1b The Economy and the Environment

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