This is the second, revised edition of a text based on a report commissioned by the Swedish International Development Agency (SIDA). The main purposes of the book are: to discuss the causes of environmental degradation from an economic perspective; to provide a conceptual framework for the organization of information in order to enhance environmental decision making; to provide an overview of economic mehtods that can assist in the evaluation of environmental costs and benefits; and to give examples of applications of the theoretical methods described. Policy failures are often overlooked as an obstacle to efficient environmental management. Although the main emphasis in this book is on project level analysis, it is essential that such analyses be linked to an understanding of the (dis)incentives for environmental improvements that general economic and particular environmental policies provide. Another key feature of the book is formed by the links provided between theory and empirical illustrations. It is hoped that these will illustrate the practical usefulness as well as the difficulties of applying economics to environmental problems. This new edition has been extended to include a chapter on management of environmental resources and environmental policy instruments. The chapter also includes a discussion on common property resources, a subject which was only briefly dealt with in the first edition. Two case studies concerning policy failures have been added to the last chapter of the book.