North –
South’ debate. The openness of economies, the
migration of people and the spatial transferability
of the worse environmental impacts of many ac-
tivities makes the notion of any unique idea of
‘local’ sustainable development almost
meaningless.
There are also the broader issues of what con-
stitutes sustainable development. The Brundtland
Report embodies a biblical vagueness in this con-
text. It is essentially concerned with the world’s
poor (‘…to which over-riding priority should be
given’), but at the same time accepts dynamic
change (‘…sustainable development is not a fixed
state of harmony, but rather a process of change
in which the exploitation of resources, the orienta-
tion of technological development, and institu-
tional change are made consistent with future as
well as present needs’4). To attain these goals the
Commission argues for ‘…more rapid economic
growth in both industrial and developing coun-
3
Specifically, the idea in the Brundtland Report that, ‘Sus-
tainable development is development that meets the needs of
the present without compromising the ability of future genera-
tions to meet their own needs’.
This would seem to have a welfare economics interpreta-
tion that the social discount rate is zero.
 K. Button / Ecological Economics 40 (2002) 217 – 233
tries’, with the expectation that ‘…a 5- to 10-fold
increase in world industrial output can be antici-
pated by the time the world population stabilizes
some time in the next century’.
Economic growth is, therefore, not only ex-
pected but advocated by the Brundtland Report.5
This runs counter to many views that economic
growth conflicts with environmental protection.
The Brundtland Report’s position is that eco-
nomic growth can be made consistent with longer-
term ecological requirements, but is essentially to
achieve the social and political stability that un-
derpins both. This has led to attempts to define
sustainable development in a fashion akin to tradi-
tional welfare economics. In the context of a city,
this would mean a change is consistent with sus-
tainable development if there are economic, envi-
ronmental, or social welfare improvements (often
defined in terms of the distribution of welfare, but
also embodies concepts such as civil liberties) with
no diminution in the other parameters. This may
be thought of as the economic/environmental/so-
cial welfare trilogy.6 The links to the concept of a
Pareto improvement is clearly visible. But as with
a Pareto improvement, such changes would be
rare and scope for a policy based on achieving
them extremely limited.7 The parallel welfare eco-
nomic solution to this, the Hicks – Kaldor – Ski-
tovsky compensation test, offers a pragmatic way
forward. It is the intellectual basis of cost – benefit
analysis. If one moves in this direction then one
can trade-off a diminution in economic income
against a gain in environmental quality or a more
desirable income distribution provided that there
is the potential to compensate for the losses. To do
this there is a need to quantify and evaluate. More
germane to this paper, given the dynamics of
urban structures, there is the need to be able to
foresee trends in advance that can either be con-
tained or stimulated dependent on their nature.
5
In the urban context this is often called the ‘brown
agenda’; for a discussion see Stren and Poèse (2000).
6
This, of course, ignores whether or not one can develop
meaningful measures for these factors.
7
For example, see Barkin (1997) for a discussion of how
increased economic efficiency may reduce overall social wel-
fare. A broader discussion of the various potential interactions
is contained in White and Witney (1992).
219
The economic/environmental/social welfare tril-
ogy concept has a second limitation. Urban
economies are complex entities that do not exist in
a vacuum. In these terms, actions at the urban
level must always be put in the very much broader
context of their global impacts and implications.8
Urban areas are major consumers of scarce re-
sources and major generators of a wide range of
trans-boundary and global pollutants. Again,
drawing the welfare economics parallel, there are
‘second best’ considerations involved. Indeed, spa-
tially one of the concerns of geographers is the
spread of the urban footprint. The parallel welfare
economics approach in this case would be to limit
analysis to purely local phenomena.9 Cities do
focus specifically on some economic activities, and
generate a wide range of social welfare benefits
within the urban area — they would not exist if this
were not the case. Additionally, and of particular
immediate concern to urban administrations (But-
ton, 1991a,b), urban areas generate a variety of
local environmental costs which are borne by
those living and working in each city and areas
immediately surrounding them.
Some local urban environmental effects are of
direct relevance to the question of sustainable
development, but others have less direct implica-
tions that are not immediately apparent. While
noise, dirt, soil contamination and community
severance have adverse local consequences for
urban areas, by influencing the pattern of eco-
nomic activity (through such things as stimulat-
ing firms to move to green-field sites and encour-
aging the suburbanization of housing10) they have
8
Cappello et al. (1999), for example, look at urban sustain-
ability and wider policies regarding energy.
9
Strictly, the welfare approach would be to focus on activi-
ties involving using partial equilibrium analysis on sectors
involving low demand and cost elasticities with agents outside
of the city.
10
There have been important changes in the urban struc-
tures found in industrialized countries (Henderson and Mitra,
1996). A number of interacting factors have contributed to
this. It is in part due to the increase in service sector activities
and to the greater importance of high value production, but it
also reflects developments in telematics (Nijkamp et al., 1996)
and emerging patterns of travel demand (Salomon et al.,
1993).
220 K. Button / Ecological Economics 40 (2002) 217 – 233
longer-term impacts on global resource utilization
and on the trade-offs required to attain global
sustainable development. Further, for technical
reasons there are interactions between local pollu-
tion matters and global sustainability. The reduc-
tion of lead in petrol reduces health problems
within the urban area, but it also reduces the
efficiency of combustion engines and increases
CO2 emissions.
What follows is a brief discussion of some of
the specifics of urban economies, to focus on these
local environmental effects of urbanization and to
consider ways in which they may be effectively
treated both within the confines of an isolated
urban context and more generally when urban
areas are seen as part of a wider economic system.
Attention is focused on information systems of all
types and on feedback mechanisms (including au-
tomatic mechanisms) which help, in particular,
the integration of economic and environmental
considerations at the urban level. The underlying
question being posed is that of deciding on the
role that urban indicators (economic and environ-
mental) can play in assisting to improve the man-
agement of urban areas. The points made are
conceptual rather than being of a quantitative and
empirical nature. There is no effort to try and
provide comment on the existing indicators that
urban actors use in managing their affairs.
A key point is that even at the micro level, the
link between enhanced urban economic perfor-
mance and the local environment may in many
cases be positive. By enjoying a larger resource
base, cities can mitigate many of the problems of
noise, fumes and dirt that tend to be endemic in
poorer urban concentrations. Equally, the direc-
tion of causation can run the other way and, in
particular, in the context of modern high technol-
ogy sectors, a good urban environment is a neces-
sary prerequisite to attract investment and
employment.11 In terms of economic theory, the
11
In particular, a good local environment is required to
attract and retain the key highly educated workers required in
such industries. There is also evidence of a more general kind
that urban wage levels are negatively correlated with local air
quality, indicating that, other things being equal, location
costs are lower for firms choosing sites in less polluted cities
(Cropper and Affiaga-Salanis, 1980).
quality of the local environment enters these
firms’ production functions in the same way as the
more conventionally understood factors of
production.
3. The question of spatial responsibilities
To define and to make effective use of urban
economic and environmental indicators requires
an appreciation of the institutional context in
which they are developed. At the outset it is useful
to draw a dividing line between the respective
roles of local decision-makers and trans-urban
authorities. Urban areas, because of their concen-
tration of population and productive capacity, are
inevitably major generators of both trans-
boundary pollution (e.g. NOx ) and of global pol-
lutants (e.g. CO2). Due to the interdependencies
involved (many have classic economic public good
properties) and the breadth of geographical con-
cern, these are generally perceived as being of
wider policy significance and to be within the
domain of international, national, or possibly, in
the case of transboundary matters, regional ad-
ministrations (Blowers, 1992).
While transboundary and global environmental
matters come logically within the domain of
higher levels of government, there is nevertheless
an important need for both vertical and horizon-
tal integration of policy (Organisation for Eco-
nomic Cooperation and Development, 1990). The
vertical integration concerns direction from the
center regarding targets, and the provision of
training and information services. Certainly, there
may well be a case for leaving the detailed forms
of policy instruments adopted and the responsibil-
ity for enforcement of some aspect of policy in
these fields to urban authorities, but the overall
strategy and policy design is essentially a matter
for larger administrations in most cases.12 Hori-
zontal integration, especially relating to trans-
12
This may be less valid in developing countries where the
dominance of a single urban area coupled with the greater
effective control which the authorities in such an area can
exercise may make it more efficient to handle these environ-
mental matters within the city administration.
221 K. Button / Ecological Economics 40 (2002) 217 – 233
boundary matters, is required simply to limit beg-
gar-thy-neighbor actions that can entail each
community simply pushing the adverse effects of
socio-economic activities onto adjacent areas.
Local environmental quality in terms of provid-
ing acceptable (if not optimal) levels of noise
nuisance, low levels of atmospheric pollution and
safety, are more logically dealt with directly by
urban administrations. The major distinction,
from the analytical economic perspective, is that
while local environmental degradation is still a
negative externality, unlike global and transbor-
der problems, the sources of the problems and the
actual costs of the externality are contained within
the city. In technical terms, it has many similar
features to what are often called ‘club’ effects.
The role of central government should not be
seen as being totally absent in these circum-
stances. One can argue for involvement along the
following lines.13
• There are common lessons to be learned across
urban areas regarding the most effective way to
contain the types of environmental problems
found in urban areas, and central government
can serve an informational function in such
cases.
• While local environmental damage may be of
little direct and immediate concern to those
outside of the urban area, many impacts are
extremely long lived. Since the city decision-
making processes may not adequately take ac-
count of the interests of future inhabitants,
which may include migrants from elsewhere, a
higher level decision-making unit may inter-
vene to maximize temporal welfare.
• There may be welfare gains in coordinated
policies across urban areas. These may be in
the conventional form of economies of scale, or
possible scale and experience, in adopting com-
mon technologies or practices or, in the case of
mobile sources of pollution, applying uniform
flexible policy instruments.
• Urban areas, while often easily defined by legal
13
The practicality of introducing many of these structures
depends upon the willingness of local authorities to sacrifice
their autonomy and compromise their individual preference
sets for greater efficiency.
boundaries, interface with other land uses, and
it is important that border areas are suitably
managed. An authority with powers crossing
boundaries or some other coordinating mecha-
nism is, therefore, important even when han-
dling local environmental issues. The problem
of urban sprawl is the most obvious case of this
type of problem.
• Many conventional economic activities, such as
economic development programs, involve part-
nership (albeit seldom on an equal footing)
between urban and central authorities. Effi-
ciency in the combined management of the
local environment and economy would logi-
cally suggest similar partnerships in relevant
environmental spheres. Given the commonality
of many of the local environmental problems
found in cities, the most effective way to
achieve this may well involve trans urban
agencies.
• Research into both improving the technical
and managerial aspects of enhancing the over-
all performance of urban economies generally
enjoys economies of scale effects, and certainly
at least part of it can usually be more effec-
tively conducted by national or international
agencies.
These, and possibly other circumstances, ex-
plain the spheres where authority external to an
urban area has important policy roles to play.
Urban authorities themselves, by being closer to
the aspirations of those living in a city and, in
most cases, having the greater expertise in gather-
ing information relating to the costs of alternative
policy actions, have a natural advantage in han-
dling most local development and environmental
issues.14 The major practical difficulty is the coor-
dination of economic development actions with
policies designed for environmental improvement.
While there are often institutional reasons, a ma-
jor problem is that links between economic and
environmental performance at the local level are
poorly understood. The difficulty is often less
14
Greater centralization of authority could more appropri-
ately play a redistribution role to compensate environmental
losers.
 K. Button / Ecological Economics 40 (2002) 217 – 233
theoretical than it is empirical. Indeed, while most
countries have developed sophisticated national
accounting procedures, urban economic accounts
(especially relating to such things as inter-urban
trade flows and income transfers) are still often
very primitive. The situation regarding urban en-
vironmental quality is generally even worse, in
part due to the comparatively recent interest
shown in the subject and in part due to technical
problems of measurement and evaluation.
4. Economic indicators
Macro economists have been trying to develop
useful macroeconomic indicators reflecting the
performance of national economies since the
1930s. The notion inherent in Keynesian econom-
ics that it is possible to ‘fine-tune’ the economy to
prevent or dampen economic fluctuations depends
upon the ability to foresee when policy action is
required and the nature and magnitude of the
intervention necessary. The development of Na-
tional Income Accounting reflects one aspect of
this interest at the macro level.
Even at the national level economic indicators
have seldom preformed well. In some cases they
move in opposite directions, often as fundamental
changes are taking place in the economy. For
example, the steady increase in female participa-
tion in the labor forces of many countries has
acted to increase household income, but is often
correlated with slower increases in personal in-
come. Consequently looking at hourly wage rates
may provide a poor guide to increases in the
aggregate purchasing power in an economy. In
other cases it takes time to gather the data — a
notoriously difficult task for international trade
data.
Concern with urban economies in this type of
context is considerably more recent. It expanded
after the almost universal decline in the inner city
economies of most industrialized countries in the
1960s, and the increasing strains of excessive ur-
ban congestion that have emerged in many devel-
oping countries since the 1970s. The creation of
National Income Accounts and of national in-
put – output models also provided an intellectual
221
framework upon which to base at least some
economic indicators. The lack of suitable data
and the infrequency with which any data emerges
has impeded significant applications.
At the macroeconomic level there are a number
of widely used standard indicators of economic
performance, including Gross Domestic Product
(GDP), unemployment, capital investment, public
sector borrowing and inflation level.15 There is
also increasing use made of the triple European
Union (EU) indicators of GDP, unemployment
and migration at the meso (regional) level to
allocate resources, for example, from the Struc-
tural Fund.16 While these indicators are often
useful in describing and offering forecasts of on-
going trends, they are notoriously deficient when
it comes to pinpointing watersheds and turning
points. Many are essentially extrapolative in their
underpinnings.
At the urban level of aggregation the picture is
even less clear. While standard measures such as
local GDP and unemployment levels are often
used, they have their limitations. In particular,
they ignore important intra-urban spatial varia-
tions. For example, looking back to the 1960s
aggregate indicators for many cities recorded rela-
tively steady income growth, but this disguised
important shifts in both the spatial composition
of economic activity (from core to green field,
peripheral sites) and shifts from manufacturing to
service activities. Even the meso level indicators
such as migration are often unhelpful at the urban
level without further sub-divisions by social class
and occupation. The middle-classes serve a vital
role in starting up new local businesses and an
indicator that shows zero migration in situations
15
In his capacity as Chairman of the Federal Reserve in the
US, Alan Greenspan apparently consults a variety of eco-
nomic indicators (Martin, 2000). One important series seems
to be sales of paperboard. If these dipped, because they are so
important in packaging, it could be taken to mean that
economic activity was on the decrease.
16
In the European context regional policy has not only been
reactive to existing economic problems but there has been a
conscious effort to seek out regions where for structural
reasons it is anticipated economic problems may emerge in the
future.
 K. Button / Ecological Economics 40 (2002) 217 – 233
where these groups are being replaced by un-
skilled labor hides important longer term, adverse
consequences for a city’s economy.
Further, and returned to below, city economies
are characterized by externalities (which may be
positive as well as negative) that are not fully
reflected in conventional national income style
accountancy measures. While these are often di-
rectly correlated with the standard economic indi-
cators, there is simply a scalar effect and
important trends will still be reflected in leading
indicators. Whenever this correlation breaks
down, standard economic indicators reflect only
part of overall development patterns.
5. Environmental indicators
When seeking good indicators of the state of
the urban environment, and to gain some insights
both into future trends in environmental condi-
tions and into the types of urban management
strategy to be adopted, a number of crucial points
need to be considered.
First, there are several interacting stages in the
chain between the causes of excessive environmen-
tal degradation and the ultimate impact. Take the
very simple case of excessive urban traffic pollu-
tion. The base cause of the problem is that road
users are essentially receiving the wrong signal
from prices, regulations, and controls and in con-
sequence undertake excessive numbers of trips,
frequently by environmentally sub-optimal modes
and in inappropriately engineered vehicles. This in
turn produces the cocktail of local pollution and
other forms of environmental damage which leads
to the ultimate problems of ill-health, social dis-
ruption, noise, etc. Of course, the chain is not
unique to transport and applies in general terms
to virtually all forms of urban activity — energy,
waste disposal and so on.
The need for indicators is ultimately to provide
guidelines as to the damage that is being done to
the urban environment and the links this has with
economic activities. In practical terms, however, if
urban management policy is to be pro-active,
rather than simply be concerned with post, ad hoc
clean-up measures, then indicators require provid-
223
ing prior guidance to trends at earlier points in
the chain.
Tied in with this forecasting function, any set of
indicators has underlying it some theory of what
causes environmental decay in cities and the ways
in which key economic and political variables
interact. The indicators also provide guidance as
to the validity of these theories. Our understand-
ing of these issues has been expanding in recent
years, much of it stemming from a fuller apprecia-
tion of the links between economic and policy
imperfections.
In perfectly contestable economic markets,
where, amongst other things, environmental costs
are fully internalized and information is perfect,
prices provide complete indicators of the costs of
alternative actions and guidance to the impact of
policy change. In these idealized circumstances
there is no need for other environmental indica-
tors to be developed. There are two important
circumstances, however, where this situation
breaks down and alternative types of indicators
become necessary.
The first stems from market imperfections
where, for a number of reasons, the market fails
to convey the correct signals regarding the costs
of consumption and production. In the case of
environmental goods the primary failing is gener-
ally that environmental resources are outside of
the market mechanism and hence external to the
costing processes. The price of environmental
damage stemming from economic consumption
and production is thus indicated to be zero. But
even if environmental factors are internal to the
process, if they exhibit characteristics of a public
good nature (non-rivalness and non-excludability)
or if there are imperfections in market structures,
such as monopoly influences, then incorrect cost
indicators can be generated. Further, even in the
absence of these problems, full information of the
price of environmental degradation, because of
the transactions costs involved, may not be per-
fectly conveyed to those making decisions. Again
the urban environment would not be treated opti-
mally in economic decision-making processes.
These are all basically situations where the market
fails to provide perfect indications of the implica-
tions of utilizing environmental resources.
224 K. Button / Ecological Economics 40 (2002) 217 – 233
The second circumstance where markets fail to
operate effectively is where there are government
intervention failures. These are situations where,
if left to its own devices, the market would effec-
tively indicate the costs of environmental damage
and resource consumption, but where official in-
terventions create distortions and thus prices devi-
ate from true social costs.17 In other instances
such failures can occur when governments,
through their actions, worsen existing market fail-
ures or provide inappropriate responses to such
market failures. There are often very good reasons
for government interventions in markets, for ex-
ample, when they can genuinely effect reductions
in market failures or when distribution criteria are
deemed socially more important than narrowly
defined efficiency considerations. Government in-
tervention failures occur when such interventions
do not take full account of the long-term environ-
mental consequences involved or are simply coun-
ter-productive in their efforts to achieve specified
social objectives.
Dependent upon which of these two main
causes of economic failure is deemed relevant, so
the type of urban indicator being sought may
differ. For example, if market failure is seen as the
main urban problem then measures reflecting fac-
tors such as industrial concentration, economic
rents, labor migration, investment and the nature
of local land markets may be seen as important. If
government intervention failure is felt to be the
determining force then the scale of local govern-
ment expenditure, the share of the urban labor
force in public sector employment or the extent of
public ownership of urban land can be seen as key
indicators. The underlying point to be emphasized
is that to effectively manage the urban economy,
urban indicators should reflect the key causal
linkages rather than simply be an ad hoc set of
indices.
17
Button (1992a,b) offers a theoretical discussion of the
nature of market and intervention failures in the context of
traffic growth.
6. Attributes of urban indicators
At another level, irrespective of the broad cate-
gories of indicator being sought, there are general
characteristics of indicators that determines their
usefulness in assisting in urban management.18
While different groups within the urban setting
may have specific requirements, there are a num-
ber of key criteria that need to be considered
when selecting environmental indicators.19
• Indicators should in general be relatively small
in number and reflect the important environ-
mental trends of interest. Too many indicators,
especially if they are not clearly linked to spe-
cific environmental effects, can be confusing
and lead to potentially ambiguous signals being
sent to the policy makers. Also, several indica-
tors may be related to each other. Nevertheless,
there may well be an advantage of having only
one or two indicators relating to each of the
key sectors of the urban economy (such as
transport, refuse disposal and energy) where
effects can be multi-dimensional.
• It is important that indicators are sensitive to
the prevailing underlying conditions to which
they relate. Ideally, indicators should be good
at reflecting turning points very rapidly and, if
possible, offer forecasts of their possible occur-
18
There are a number of ways of looking at indicators. The
Organisation for Economic Cooperation and Development
(1993), for example, divides environmental indicators into a
trichotomy of pressure, state, and response (the PSR model).
The idea being that human activities exert pressures on the
environment that change its nature or state and that there are
societal responses through feedback loops. It is further devel-
oped in the context of transportation (Organisation for Eco-
nomic Cooperation and Development, 1999). This type of
framework is akin to that found in Button (1993), although
the latter has a five-stage chain running: the basic cause of the
problem � the physical effects � the environmental effects �
the human impacts � remedial measures. Whichever way it is
looked at, there is the inevitable problem of defining the
transmission mechanisms between the stages if indicators at
any one stage are to be used to predict outcomes at a later
stage.
19
The Organisation for Economic Cooperation and Devel-
opment (1993) advances three broad criteria regarding envi-
ronmental indicators: policy relevance and utility for users,
analytical soundness, and measurability.
 K. Button / Ecological Economics 40 (2002) 217 – 233
rence. The degree of sensitivity, however, is
influenced by the time horizon over which the
user of the indicator is interested, a point re-
turned to below.
• Linked to the above, the indicators, where
possible, should provide a ‘lead’ function in the
sense that changes in the trend of indicators
anticipate changes in the underlying environ-
mental condition of interest. Tied to this, infor-
mation relating to the indicators should be
relatively easy to collect so that the lag between
information gathering and interpretation is
minimized. This may be particularly relevant in
the context of types of environmental degrada-
tion where there are significant threshold
effects.
• It is often useful if indicators are readily quan-
tifiable, in other words, of an cardinal nature.
While notions of upward and downward trends
can be insightful on occasions, orders of mag-
nitude or detailed indices are of much more
importance.
• Indicators should, wherever possible, be consis-
tent across urban areas. While there may be a
strong case for local areas pursuing their own
particular environmental strategies, uniformity
of information provides useful guidance across
cities as to the impact of the various portfolios
of instruments that they favor. In economic
terms, consistency of information in these con-
ditions has certain merit good attributes.
The decision on the form of indicator to adopt
often depends on the time horizon under consid-
eration. In turn, the time horizon depends upon
the motivation for the development of indicators.
If the objective is to ‘plan’ the longer-term devel-
opment of an urban area then the attributes of the
indicator being sought are going to be different to
those deemed important, say, if the objective is to
contain short-term problems of nuisance.
If the aim is to ensure the longer-term develop-
ment of an urban area then indicators need not
reflect short-term fluctuations in local conditions,
but do need to provide robust general scenarios of
the direction the city is moving. Cities, of course,
are not isolated entities but fit in a larger eco-
nomic and ecological system and, therefore, these
longer-term indicators must also place changes
225
within a particular urban area within a much
larger, dynamic perspective.
If the aim is to tackle shorter-term, more micro-
based problems then the requirements placed on
indicators is somewhat different. They need to
provide more reliable guidance to immediate
events and, in particular, to ways in which policy
changes can influence the course of the events. In
the sense that most short-term issues are sectoral
or relate to one geographical part of any urban
area, they also normally need to be much more
focused in their orientation.
7. Urban policy and feedbacks
By definition, within any systematic structure
there are feedback loops. These are automatic
links in the system that bring about adjustments
to correct for various types of shock. To take a
non-environmental example, if with other things
being equal, the firms in the central business
district of a city suffer a reduction in the demand
for their services then the consequential fall in
land prices would attract alternative employment
and economic recovery would follow. Often these
feedback effects, are longer term than the direct
consequences of change, and may involve a vari-
ety of intermediate effects. Fig. 1 offers a simple
indicator of some of the links, both direct and
feedback effects, that can be found in an urban
economy. Not only is it difficult to isolate the
exact nature of feedback loops, but from a policy
perspective, successful interventions to influence
them requires knowledge of the time lags in-
volved. It is not difficult to isolate key driving
forces in many cities (e.g. the presence of highly
skilled labor force or of a major administrative
core). One can then trace that to factors such as
the nature of the local economy and even physical
form of the city, and from this to develop ideas of
how such things as mobility patterns may emerge.
This in turn can be viewed as influencing the
environment of the urban area. Moving from this
schema to quantification is difficult and becomes
even more so once a notion of dynamism and
feedback loops are introduced. It is not only the
exact nature of, for example, how mobility feeds
226 K. Button / Ecological Economics 40 (2002) 217 – 233
Fig. 1. A representative of key linkages between social change and urban dynamics.
back on the economic development of the city
that is difficult to specify, it is also the time path
that it takes.
At this simplest of levels, and in terms of
conventional micro-economics, feedback effects
come via the price mechanism — the fall in de-
mand in the central area of a city being contained
by price adjustments in the market for land. This
process of adjustment, however, is dependent
upon all the conditions inherent in the notion of a
perfectly contestable market. These market feed-
backs are, in practice, at best imperfect and, in
some circumstances and especially where property
rights are inadequately allocated or there are im-
portant scale effects, can prove to be perverse in
their nature. For instance, and continuing with
our earlier example, if there are major economies
of scale and scope then a reduction in demand for
the output of firms in a city center can result in a
spiral of circular-and-cumulative causation which
speeds further economic decay rather than stimu-
lating recovery. There may also be legacy effects
resulting from previous land-owners not bearing
the full costs of the soil contamination and local
pollution associated with their production/con-
sumption activities. Even a move to a fully con-
testable market would not, with these legacy costs
to be borne, result in revitalization of such areas.
Given the reality of these imperfections there is
a need for intervention to correct both the ongo-
ing distortions associated with imperfectly con-
testable markets and to remove the legacy effects
of past imperfections. Equally, however, there is a
danger that market imperfections may in these
circumstances be replaced by government inter-
vention failures. This may come about if the
policy making, or the official administrative struc-
ture is captured by those whose activities are
meant to be regulated. Such capture is quite possi-
ble when groups within the urban economy have
resources to expend to argue their position or
when they have control over important informa-
 K. Button / Ecological Economics 40 (2002) 217 – 233
tion flows required in the intervention process.20
In these circumstances, there are grounds for sup-
porting the use of automatic feedback mecha-
nisms which are, in a way, the administrative
equivalent to price adjustments within a con-
testable framework.
The idea of intervention utilizing feedback sys-
tems is also well established in macroeconomic
policy where the concept of automatic stabilizers
was developed alongside that of Keynesian eco-
nomics in the post-1945 period. Effectively, taxa-
tion policy would be used to contain excessive
growth during rapid national economic growth
and the funds accumulated deployed in public
works programs and given as unemployment pay
to stimulate demand during subsequent reces-
sions. Demonstrating how balanced budget multi-
pliers can be calculated across the trade cycle has
become a staple of macroeconomic courses.
Putting this type of approach into practice in
the urban setting poses several problems. At one
level an idealized framework has been developed
which brings together notions of how one might
link urban environmental problems, urban indica-
tors and city policy management. This very much
reflects the idea of a dynamic urban economy with
active public sector participation.21
The basic idea is that since urban economies are
dynamic and evolve over time, any feedback
mechanism should, like those deployed at the
macroeconomic level, make use of surpluses
gained during periods of economic growth to
compensate for periods of economic recession.
There is, in practice, considerable evidence of
cycles in economic performance of this kind at the
urban level. Employing this type of conceptual
framework permits the introduction of temporal
considerations into the discussion of local and
national policy instruments as tools in environ-
mental policy. It offers a framework for examin-
ing the particular qualities which one is seeking in
an urban indicator at various phases in the urban
20
This is one reason for making information regarding
trends in key indicators available to the general public.
21
A detailed diagrammatic presentation of the underlying
ideas is to be found in Button and Pearce (1989a,b).
227
development cycle, and to consider which indica-
tors are the more useful during these various
phases. It also offers guidelines as to the types of
policy instruments that can most usefully be de-
ployed at various points in the urban cycle, al-
though this should not be interpreted to mean
that the various instruments are redundant at
other times. It is more a matter of intensity of use,
and one objective in deciding upon the urban
indicators should be the extent to which they
provide guidance as to this intensity of use.
It should be seen that this approach differs
from the more conventional static framework that
follows the Tinbergen philosophy of matching a
policy instrument with a policy target. The purist
approach of matching targets and instruments is
particularly difficult at the urban level of policy
making where there are significant interdependen-
cies between the problems being addressed and
between the impacts of the policy instruments
being used. In this sense their effectiveness will
depend very much on the wider circumstances in
which they are deployed.
Urban growth (defined in terms of such things
as population, output, income, population density
or some other relevant indicator) can be consid-
ered to take a very general sigmoid pattern of
cyclical development time. In effect, we are as-
suming that the city goes through a succession of
different phases not dissimilar in nature to most
national economies (see Fig. 2). There is an initial
slow growth phase as investment takes place and
confidence grows. Once capacity is available and
demand begins expanding more rapidly so there is
a take-off, economic growth accelerates. After a
period, a plateau is reached, often followed by a
period of decline as confidence sags and existing
capacity in the urban economy makes investment
in new capital or buildings unattractive. Later a
new growth phase emerges.
From an urban policy perspective this simple
representation indicates two key policy problems
areas.
• First, from a narrow economic perspective (re-
garding such things as labor training, land use
allocation and public good provision) there is a
need to develop indicators, and linked with
these, policy responses, to handle each stage in
the cycle.
228 K. Button / Ecological Economics 40 (2002) 217 – 233
Fig. 2. Links between economic, environmental and social welfare trends.
• Second, from an environmental perspective
there is the need to have indicators of the type
of degradation likely to be associated with each
phase.
Working through a cycle, during a time of
economic recession the types of immediate envi-
ronmental damage suffered by urban inhabitants
tend to diminish. Reduced economic activity cur-
tails the demand for transport and for industrial
activity with resultant benefits in terms of lower
noise levels, less localized air pollution and reduc-
tions in traffic intimidation. What is often associ-
ated with low levels of economic activity is
deterioration in the fabric of the city as investment
is limited. This can produce legacy effects both in
terms of the quality of private infrastructure and
the maintenance of public infrastructure. These
conditions also often discourage new firms from
entering the area even if there are significant falls
in land prices. The public policy response, in
addition to standard measures of ensuring land use
policy is keeping rent down, could in such circum-
stances be aimed at improving labor quality and,
through such things as public/private joint ven-
tures, handle the problems of legacy effects.
Once an urban economy has been encouraged to
begin to grow, the initial danger is that the expan-
sion will occur on land which, while financially
cheap, may be environmentally sensitive and espe-
cially at suburban areas rather than central loca-
tions. Policies involving land-use planning
controls, zoning and differential land taxation can
be deployed to internalize the environmental dis-
tortions. Economic efficiency during this phase
may also be enhanced by the use of ‘bubbles’ and
similar quasi-market approaches.22
22
The figure can also be used to relate social welfare consid-
erations to economic trends.
 K. Button / Ecological Economics 40 (2002) 217 – 233
During the subsequent phase of rapid eco-
nomic expansion the policy problem is one con-
taining the overheating of the urban economy
and to contain the local environmental damage
associated with increased economic activity.
Careful monitoring combined with more inten-
sive use of flexible policy instruments, such as
local emissions charges, are relevant at this time.
Coupled with this, the higher level of economic
activity generates economic rent which can be
transferred through fiscal measures, effectively
contingency taxation, to public authorities and
be placed in reserves to meet the needs of subse-
quent downturns.
Peaks in economic activities are generally char-
acterized by enhanced competition and efforts to
maintain market share through cost reduction.
The danger from the local environmental per-
spective is that at least part of any financial
savings are achieved at the expense of insufficient
protection of environmental resources. A
strengthening of both fiscal and command-and-
control instruments is thus important during this
phase of any cycle.
Finally, during a downturn in urban economic
activity there is a tendency for the public author-
ities, confronted by a reduced local (and possibly
national) revenue base to reduce expenditures. It
is also the time that private sector companies
cease to put resources into many aspects of ur-
ban environmental importance (e.g. the external
fabric of their buildings is neglected) which in
turn adds to the problems of stimulating local
economic recovery. The public sector feedback
mechanism would ideally be drawing on reserves
built up during more prosperous times to stimu-
late economic rejuvenation both directly (e.g. via
partnership schemes and public projects) and in-
directly (e.g. through information dissemination
and improving the urban physical environ-
ment).23
23
This idealized world ignores the tendency for capture of
financial structures and there would be an inevitable tendency
for reserves to become current expenditures on items of imme-
diate (political) necessity without suitable earmarking mecha-
nisms.
229
Quite clearly, if one accepts this type of styl-
ized approach there is a need for the public
authorities to have sets of indicators which
reflect each stage in the cycle and which highlight
the extent to which policy portfolios should be
adjusted to correspond to the evolving situation.
But linked with this, the non-public sector actors
in the urban situation also require appropriate
information to adjust their stances. If they have
appropriate indications of what is happening
then there are processes within the nature struc-
ture of any urban economy that will activate
automatic feedback mechanisms; a sort of indica-
tive planning mechanism.
The link between urban economic development
and the state of the local environment is cer-
tainly still not fully understood. It also seems
likely from what is known that the importance
of particular local characteristics of a city means
that generalizations across urban areas are often
inappropriate. Case study approaches may well
provide more insights than more general statisti-
cal examinations of linkages. Nevertheless, there
do appear to be a number of automatic feedback
mechanisms that bring about adjustments in ur-
ban economies as environmental and economic
conditions change.24
Feedback mechanisms can take a variety of
forms. Some of these require individual, case-by-
case actions brought about by policy makers and
are often in response to general movements in a
key indicator of some kind, perhaps levels of
traffic congestion or hectares of derelict land. To
adopt the jargon of Saville Row, tailoring these
may be seen as ‘bespoke-feedbacks’.25 Other
feedback mechanisms, however, are automatic.
They require no particular action on the part of
law makers, but rather reflect a system reaction
to evolving conditions — an ‘off-the-peg’ policy
approach, to carry through the tailoring analogy.
24
An early analysis of feedback mechanisms in the ecosys-
tem are found in Holling (1986).
25
Here one can think of recent efforts to redesign urban
land-use patterns on environmental criteria (Spiekermann and
Wegener, 1992; Breheny, 1992; Rickaby et al., 1992) or to
develop policies for ‘sustainable urban transport’ (Ruijgrok et
al., 1992; Newman and Kenworthy, 1989).
230 K. Button / Ecological Economics 40 (2002) 217 – 233
Of course, in practice feedbacks usually embrace a
combination of influences and some of the poli-
cies outlined might well be of the bespoke kind
while others are rather more off-the-peg.
While categorization has its limitations, one
might usefully consider some of the more impor-
tant types of feedback mechanisms under a num-
ber of headings. What should be remembered,
however, is that many of these mechanisms are
inter-linked and in practice often work together to
generate synergy effects.
7.1. Market
The market feedback mechanism represents the
classic economic idea that price is the appropriate
indicator. If environmental costs are fully inter-
nalized then there exists perfect feedback from
environmental resource utilization to its cost. The
price indicator requires that rights to environmen-
tal exploitation (such as the right to use urban air)
are completely allocated and, therefore, can be
traded in markets. If the exploitation of the local
environment is excessive then its price rises and
consumption is contained. In many cases, the
containment may come through migration from
the city rather than changed behavior within it.
The mechanism provides for balance between
conventional economic resource use and use of
environmental resources. In terms of dynamics, it
also means that if material prosperity is increas-
ingly sought by urbanites so the costs of using
environmental resources rises. In doing this, how-
ever, it stimulates the search for new technologies
(in the widest sense) to conserve highly priced
environmental attributes. In less abstract terms, if
the environment is priced and increasing pressures
are put this will create high prices for such things
as noise permits, land use and air pollution li-
censes, and then will stimulate an automatic reac-
tion leading to economies on their use. To
maximize the efficiency of these feedback effects
there is the need to ensure that all relevant mar-
kets are contestable, that is, open to potential
competition. The incomplete nature of most mar-
kets limits their feedback role.
7.2. Administrative
Many urban activities are provided by public
agencies that have a commitment to meet prede-
termined criteria. These criteria normally em-
brace, implicitly if not directly, some26
notion of
maximizing long-term social welfare. While deci-
sions are seldom based on market principles, nor
do the prices charged for public services conform
strictly to those consistent with the environmental
costs involved, the techniques adopted often ap-
proach a second best solution. In particular, tech-
niques such as cost – benefit analysis (in all its
guises) are widely used when deciding on urban
public investment and these embrace consider-
ation of many local environmental factors. A
major problem is that these quasi-market proce-
dures are far from perfectly developed to date.
Further, within the administrative structure there
are still generally problems of coordination of
functions and of allocation of responsibilities be-
tween those, for example, responsible for strict
financial matters and those with planning and
environmental remits.
7.3. Political
Democracies have a natural long-term feedback
process through the local government machinery.
If the urban environment is, in its broadest sense
unsatisfactory, then elections will see a change of
local government. In the longer term, for instance,
if an urban area is revitalized through some policy
actions then those attracted to the city will press
for further reforms to protect and enhance their
position. Even if it leaves some residents discon-
tent, following the Tiebout view of the world,
these people still have the option of voting with
their feet and moving to cities where the eco-
nomic/environmental mix is more to their liking.
The power of the mechanism depends very much
on the nature of the local political structure and
the degree of power exercised by urban as op-
posed to state or federal government.
26
There are associated matters relating to the financing of
urban public expenditures and how this ties in with the use of
economic instruments by urban authorities to contain environ-
mental degradation (Feitelson, 1992).
231 K. Button / Ecological Economics 40 (2002) 217 – 233
7.4. Legal
There are many legal, effectively command-
and-control instruments, which provide feedbacks
with urban areas. These can embrace laws requir-
ing certain design standards to be adopted as new
buildings are completed, that there is appropriate
transport access to premises, that designated areas
of land are not violated and that safety standards
are conformed to. These legal feedbacks are often
seen as mechanisms that contain urban economic
expansion within the boundaries of acceptable
environmental standards. While local urban by-
laws are often influential, the automatic element
of the feedback process is frequently through the
impact of national legislation which helps to con-
tain possible spillover effects into other areas.
7.5. Social
These feedbacks often take the form of public
reaction and an upsurge of non-governmental
bodies. They do not normally stem from any
institutionalized or market-based framework, but
rather reflect grassroots disquiet over particular
issues.27 In this important sense, the feedback here
differs from other forms in that there is no sys-
tematic way of analyzing. The feedback is cru-
cially dependent on information (including
inaccurate information). For the feedback to be
productive, the information should be as complete
and unambiguous as possible to avoid exploita-
tion or capture of public opinion by particular
groups. Equally, education is important if the
information is to be understood and appropriate
conclusions drawn from it. Unfortunately, full
information is not ubiquitous and education is
often limited.
For each of these feedback mechanisms to be
effective there is a need for particular types of
urban indicators to be available. Markets clearly
need accurate price indicators. At other levels,
27
This type of feedback link was given particular emphasis
in European Union discussions of urban environmental issues
(Commission of the European Communities, 1990) although
the extent that social feedback was seen as institutionalized in
the activities of non-governmental agencies is somewhat vague.
productive administrative feedback often comes
about through the availability of shadow price
indicators. In the case of transport this may in-
volve such things as the costs of congestion, the
productive losses stemming from high accident
rates and the lost investment due to unreliable
delivery services. Essentially, the indicators are
reflective of quasi-prices. Legal feedback mecha-
nisms are more often activated by physical indica-
tors relating to such things as levels of low level
ozone and the level of noise.
Social feedback is rather more difficult to access
because of its diverse nature. Most actions are
focused on specific issues (e.g. removing lead from
petrol) rather than aimed at the general condi-
tions of the urban area. How topics of interest
emerge is under researched and poorly under-
stood. In terms of key indicators it would seem
important, if the feedback mechanism is to work
effectively, that monopoly control of information
should be avoided. The nature of the feedback is
almost by definition optimized through maximum
openness.
8. Conclusions and issues to be addressed
No attempt has been made in this paper to
define in any detail what particular variables or
indices should be adopted as urban indicators.
That requires rather more detailed studies of what
information is available at the urban level, how it
can be presented and by what means it can be
disseminated. Rather, the primary concern has
been to provide an introductory examination of
how urban environmental indicators can fit into
urban management, both in terms of their use by
public agencies and by the wider body of people
living and working in cities.
Urban economies are complex entities embrac-
ing a variety of interactive forces. There are im-
portant links between the local environmental
conditions pertaining within a city and the eco-
nomic performance of that city. While poor envi-
ronmental conditions stemming from congestion,
noise, dereliction and fumes may in some circum-
stances reflect low costs of production they may
equally well create labor and factor shortages,
 K. Button / Ecological Economics 40 (2002) 217 – 233
especially in modern industries dependent on
skilled workers and individual entrepreneurial ini-
tiative, which can equally well limit economic
prosperity.
Fuller information about the nature of these
interactions can help both improve public policy
responses and stimulate automatic feedback
mechanisms. The role of urban indicators can
prove important in both contexts. They can
provide some guidance as to when interventions
may be needed but, and just as important, they
may be seen as a mechanism to indicate where
automatic feedbacks can kick-in and interventions
are possibly best avoided.
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