EC 5106: RESOURCE & ENVIRONMENTAL ECONOMICS I (2:30) First Semester 2006/2007 L 1. INTRODUCTION TO REE I

1. POSTGRADUATE INSTITUTE OF AGRCULTURE EC 5106: RESOURCE & ENVIRONMENTAL ECONOMICS I (2:30) First Semester 2006/2007 L 1. INTRODUCTION TO REE I S.THIRUCHELVAM Department of Agricultural Economics and Business Management Faculty of Agriculture, University of Peradeniya,

2. COURSE CAPSULE • INTRODUCTION TO RESOURCE ECONOMICS • REVIEW OF MARKET ECONOMIC SYSTEM • INTRODUCTION TO WELFARE ECONOMICS • MARKET FAILURE • CLASSIFICATION OF NATURAL RESOURCES • ECONOMICS OF RENEWABLE RESOURCES • ECONOMICS OF NON-RENEWABLE RESOURCES

3. EC 5106 R & EE I COURSE CONTENT • Introduction (2 hours) • 2. Welfare Economics (2 hours) • - Quiz 1 (5%) • 3. Definition & Classification of Resources (2 hrs) • 4-5. Water Resource Economics (4 hrs) • 6-7. Forest Economics (4 hrs) • - Mid Term (25%) • 8-9. Fisheries Economics (4 hrs) • 10. Econ. of Non-Renewable Resource Mgt. (2 hrs) • - Quiz 2 (5%) • 11-12. Econ. of Pollution Control (4 hrs) • 13-14. Term Paper & Presentation (4 hrs) (15%) • End Term Examination (50%)

4. REFERENCES • Titenberg, T. 1996. Environmental and Natural Resources Economics, 4th Edition NY • Randall, A. 1987. Resource Economics, NY • David W.Pearce & R.Kerry Turner, 1997 Economics of Natural Resource & the Env. NY • Dasgupta,P.S. & G.M.Heal, 1995. Economic Theory and Exhaustible Resources, Cambridge Econ. Books

5. L 1. INTRODUCTION TO R & EE Economics The study of how scarce resources are allocated among competing uses Scarcity Something is said to be scarce when if, at a zero price, more is wanted than as available. Opportunity cost When one use is chosen, the opportunity cost of that choice is the value of the next best alternative. Everything that is scarce requires allocation choice which has an economic value reflected in opportunity cost

6. Economic Rationality • A choice from among competing options is said to be economically rational when it yields anticipated net benefit that exceeds the opportunity cost • Thus rationality means behaviour consistent with the values and objectives of the decision maker, given the available information Fundamental Questions of Economics ‘What’ Gs & Ss are produced (Derived from NRs)? ‘How’ they are produced (Tech,Pollu.& Harvest Issues)? ‘Who’ gets things (Allocation vs. rich subsidizing poor) ?

7. Environmental Conservation-Why ? • Environment is a resource • Source function • Sink function • Global function • Environment is a unique resource, requiring special attention in sustainable development • Non substitutable functions • Irreversible if damaged • Resilience • Environment is the material/resource link between present and future generations

8. The Existence Theorem The existence theorem relates the scale & configuration of an economy to the set of environment – economy interrelationships underlying the economy. LinearEconomics The open linear economy needs to be revised revised to allow for the economic functions of natural environments and the & the thermodynamic equivalence between resource extraction and waste discharges. Resource CyclicEconomics Resource Production process Consumption R P C W Waste generation Recycling (Entropy Low) r Assimilatory capacity A

9. Resource Economics • More acidimetrically inclined • Focus on problems related to Natural Resource Mgt. • Combines physical laws with economic criteria • Included are: • Pareto Efficiency • Optimal use of Renewable & Non Renewable Re.s • Market Failure • Externality

10. Environmental Economics • More wide ranging & holistic • Deals with sustainable development • Resource Economics is an Integral part. • More Interdisciplinary Analytical Linkage. • Emphasize more on improved Environmental Assessment & Environmental Quality. • The study of the impact of the goods and services economy, particularly market systems of allocation, on environmental quality and ecological integrity • Basically to harmonizing economy and environment

11. Why is economic growth important? Imperative to have the economy grow as long as human population continues to grow. Developing countries must have a mini. of 3% annual growth to achieve equity with developed world. However, if they use current forms of development to achieve this growth, their energy use alone would have to increase by a factor of five! Third world is bearing large proportion of env. cost of developed world’s economic growthHow can these changes be brought about?  Agric. production must be shifted to developing world. This is currently undermined by dumping of W.Surpluses Reduce energy cost/unit of production – Recycling will also result in reduced energy &emissions

12. Economic Feedbacks on to the Environment Most recent example is President Bush’s decision not to ratify Kyoto Protocol. Econ. growth means greater production, more Use of NRs & Pollution. Environment Feedbacks on to the Economy On a global scale, the following issues will affect the world’s economic systems: Ozone hole, Acid rain, Deforestation, Global warming, Desertification For a sustainable economy… Must slow pop. growth. Merge environment & economics in decision making Stop externalizing environmental costs Finally, remember that scarcity is the “enemy” of economic well-being wise resource use and reuse