Environmental Economics and Policy

Transcription

1 Course Description Environmental Economics and Policy This course will look to survey issues in environmental economics. It begins with some fundamental concepts in economic analysis and proceeds to the notion of valuing the environment (benefits and damages including a treatment of the economics of pollution). After this, modules deal with specific themes: renewable resources, nonrenewable resources and, finally, climate change. The aim is to develop some sense for the breadth of issues in environmental economics; develop some sense for specific theory in this domain; and its application in the real world (policy). Pre-requisites A course in introductory microeconomics would be helpful. Grading Instruments 20% - Weekly Problem Sets 10% - Presentation* 10% - Class Participation 25% - Mid-term (Modules 1, 2, 3a) 35% - Final (Cumulative with emphasis on modules 3b and 4) *Students will be asked to select and present a paper of their choosing from the list of additional assigned readings 1. Papers will address topics outlined below. Presentations will be brief, primarily descriptive, with some comment on strengths and weaknesses. Students will begin presentations sometime toward the end of the first module. Readings We will rely on the two main textbooks listed below for the development of theory and concepts. Additional readings will help supplement and also serve as material for student presentations. The readings Main Textbooks: Keohane, Nathaniel and Sheila Olmstead (2007). Markets and the Environment. Island Press. Tietenberg, Tom (2004). Environmental Economics and Policy. Addison Wesley. 1 The set of additional readings is tentative a few more may be added. Page 1 of 6

2 Reference Textbook: Varian, Hal (2003). Intermediate Microeconomics: A Modern Approach (6 th Edition). W. W. Noroton. Outline Module 1: The Basics This first module sets out some basic economic principles and tools. We start by developing some sense for economics and its role in informing decisions, specifically those related to the environment. We then proceed to developing concrete concepts in economic analysis such as economic efficiency, benefits and costs, competitive markets, property rights and market failure. We will also discuss the important concept of discounting (with some development of the Ramsey Equation). This module will help us think about what it is that economics can do for us and also its limitations with respect to the environment. Keohane and Olmstead (2007): Chapters 1 5. Tietenberg (2004): Chapters 2 and 4. Kelman, Steven (1981), Cost-Benefit Analysis: An Ethical Critique (with replies), AEI Journal on Government and Society Regulation (Jan/Feb): Coase, Ronald (1960), The Problem of Social Cost, Journal of Law and Economics 3 (October): Economic Efficiency Benefits and Costs Competitive Market Equilibrium Private and Public Goods Market Failure and Externalities Discounting (PRTP, Interest Rate) Ramsey Equation Module 2: Environmental Valuation Efficient market outcomes rely on price signals. However, a lot of environmental goods and services do not have an explicit market price. The purpose of this module is to help us determine what is to be done in the absence of an explicit price for environmental goods and services. We will also consider environmental damages in this section i.e. the economics of pollution. Page 2 of 6

3 Keohane and Olmstead (2007): Chapters 3 and 10. Tietenberg (2004): Chapters 3 and 14. Brown, Gardner M, Jr and Robert Mendelsohn (1984), "The Hedonic Travel Cost Method," The Review of Economics and Statistics, MIT Press, vol. 66(3), pages , August. Diamond, Peter A and Jerry A Hausman (1994), "Contingent Valuation: Is Some Number Better than No Number?," Journal of Economic Perspectives, American Economic Association, vol. 8(4), pages 45-64, Fall. [Possibly add a paper on damages most likely on air pollution] Revealed Preference o Hedonic Method o Travel Cost Method Stated Preference o Contingent Valuation o Willingness to Pay and Willingness to Accept Pollution (valuing environmental damages) Module 3a: Economics of Non-Renewable Resources In this module we will study renewable and non-renewable resources. We will begin by defining the two types of resources and discuss the implications of these differences. In module 3a we will study non-renewable resources, such as oil, and think about the pricing and the optimal extraction path. The Hubbert Curve will also be highlighted and our discussion will lead us to a powerful result called the Hotelling Rule. *We might have a guest lecturer for one of our sessions on non-renewable resources, most likely a professional from the Oil and Gas Sector. Keohane and Olmstead (2007): Chapter 6. Tietenberg (2004): Chapter 7. Nordhaus, William, Chapter 1 Market Allocation of Exhaustible Resources Over Time, [Book: need to locate reference] Harold Hotelling, (1913), "The Economics of Exhaustible Resources," Journal of Political Economy, University of Chicago Press, vol. 39, pages 137. Page 3 of 6

4 Solow, Robert M. (1974), The Economics of Resources or the Resources of Economics, American Economic Review 64(2): 1-14 Renewable and Non-renewable Resources Hubbert Curve Efficient Inter-temporal Extraction of Non-Renewable Resources The Hotelling Rule Module 3b: Economics of Renewable Resources our treatment of non-renewable resources, we turn our attention to renewable resources such as fisheries, forests and water. These three (forests, fisheries and water) are classic examples of renewable resources and have been studied to a significant degree in the economics literature. We will begin with a treatment of fisheries and forests, where our economic analysis will incorporate elements of biological science (we will derive the Faustmann Rule for optimal forest rotation and develop the Bionomic model for fisheries). We will then study water, a resource of critical importance to Pakistan, and spend considerable time developing our understanding it in an economic and policy context. *We might have a guest lecturer from the World Bank for one of our sessions on water. Keohane and Olmstead (2007): Chapter 7. Tietenberg (2004): Chapters 9, 11, 12 and 17. Good Background Readings for Water Resources: Falkenmark, Malin and Johan Rockstrom (2005), Balancing Water for Humans and Nature, Earthscan. Peter H. Gleick and associates (2008), The World's Water : The Biennial Report on Freshwater Resources. Island Press, Washington D.C. H. Scott Gordon (1954), The Economic Theory of a Common-Property Resource: The Fishery, Journal of Political Economy 62(2): (Only section 1, 2 and 3) Olmstead, Sheila M. and Stavins, Robert N. (2007), Managing Water Demand: Price vs. Non-price Conservation Programs, Pioneer Institute White Paper. Duflo, Esther and Rohini Pande (2007), Dams, Quarterly Journal of Economics 122(2): Page 4 of 6

5 Mobarak, Ahmed Mushfiq and Molly Lipscomb (2007), Decentralization and Water Pollution Spillovers: Evidence from the Re-drawing of County Boundaries in Brazil, Working Paper. Fisheries: Fishery Bionomics Forests: Wicksell Rule, Faustmann Rule and Optimal Rotation Water: o Water Resources Management: An Overview o Price vs. Non-price Demand Management o Dams o Trans-boundary Issues Module 4: Economics of Climate Change We will develop some sense for what climate change is (the science of it) and what implications it has for human society (the economics of it). We will start with an overview of the science and build some intuition for the workings of climate change. Then, we will consider the economic impacts of climate change and consider some policy options (cap and trade, carbon tax). Finally, we will also look to develop some sense for integrated assessment modelling (combining climate predictions into models of economic output). None. Climate Change 2007: The Physical Science Basis. Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change [Read the Summary for Policymakers and the Technical Summary ; Available online Aldy, Joseph E., Scott Barrett and Robert N. Stavins, "Thirteen Plus One: A Comparison of Global Climate Policy Architectures," Working Papers , Fondazione Eni Enrico Mattei. Tol, Richard S. J. (2009), "The Economic Effects of Climate Change," Journal of Economic Perspectives, American Economic Association, vol. 23(2), pages 29-51, Spring. Mendelsohn, Robert, William Nordhaus and Daigee Shaw (1994), "The Impact of Global Warming on Agriculture: A Ricardian Analysis," American Economic Review, American Economic Association, vol. 84(4), pages , September. Page 5 of 6

6 Nordhaus, William (2008), A Question of Balance Weighing the Options on Global Warming Policies, Yale University Press. [Read Chapters 1, 8, 10 and the Appendix on the RICE Model; Available online Climate Change Basics (Science and Policy) Climate Change Policy Options (Taxation vs Cap and Trade) Integrated Assessment Models Page 6 of 6