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ENVS_55__Lecture__13

ENVS_55__Lecture__13 - ENVIRONMENTAL STUDIES 55 LECTURE#13...

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ENVIRONMENTAL STUDIES 55 LECTURE #13, 2/11/08 Resource Allocation over Time The course thus far: Efficient markets = idealized model for resource allocation Well-functioning markets promote freedom + human well-being. These are central values in Western societies Resource economists focus on: 1. Making markets work efficiently if possible 2. Using CBA to correct market failures 1
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We have also discussed fairness: Ensuring that the burdens and benefits of resource use + conservation are equitably distributed One important perspective: Fairness requires the protection of people’s fundamental rights – e.g the right to freedom from harms without consent or just compensation More generally, fairness relates to issues like income distribution and equality of opportunity These concepts have been developed in the context of static models of competitive markets, externalities, and the overexploitation of renewable resources Static models abstract away from the role that time plays in resource management decisions 2
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Real-world choices don’t match the simplicity of static models. Time is a central element in natural resource management. We therefore need methods for evaluating tradeoffs between present and future in a dynamic setting Two examples: 1. Energy efficiency – should a homeowner invest $14,000 today to save $4,000/yr for next 4 years? (See Goodstein ch. 6) o The answer seems obvious. Over time, the investment saves a total of $2,000. We’ll see, though, that this answer is potentially misleading 2. Forest conservation – should society give up the present benefits of jobs and cheap timber in exchange for the long-term benefits of intact ecosystems? o This issue is also complicated – e.g. the debate over nonuse values and contingent valuation 3
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Resource economists and ecological economists approach such issues based on two distinct concepts: 1. Discounting – addressing people’s time preference in CBA (next four lectures) 2. Sustainability – ensuring that present resource does not undercut the long-run interests of future generations These two themes will be our focus in the second half of the course 4
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Discounting: Basic Principles
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