Environmental Economics

Environmental Economics

Question: What is the difference between nonrenewable and renewable resources, economically speaking?

Fund Resources:Quantities of resources are fixed in their natural state

Flow Resources:Resources present use doesn’t prevent possible future use.Examples: Wind, rain, and sunlight

Question:What do cows and trees have in common? They both exhibit characteristics of flow and fund resources. Growing maturing cattle may be harvested without damaging the productivity of the parent stock. (the fund)

Both of these resources are considered biological resources The product flow from these resources can be maintained indefinitely. Increased or decreased depending on management.

Forests, ranges, livestock, fish and wildlife yield an annual product that may be taken without harm to the productive source of that output.

However, each could be used in a manner that may either enhance or diminish the quantity and productivity of that fund resource. • Intense forest cutting • Range land overgrazing • Ranchers selling breeding stock

Question: How about the soil, is it a fund or flow? • Plant Nutrients can increase, stay the same or decrease. • These things are like savings accounts

Management of Forests and other renewable resources • Production Efficiency • Responding to economic influences

What type of demands on forests are there? • Market Goods - Wood, Homesites, Recreational home sites, Big game hunting permits • NonMarket Goods – Wilderness, Aesthetics, Nongame wildlife habitats, water quality, Oxygen production, Influencing air quality

When do you harvest a tree? • When the growth rate of the tree is less than the interest rate $ 5 % growth rate MVP When Marginal growth falls below average, replace

What makes a forest sustainable? • Sustainability occurs when the resource inventory does not change over time. • There may be many possible sustainable states, and resource management policies entail choosing among them.

Amenity Valuation – How do we value things that aren’t sold in the marketplace? • Contingent Valuation • Hedonic Pricing • Travel Cost Method

Common Property Resource Problems For many of the nation’s natural resources, property rights are withheld from private ownership. Owned by the Government in the name of the public

Common Property • Federal forests • Grazing Lands • Ocean and Lake fisheries • Air we breath

Individuals use these resources at rates optimized by their own private costs and returnsFactories pollute air that is commonly owned

Point and Nonpoint Pollution

Externalities and Their Economic Impact on Society

Types of Externalities • Consumption • Both positive and negative • Production • Both positive and negative

Consumption • Local Residents - Bakery

Consumption • Local Residents – Truck Stop

Consumption • Home owner – Neighbor playing loud music

Production • Steel Mill – Fishery Downstream

Production • Paper Mill – People Living Downstream

Production • Bee Keeper – Apple Orchard These are Mutual Positive Production Externalities

A negative production externality generates an external cost An external cost is one that does not show up in a firm’s profit and loss statement, yet is a real cost to someone in society

Social Costs Private Costs External Costs, where Social Costs = Private Costs +External Costs The impact of negative externalities on production

Marginal External Costs $ Marginal External Costs Quantity of Output

Marginal Willingness to Pay and the Social and Private Costs $ Marginal Social Costs Marginal Private Costs Marginal Willingness to Pay Quantity of Output

Environmental Economics