Market Failures and Abiotic Resources - PowerPoint PPT Presentation

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Market Failures and Abiotic Resources

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Market Failures and Abiotic Resources Review Fund-service vs. stock-flow resources Rival, non-rival but congestible, non-rival, anti-rival What s the relationship ... – PowerPoint PPT presentation

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Title: Market Failures and Abiotic Resources


1
Market Failures and Abiotic Resources
2
Review
  • Fund-service vs. stock-flow resources
  • Rival, non-rival but congestible, non-rival,
    anti-rival
  • Whats the relationship between rivalness and
    fund-service, stock-flow distinction
  • Excludable and non-excludable

3
AND MINERALS
4
Are These Market Goods?
  • Excludable
  • Rival
  • What about between generations?
  • Resource Exhaustibility A Myth Refuted by
    Entrepreneurial Capital Maintenance
  • By John Br├Ątland
  • What is the rule for efficient production of
    market goods?

5
How Important are Fossil Fuels?
  • Are they essential to modern civilization?
  • What are some of their critical uses?
  • Wealth of Nations and patent on steam engine
  • 20,000 hours of work in a barrel of oil
  • Extremely high energy return on energy invested
  • Are there any suitable substitutes to
    conventional oil?
  • Have we developed more substitutes or more
    complements since 1869?
  • What do we know about their demand curve?

6
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7
Negative Externalities degradation of public
goods
  • What are some of the externalities?
  • How serious are they?
  • Are they affecting things that are essential?
  • Are they affecting things with no substitutes?
  • How long do they last?
  • What is more essential and non-substitutable,
    fossil fuels or the things they degrade?
  • At what spatial scales do they occur?

8
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9
User Cost The Value Arising from Scarcity
  • What is the opportunity cost of extracting oil
    today?
  • User cost the opportunity cost of
    nonavailability of a natural resource at a future
    date that results from using up the resource
    today rather than keeping it in its natural
    state.
  • Marginal user cost is the value of one more unit
    of the resource in its natural state the
    opportunity cost of extracting one more unit
    today instead of in the future.
  • What does marginal user cost equal in a perfectly
    competitive economy?
  • The concept of RENT (royalties) and VCAT

10
User Cost The Value Arising from Scarcity
  • Whats the opportunity cost of not extracting
    oil?
  • The Hotelling rule balancing opportunity costs
  • Backstop technology, discounting and time to
  • What impact should user cost have on rates of
    extraction?
  • What impact does it have?
  • Why?

11
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12
Can you explain why, in a competitive market,
producers would pay resource owners a per-unit
fee equal to the MUC for the right to extract a
resource? Why dont we do this? What are the
obstacles?
13
Flaws in the NCE analysis
  • Maximizes NPV, ignores future generations
  • No one pays external costs (generally receive
    subsidies instead)
  • Empirical evidence contradicts it

14
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15
Alternative Explanations
  • Mayflower effect
  • Information effect
  • Scarcity effect
  • What should we expect?

16
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17
Fresh Water
18
Characteristics of Water
  • Stock-flow or Fund-service?
  • We treat it here as a stock-flow. Examples?
  • Renewable or exhaustible?
  • Aquifers?
  • Surface water?

19
Whats the demand curve look like?
How does this compare with a conventional demand
curve?
20
Will markets allocate water towards its best use?
  • What is the best use?
  • How do markets decide who gets to use something?
  • South Africa
  • Cochabamba
  • WTO
  • What are the implications of income distribution
    with respect to the efficient allocation of water
    towards its best uses?

21
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22
Will markets allocate water efficiently?
  • Problem of natural monopoly
  • How do monopolists maximize profits?
  • Current policies concerning water
  • Externalities, user cost (for fossil aquifers),
    rent, also applies
  • Big issue for VCAT, also relevant to watershed
    management

23
Ricardian Land
  • What is Ricardian Land?
  • What creates the value in Ricardian land?
  • Farmland?
  • Urban land?
  • Location, location, location
  • Positive externalities
  • How much of the value of Ricardian land is rent?
  • Whats the supply curve for Ricardian land?

24
Speculative Bubbles
  • The current mortgage crisis
  • Asian flu
  • Japans economic collapse
  • Impact on business cycle
  • How do we avoid these?

25
Relevance to Projects?
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