ENVIRONMENTAL ECONOMICS

Transcription

1 1 Econ 8545 Edward Morey January 12, 1995 ENVIRONMENTAL ECONOMICS Course Description Environmental Economics (8545) considers the efficient and equitable use of society's scarce environmental resources. Environmental resources include; air, water, land, wilderness areas, parks, wildlife and genetic diversity, and other scarce ecological systems. Use of these resources will be considered from three perspectives: the market allocation, the optimal allocation, and government attempts to achieve a more efficient and equitable allocation. Environmental economics is a course in applied welfare economics and will consider externalities (particularly with respect to pollution) and the economic evaluation of amenities (recreational and environmental) in detail. Courses in environmental economics and natural resource economics both consider natural resources but differ in that natural resource courses have historically dealt with the intertemporal utilization of conventional renewable and nonrenewable natural resources such as fish, trees and minerals, whereas environmental courses have considered pollution and other environmental issues from a static perspective. This historical distinction is starting to blur. Details Review questions will be handed out for each section of the course. I strongly encourage you to write out answers to the review questions and discuss them with your classmates. You will want to form study groups. There will be a comprehensive final which will constitute 35% of your course grade. There will be N short exams during the term and your best (N-1) short exam scores will constitute 35% of your course grade. Use the review questions to study for these short exams. Some of the short exams will be take-home and some will be group short exams. I will tell you in advance if a short exam is a group short exam. The group will work together and just tum in one short exam. Everyone in the group will get the same grade for that short exam. Group short exams are one incentive to work and study together. There will be two papers, a term paper (5-15 pages - no more, 20% of your course grade), and a short paper ( 5-10 pages, 10% of your course grade) that discusses in detail the regulation of a particular pollutant or type of pollutant. For the term paper, either choose some environmental problem and evaluate it in economic terms or analyze some theoretical issue in economics that has particular relevance to environmental economics. Please discuss your paper topic with me before you write your paper. The final copy of your paper will be due in my office three days before the final. If you get a preliminary version to me at least ten days before the due date, I'll provide you with editorial comments and suggestions that you can use to revise the paper. I particularly like papers on local issues, either this area or where you are from. Anyone and everyone has written a paper on global warming.

2 For the pollution/regulation paper, carefully read whatever you need to pertaining to your pollutant of choice and its regulation, including everything appropriate on the reading list. Make sure you have read the articles from Section III and the appropriate articles in Section IV- Pollution Policy in Practice, before you discuss you pollution paper with me. In the paper, briefly describe your pollutant and the relevant stylized facts, and then outline a policy or alternative policies for modifying the emission levels of your pollutant. Consider the policy or policies that you propose from an efficiency, equity and political feasibility perspective. One intent of this paper is to make sure you seriously consider regulation of pollution from a practical perspective, another is that you become moderately familiar with at least one type of pollution. In class we will not specifically cover all of the materials presented in section IV. The pollution paper is tentatively due in early April. We will firm up the date some in early March. I will soon give you a set of review questions for section IV. These questions will help you to focus in on important issues in regulation. My office hours will on Wednesday from 8:30 to 10:15, Thursdays from 3:00 to 4:30, and by appointment. My office is Econ 122. Please feel free to call my office ( ) or home ( ) to leave a message. Sometimes it will take a day or so for me to get back to you. Leave a number where you can be reached, and a good times to call. Prerequisites Econ 8545 is the PhD level course in environmental economics. Econ 6070 or Econ 7010 (or permission of the instructor). The more prior knowledge of the following topics, the better: environmental economics (e.g., Econ 4545), natural resource economics (e.g., Econ 4535), micro theory, welfare economics, calculus, and math economics (e.g., 4/5808). Textbooks and Additional Readings Tietenberg, T., Environmental and Natural Resource Economics, Glenview, Illinois: Scott, Foresman and Company, third edition. I will also assign a few chapter in Pearce, D.W., and R.K.Turner, Economics of Natural Resources and the Environment, Baltimore, The John Hopkins Press, I'll "distribute", for each section of the course, a set of the readings. You, as a group, can collectively keep them on file on the third floor, make and distribute copies, or whatever. If you wish or need to read ahead, you can borrow them from me. ENVIRONMENTAL ECONOMICS: PRELIMINARY OUTLINE (This is a preliminary list of readings so there will possibly be additions and/or deletions) I. Putting Environmental Economics in Perspective 1. Pearce and Turner, chapter 1: The Historical Development of Environmental Economics II. Welfare Economics: A Review 1. Morey, E.R., my welfare notes 2

3 3 2. Tietenberg, T., chapters 2, 3, and 4 Chapter 2: Economics of the Environment: An Overview Chapter 3: Property Rights, Externalities and Environmental Problems Chapter 4: Regulating the Market: Information and Uncertainty 3. Read the appropriate chapters( s) in your graduate micro theory text on welfare economics and market failure. For example, in Varian this material is predominately in chapters III. The Valuation ofenvironmental Amenities A. Consumer Surplus and Economic Welfare 1. Lecture notes on "Exact Consumer's Surplus Measures and Utility Theoretic Demand Systems: A Historical Review" 2. Varian, H.R., Intermediate Microeconomics a Modem Approach Chapter 15: Consumer's Surplus. 3. Varian, H. chapter 7 (Utility Maximization) and chapter 10 (Consumer's Surplus) in Microeconomic Analysis, 3rd Edition. 4. Morey, E.R., "Confuser Surplus," American Economic Review 74 (1), March 1984, Koerner, E., "Putting a Value on Damaged Natural Resources," Resources No. 93, Fall 1988, Graham, D.A. "Cost-Benefit Analysis Under Uncertainty", American Economic Review 71 (4), September 1981, You also might want to look at his reply in volume 74, 1984, pages Graham, D.A. "Public Expenditure Under Uncertainty: The Net-Benefit Criteria," American Economic Review, September 1992, pp B. Recreational Demand and Benefit Estimation 1. Morey, E.R., "The Demand for Site-Specific Recreational Activities: A Characteristics Approach, 11 Journal of Environmental Economics and Management, 8, 1981, "Characteristics, Consumer Surplus and New Activities: A Proposed Ski Area," Journal of Public Economics, 26, 1985, Morey. E.R., R. Rowe and M. Watson, "A Repeated Nested-Logit Model of Atlantic Salmon Fishing with Comparisons to Six Other Travel-Cost Models," American Journal of Agricultural Economics, Vol. 75 (3), August 1993, pp Hanemann, M. and E.R. Morey, "Separability, Partial Demand Systems and Consumer's Surplus Measures," Journal of Environmental Economics and Management, 22, 1992, pp Hausman, J., G. Leonard and D. McFadden, A Utility-Theoretic Combined Discrete Choice Model and Count Data Model: Assessing Recreational Use Losses Due to Natural Resource Damage, discussion paper, MIT, January This research was funded by Exxon for the litigation between Exxon and the State of Alaska. C. Contingent Valuation 1. Freeman, A. M. chapter 5: Measuring Benefits from Nonmarket Data: Survey and Voting in Freeman, A.M., The Benefits of Environmental Improvement: Theory and Practice, Baltimore: Published for Resources for the Future by Johns Hopkins University Press, (Note that this material is a good introduction to contingent valuation, but keep in mind

4 that it is quite dated.) 2. Breffle, W., T. Ladder and E.R. Morey, "Mechanisms for a Neighborhood to Value and Preserve Undeveloped Urban Land." working paper, Department of Economics, University of Colorado, Boulder Co , January Arrow, K., R. Solow, P. Portney, E. Leamer, R. Radner and H. Shuman, "Report of the NOAA Panel on Contingent Valuation," 4. "Polls May Help the Government Decide the Worth ofnature," NYT, September 7, "Pollsters Enlist Psychologists in Quest for Unbiased Results," NYT, September 7, Three articles in Choices, 1993 (second quarter), on "Contingent Valuation and Passive Use Values" Carson, R., N. Meade and V.K. Smith, "Introducing the Issues," pp 5-8. Desvouges, B., A Gable, R. Dunworth, and S. Hudson, "Contingent Valuation: The Wrong Tool to Measure Passive Use losses," pp Randall A, "Contingent Valuation: Valid for Damage Assessment," pp Rowe, R., D. Shaw and W. Schultze, "Nestucca Oil Spill," in Natural Resources Damages: Law and Economics, edited by K. Ward and J. Duffield, John Wiley and Sons. Year? 8. Carson, R. "Constructed Markets," chapter 5 in Measuring the Demand for Environmental Quality, J. Branden and C. Kolstad editors, Elsevier Kahneman, D. and J. Knetsch, "Valuing Public Goods: The Purchase of Moral Satisfaction," Journal ofenvironmental Economics and Management 22, 1992, pp This is a very controversial article. 10. Smith, V.K., "Comment: Arbitrary Values, Good Causes, and Premature Verdicts," Journal of Environmental Economics and Management 22, 1992, pp This a comment on the above article by Kahneman and Knetsch. 11. Kahneman, D. and J. Knetsch, "Reply: Contingent Valuation and the Value of Public Goods: Reply," Journal of Environmental Economics and Management 22, 1992, pp This is the response to Smith by Kahneman and Knetsch. Is this all in the file. 12. Harrison, G. "Valuing Public Goods with the Contingent Valuation Method: A Critique of Kahneman and Knetsch," Journal of Environmental Economics and Management 23, 1993, pp D. Using Property Values and Labor Markets to Evaluate Environmental Amenities 1. Michaels, G.R., "Hazardous Waste Sites and Hedonic Housing Analysis: Improvements Yet Questions Linger," AERE Newsletter, Vol. 8 No. 2, November 1988, Blomquist, G.C., M.C. Berger and J. Hoehn, "New Estimates of Quality of Life in Urban Areas," American Economic Review, Vol. 78 No. 1, March 1988, Graves, P. and D. Waldman, "MultiMarket Amenity Compensation and the Behavior of the Elderly," American Economic Review, Vol 81 No. 5 pp E. Linking Stated Preference Models and Revealed Preference Models 1. Cameron, T., " 2. Lodder, T., and E.R. Morey, "Linking Observed Preferences and Stated 4

5 5 Preferences to Estimate the Supply Function for Polluting Clunkers," III. Pollution and Externalities: An Introduction 1. Morey, E.R., my notes on a general equilibrium model of industrial pollution. 2. Kneese, AV., "Analysis of Environmental Pollution," Swedish Journal of Economics, March 1971; also in Economics of the Environment: Selected Readings ( edited by Dorfinan and Dorfinan ), Pearce and Turner, Chapter 2: The Circular Economy 4. Solow, R., "The Economist's Approach to Pollution Control," Science 173, 1971, Ehrlich, P.R., A.H. Ehrlich, and J.P. Holdren, "Availability, Entropy and the Laws of Thermodynamics," in Ecoscience, W.H. Freeman & Company, Ruff, L.E., "The Economic Common Sense of Pollution," The Public Interest, 19, Spring 1970, 69-85; also in Economics of the Environment: Selected Readings (edited by Dorfinan and Dorfinan), Tietenberg, T., chapter 14: Economics of Pollution Control: An Overview. 8. Varian, H., chapter 24: Externalities in Microeconomic Analysis, 3rd Edition. 9. Markusen, J.R., E.R. Morey and N.D. Olewiler, "Environmental Policy when Market Structure and Plant Locations are Endogenous," Journal of Environmental Economics and Management, 24, 1993, Markusen, J.R., E.R. Morey and N.D. Olewiler, "Competition in Regional Environmental Policies when Plant Locations and Endogenous," forthcoming Journal of Public Economics Krutilla, J., "Conservation Reconsidered," American Economic Review, 72 (4), 1967, V. Pollution Policy in Practice 1. Tietenberg, T., chapter 14: Economics of Pollution Control: An Overview 2. Portney, P.R., "Environmental Evolution," Resources No. 85, Fall 1986, New York Times "Recycling Household Trash: A Chore Becomes a Cause," July 26, Colorado Daily "Group Seeking Curbs on Disposable Diaper Use," July 25-28, New York Times "Skirmishes Start in Clean Air Fight," September 17, A Stationary Source Local Air Pollution 1. Tietenberg, T., chapter 15: Control of Stationary-Source Local Air Pollution 2. Tietenberg, T., "Regulatory Reform in Air-Pollution Control," Resources, Winter 1985, Wall Street Journal. "EPA's Chief is Said to Have Endorsed Expanding Air-Pollution 'Bubble' Policy," March 7, Wall Street Journal, "Market Booms for Rights to Pollute," June 18, Washington Post National Weekly Edition, "The Air-Pollution Peddlers," Oct. 1, B. Regional and Global Air Pollutants 1. Tietenberg, T., chapter 16: Regional and Global Air Pollution: Acid Rain & Atmospheric Modification. 2. Harrington, W., "Breaking the Deadlock on Acid Rain Control," Resources

6 No. 92, Fall 1988, New York Times "In Protecting the Atmosphere Choices are Costly and...," March 7, New York Times "Clean Air Backers Like Way Wind is Blowing, March 7, New York Times "EPA Proposes Rules to Curb Warming," March 13, New York Times "High Ozone and Acid Rain Levels Found Over African Rain Forests," June 19, New York Times "To Halt Climate Change, Scientists Try Trees,1' July 18, New York Times "Acid Rain and Fertilization Linked to Greenhouse Effect," October 3, C. Mobile Source Air Pollution 1. Tietenberg, T., chapter 17: Control of Mobile Source Air Pollution. 2. Thompson, M., "Fighting for Cleaner Air," The Atlantic, September 1988, 20, New York Times, "House Panel Votes Strict New Limits on Car Pollution," October 3, D. Water Pollution 1. Tietenberg, T., chapter 18: Control of Water Pollution. E. Toxic Waste 1. Tietenberg, T., chapter 19: Toxic Substances 2. Glickman, T. S., "Hazardous Materials Routing-Risk Management or Mismanagement?" Resources No. 92, Fall 1988, Brown, G., "Can We Manage Hazardous Waste Efficiently," AERE Newsletter Nov. 1983, 1, Pollack, S. and S. Shulman, "Toxic Responsibility," The Atlantic March 1989, 26, 28, Mitchell, R.C. and R.T. Carson," Protest, Property Rights and Hazardous \Vaste," Resources No. 85, Fall 1986, New York Times, "2 EPA Studies Confirm...," March 14, New York Times, "Tracking Planned for Medical Trash," March 14, New York Times, "Superfund: Pouring Money Down a Hole" April 17, F. Distributional Issues 1. Tietenberg, T., chapter 20: Pollution Control Policy: Distributional Issues. VI. The Dynamic Utilization of Scarce Ecological Resources A. Sustainability 5. Solow R. "An Almost Practical Step Toward Sustainability," An invited lecture on the occasion of the fortieth anniversary of Resources for the Future, October Pearce, D., and K. Turner, Chapter 1: "The Historical Development of Environmental Economics," in Economics of Natural Resources and the Environment, Pearce, D., and K. Turner, Chapter 3: "Sustainability," in Economics of Natural Resources and the Environment, Pearce, D., and K. Turner, Chapter 15: "Environmental Ethics," in 6

7 7 VII. Economics of Natural Resources and the Environment, Solow, R., "On Sustainability," RFF 30th Anniversary Lecture, Tietenberg, T., chapter 22: The Quest for Sustainable Developmeni B. Soil Depletion, Desertification and Deforestation 1. McConnell, T. 2. Morey, E.R. C. Extinction 1. Brown, G. Externality Theory The readings in this section relate how externality theory has evolved. Page (1973) and Mishan (1971) are reviews of the literature. Pigou is responsible for the "Pigouvian tax correction" for externalities. Cease (1960) argues that the "Pigouvian tax solution" is misguided. The debate continues. You will find these readings, brilliant, insightful, often confusing, sometimes wrong, and always thought provoking. The investment in this material is well worth the effort. A. Pre-Cease l Pigou, AC., Chapter 8, page the Road Example in the Economics of Welfare (1st edition) 2. Page, T., "Chapter I: A Selected Review of the Literature" in Involuntary Transfers, Mishan, E.J., "The Postwar Literature on Externalities: An Interpretative Essay," Journal of Economic Literature, March 1971, Pigou, AC., Chapter 9: "Divergences Between Marginal Social Net Product and Marginal Private Net Product, 11 in The Economics of Welfare: 4th Edition, 1932, B. Coase and After 1. Page, T., "Chapter I: A Selected Review of the Literature," in Involuntary Transfers, Mishan, E.J., "The Postwar Literature on Externalities: An Interpretative Essay," Journal of Economic Literature, March 1971, Coase, R., "The Problem of Social Cost," The Journal of Law and Economics, October 1960; also in Economics of the Environment: Selected Readings (edited by Dorfman and Dorfman) Turvey, R., "On Divergences Between Social Cost and Private Cost," Econometrica, August 1963; also Economics of the Environment: Selected Readings ( edited by Dorfman and Dorfman)