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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.
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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
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