Natural Resource Economics. Lesson 3: Literature review

Transcription

1 Natural Resource Economics Academic year: Prof. Luca Salvatici Lesson 3: Literature review Natural Resource Economics - Luca Salvatici ( ) 1

2 Definitions Environmental economics is concerned with the way wastes are disposed and the conservation of natural environments Resource economics study how society allocates scarce natural resources, such as stocks of fish, stands of trees, fresh water, oil How much of the resource should be harvested/extracted today? Natural Resource Economics - Luca Salvatici ( ) 2

3 Renewable, Nonrenewable, and Enviromental Resources Economics might be defined as the study of how society allocates scarce resources. The field of resource economics would then be the study of how society allocates scarce natural resources. QUESTION 1: What is the central subject in the field of resource economics? A distinction between resources and environmental economics is necessary to continue our analysis. Natural Resource Economics - Luca Salvatici ( ) 3

4 RENEWABLE, NONRENEWABLE, AND ENVIROMENTAL RESOURCES Environmental Economics is concerned with the conservation of natural environments and biodiversity. But our study is about Natural Resources Renewable resource Nonrenewable resource Must display a significant rate of growth or renewal on a relevant economic time scale. An economic time scale is a time interval for which planning and management are meaningful. A critical question in the allocation of natural resources is How much of the resource should be harvest today, and in each period? Dynamic optimization problem Natural Resource Economics - Luca Salvatici ( ) 4

5 Question QUESTION 2: What is the economic distinction between renewable and non renewable resources? A renewable resource must display a significant rate of grown or renewal on a relevant economic time scale. An economic time scale is a time interval for which planning and management are meaningfuly. Natural Resource Economics - Luca Salvatici ( ) 5

6 RENEWABLE, NONRENEWABLE, AND ENVIROMENTAL RESOURCES Maximize some measure of net economic value Dynamic Optimization Problem Solution: schedule or time path indicating optimal amount to be harvested in each period. The optimal rate of harvest in a particular period may be zero Example If a fish stock has been historically mismanaged, and the current stock is below what is deemed optimal, then zero harvest may be best until the stock recovers. Natural Resource Economics - Luca Salvatici ( ) 6

7 Key features of natural resources Natural resources are stocks of materials that exist in the natural environment that are both scarce and economically useful in production or consumption, either in their raw state or after a minimal amount of processing. Imperfections in some natural resource markets raise questions about the efficiency of extraction and optimal extraction rates. Technical change and capital accumulation can partially offset the exhaustibility of nonrenewable resources. Natural Resource Economics - Luca Salvatici ( ) 7

8 Natural resources: basic concepts Natural resources are natural assets from which we derive value (utility) Broad definition includes amenity value, provision of ecosystem services, etc. We focus here on natural resources that must be extracted or harvested In general, efficient and optimal use of natural resources involves intertemporal allocation Distinguish between renewable and nonrenewable resources Natural Resource Economics - Luca Salvatici ( ) 8

9 Natural resources: definitions Limited availability (stock) at a given time and: Nonrenewable resources: given stock on a relevant economic time scale => Nonrenewable resources are incapable of significant growth, e.g., fossil fuels, ores, diamonds Renewable resources: renewable resources are capable of growth (on some meaningful timescale), e.g., fish, (young growth) forests => rate of growth is determined by biological factors that can be influenced by human activity but the maximum rate cannot be changed Natural Resource Economics - Luca Salvatici ( ) 9

10 Classical Economics Adam Smith: invisible hand of general equilibrium, social good by individual action Thomas Malthus: growing population, diminishing returns to scale in agriculture David Ricardo: diminishing quality (extensive margin), diminishing productivity (intensive margin) Natural Resource Economics - Luca Salvatici ( ) 10

11 Neo-Classical Economics Value is relative, determined in exchange, reflecting preferences, production costs and scarcity Demand and supply, partial and general equilibrium Absolute scarcity no longer seen as a problem (a reflection of the times) Earlier growth models: no resource limits Natural Resource Economics - Luca Salvatici ( ) 11

12 A pioneer Hotelling (1931): seminal article on the optimal use of a nonrenewable resource: Contemplation of the world s disappearing supplies of minerals, forests, and other exhaustible assets had led to demands for regulation of their exploitation. The feeling that these products are now too cheap for the good of future generations, that they are being selfishly exploited at too rapid a rate, and that in consequence of their excessive cheapness they are being produced and consumed wastefully has given rise to the conservation movement Natural Resource Economics - Luca Salvatici ( ) 12

13 A new attitude: Spaceship Earth In the 1960s and 70s, things changed: Limits to Growth, Silent Spring, oil crisis, pollution, congestion, space travel First, natural resources are scarce Second, environmental services are valuable Third, there are significant environmental externalities Natural Resource Economics - Luca Salvatici ( ) 13

14 IMPORTANT EVENTS IN MODERN ENVIRONMENTAL HISTORY Natural Resource Economics - Luca Salvatici ( ) 14

15 Natural resources and the intellectual debate "Natural resources are not finite. Yes, you read correctly," the economist Simon wrote in his 1981 manifesto, "The Ultimate Resource." The title referred to human ingenuity, which Simon believed could go on indefinitely expanding the planet's carrying capacity. This idea marked the crucial difference between economists and ecologists: the view of the world not as an closed ecosystem but as an flexible marketplace. The concept of carrying capacity might be rejected as other animal analogies: "Both the jayhawk and the man eat chickens, but the more jayhawks, the fewer chickens, while the more men, the more chickens. (19th-century economist Henry George) Economists are like the guy who jumps off the Empire State Building and says how great things are going so far as he passes the 10th floor. The resource that worries the most is the declining capacity of our planet to buffer itself against human impacts. Jared Diamond, Easter Island s End, Discover Magazine,1995: Natural Resource Economics - Luca Salvatici ( ) 15