AEDEcon 4310 Study Guide Exam 2

Name 3 objectives in water pricing

Efficient use Encourage innovation Cost recovery Maintenance flows Access to all

What is the condition for efficient recycling? What happens in the private market?

Efficient when Marginal Social Cost of Disposal= Marginal Cost of Recycling. Inefficient when Marginal Social Cost of Disposal is greater than marginal private cost of disposal.

What are the terms when only 2 spheres overlap?

Environmental-Economic Social-Environmental Economic-Social

What are 5 reasons fisheries may collapse?

Greed Myopic behavior - behavior that only considers the present and not the future Technology improvements Too many boats/population increase Open access - the lack of property rights

What are the 5 challenges to sustainability?

Habitat destruction - often manmade Pollution - habitat may not be suitable for use/resources destroyed Invasive species - can destroy food stores/environment Population - more people increase demand for goods and resource use Over harvesting - We may consume more than the environment can reproduce

Do we want to catch fish at the level of maximum sustainable yield? Explain.

No. The net benefits are less here. You want to harvest where you maximize the difference between total benefit and total cost. MSY would be harvesting all of the fish you possibly can---tragedy of the commons--- the fish left will be too small/won't have time to grow each season.

What are 5 types of water trading schemes that one could consider to manage water use?

Permanent rights transfers Leasing an amount of water/time Water leasebacks Water right priority exchanges Banking water

List market incentives used to manage fisheries

Taxes -Raises costs to fishermen, but retains surplus -Politically hard to do Individual Transferable Quotas (ITQs) -Quote entitling a holde to a certain share of the total catch of a species that can be traded -Sum of the quotes should equal total allowable catch -Must be easy to trade/transfer

Be able to identify monocentric; polycentric; and suburbs

-A monocentric city is one in which all economic activity occurs at a single central business district (CBD) -Polycentric--As cities become even larger, increased commuting costs and congestion result in many new, smaller CBDs forming.....In many cases this can lead to a declining inner city

What are the different definitions of sustainability discussed in class?

--World Commission on Environment and Development (1987) Paths of human progress which meet the needs and aspirations of the present generation without compromising the ability of future generations to meet their needs --Costanza et al (1991) A relationship between human economic systems and larger dynamic, but normally slower-changing ecological systems in which: (1) human life can continue indefinitely, (2) humans flourish, (3) human culture can develop; and the ecological life-support system is not destroyed ---Underlying theme: Each generation should have access to at least the same resource base as the previous generation

Explain why firms are more likely to be located in central cities than residents

-Decrease transportation costs for employees/shipping goods -Easy access to information/communication between centrally located firms

What are the three spheres of sustainability?

-Environmental -Social -Economic

What are common property problems associated with water use?

-Many users can create an open access problem. -Pumping costs will rise too rapidly. -Future users will carry the larger burden.

What are the institutional requirements needed for water trading?

1)Voluntary buyers and sellers 2)Ownership or allocation of vested rights (owning the "right" to use the water) established by governing body 3) Clear definition of these rights (consistent in unit of measurement, source of water) 4) Transferable/severable from land rights 5)Efficient system through which rights are established, transferred, and maintained 6) Information 7)Type of water use can be changed

How do bid-rent curves relate to the von-Thunen model?

As we have already seen, the closer to the market (CBD), the higher the rent Therefore, crops are grown in concentric rings away from a CBD with the highest return crops closest to the CBD

List the 5 specific types of drivers we discussed in class and provide an example of each

Biophysical factors -high winds are likely to reduce development of housing, but may result in a higher probability of wind-farm location Economic factors -subsidies,etc. on farms make it profitable resulting in more land being used for agriculture Demographic factors -migration (type of work) Institutional factors -property rights, Low interest rates spur development by encouraging borrowing Cultural factors -Over large areas, differences in culture result in large differences in observed land use change E.g. Suburban lots are a cultural norm in many parts of the U.S. resulting in increased sprawl from development

How do externalities mean we recycle too little?

If an economic agent does not bear the full cost of disposal, the agent will be biased toward the use of virgin materials and away from recycling. The avoided marginal cost of disposal is considered a marginal benefit from recycling. This amount must be included in recycling decisions. Both marginal disposal costs and the prices of recycled materials will affect the efficient level of recycling.

Why do you harvest trees faster in infinite-planning vs. a single rotation?

Infinite - planning model is different from the single-harvest model in that it recognizes the interdependencies between periods and it takes what will happen in the future into consideration. The reason why infinite-planning harvest rates are faster than a single harvest rotation rates is because with infinite planning we utilize optimal rotation which means we will harvest trees at the optimal rate that maximizes the value now. Optimal dynamic harvest = maximizes the net present values and NOT the total volume of wood.

What is required to efficiently allocate a renewable resource when there are competing uses?

The marginal net benefit should be equalized across all users

What are the problems with command and control strategies for managing fisheries?

Vessel and Gear: inefficient due to increased costs Time restrictions: more vessels, better gear TAC: fish depleted sooner Protected areas: more fishing in non-protected areas

List command and control strategies for managing fisheries.

Vessel and gear restrictions - Net type, vessel length... Time restrictions - Seasonal closures, season length, ... Total allowable catch -No fishing after TAC is reached Marine protections -Spatial closures to allow populations to breed/recover

Explain key differences between von-Thunen and the Ricardian model of land use, paying particular attention to the assumptions used in each model.

Von Thunen: -All land is equally productive -All crops are sold in a central market -Production costs and prices are constant (no returns to scale) Ricardian: -Not all land is the same! -All about productivity -There are fixed input and output prices -Zero profit -The highest bidder is allowed to produce on a parcel of land -We ignore transportation costs -The owners rent their land to farmers