Environmental and Resource Economics

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Environmental and Resource Economics

• Dr. Richard S.J. Tol
• Michael Otto Professor of Sustainability and
  Global Change
• Depts GeoSciences Economics

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Environmental and Resource Economics, lecture 1

• Course aims and set-up
• Efficiency, optimality, sustainability
• The emergence of environmental and resource
  economics
• Basic features

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Contact

• Troplowitzstrasse 7, Room 6114 (1st floor)
• Tel [phone]
• Email tol_at_dkrz.de
• Web-site http//www.unihamburg.de/
• Wiss/FB/15/Sustainability/
• courses.html or envresecon.html
• Im usually there on Mondays and Wednesdays

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The Course

• A comprehensive introduction to the economic
  theory of environment and resources
• Further courses valuation, international
  environmental problems
• Prior knowledge micro, macro, calculus
• Book R. Perman, Y. Ma, J. McGilvray, M. Common
  (1999), Natural Resource and Environmental
  Economics (2nd ed.), Longman, Harlow, ISBN 0 582
  36876 0

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The Lectures, before Xmas

• 29.10 Sustainability
• 2.11 Ethics and the environment
• 12.11 Efficiency and optimality Market failure
  and public policy
• 19.11 Use of environmental resources
• 26.11 Extraction of non-renewable resources
• 3.12 Extraction of renewable resources
• 10.12 Forestry resource policy
• 17.12 Valuing the environment

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The Lectures, after Xmas

• 7.1 Pollution control targets
• 14.1 Pollution control instruments
• 21.1 International environmental problems
• 28.1 National accounting I-O modelling
• 4.2 Corporate accounting
• Exam 11.2 or 18.2

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Wahlpflichtfach Umweltökonomie

• WS ERE1 Environmental Resource Economics
• SS ERE2 Global Environmental Problems
• ERE4 Agriculture and the Environment
• Sem Issues in Environmental Economics
• WS Sem Contemporary Environmental Problems
• SS ERE3 Valuation Theory
• ERE4 Agriculture and the Environment
• Sem Issues in Environmental Economics

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Globale Zukunftsfragen

• A lecture series on sustainable development with
  high level speakers
• Topics include biodiversity, globalisation, food,
  population, energy, health, and water
• Every Thursday, ESB, 1700 ct 1900 (except
  this week and next ESC)
• There is also an essay and a research contest,
  with prices worth 15,000 Euro
• See http//www.globale-zukunft.de

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Three Themes

• Efficiency The allocation of goods and services
  by the market to rational agents is efficient
  only if there are no externalities
• Optimality Efficiency is a necessary but not a
  sufficient condition for optimality optimality
  includes equity
• Sustainability Taking care of posterity

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The Emergence of Environmental and Resource
Economics

• Classical economics
• Neo-classical economics
• Welfare economics
• Recent developments
• Alternative approaches
• Towards interdisciplinarity

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Classical Economics

• Smith invisible hand of general equilibrium,
  social good by individual action
• Malthus growing population, diminishing returns
  to scale in agriculture
• Ricardo diminishing returns to scale (intensive
  margin), diminishing quality (extensive margin)
• Mill innovation, input substitution amenity
  value it is only in backward countries of the
  world that increased production is still an
  important objective (1857)

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Classical Economics -2

• Mill (1857) There is room in world, no doubt,
  for a great increase in population, supposing the
  arts of life to go on improving, and capital to
  increase. ... The density of population
  necessary to obtain all of the advantages both of
  cooperation and of social intercourse ... has
  been attained. A population may be too crowded,
  though all be amply supplied with food and
  raiment. ... Nor is there much satisfaction in
  contemplating the world with nothing left to the
  spontaneous activity of nature

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Neo-Classical Economics

• Value is relative, determined in exchange,
  reflecting preferences, production costs and
  scarcity
• Demand and supply, partial and general
  equilibrium
• Absolute scarcity no longer seen as a problem, a
  reflection of the times
• Keynes macro-economics indirectly reinvoked
  interest in economic growth
• Earlier growth models no resource limits

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Welfare Economics

• Rigorous theory of social good
• Utilitarianism Social good is the weighted sum
  of individual good
• Pareto optimality At least as good for all,
  better for one (actual and potential)
• Marshall and Pigou Externalities and taxes if
  there are unintended and uncomponsated
  consequences of one agent to the next, the market
  transactions need not be Pareto improving Pigou
  taxes can counteract this

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Environmental and Resource Economics

• In the 1960s and 70s, things changed Limits to
  Growth, Silent Spring, oil crisis, pollution,
  space travel, congestion
• First, natural resources are scarce
• Second, environmental services are valuable
• Third, there are significant environmental
  externalities

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Spaceship Earth

• Kenneth Boulding (1966)
• The shadow of the future spaceship, indeed, is
  already falling over our spendthrift merriment.
  Oddly enough, it seems to be in pollution rather
  than exhaustion, that the problem is first
  becoming salient. Los Angelos has run out of air,
  Lake Erie has become a cesspool, the oceans are
  getting full of lead and DDT, and the atmosphere
  may become mans major problem in another
  generation, at the rate at which it is filling up
  with junk.

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The Circular Economy

• R?P?C R?WRP?WPC?WC
• First Law of Thermodynamics RWWRWP WC
• Boulding Waste feeds back into resources,
  production and consumption
• Capital stock only adds delays, does not change
  matters
• Recycling RrW (1-r)W is real waste
• Georgescu-Roegen Second Law of Thermodynamics
  rlt1

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Environmental andResource Economics

• Environmental and resource economics has now
  become a respectable field
• All US UK universities offer an education
  programme
• There are specialised journals, including JEEM,
  REE, ERE, EPA, LA while general journals and
  conferences have regular sessions on env. res.
  econ.
• Leading economists like Arrow, Bradford,
  Jorgenson, Nordhaus, Sachs, Solow
• Were just waiting for the Nobel Prize

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Recent Developments

• (Evolutionary) game theory for resource
  management, international agreements
• Imperfect competition and endogenous
  technological development and diffusion for
  limits to growth, other long term issues
• Overlapping generations
• International trade and investment
• Behavioural economics for valuation

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Alternative Approaches

• Neo-Austrian economics No fundamental
  differences, except in production process
• Ecological economics
• Legitimate concerns, particularly about the
  application of outdated economic theory to
  environmental issues
• Lot of critique, little alternatives
• Half-baked ideas, but influential

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Towards Interdisciplinarity

• Environmental problems violate disciplinary
  boundaries
• Some economics models violate basic facts of
  physics, chemistry or ecology
• Increasing emphasis on multi-disciplinary work
• Towards new disciplines, interdisciplines and
  transdisciplines

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Three Fundamental Features

• This course Little attention to recent
  developments, alternative theories
• Focus on basic economic theory as applied to
  environmental and resource issues
• Property rights, externalities, efficiency and
  government intervention
• Central theme If we treat the environment as an
  economic good, a lot of environmental problems
  would be solved