ECONOMICS OF THE ENVIRONMENT (FES 505) School of Forestry and Environmental Studies Yale University Fall 2010

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1 ECONOMICS OF THE ENVIRONMENT (FES 505) School of Forestry and Environmental Studies Yale University Fall 2010 Prof. Matthew Kotchen Office: 226 Kroon Hall Office hours: Wednesdays 10:30 noon. Class lectures: Tuesdays and Thursdays 9:00 10:20 Discussion sections: (locations TBA) Mondays: 3 4. Tuesdays: 1 2 and 4 5. Wednesdays: 4 5. Teaching Assistants: Ali Akram, agha.akram@yale.edu, office hours: Fridays (location TBA) Yaniv Stopnitzky, yaniv.stopnotzky@yale.edu, office hours: Thursdays (location TBA) Course Overview This course is considered a foundations course within the MEM program at the Yale School of Forestry & Environmental Studies. This course provides an introduction to the field of environmental and natural resource economics and policy. It covers both general methodological principles and specific applications. Rather than serving a standard course in environmental and natural resource economics, the course is tailored specifically to masters students pursuing degrees in environmental management. It thus has a focus on environmental problem solving in the real world. While the course begins with a review of the principles of microeconomic analysis applied to environmental and natural resource management, it quickly moves into applications of current concern. These include, but are not limited to: evaluation of environmental policies (e.g., standards, taxes, cap-and-trade), cost-benefit analysis and its critiques, non-market valuation (ecosystem services, revealed and stated preferences), discounting and macroeconomic perspectives on climate change, management of nonrenewable resources (oil, minerals, etc), management renewable resources (forests, fisheries, etc.), land and biodiversity conservation, relationship between development, trade, and the environment, strategic incentives for international environmental agreements, environmental behavioral economics. Course Materials There is no required text or reading packet for the course. Assigned and optional reading will be made available in advance online through a course website. When slides are used in class, they will generally be made available online the evening before the day of lecture. Course Requirements There are no prerequisites for the course, but this course does serve as a prerequisite for many of the more advanced electives in economics within the School of Forestry & Environmental Studies. All students are expected to complete the assigned reading before class, as lectures will build on rather than reiterate read-

2 ing material. There will be numerous problem sets assigned throughout the course. You may work on the problem sets in groups; however, you are responsible for writing your own answers, in your own words. Working through the problem sets will help you to understand the material and prepare for the exams. Course Grades Course grades will be based on the following breakdown: Problem sets 20% [due dates to be announced shortly] Midterm exam 30% [in class scheduled for October 21] Cumulative Final exam 50% [regularly scheduled exam time] Tentative Assignment Schedule All assignments are due on the Friday date listed before 5:00 PM and should be turned into the Economics of the Environment box in the Kroon mailroom. The lowest scoring assignment will be dropped from evaluation, which means that one missed assignment will have no impact on your assignment grade. Tuesdays Sept 2 Thursdays Sept 7 Sept 9 Assignment 1 posted, due Sept 17 Sept 14 Sept 16 Assignment 2 posted, due Sept 24 Sept 21 Sept 23 Assignment 3 posted, due Oct 1 Sept 28 Sept 30 Assignment 4 posted, due Oct 8 Oct 5 Oct 7 Assignment 5 posted, due Oct 15 Oct 12 Oct 14 Practice exam distributed Oct 19 Oct 21 Midterm exam Oct 26 Oct 28 Assignment 6 posted, due Nov 5 Nov2 Nov 4 Assignment 7 posted, due Nov 12 Nov 9 Nov 11 Assignment 8 posted, due Nov 19 Nov 16 Nov 18 Assignment 9 posted, due Dec 3 Nov 23 Nov 25 Thanksgiving break Thanksgiving break Nov 30 Dec 2

3 Introductory Material PRELIMINARY LIST OF READINGS Required (and optional) readings will be assigned in advance. Readings are subject to change throughout the semester. Kotchen, M. and O. Young, Meeting the Challenges of the Anthropocene: Toward a Science of Coupled Human-Biophysical Systems, Global Environmental Change, Schelling, T. C., Excerpt from the first chapter of Micromotives and Macrobehavior. New York: W.W. Norton & Company, Positive and Normative Analysis of Markets N. G. Mankiw, Principles of Microeconomics, Chapter 4: The Market Forces of Supply and Demand N. G. Mankiw, Principles of Microeconomics, Chapter 7: Consumers, Producers, and the Efficiency of Markets N. G. Mankiw, Principles of Microeconomics, Chapter 10: Externalities N. G. Mankiw, Principles of Microeconomics, Chapter 11: Public Goods and Common Pool Resources Theory and Practice of Environmental Policy Field and Field, Chapter 5: The Economics of Environmental Quality, Environmental Economics, Coase, R. The Problem of Social Cost, Journal of Law and Economics, Metcalf, G. Submission on the Use of Carbon Fees To Achieve Fiscal Sustainability in the Federal Budget, July 26, Stavins, R. The Real Options for U.S. Climate Policy, June 23, Stavins, R. Beware of Scorched-Earth Strategies in Climate Debates, July 27, Kotchen, M., Cost-Benefit Analysis, in Encyclopedia of Climate and Weather, 2 nd Edition, S. Schneider (ed.), Oxford University Press, forthcoming. Porter and van der Linde (1995) Toward a New Conception of the Environment-Competitiveness Relationship, Journal of Economic Perspectives. Palmer et al. (1995) Tightening Environmental Standards: The Benefit-Cost or the No-Cost Paradigm? Journal of Economic Perspectives. Values and Non-Market Valuation

4 Krutilla, Conservation Reconsidered, American Economic Review, Goulder, L. and D. Kennedy, Interpreting and Estimating the value of Ecosystem Services, The Theory and Practice of Ecosystem Service Valuation and Conservation, Oxford University Press, forthcoming. Kotchen, M. J. and N. E. Burger, Should We Drill in the Arctic National Wildlife Refuge? An Economic Perspective, Energy Policy, Kotchen, M. J. and S. D. Reiling, Estimating and Questioning Economic Values for Endangered Species: An Application and Discussion, Endangered Species Update, Tobias and Mendelsohn Valuing Ecotourism in a Tropical Rainforest Reserve, Ambio, Michael et al (1996) Water Quality Affects Property Values: A Case Study of Selected Maine Lakes, Maine Agricultural and Forest Experiment Station Publication 398. Discounting and Macro Perspectives on Climate Change NOAA, Restoration Economics: Discounting and Time Preference. Krugman, P. Building a Green Economy, New York Times Magazine, April 7, Heal, G. Climate Economics: A Meta-Review and Some Suggestions for Future Research, Review of Environmental Economics and Policy, Nonrenewable Resources Pearce and Turner, Exhaustible Resources, Chapter 18 in Economics of Natural Resources and the Environment, The Johns Hopkins University Press, Livernois, J, On The Empirical Significance of the Hotelling Rule, Review of Environmental Economics and Policy, 3(1), Forestry, Land, and Biodiversity Field, B. Chapter 12: Forest Economics, in Natural Resource Economics, Ando et al., Species Distributions, Land Values, and Efficient Conservation, Science, Ferraro and Simpson: Cost-Effective Conservation, Resources #143 (2001) Fisheries (1 class period) Field, B. Chapter 13: Marine Resources, in Natural Resource Economics, Hardin, G. The Tragedy of the Commons, Science, Costello, Gains, and Lynham Can catch shares prevent fisheries collapse? Science. 321, Heal and Schlenker Sustainable Fisheries, Nature 2008.

5 Development, Trade, and International Agreements Field and Field, Chapter 19: Economic Development and the Environment, Environmental Economics, Dasgupta et al., Confronting the Environmental Kuznets Curve, Journal of Economic Perspectives, Selected reading from Barret, S. Why Cooperate? The Incentive to Supply Global Public Goods, Oxford University Press, Selected reading from Barret, S. Environment and Statecraft: The Strategy of Environmental Treaty- Making, Oxford University Press, Sustainability Development (1 class period) Joy Hecht, Environmental Accounting, Resources, #135 (Spring, 1999) Joel Darmstadter, Greening the GDP, Resources, #139 (2000). Solow, Robert M., Sustainability: An Economist s Perspective. In Economics of the Environment: Selected Readings. (New York: W. W. Norton, Second Edition.) Other Topics Depending on Time Remaining