1b The Economy and the Environment

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Created by
Dianne

Cards (70)

  • Public goods: intra-temporal externality
  • Intratemporal: across space
  • Intertemporal: across time
  • Consumption indivisibility - Consumption by one user does not decrease the amount available to others
  • Consumption non-excludability - Once the g/s is provided, others cannot be excluded from enjoying the benefits of the g/s
  • Public goods' consumption indivisibility and non-excludability also applies to pollution
  • Pollutants
    • Cumulative – does not dissipate significantly over time
    • Non-cumulative – dissipates soon after being emitted
  • Fund pollutant
    • negative impact when absorptive capacity is exceeded
    • Organic matter (OM); CO2
  • Stock pollutant = environment has no absorptive capacity
    • Toxic and hazardous waste (THW), poisonous gases
  • Other types of pollution
    A) Plastic
    B) Noise
    C) Light
    D) Thermal
  • Externalities Across Time: Scarcity
  • User Pays Principle
    o The user of the natural resource bears the cost of running down the natural capital
    o The beneficiary of the natural resource-based community pays for its use
  • Regulation by rules
    o Well-defined property rights
    o Specifying technology
    o Specifying location
    o Mandating recycling, rehabilitation
  • Regulation by prices, market interventions
    o Repricing access price
    o Taxing waste to improve recovery rate
    o Market premium for sustainably produced resource-based commodities
    o Product certification
    o Bonds, subsidies, etc.
  • Scarcity cost
    • Whatever you use now will be limited in the future
    • If incorporated in present decision, decision-maker will be less aggressive
  • If costs are internalized, what is the new quantity produced and price?
    A) Qm>Q*
    B) Pm<P*
  • Supply curve shifts upward if scarcity cost is shouldered by producer or tax is imposed.
    Market solution: Produce less, higher price
  • Estimating the asset value of natural capital
    Private perspective:
    A) Ht*Rt
    B) 1+r
    C) t
    D) anticipated lifetime
    E) Ht = Harvest or extraction rate at time t
    F) Rt = economic rent at time t
    G) r = at market discount rate
  • Estimating the asset value of natural capital
    Societal perspective:
    A) Ht*NBt
    B) 1+SDR
    C) t
    D) anticipated lifetime
    E) Ht = Harvest at time t
    F) NBt - net economic benefits at time t
    G) SDR = social discount rate
  • Estimating the asset value of natural capital:
    If you expect resource to be managed in perpetuity, Perpetual Harvest formula:
    A) Ht*Rt
    B) sdr
    C) infinity
    D) sustained yield
    E) Ht
    F) sdr
  • Public rate is always lower than private rate
  • Social discount rate/social time-preference rate
    • premium society attaches to present consumption vs future
    • society's preference for immediate benefits over delayed benefits
    • lower than private
  • Flows and stocks of natural capital
    A) stock
    B) net price
    C) appreciation
    D) depreciation
  • “A resource use rate that is sustainable is one that can be maintained over the long run without impairing the fundamental ability of the resource to support future generations.”
  • Natural resource economic questions:
    Agricultural economics
    • How do farmers decide on what crops to produce, how much, and how to produce them?
    • How do farmers decide on (land and water) conservation practices?
    • What is sustainable agriculture? How can this be achieved?
  • Natural resource economic questions
    Mineral economics
    • What is appropriate rate of extracting ore from a mine?
    • How do exploration and addition to reserves respond to mineral prices)
    • Is mining a sustainable source of growth? How are the environmental externalities addressed?
    • How to optimize sequential land-use changes?
  • Natural resource economic questions
    Forest economics
    • What is the appropriate rate to harvest timber, when, and where
    • What technology to use, how much to invest in silviculture practices?
    • How much of state forest lands should be allocated for biodiversity and watershed protection?
    • What is the appropriate mix of production and protection forests?
  • Natural resource economic questions
    Marine economics
    • Capture fisheries: how much to harvest and what technology to use?
    • How to allocate access among commonly held fishery resources
    • Culture fisheries: how much investments, where, and processing to choose?
    • What instruments are needed to transform open-access fisheries to managed resources
    • How should coastal and marine waters be allocated among municipal and commercial fishers?
  • Natural resource economic questions
    Water economics
    • How is water allocated among various (competing) uses? Is raw water priceless?
    • How much to invest in storage, conveyance, recycling and pollution management?
  • Natural resource economic questions
    Energy economics
    • What is the appropriate of extracting underground resources (oil, gas, geothermal)
    • What is the appropriate mix of alternative energy sources (RE and non-RE)
    • How should pollution from energy producers be costed and taxed?
  • Capture fishery involves catching fish directly from water bodies i.e. lakes, sea, ponds, etc. Culture fishery involves growing, rearing, and then capturing of fishes from fish tanks.
  • Well-defined property rights to the ES (provisioning) and/or the natural asset
    Comprehensively assigned, well defined
    o Privately or collectively owned
    o Entitlements are known and enforced effectively
  • Well-defined property rights to the ES (provisioning) and/or the natural asset
    Exclusive and secure
    o All benefits and costs from the use of a resource accrue to the owner, and only to the owner, either directly or be sale to others
    o Regardless of whether the natural asset is privately or commonly owned.
    o Secure from involuntary seizure or encroachment from others
  • Well-defined property rights to the ES (provisioning) and/or the natural asset
    Transferable
    o Transferable from one owner to another through voluntary exchange
  • Well-defined property rights to the ES (provisioning) and/or the natural asset
    • Comprehensively assigned, well defined
    • Exclusive and secure
    • Transferable
  • Coase Theorem (1960) : by defining property rights, regardless of initial conditions, decentralized bargaining can produce efficient levels of environmental quality
  • Coase theorem and conditions that would make it work
    • Market system succeed in efficiently allocate resources through a set of competitive markets
    • Efficient allocation
    • Hoffman and Spitzer (1982) test through laboratory experiments.
    • Coase (1988, p. 15)
  • Efficient allocation: Pareto Optimal condition: a socially optimal allocation is arrived when any reallocation that makes one actor better off results in someone else worse off.
    o Well defined property rights for exchange among buyers and sellers
    o Consumers and producers behave competitively by maximizing benefits and minimizing costs
    o Market prices are known by all
    o Transactions costs are zero
    o Otherwise, market failure and inefficient resource allocation (Bator 1958)
  • Hoffman and Spitzer (1982) test through laboratory experiments. Robust only when:
    o Zero transactions costs; costless court system to uphold legal contracts
    o Agents who bargain have perfect knowledge of each other’s well defined profit or utility functions
    o Competitive markets for legal entitlements; no wealth effects
    o Profit-maximizing producers and expected-utility maximizing consumers
  • Coase (1988, p. 15)
    o Introduce positive transactions costs to reflect the real world
    o Externalities result from incomplete markers and from institutional constraints