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ECON 548 Spring 2011 Lecture 1

ECON 548 Spring 2011 Lecture 1 - ECON/ENVR548 ECON/ENVR...

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Unformatted text preview: ECON/ENVR548 ECON/ENVR Spring 2011 Lecture 1 Jason H Murray Contact Info Contact Info Jason H. Murray, PhD Office Hours: Monday and Wednesday 1­2pm or by appointment Lecture Location: BA 008 3:30am ­ 4:45pm Phone: 803­777­4932 NO EMAILS WILL RECEIVE RESPONSES No Emails? No Emails? • That’s right, never. • Instead, if you have a question, go to blackboard, discussion board and choose a thread. • I will check the thread regularly and answer REASONABLE questions. • REASONABLE example: “What is the condition to find Maximum Sustainable Yield?” • UNREASONABLE examples: “When are your office hours?”; “What’s the answer to number 7?” Note on Pre­requisites Note on Pre­requisites Calculus: Math 122, 141 or equivalent Intermediate Microeconomic Theory ECON 321 or equivalent you are expected to understand basic graphical and algebraic techniques as well as rates of change (derivatives), particularly with respect to time. I will expect you to be familiar with core economic principles and tools (such as supply and demand, equilibrium, consumer surplus, and profit maximization). See me immediately if you are concerned about your ability to work with mathematical and economic tools. Syllabus Change Syllabus Change • No longer a math quiz on second class because of the campus closure on Class 1. • Those 5 points will be now be an additional homework assignment. Text Text The Economics of the Environment by Peter Berck and Gloria Helfand. Lectures will be self contained but will occasionally draw from the text. Some homework problems may be taken from the text. Projects Projects (35 points) In lieu of a final exam we will have a final project (~10 pg. paper + presentation) worth 35 points. Group composition: Tuesday, August 31st ½ page proposal: Tuesday, September 14th Presentations: Last week(s) of class and possibly scheduled exam period Grad Students: Extra Assignment (see me) Practice Problems Practice Problems Survival Kit (blackboard under ‘Assignments’) THIS IS HOW YOU SHOULD STUDY FOR THE QUIZ/EXAMS. Exams will be questions from the survival kit and from homework with numbers and labels changed. Contract and Study Groups Contract and Study Groups Take a moment. Stand up / move around if you like Find at least 3 people to be in your study group • Exchange emails and sign a contract together. • • • So why do Environmental So why do Environmental Economics? Any recent events shed light on the importance Any of the field? of Deepwater Horizon Deepwater Horizon • April 20th , 2010 – deepwater oil rig exploded. • NOAA now Estimates 4.9 million barrels of oil = 4.9mil barrels *55gal/barrel = 269.5 mil gallons • Previous record for US was Exxon Valdez 11 million gallons of Crude in the Prince William Sound on March 24th, 1989 These are NOAA numbers. Ian McDonald at These are NOAA numbers. Ian McDonald at Florida State claims satellite imagery suggests up to 90% remains. Fishery Closures: “Use Values Lost” Fishery Closures: “Use Values Lost” Charismatic Megafauna Charismatic Megafauna Charismatic Megafauna Charismatic Megafauna Charismatic Megafauna Charismatic Megafauna Charismatic Megafauna Charismatic Megafauna 20100730_me_16.mp3 Pelicans Pelicans History of Environmental Economics: History of Environmental Economics: Following (Pearce (2002)) The US government created Resources for the Future (RFF) in the 1950’s to study the scarcity of natural resources after the demands of WWII. (Government and Society begin to realize that Natural Resource constraints might eventually bind. Before this, most people believed that the resources were so large that humans could never deplete them.) 1962: Rachel Carson wrote Silent Spring, warning of 1962: Rachel Carson wrote Silent Spring, warning of the human health consequences of agricultural chemical fertilizers and pesticides. “That economics should have a lot to do with environmental concerns of the kind raised by Carson was not surprising. 1) 2) 3) Agrochemicals were and are big business. The use of chemicals such as DDT had done a lot to raise agricultural productivity and protect human health. Economists were already familiar with the idea that there are likely to be costs and benefits from any form of economic activity. The costs take the form of external effects, in this case the alleged loss of biological diversity about which people had begun to care far more than previously. It is no surprise, then, that economists began to link the theory of external effects with an economic interpretation of the rising tide of environmentalism.” Pearce (2002) Externalities and Trade­offs Externalities and Trade­offs Topics of externalities within the economy had been studied as early as the 1920’s by Pigou (taxes) and Coase (bargaining). This quickly gave rise to Cost/Benefit anlysis being applied to decisions affecting the environment or natural resource stocks. Kaldor/Hicks compensation criterion: add up the $ values won by the winners and compare to the $ lost by the losers; as long as the winners win more than the losers lose, the project is a net benefit. Resource Management Resource Management Non­renewable resources were studied by Hotelling in 1931 and revisited in 1979 by Dasgupta and Heal. Renewable Resources and the “Tragedy of the Commons” received attention beginning in the 1954 by Gordon. Optimal growth of Society began to become a concern again. Was Malthus right? This leads to the topic of Sustainable Development. Is it possible? What exactly does it mean? Is there a trade­off between total population and consumption or happiness per person? This is still a quite controversial topic. Economic Valuation techniques of Non­market Economic Valuation techniques of Non­market environmental assets (public goods): Eg.) National Parks, Clean Water, Clean Air, Ecosystem Services (we’ll talk more about these). The Travel Cost method (Hotelling,1947) involves attributing the costs of traveling to a park as part of the value that visitors received from visiting the park. This is a revealed preference method as is the Hedonic Valuation model which we will discuss later. In a similar line of thought Economists began to consider the value of saving lives through projects that protect public health and safety. This lead to the controversial topic, the “Value of a Statistical Life.” What is it worth to you to decrease the probability that you will die today or this year? Stated Preference Stated Preference Another way to value non­market assets is to ask questions of individuals: “How much would you be willing to pay to keep the forest from being chopped down?” This Contingent Valuation method was initially very controversial but after the Exxon Valdez case: it has become widely accepted as valid and admissible to a court of law, though very expensive and difficult to do right. We will discuss Exxon Valdez in great detail later. Other Topics that Environmental Economists have Other Topics that Environmental Economists have studied include: Existence Value or Non Use Value Total Economics Value = Use Value + Non Use Value + Option Value How to discount future payoffs to reflect concerns of sustainability and intergenerational equity Choice of Policy Instrument: Quotas vs Taxes Ecological Economics: limits to growth and economic activity Green Accounting Important Math/Econ Topics Important Math/Econ Topics • Derivatives (Slopes) of polynomial and exponential functions. • Time derivatives as growth rates. • Plotting linear, quadratic and exponential functions. • Finding equilibria in Supply and Demand models. • Calculating Consumer Surplus, Producer Surplus and Deadweight Loss. • Understanding of Economic Efficiency Important Graphs for today Important Graphs for today Consumer Choice Malthus Logistic Growth Function Time Path for a population following Logistic Growth Basic Consumer Choice Basic Consumer Choice Malthusian Catastrophe Malthusian Catastrophe Logistic Growth Logistic Growth Logistic Time Path Logistic Time Path ...
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