Environmental And Natural Resource Economics

by Ward, Frank

• ISBN13: 9780131131637
• ISBN10: 013113163X
• Edition: 1st
• Format: Paperback
• Copyright: 2005-06-23
• Publisher: Pearson

Summary

The aim of this book is to provide an introduction to environmental and natural resource issues and to describe economic theories and methods used by experts working in the field.Case Studies Comprehensive treatment of a wide range of environmental and natural resource issues.A real life introduction to each chapter engages the reader in the application of the topic at hand.Unique chapter on environmental justice. Consultants or other professionals who works with economic analysis of environmental policy.

Table of Contents

Approaching Economics	1	(13)
Introduction	1	(1)
Natural Resource and Environmental Economics	2	(1)
Natural Resource Issues	2	(1)
The Cedars of Lebanon	2	(1)
The Anasazi and Drought	2	(1)
Water: California's Ultimate Resource	3	(1)
Environmental Issues	3	(3)
Drinking Water	4	(1)
Ozone Depletion	5	(1)
Toxic Wastes	5	(1)
Air Pollution	6	(1)
Why Study Environmental Economics?	6	(3)
Informing Environmental Debates	6	(1)
Empowerment	7	(1)
Reality Checks	7	(1)
Improved Communication	7	(1)
Focused Scientific Debates	8	(1)
Focused Policy Debates	8	(1)
Importance of Economic Analysis	9	(1)
Brundtland Report	9	(1)
Chinese Government's Population Report	9	(1)
U.S. EPA's Acid Rain Program	10	(1)
Economics and Environmental Policy	10	(2)
Setting the Environmental Policy Agenda	10	(1)
Design of Environmental Policy	11	(1)
Implementation of Environmental Policy	11	(1)
Evaluation of Environmental Policy	12	(1)
Summary	12	(1)
Review Questions	13	(1)
References	13	(1)
Economic Thinking	14	(21)
Introduction	14	(1)
Hard Choices in Policy Issues	15	(5)
Timber versus Endangered Species	15	(1)
Affordable Energy versus Functioning Ecosystems	15	(1)
Clean Air versus Affordable Cars	16	(1)
Endangered Wolves versus Livestock and Wildlife	16	(1)
Endangered Fish versus Food	17	(1)
Power versus Recreation	18	(1)
Mining versus Public Lands Recreation	18	(1)
Riparian Ecosystems versus Livestock	18	(1)
Controlling Global Warming: Current Costs versus Future Benefits	19	(1)
Living Space versus Human Rights	19	(1)
Energy versus Wildlife	20	(1)
Short-Run Human Benefits versus Long-Run Environmental Damages	20	(1)
Choices Displace Opportunities	20	(2)
The Market Mechanism and Choices	22	(4)
What Things Are Produced	22	(1)
How Things Are Produced	23	(1)
For Whom Things Are Produced	23	(1)
Who Controls the Market?	23	(1)
The Invisible Hand of the Market	24	(1)
The Market, the Environment, and Natural Resources	24	(1)
How Markets Settle Environmental Management Questions	24	(1)
When Markets Are Best at Sustaining the Environment	25	(1)
Limits of the Market System	25	(1)
Goals and Means of Environmental Policies	26	(4)
Ethics versus Externalities	27	(1)
Benefits of Environmental Protection	27	(1)
The Costs of Environmental Protection	27	(1)
How Much Protection?	28	(1)
Setting Protection Goals: Benefit-Cost Analysis	29	(1)
Achieving Protection Goals: Cost-Effectiveness Analysis	29	(1)
Environmental Policy Goals	30	(3)
Human-Centered Goals	30	(1)
Nature-Centered Goals	30	(2)
Nature-versus Human-Centered Goals	32	(1)
Summary	33	(1)
Review Questions	33	(1)
References	34	(1)
Economic Theory	35	(34)
Introduction	35	(1)
Competitive Markets	36	(1)
Demand	37	(5)
Law of Demand	37	(1)
Demand Curves	38	(1)
Market Demand	38	(2)
Change in Quantity Demanded	40	(1)
Change in Demand	40	(2)
Supply	42	(4)
Law of Supply	42	(1)
Supply Curves	43	(1)
Change in Quantity Supplied	44	(1)
Change in Supply	44	(2)
Equilibrium Demand and Supply	46	(8)
Surpluses	46	(2)
Shortages	48	(1)
Equilibrium	48	(1)
Market Price and Quantity	48	(1)
Price as a Rationing Method	49	(1)
Changes in Supply, Demand, and Equilibrium	49	(3)
Other Things Being Equal	52	(2)
Accomplishing Environmental Goals: Markets versus Governments	54	(11)
Markets	55	(8)
Governments	63	(2)
Summary	65	(1)
Review Questions	65	(2)
Problems	67	(1)
References	67	(2)
Institutional Breakdown	69	(23)
Introduction	69	(1)
Efficient Institutions	70	(1)
Market Failures	70	(16)
Externalities	71	(4)
Public Goods	75	(4)
Common Property	79	(7)
Government Failures	86	(2)
Rent Seeking	87	(1)
Rational Ignorance	87	(1)
Empire Building	88	(1)
Abuses of Economic Analysis	88	(1)
Summary	88	(1)
Review Questions	89	(1)
Problems	90	(1)
References	90	(2)
Decision Support for Environmental Policy	92	(35)
Introduction	92	(1)
Overview of Benefit-Cost Analysis	93	(2)
Why Measure Benefits and Costs?	93	(1)
What Benefit-Cost Analysis Is	93	(1)
What Benefit-Cost Analysis Does	93	(1)
How Benefit-Cost Analysis Is Used	94	(1)
Economic Principles of Benefit-Cost Analysis	95	(6)
Goals	95	(2)
Scope of Analysis	97	(1)
Incremental Analysis	97	(4)
Ten Steps to Net Present Value	101	(7)
Step 1: Scoping	101	(1)
Step 2: Benefits per Unit	101	(1)
Step 3: Costs per Unit	102	(1)
Step 4: Output Quantity	102	(1)
Step 5: Input Quantity	102	(1)
Step 6: Benefits by Period	103	(1)
Step 7: Costs by Period	103	(1)
Step 8: Net Benefits by Period	104	(1)
Step 9: Net Present Value	104	(4)
Step 10: Decision Rules	108	(1)
Measuring Benefits	108	(3)
Marginal and Nonmarginal Changes	109	(1)
Mathematical Methods	110	(1)
Alternative Cost Saved	110	(1)
User Surveys	111	(1)
Measuring Costs	111	(1)
Underused Resources	112	(1)
Opportunity Cost of Unpriced Resources	112	(1)
Treatment of Time	112	(1)
Issues Affecting Both Benefits and Costs	113	(2)
Secondary Effects	113	(1)
Employment Impacts	114	(1)
Inflation	115	(1)
Risk and Uncertainty	115	(1)
Alternatives to Benefit-Cost Analysis	115	(4)
Cost-Effectiveness Analysis	115	(4)
Environmental Impact Analysis	119	(1)
Advantages and Limits of Benefit-Cost Analysis	119	(3)
Advantages	119	(1)
Limits	120	(1)
Resolution	121	(1)
Summary	122	(1)
Review Questions	122	(1)
Problems	123	(2)
References	125	(2)
The Discount Rate	127	(23)
Introduction	127	(1)
Using the Discount Rate to Find Net Present Value	128	(8)
Tables of Discounted Values	130	(4)
Application to Private Investments	134	(1)
Application to Environmental Policy	135	(1)
Search for a Discount Rate	136	(10)
Monetary Cost of Government Borrowing	137	(1)
Social Opportunity Cost of Capital	137	(2)
Social Rate of Time Preference	139	(7)
Summary	146	(1)
Review Questions	147	(1)
Problems	147	(1)
References	148	(2)
Valuing the Environment	150	(39)
Introduction	150	(1)
Relevance of Environmental Values	151	(1)
Uses of Information on Economic Values of the Environment	151	(1)
Monetary Measures of Environmental Values	151	(1)
Individual Values and Social Welfare	152	(14)
Valuation of Environmental Systems	152	(1)
Expenditure Function	153	(2)
Compensating and Equivalent Variation	155	(3)
Consumer Surplus Approximation	158	(2)
Individual Demand for Environmental Improvement	160	(2)
Valuing Price and Quality Changes	162	(1)
Aggregation and Social Welfare	162	(4)
Methods for Measuring Environmental Values	166	(18)
Market Prices	166	(2)
Productivity	168	(1)
Hedonic Pricing	169	(2)
Travel Cost Model	171	(4)
Avoided Costs	175	(1)
Contingent Valuation	176	(6)
Benefit Transfer	182	(2)
Summary	184	(1)
Review Questions	185	(1)
Problems	185	(2)
References	187	(2)
Forests	189	(36)
Introduction	189	(1)
Forest Management	190	(21)
Single-Use Forest Management: Timber	190	(10)
Multiple-Use Forest Management	200	(4)
Trade-Off Analysis	204	(3)
The Equimarginal Principle	207	(2)
Linking Benefits and Costs to Decisions	209	(1)
Distribution of Benefits and Costs	210	(1)
U.S. Forest Legislation	211	(1)
Multiple Use Sustained Yield Act	211	(1)
Wilderness Act	211	(1)
National Environmental Policy Act	212	(1)
National Forest Management Act	212	(1)
Designs for Efficient, Equitable, and Sustainable Forestry	212	(9)
Green Certification	213	(1)
Conservation Easements	214	(1)
Extractive Reserves	215	(1)
Community Management	216	(1)
Ecotourism	217	(1)
Mitigation of Global Warming	218	(1)
Gender, Property, and Health	218	(2)
Stewardship Incentives	220	(1)
Food Security	220	(1)
Sustainable Management and Property Rights	221	(1)
Summary	221	(1)
Review Questions	222	(1)
Problems	222	(1)
References	223	(2)
Rangelands	225	(33)
Introduction	225	(1)
The Rangeland Resource	226	(1)
Scarcity and Competition	226	(1)
Desirable Outcomes	227	(1)
Efficiency	227	(1)
Equity	228	(1)
Sustainability	228	(1)
Unregulated Market Outcomes	228	(13)
Economically Optimum Stocking Rate	230	(8)
Economic Value of Forage	238	(1)
Economic Value of Range Improvements	239	(1)
Grazing and Forage Dynamics	240	(1)
Profit Motive and Overgrazing	240	(1)
Multiple Uses for Rangelands	241	(1)
Designs for Efficient, Equitable, and Sustainable Rangelands	241	(11)
Market Incentives	242	(1)
The Right Prices	243	(1)
Regulations	244	(1)
Institutional Development	244	(1)
Infrastructure Development	245	(1)
U.S. Grazing Fees	245	(6)
U.S. Legislation on Rangelands	251	(1)
Emerging Issues	252	(1)
Summary	253	(1)
Review Questions	254	(1)
Problems	254	(2)
References	256	(2)
Water	258	(38)
Introduction	258	(1)
The Water Resource	259	(5)
Use Patterns	263	(1)
Management	264	(1)
Desirable Outcomes	264	(6)
Human Rights	265	(1)
Efficiency	265	(4)
Equity and Sustainability	269	(1)
Actual Outcomes	270	(11)
Water Laws	270	(1)
Supply Management	271	(3)
Demand Management	274	(5)
Regulations	279	(2)
Institutional Designs for Economically Efficient Water Use	281	(11)
Marginal Cost Pricing	281	(4)
Two-Tiered Pricing	285	(2)
Integrated Demand/Supply Management	287	(1)
Transboundary Management of River Basins	287	(1)
Virtual Water	288	(1)
Managing Links Between Poverty and Water	289	(1)
Decentralized Management	289	(1)
Politically Workable Marginal Cost Pricing	290	(1)
Stakeholder Participation	291	(1)
Summary	292	(1)
Review Questions	293	(1)
Problems	293	(1)
References	294	(2)
Food	296	(37)
Introduction	296	(1)
Food Production and Distribution	297	(3)
Food Production Mechanisms	297	(1)
Food Distribution Problems	297	(3)
Desirable Outcomes	300	(1)
Market Outcomes	301	(14)
Complexity of Farm Decisions	301	(1)
Farmers' Goals	301	(1)
Product-Product Relations	302	(2)
Factor-Factor Relations	304	(2)
Factor-Product Relations	306	(2)
Technical Change	308	(1)
Output-Price Relations	309	(3)
Impact of Agriculture on the Environment	312	(3)
Institutional Design for Improving Food Policy Outcomes	315	(13)
Short-Term Measure: Emergency Relief	316	(1)
Intermediate-Term Measures	316	(7)
Long-Term Measures	323	(5)
Summary	328	(1)
Review Questions	329	(1)
Problems	329	(1)
References	330	(3)
Fisheries	333	(23)
Introduction	333	(2)
Biological Model of a Fishery	335	(2)
Economically Efficient Model of a Fishery	337	(2)
Market Allocations	339	(3)
Sole Owner	339	(1)
Joint Owners: Open Access	340	(2)
Institutional Designs for Real-World Fisheries	342	(11)
Market Solutions: Fish Farming and Fish Ranching	342	(2)
Open Access Regulations	344	(3)
Limited Entry Regulations: Economic Analysis	347	(4)
Expanded Territorial Waters	351	(1)
Enforcement Issues	351	(2)
Summary	353	(1)
Review Questions	354	(1)
Problems	354	(1)
References	355	(1)
Energy	356	(40)
Introduction	356	(1)
The Energy Resource	357	(2)
Measuring Energy Use	357	(1)
Energy and Poverty	358	(1)
Need for an Energy Policy	358	(1)
Energy Policy Objectives	359	(1)
Market Allocations of Energy	360	(20)
Economic Concepts	360	(9)
Energy Sources	369	(3)
The OPEC Cartel	372	(5)
Market Outlooks for the Future	377	(3)
Institutional Designs for Renewable Energy Sources	380	(12)
Marginal Cost Pricing	381	(2)
Environmental Adders	383	(1)
Energy and Pollution Taxes	383	(1)
Promotion of Renewable Energy	384	(3)
Standards	387	(1)
Green Power	388	(1)
Voluntary Action	388	(1)
Conservation	389	(3)
Summary	392	(1)
Review Questions	393	(1)
References	393	(3)
Population	396	(22)
Introduction	396	(1)
Population and the Environment	397	(2)
Structural Analysis	398	(1)
Forecasting	398	(1)
Policy Evaluation	398	(1)
Population and Demography	399	(1)
Macroeconomic Forces	400	(7)
Effect of Economic Growth on Population Growth	401	(2)
Effect of Population Growth on Economic Growth	403	(4)
Microeconomic Forces: Economic Theory of Fertility	407	(6)
Demand for Children	407	(1)
Cost of Children	408	(5)
Emerging Questions	413	(2)
Summary	415	(1)
Review Questions	415	(1)
Problems	416	(1)
References	416	(2)
Climate Change	418	(27)
Introduction	418	(1)
Scientific Evidence of Climate Change	419	(2)
Economic Analysis	421	(6)
Role of Technological Change	421	(1)
Economic Impacts	422	(1)
Analytical Framework	423	(2)
Benefits of Controlling Greenhouse Gases	425	(1)
Costs of Controlling Greenhouse Gases	425	(1)
Benefit-Cost Analysis	426	(1)
Policy Options for Dealing with Climate Changes	427	(7)
Adjustment	428	(1)
Mitigation	428	(1)
Prevention	428	(5)
Planet Insurance	433	(1)
International Agreements on Global Warming	434	(8)
United Nations Framework (1992)	434	(1)
Berlin (1995)	435	(2)
Geneva (1996)	437	(1)
Kyoto (1997)	437	(2)
Buenos Aires (1998)	439	(1)
Marrakesh (2001)	439	(3)
Summary	442	(1)
Review Questions	443	(1)
Problems	443	(1)
References	444	(1)
Environmental Quality and Pollution	445	(46)
Introduction	445	(1)
Physical Basis of Environmental Pollution	446	(2)
Absorptive Capacity: Stock versus Flow	446	(1)
Spatial Scale: Local versus Regional versus Global	447	(1)
Origin: Point versus Nonpoint Sources	447	(1)
Occurrence: Continuous versus Episodic	447	(1)
Desirable Outcome Criteria	448	(13)
Economic Efficiency	448	(11)
Equity in Pollution Control	459	(1)
Environmental Sustainability	460	(1)
Unregulated Market Outcomes	461	(1)
Institutional Designs for Controlling Pollution	461	(25)
Decentralization	461	(5)
Command-and-Control Approach	466	(7)
Harnessing Market Incentives	473	(9)
Enforcement	482	(4)
Summary	486	(1)
Review Questions	486	(1)
Problems	487	(2)
References	489	(2)
Environmental Risk	491	(35)
Introduction	491	(1)
Nature of Risk	492	(3)
Complexity	492	(1)
Causality	493	(1)
Voluntary versus Involuntary	493	(1)
Perceived versus Objective	494	(1)
Desirable Outcomes	495	(5)
Economic Efficiency	496	(3)
Equity	499	(1)
Sustainability	500	(1)
Unregulated Market Outcomes	500	(4)
Choices under Risk	501	(1)
Environmental Risk Insurance	501	(3)
Insurability and the Market	504	(1)
Institutional Designs for Coping with Environmental Risks	504	(19)
Risk Assessment	505	(2)
Risk Management	507	(11)
Risk Management Institutions	518	(5)
Summary	523	(1)
Review Questions	523	(1)
Problem	524	(1)
References	524	(2)
Environmental Justice	526	(20)
Introduction	526	(1)
What Is Environmental Justice?	527	(2)
Measuring Environmental Justice	529	(1)
Economic Theory and Policy Analysis	530	(4)
Applications to Achieve Environmental Justice	534	(6)
Benefits and Costs of Controlling Environmental Degradation	534	(4)
Quantifying Environmental Justice	538	(2)
Evidence of Environmental Justice	540	(3)
Summary	543	(1)
Review Questions	544	(1)
Problem	544	(1)
References	545	(1)
Sustainable Development	546	(24)
Introduction	546	(1)
Deciding What to Sustain	547	(6)
Reasons for Sustainability	547	(1)
Definitions of Sustainability	548	(5)
Measuring Progress of Sustainability	553	(2)
Conditions for Sustainability	554	(1)
Instruments for Implementing Sustainability	555	(5)
Finding Right Prices	555	(1)
The Hartwick-Solow Rule	555	(1)
Critical Natural Capital	556	(1)
Safe Minimum Standard	557	(1)
Avoiding Irreversibility	558	(1)
Steady-State Principles	559	(1)
Policy Applications	560	(8)
Institutional Design	561	(5)
Global Actions	566	(2)
Summary	568	(1)
Review Questions	568	(1)
Problems	569	(1)
References	569	(1)
Appendix A Supply and Demand Mathematics	570	(3)
Appendix B Total Benefit Marginal Benefit, and Consumer Surplus	573	(2)
Appendix C Use of Programming Methods to Value Public Actions	575	(1)
Appendix D Improving Cost-Effectiveness of Environmental Programs	576	(1)
Appendix E Preferences, Demand, and Benefits	577	(2)
Appendix F Incentive Compatibility in Contingent Valuation Studies	579	(2)
Appendix G Critiques of Contingent Valuation	581	(7)
Appendix H Infinite Time Horizons and Forest Rotation Analysis	588	(3)
Appendix I Dynamic Efficiency for a Depletable Resource	591	(2)
Glossary	593	(11)
Index	604

Excerpts

PrefaceFew modern issues have so dramatically influenced consumer decisions, personal lifestyles, corporate planning, and public policy as environmental and natural resource problems. The years since 1970 have seen changes in product design and packaging, corporate investments, personal career and lifestyle choices, government tax policies, and emerging technologies to name but a few because public and private decisions are now shaped by environmental and natural resource issues.With this book, I hope to bring those of you starting your study of environmental and natural resource economics close to today's exciting policy issues and introduce you to the theories and methods of analysis that economists use to approach these issues. This book shows you how economic tools, such as benefit-cost analysis, can be used to understand a wide range of real environmental and natural resource problems. The tools of economists can help design practical policy solutions to environmental problems. They also can contribute to public debate about complicated and emotional environmental issues by providing a framework that is universal, rigorous and testable.This book is intended to be readable by students who have completed one semester of microeconomic principles, but it also will engage students with a wider economics background. The aim of the book is to provide an introduction to environmental and natural resource issues and to describe economic theories and methods used by experts working in the field.Graphs, tables, and numerical examples are included to reinforce the principles presented in the text. No mathematics beyond simple algebra is required. All mathematics beyond algebra (e.g., calculus) is relegated to footnotes and appendixes. Most chapters have several numbered examples that present current, real-life examples for research and policy applications of the economic principles discussed in the chapter. Each chapter ends with questions that provide an opportunity to apply the chapter's material through class discussion, personal reflection, and exam preparation. The appendixes at the end of the book include advanced quantitative methods of analysis.The topics and structure of this book encourage its use for a variety of course work. All of the chapters could find a place in an upper division environmental economics course. Some chapters could be a source for graduate student or others who wish to pursue more specialized research interests. There may be more material in this book that can be cover well in one semester. The additional information opens up options for selecting topics that best cover the interests, expectations, and backgrounds of instructors and students. For example, a one-semester course in environmental economics could be organized around Chapters 1 - 7 and 14 - 19. If a brief introduction to natural resource economics is desired, Chapter 8 and/or 12 could be added. A one-term course in natural resource economics could cover Chapters 1- 6 and 8 - 13. An introduction to environmental economics could be accomplished by adding Chapter 7 and/or Chapter 16.This focuses on environmental and natural resource policy. It presents a considerable amount of economic theory, methods, and data for the purpose of gaining a better insight into policy solutions. Although this is an economics book, it is not limited to economics. Economics is not a stand-alone discipline; rather, other disciplines complement the ability of economics to sharpen our understanding pf policy issues. The disciplines of biology, the physical sciences, law, history, political science, and philosophy are introduced where their insights enhance the power of economics in confronting policy problems. In some cases, combining other disciplines with economics presents contrasting views of a problem, focuses a policy debate, or suggests competing hypotheses in the search for policy solu