Natural Resource Economics

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Natural Resource Economics

• Wednesday, January 11

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Natural Resources

• Land
• Minerals iron, quartz, potash
• Energy petroleum, coal
• Water
• Forests
• Fisheries
• Biodiversity

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Natural Resource Economics is about

• Resource Adequacy
• Resource Scarcity
• Distinction between physical and economic
  scarcity

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Economic Scarcity

• A resource is scarce if there is less available
  than would be demanded if its price were zero
• Scarcity is a function of demand as well as
  supply
• e.g. gasoline

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Natural Resource Economics is about

• The allocation of scarce resources across uses
  and users
• Space
• Criterion for allocation static efficiency
• Time
• Criterion for allocation dynamic efficiency

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Natural resource economics is concerned with
externalities

• Externalities shift costs
• Across space
• Across time
• When goods are non-exclusive or have high
  exclusion cost
• When goods are indivisible in consumption or
  non-rival
• When goods are congestible
• Externalities are ubiquitous

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Natural resource economists focus on institutions

• Social devices that define the rights and
  obligations of participants in a decision process
• Produce incentives and disincentives that cause
  or resolve natural resource problems
• Assume they are endogenous to the analysis

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Natural Resource Economics

• Recognizes that natural resources have extractive
  uses
• as inputs to production processes
• Recognizes that natural resources provide
  services in non-extractive uses
• e.g. recreation, scenic value, preservation of
  biodiversity

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Natural Resource economists work with resource
valuation

• Efficient allocation of a scarce resource between
  two competing uses requires that we know its
  value in each use
• Allocation issue may be between use and non-use
  -- allocation between time periods
• Using product and service markets to judge
  natural resource values is limiting

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Natural Resource economists work with resource
valuation

• Resources matter (have value)
• In extractive uses
• In non-extractive uses
• Assumption is that resources matter (have value)
  because people think they do

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Natural Resources in Sustainable Development

• To what extent should natural resources be used
  to spur economic development?
• Will current resource use patterns seriously
  undermine other important aspects of the
  development process?

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Natural Resource Use and Economic Development

• Economic well-being is measured by things like
  GDP, value of final goods and services.
• Growth of GDP implies economic growth and
  progress (development)
• If more cars are purchased, GDP increases

GDP Gross Domestic Product
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Limitations of Economic Accounting

• Increased production of cars to meet demand
  stocks of ore, petroleum decline
• Increased consumption of cars petroleum stocks
  decline
• Reductions in natural resource stocks are not
  reflected in GDP
• Understanding value of natural resources is key
  to refining accounting measures

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• What are the implications of mining for oil in a
  remote wilderness area?
• Should Great Lakes water be sold to Texas or
  California?
• How many fishers should be allowed access to a
  particular fishery and should their catches be
  limited?
• What difference does clean water make to the
  economic climate of a state or region?
• Should land be set aside as open space or for
  agriculture or for recreational uses?

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Assignment for Wednesday, Jan. 19 Read The
Return of Malthus Ghost (On ANGEL)