ENVIRONMENT AL ECONOMICS ECONOMICS 4545

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1 ENVIRONMENT AL ECONOMICS ECONOMICS 4545 Professor: David Schenk Office: Econ 4C Phone: Office Hours: Tuesday andthursday 11:00am 7 12:30pm or by appointment Spring 1994 COURSE DESCRIPTION: In a world of competing demands for limited resources, the preservation of environmental quality must be considered an economic problem. The purpose of this course is to provide an overview of the theoretical principles, policy instruments, and current practice of using economics in understanding environmental problems. Because this is a large complex area, our coverage will be somewhat selective. Beyond the introductory material, the course has been organized into six areas, starting with theoretical foundations that an economic analysis of evnironmental issues should be aware of and possibly based upon. Then the course will turn towards issues in applying theory and policy to environmental concerns. PREREQUISETS: Prerequisets for this course are intermediate microeconomics (Econ 3070) and mathematical economics (Econ 4808), or some equivalent, and assumes that you have such a background. It is possible to learn this material simultaneously, but it would be quite difficult and therefore not recommended. Graphical analysis will be used for analytical arguments, as well as algebra and some calculus in presenting material. TEXT: Pearce and Turner, Environmental and Natura! Resource Economics, John Hopkins University Press, SUPPLEMENTAL READING MATERIALS: Tietenberg, Tom, Environmental and Natural Resource Economics, 3rd edition, HarperCollins Publ'rs, Selected readings, on file and on Reserve at Norlin Library GRADING POLICY: There will be two exams and a research project counted toward your grade for this course. Each will be weighted equally, that is, each will count as one-third of your final grade. The exams will be of essay form, hence it is suggested that you bring two blue bo.oks to each exam. Details regarding the research project will be covered later. Midterm Recearch Project Final Exam OUTLINE OF TOPICS: I. Introduction and Motivation -Pearce and Turner, Chapter 1 -Tietenberg, Chapter 1 -Young, Louise B., "Easter Island: A Scary Parable," World Monitor, August 1991, /3 1/3 w 100%

2 -Solow, Robert M., ''The Economist's Approach to Pollution and Its Control," Science, vol. 173, 1971, Cairncross, Frances, "Costing the Earth: Survey on the Environment," Economist, September 2, 1989, Ruff, Larry E., "The Economic Common Sense of Pollution," The Public Interest, no. 19, Spring 1970, Brief overview of some major environ.mental commodities -- U.S. Environmental Protection Agency, "Environmental Investments: The Cost Of A Clean Environment -A Summary," Report no. EPA , December, II. Economics review: A. Markets & Efficiency -Pearce & Turner, Chapters 2 and 3 -Tietenberg, Chapter 2 B. Externalities -Pearce & Turner, Chapter 4 -Tietenberg, Chapter 3, pp C. Property Rights, and Common Property Resources -Pearce & Turner, Chapter 5 -Tietenberg, Chapter 3 -Coase, R.H., "The Problem of Social Cost," The Journal of Law and Economics, vol. 3, October 1960, Haveman, R.H., "Common Property, Congestion, and Environ.mental Pollution," Quarterly Journal of Economics, vol. 87, no. 2, May 1973, III. Instruments For Environmental Policy A. Taxes, Subsudies & Regulation -Pearce & Turner, Chapters 6 and 7 -Tietenberg, Chapter 14 -Oates, Wallace E., "Taxing Pollution: An Idea Whose Time Has Come?" Resources, no. 91, Summer 1988, 5-7. B. Marketable Permits, Incentive Programs -Pearce and Turner, Chapter 8 -Hahn, Robert W., "Economic Prescriptions for Environmental Problems: How the Patient Followed the Doctor's Orders," Journal of Economic Perspectives, vol. 3, no. 2, Spring 1989, IV. Evaluating Environ.mental Quality Change A. Some theoretical background: an Introduction to Welfare Economics and Compensation Schemes (Compensating Variation, Equivalent Variation, Consumer Surplus), and Ethics B. "Economic Value" of an Environmental Good -Pearce and Turner, Chapter 9

3 C. A Primer on Benefit-Cost Analysis: Practical Implementation of Efficiency Principles -Tietenberg, Chapter 4 -Kelman, Steven, "Cost-Benefit Analysis: An Ethical Critique," Regulation, January /February 1981, Delong, James V., et. al, "Defending Cost-Benefit Analysis: Replies to Steven Kelman," Regulation, March/ April 1981, Summers, Larry, "Summers on Sustainable growth," The Economist, May 30, 1992, p. 65. D. Methodologies for Valuation -Pearce & Turner, Chapter 10 -Brookshire, et. al, "Valuing Public Goods: A Comparison of Survey and Hedonic Approaches," The American Economic Review, vol. 72, no. 1, March 1982, V. Policy & Applications A. Air Pollution -Tietenberg, Chapters 15, 16, 17 -Portney, Paul R., "Economics and the Clean Air Act," Journal of Economic Perspectives, vol. 4, no. 4, Fall 1990, Schelling, Thomas, "Some Economics of Global Warming," American Economic Review, June Krupnick, Alan J. and Paul R. Portney, "Controlling Urban Air Pollution: A Benefit Cost Assessment," Science, vol. 252, April 26, 1991, B. Toxic Substances and Hazardous Waste -Tietenberg, Chapter 19 -Gianessi, Leonard P., "Lack of data Stymies Informed Decisions on Agricultural Pesticides," Resources, no. 89, Fall 1987, Gough, Michael, "The Most Potent Carcinogen?" Resources, no. 91, Summer 1988, New York Times, "2 E.P.A. Studies Confirm Threat to Fish of Dioxin From Paper Plants," March Killory, Helen C., "Getting To The Source of Hazardous Waste," Resources, no. 89, Fall 1987, Brown, Gardner, "Can We Manage Hazardous Waste Efficiently?" AERE Newsletter, November 1985, Glickman, Theodore, S., "Hazardous Material Routing - Risk Management or Mismanagement?" Resources, no. 92, Fall 1988, Mitchell, R.C., and R.T. Carson, "Protest, Propert Rights, and Hazardous Waste," Resources, no. 86, Fall 1986, Pollack, S. and S. Shulman, "Toxic Responsibility," The Atlantic, March 1989, C. Water Pollution -Tietenberg, Chapter 18 VI. Environmental Quality & Economic Growth -Pearce & Turner, chapters 20 and 22 -Tietenberg, Chapter 21

4 RESEARCH PROJECT: The purpose of a research project is primarily two-fold: 1) It provides you with an alternative format to demonstrate your capabilities and grasp of the material. 2) It gives you an opportunity to explore, in depth, a topic that is of serious interest to you. The project for this class will consist of a persuasive research paper and participation in a debate. Research papers have a particular general style and structure. The main goal is to give a clear, complete and concise analysis of your topic so that the reader gains some insight on the subject. You should assume that your intended audience has a solid understanding of basic economic principles, but not a specific knowledge of your topic. You should clearly state the aims/ goals of your project in the introduction. The body of the paper is for the presentation and the analysis of evidence and data. You may want to allocate the first few pages to a review of the relevant literature and a discussion of scientific and/or institutional background related to your topic. The bulk of the paper should then be devoted to the presentation of data and economic analysis of the issue. Conclusions, recommendations and suggestions should then be directly based on your analysis and evidence. You are also well advised to closely follow academic conventions regarding citations and references. The paper is to be typed and double spaced. Approximately pages should enough to present your investigation. Debates will have the following general structure (these times are tentative, specific time allotments may be changed depending on final enrollment): 12 minutes - affirmative side 12 minutes - negative side 6 minutes - rebuttal/ clarification/ questions Your task is to argue for either the affirmative or negative side of the proposition being debated. Facts and findings from your research should be integrated into your oral arguments (and documented in your paper) along with economic analysis and ethical premise, as needed. You should outline the key factors and evidence that support of your side. You should also assess possible weaknesses of your position as the other side may recognize and use them undermine the strength of your arguments. You are encouraged to use handouts, overheads, &c. to assist your presentation. This project shall be worth one-third of your final grade. POTENTIAL TOPIC AREAS What is the best way to control pollution: standards, taxes, liability rules, etc. Issues with marketable permits Influence of environmental regulations on technological innovation Issues in measuring health benefits of reduced exposures to pollution Issues in including environmental and natural resource measures in national accounting Issues in measuring intangible benefits/ costs of pollution control What discount rate should be used in benefit-cost studies Accounting for risk in benefit cost studies Environmental policy in other countries: Western Europe, Japan, Developing Countries, China, Eastern Europe, Mexico, etc. Issues and policies related to ozone depletion Issues and policies related to the Greenhouse Effect Issues and policies in international pollution control Issues in the reauthorization of the Clean Water Act Issues in the newly revised Clean Air Act

5 r Automobile emission and gas mileage standards Issues and policies in siting a hazardous facility Issues in the disposal of hazardous waste Issues in non-hazardous solid waste disposal Incentives for recycling or "source reduction" of waste Policy on industrial or municipal wastewater Policy related to non-point pollution sources Policy related to agricultural pesticides and/or fertilizers Policy on asbestos exposure Policy related to smoking Wilderness and preservation policy The Spotted Owl - was not enough or too much done? Policy on endangered species Wetlands preservation policy Legal issues with natural resource damage assessments (NRDA's) International policy on rainforest destruction Policy on oil spill prevention and response Issues and policy on used oil management Biodiversity - issues and policy SAMPLE DEBATE QUESTIONS: Does this generation have an ethical obligation to bear the costs of preventing global warming? Should the United States, or other highly industrialized nations, ask less developed nations to alter their economic development plans in favor of strict environmental protection? The Exxon Valdez occurred on March 24, 1988 in the pristine waters of Prince William Sound, Alaska. There were also a number of oil spills that occurred during the Winter and Spring of These events raised concerns about oil spills and their impact on our environment and our dependency on oil, a non-renewable resource. Arguments for and against further oil exploration have risen. Since nature eventually "cleans up" even major oil spills, should restrictions on oil exploration. be strengthened and expanded?