Econ 125 Midterm 1 Study Questions

Some people recoil at the thought of trying to place dollar values on costs and benefits of such things as cleaning up the environment or preventing its further deterioration. The concept of substitutability is key to understanding why most economists are willing to apply such a framework in decision-making. Why (i.e., in what way) is the concept of substitutability a key question in making these types of decisions? In what three public venues and decision-making applications do we very frequently encounter serious practical attempts to place dollar values on the costs and benefits related to the environment and the allocation of natural resources?

1.Societal values are simply the aggregation of the sum of the individuals' values in that society. -The whole is simply the sum of the parts. There are no additional components of social value. 2.Individuals are willing to make trade offs between the good being valued for something else that can also be quantified by a "common denominator" dollar metric. -Everything is substitutable for everything else at the margin. -The good being valued is in principle substitutable or replaceable with other goods and services measured in money terms. 3 public venues and decision-making applications: Typical public policies and projects I.e. dams and water projects, resource-disrupting projects (building a highway), wetlands restoration etc. Damage estimates in judicial "tort" proceedings Monetary damage assessments must send appropriate price signals to individual private-sector decision makers National income accounting If you don't measure things correctly and expansively, you'll get the wrong impression about what constitutes an improvement and you'll make bad social decisions.

In the mid-1970s, neoclassical growth theorists (Solow and Dasgupta & Heal) responded to the social concerns prevalent in the 1970s regarding the implications of increasing resource scarcity. They published similar articles based on neoclassical economic growth theory. These models were framed in terms of exploring the logical consequences of three simple assumptions. What were these three modeling assumptions? In what sense did these assumptions postulate a hypothetical world with very "adverse" and "pessimistic" resource parameters? Counterintuitively and despite these adverse assumptions, what did these models conclude about the theoretical feasibility of achieving a sustainable per-capita consumption path? Explain briefly and intuitively how the economy in this rather bleak world could still be managed to accomplish a sustainable level of constant consumption per capita in perpetuity. What role is played by factor substitutability in achieving this sustainable level of consumption?

3 Modeling assumptions: A finite stock of an absolutely essential non-renewable resource No technological change A constant population In theory there exists a sustainable level of consumption that can be maintained forever. As the stock of essential non-renewable natural resource continually declines, you simply have to add (invest) enough to the stock of human made capital to maintain a constant level of production of the consumption good. This model assumes human-made capital can be substituted for the essential non-renewable resource and that with enough additional and supplemental human-made capital we can get along by using successively smaller amounts of the essential non-renewable resource. To make this system work, need: Adequate, continual investment in additional human-made capital that can substitute for the asymptotically declining use of the finite non-renewable input The marginal productivity of the non-renewable resource must increase sufficiently as the quantity injected into the production process is reduced No discounting of future utilities by the central planner

State the corresponding continuous mathematical formula for compounding when interest is compounded continuously (i.e., every nanosecond).

Bt = Ae^rt

What exactly is meant by the concept of "discounted present value" (DPV)? If the prevailing interest rate during the next 10 years is expected to be 5%, write a mathematical expression stating the present value of an asset (e.g., a financial contract) which simply promises to pay the owner of the asset $1,000 ten years from today.

Discrete equation: A = Bt/(1+r) Compounding equation: A = Bte^-rt T = 10 years R = 5% Bt = $1000 A = $606.53

What are the three main substantive legal standards that are most likely to come into the picture when the courts review an agency action? Briefly explain each one of the three.

Due process clause: The 5th amendment protects life, liberty, and property with requirement of "due process" The 14th amendment extends this requirement to the states Both procedural and substantive due process are required due process clause acts as a safeguard from arbitrary denial of life, liberty, or property by the government outside the sanction of law. Takings clause: The 5th amendment explicitly and 14th amendment implicitly, requires just compensation for deprivation of private property When the gov violates this provisions, it is said to be engaged in an illegal taking of property The boundary b/t a taking and a legitimate exercise of "police powers" is not a bright line Public trust doctrine: Govern has obligation to act as a trustee in managing certain natural resources on behalf of the greater good. Is an ancient legal concept, not an explicit constitutional provisions Certain common properties (air, seashores, rivers, etc.) are regarded as held in trusteeship by the government Theory sometimes invoked by citizens when the gov is proposing to sell federal land or to do something on fed land with env impacts.

The dissipation of the potential economic rent associated with a scarce resource as a result of treating it as an open-access resource is a commonly encountered market failure. Making explicit use of appropriate and well-labeled diagrams and equations, explain Frank Knight's simple two-road model. Be sure to explain the decentralized decision-making process by individuals that leads to an open-access equilibrium in this model. Indicate in your diagram where this open-access equilibrium occurs under the most extreme conditions of high demand and crowding. Carefully explain why this open-access equilibrium is not the social optimum. Identify the social optimum and explain exactly why it is a social optimum. In Knight's simple model, how much of the economic surplus (i.e., rent) of the narrow, direct road is eliminated during periods of the most extreme congestion.

General background: 2 adjacent cities are currently connected by a very wide/indirect road that will never get congested. A 2nd more direct road is constructed but it has limited capacity and is subject to severe congestion in the morning/evening rush hours City considering whether it should restrict access to the narrow road and if so how many drivers. Individual drivers seek to optimize their own private benefits. In doing so they ignore the impact on other drivers (they ignore social externality they are creating) Under peak-demand conditions, open access to the more direct road completely destroys the social value of the direct road. Essentially, drivers are chasing a mirage that simply disappears as they all try to grab some of the potential social surplus available on the direct road. The social optimum can be reached if some "gate keeper" takes the crowding externalities into account and strictly limits the maximum number of drivers allowed to simultaneously use the narrow, direct road.

What is "Green Accounting"? What broad changes does it recommend be undertaken to improve the current manner of accounting for GDP so that it presents a more accurate picture of the impacts of all economic activities? In other words, name a few important changes that it would recommend to remedy some of the major deficiencies in the traditional System of National Accounts? What are the two broad components of standard Gross Domestic Product and what are the four broad components of Environmental Net Domestic Product?

Green accounting is a type of accounting that attempts to factor environmental costs into the financial results of operations. Green Dom Product (Environmental Net domestic product)= Final consumption + net exports + net increase in human-made capital + net increase in natural capital Two broad components of standard GDP = GDP = Final Consumption + Net exports Net = GDP + net human made capital investment Whats wrong w/ conventional SNA Exclusion of useful production Inclusion of defensive expenditures Omission of the depletion of natural capital through extraction Omission of degradation of both the annual flow of environmental services and the changes in the stocks of environmental capital

What was the subject of the "Cold War" concern explored by the federal-level "Paley Commission" following World War II? What comprehensive study was Resources for the Future commissioned by the Paley Commission to perform? What were the basic conclusions of this RFF study published in 1963?

In the climate of the Political Cold War, the Federal Government took a strategic interest in the state of resource depletion The RFF was commissioned to perform the study: Scarcity and Growth (1963), an economic assessment of natural resource scarcity based on data from 1870-1957 The report was optimistic about the lack of evidence for increasing natural resource scarcity This emphasized the potential for capital accumulation in the form of increased manufactured capital, human capital, and technological advances to compensate for diminishing of natural resources

Even if a market system is perfectly allocatively efficient (i.e., Pareto efficient), the system might "fail" in some broader public policy sense to bring about a social welfare optimum for reasons other than allocative inefficiency. In what additional basic way might a market system "fail" under this broader definition of market failure? (For instance, even if markets were to allocate a finite non-renewable resource "efficiently", what broad fundamental policy issue would still be raised by the way in which markets allocate such a finite resource?)

In the real world - the pareto efficiency has unintended consequences. This largely depends on the rivalry in consumption and the ease of exclusion in a market. If a market has high rivalry and low ease of exclusion, you have open access market fails. If the market has low exclusion and low consumption the market creates public goods. With low rivalry and high exclusion= mixed bag where markets may be able to organize themselves and work, create private and public clubs and or regulated natural monopolies. If markets were to allocate finite non-renewable resource efficiently, some broader policy issues that should be raised are: - environmental degradation (externalities) - "economically" depleted - monopoly of resources - resources availability (insecurity of foreign sources)

What relationship became known as "the Kuznets Curve" in the 1950s? In the 1980s and 1990s, many neoclassical economists seemed for a time to believe in the existence of an "Environmental Kuznets Curve". What did this belief entail? Draw a well-labeled graph that illustrates this hypothesized Environmental Kuznets Curve. Why are many environmental economists now skeptical that such a construct as an "Environmental Kuznets Curve" is likely to be correct?

Kuznets Curve: Relationship between income per capita and inequality Simon Kuznets argued with considerable success that economic growth was constructive not only in raising per-capita income levels but also in reducing the degree of income inequality in the world. Some neoclassical economists argued that economic growth is necessary, and perhaps sufficient, for environmental improvement: This is true for certain environmental impacts. But things that don't get better are resource depletion and increased throughput There is a positive income elasticity of demand for a "clean" local environment Conventional economic growth still seems to be at odds with the preservation of the resource base—at least in the presence of so many unpriced externalities and open-access resources.

In neoclassical normative economics, what is usually considered to be "the moral reference class"? What is considered the "value" to be optimized with respect to this moral reference class? In answering this question, what is the relevance of "consumer sovereignty" to the issue of the "value" to be maximized?

Mainstream modern normative economics is based on utilitarianism and consumer sovereignty Utilitarianism: What matters is people's welfare (i.e. utility) People alone are the moral reference class Consumer Sovereignty: What matters is individual's evaluations of their own welfare and best interests - not some third party decider

What is meant by "natural capital" and the "ecosystem services" approach to environmental/economic studies? Briefly describe the key features and objectives of the "ecosystem services" approach. What Stanford conservation biologist has played a central role in promoting this modern interdisciplinary approach to environmental analysis and policy evaluation?

Natural Capital: Natural capital can be defined as the world's stocks of natural assets which include geology, soil, air, water and all living things. It is from this natural capital that humans derive a wide range of services, often called ecosystem services, which make human life possible. aspires to constructively connect a dialogue between economists and ecologists regarding the value of the ecosystem and appropriate natural resource management. The central premise of the approach is that the ecosystem services provided by biotic nature to support human well-being are masked and undervalued in a largely market-directed economy, resulting in the uneconomic and potentially disastrous destruction of ecosystems. The biophysical sciences are central to elucidating the link between actions and ecosystems, and that between ecosystems and services (biophysical models of "ecological production functions"). The social sciences are central to measuring the value of services to people ("economic and cultural models"). Valuing ecosystem services provides useful information that can help design the institutions (decision-makers) that will guide resource management and policy. Having the right institutions can create incentives, so that the decisions made by individuals, communities, corporations, and governments promote widely shared values.

In what sense does the "Spaceship Economy" model suggest that it seems like a good idea to focus on measures of the various capital stocks in order to manage in such a way as to avoid overshoot and collapse? In other words, if you are interested in examining whether you are on a sustainable consumption path, briefly explain why it would make sense to monitor the values of the various types of natural and human-made capital being accumulated and/or depleted along the path you are experiencing.

Overshoot and collapse occurs when resource are not managed wisely, or when increasing the human-made capital service flows cause a net decline in the total capital service flow. Because Kh is destructive of Kn To make sure your are on a sustainable path you should monitor how much natural capital service flow return you are getting from increasing human capital service flows. If it is negative then not on sustainable path.

As a response to the objections leveled against some of the premises of Classical Utilitarianism, Wilfred Pareto proposed his now-famous Pareto Principle for judging whether one economic state of the world should be preferred to some other state of the world. Briefly state and explain this Pareto Principle. Is it completely free of controversy (i.e., "value-free")? State at least one possible objection that someone might have concerning its use to advocate the adoption of a specific public policy. What is the main shortcoming of the Pareto Principle as a guide to judging whether some specific public policy should be adopted? (see notes for detailed framework)

Pareto Principle: If we can somehow reallocate resources so as to make at least one person better off without making anyone worse off, then we should do it If we can make at least one person happier (increase their utility) while not making anyone less happy, then we should do it. Moving to the NE is desirable and nothing else can be said Problem #1: Using pareto criterion cant say whether inefficient or efficient point is better (pareto non-comparable points) Problem #2: there aren't any situations where you can apply this principle It is very nearly impossible to design policies that harm no one. There are almost always winners and losers It's not very powerful in deciding among competing public policy proposals and, therefore, not very useful

Economic theory says that if markets are universal (i.e., they are used to allocate absolutely everything of any positive or negative value) and "perfectly efficient and competitive", the market system will be "Pareto Satisfactory". What exactly does this mean? In what way does this theorem tend to broadly influence most American economists' thinking about how best to approach public policy making.

Pareto Satisfactory: Perfectly competitive markets result in an allocation of resources that is Pareto Efficient (optimal) Starting with a complete initial allocation of basic property rights to all resources, perfectly competitive transactions will drive the economy toward a Pareto Efficient outcome. Can get to pareto optimal point if you assign property rights in equitable and efficient allocation Modern thinking about Welfare Economics is based on a combining the insights of the Social Welfare Function approach with the fundamental analytical modeling result that perfectly competitive markets are "Pareto Satisfactory" institutions. That is: Targeting any desired Pareto Efficient outcome, there exists an initial assignment of property rights that will result in this Pareto Efficient final allocation through perfectly competitive voluntary transactions. (In other words, the destination can be achieved be beginning at the appropriate starting point.) Starting with a complete initial allocation of basic property rights to all resources, perfectly competitive market transactions will drive toward a Pareto Optimal outcome.What economists gelan from the Pareto Satisfactory nature of Markets: Efficiency: "Free markets" (i.e., freedom of contract and voluntary exchange) are great engines of efficiency that also serve the democratic values of voluntary decentralized decision making--so long as property rights assignments are complete, all buyers and sellers are price takers, and there are no uncompensated third parties who are "legitimately" impacted by any transactions. Equity: Equity issues should be addressed by trying to efficiently redistribute income/wealth (i.e., property) in ways that minimize adverse impacts on efficient transactions and investment incentives.

To the extent that various of these philosophers argued that property had "instrumental" merit, what arguments did they advance for its instrumental merit.

Political freedom: Property supports autonomy and personal freedoms Economic benefits: supports commerce and investment (if improve has economic benefits) Scale economies of protection: if property were not recognized by the state, then all protection would need to be private Realism: property exists in the status quo and changing this raw fact will be socially disruptive (people own things to why change it) Institution designed to further equitable goals of society; Property rights can only be justified by results); control over things via ownership conveys a kind of control over people and therefore although property has useful function it must be constrained/regulated to serve common good (Cohen) Institution collectively determined based on a political consensus that private property right promote mutual benefits; secure and exclusive property rights encourage investment and trade. Exist because we got together and decided they are important (Hume)

What is the basic distinction between a "positive" and a "normative" economic question?

Positive economics involves issues of fact and study how people actually behave. These questions seek to understand - not to recommend or moralize- human behavior. Examples: How do people behave both individually and collectively? How do we expect individuals to respond to environmental policies? Does the structure of the world economic system make it likely that we will overshoot the environmental capacities of the world, etc? Normative economic questions regard issues of how society should be using its resources. Involves the study of economic issues with the intent of making recommendations or evaluating the merits of certain policies or states of the economic world. These questions go beyond factual science and raise issues of policy objectives and involves questions of what should be. Examples: How rapidly should we depleting our non-renewable resources such as oil and natural gas? Should public policies be directed at reducing greenhouse gas emissions, etc? If the world economy is indeed prone toward overshoot and collapse, what specific institutional changes should we pursue to correct problem?

In what broad way do the concepts of stability and resilience suggest that employing some "margin of safety" would be consistent with the generally observed human tendency toward "risk aversion" and the application of some "precautionary principle" (somehow defined).

Problem: knowledge is finite but ignorance is unbounded Many environmental processes seem likely to be subject to catastrophic responses if poorly understood critical thresholds are crossed Some degree of societal risk aversion seems morally warranted and consistent with observed individual behavior Application of some precautionary principle therefore seems morally warranted. Precautionary principle: "When an activity raises threats of harm to human health or the environment, precautionary measures should be taken even if some cause and effect relationships are not fully established scientifically."

Using the example of a polluter and a "pollute", briefly discuss how pollution might be dealt with under either a "property rule" framework or a "liability rule" framework and how each framework could be structured so as to essentially assign the initial "property right" to either the polluter or the "pollute".

Property Rule Polluter has privilege to proceed: Polluters can proceed freely to pollute unless "bribed" by the pollutees to voluntarily reduce pollution. Polluter has duty to refrain: Polluter must "bribe" pollutees to get their prior consent to "accept" the pollution. Has legal advantage Liability Rule Polluter has privilege to proceed: Polluters can proceed on their own, but pollutees can seek "condemnation" of their pollution activities if the pollutees pay court-determined compensation to the polluter. Court might award pollutee compensation. Polluter has duty to refrain: Polluters can proceed, but only at their own risk. Pollutees may have rights to court-determined compensation after the fact. (much like classic traffic- accident liability)

Briefly give an example of a public policy context in which the decision to undertake, or not undertake, some public policy action based on the results of a cost-benefit analysis could completely depend on which party (or parties) is assumed to hold some "property right" under the ex-ante status quo from which a possible policy change is being evaluated.

Specific public policy question: How much should society be willing to spend to clean up a lake to improve recreational fishing ("angling")? 1.Asserted political-economic viewpoint "A": Anglers don't have the ex ante "property right" to a clean lake. Possible political-philosophical foundation: Recreational angling is a relatively inessential and trivial pursuit. Society has no obligation to restore the quality of recreational fishing in the lake. Anglers should essentially have to pay society to clean up the lake. (However, under a K-H-based BCA approach, we won't require them to actually do so. It will simply affect our valuation method for determining whether the lake should be cleaned up). Implied Valuation Method: WTP 2.Asserted political-economic viewpoint "B": Anglers have a basic right to fish in a clean lake. Possible political-philosophical foundation: Everyone in society should be regarded as having the right to go fishing in a clean environment. Polluters should be regarded as responsible for cleaning up the lake. implied Valuation Method: WTA Briefly explain how this "endogenous circularity" of the cost-benefit results directly relates to the Coase Theorem and provides an illustration of why the presumed initial allocation of property rights can be an essential determinant of exactly what allocation of resources is evaluated as being "the most efficient and desirable allocation" of resources in any particular application. (slide 20 and 21)

Similar to the confrontation between John Muir and Gifford Pinchot over the appropriate meaning of "conservation" within the context of the Hetch-Hetchy Valley at the beginning of the 1900s, another confrontation came front-and-center in the 1960s regarding the Colorado River. What was the focus of this controversy?

Tension over building of Glen Canyon dam. Between: a. David Brower (Sierra Club) b. Floyd Dominy (USBR)

The scope of the federal government's power is also governed by three other principles. Briefly explain each: The Supremacy Clause: Federal Preemption "Savings Clauses"

The Supremacy Clause: The fed gov may enter into international treaty that may be inconsistent w/ a states law. At that point the state laws are null and void. When fed gov has authority and does act and that act is inconsistent with state law, that state law is no longer void Whenever federal and state laws in conflict with one another, the federal law prevails Federal Preemption To avoid potential conflicting state-law problems, Congress can explicitly state that a federal law is intended to preempt all related state laws; this is simply an explicit exercise of the Supremacy Clause. The fed gov when it has authority to act can act in such a way through congress as to preempt any kind of regulation in the area they are dealing in. Can pass fed law and congress can pass law that this law can preempt any state law that might have been in this area. Going to have one big law and it is going to be federal. Congress explicitly put provision in legislation. In the absence of such an explicit Congressional statement, states may adopt laws so long as they are not in conflict with federal law unless the Court rules that federal statutes in an area are so pervasive that a Congressional intent "to occupy the field" can be inferred implicitly. "Savings Clauses" sometimes inserted into federal legislation Federal Statutes sometimes contain savings clauses that clarify that states may adopt more stringent regulations Fed gov might pass law and realizes that some court is going to come along and say it preempts all states actions but fed does not want fed law to preempt state from stronger regulations so puts clause in legislation to allow state to enact still more stringent laws if they want Example: Clean air act has savings clause in California. If any state wants more stringent air regulations they can do it. They must apply for waiver to epa to have own state regulations. If not federal regulation stays.

Next consider the "Spaceship Economy" model (World C in the Powerpoint):What are the prospects for achieving a sustainable and even growing per-capita consumption path in this model?Briefly discuss the logic of the model in driving this result: that is, how is this result achieved within the assumptions of the model? Within the assumptions and workings of this model, what would you say about the risks of overshoot and collapse occurring in this model? Briefly explain. What in general has to be done in order to avoid overshoot and collapse in this model?

The stock of natural capital is both renewable and nonrenewable, etc. (same as above) The ability of additional investments in human-made capital to augment the flows of services from natural capital is subject to limitations due to diminishing marginal productivity of this human made capital in augmenting natural capital service flows and also the crowding out of natural capital It is possible to achieve some sustainable per capita consumption but not growing. Past some point the further accumulation of human-capital cannot increase per capita consumption in an economically worthwhile way because of diminishing returns to further capital investment and crowding out of natural capital A collapse in the consumption path can occur if human-made capital service flows cause a decline in total capital service flow because the human-capital expansion is sufficiently net-destructive of natural capital service flows Unwise resource management may lead to overshoot, failing to satisfy sustainability

Focusing on the Solow-Dasgupta-Heal model: What are the essential structural assumptions of the Solow-Dasgupta-Heal model? What conclusion is drawn from this model regarding the feasibility of achieving a sustainable consumption path? In what sense is this conclusion about the existence of a sustainable consumption path "counterintuitive" for most people?In broad terms, explain how a sustainable consumption path can be achieved within the assumptions of the Solow-Dasgupta-Heal model

The stock of natural capital is finite and non-renewable Some flow natural capital services is absolutely essential for any production There is some ability to substitute human-made capital for natural capital Constant population No technological change Even in the extremely bleak case in which natural resources are absolutely necessary for production and are non-renewable and finite, a sustainable consumption path exists.Don't lose site of the power of input substitution. It's ability to mitigate resource scarcity problems is extremely strong—even to a counterintuitive extentAs the stock of essential non-renewable resource continually declines, you simply have to add (invest) enough in the stock of human made capital to maintain a constant level of production of the consumption good.

In classifying and measuring environmental benefits, economists generally categorize these values into several "buckets" to make sure that they have counted everything and not double-counted anything. Describe the basic structure of the "buckets" used by economists in making and classifying these benefit evaluations. Give an example of an item that might be found in each of these buckets if we were considering the social value of restoring a wetland habitat. (slide 23-26)

Use Values Direct use values: things directly use so can measure their values (consumptive and non-consumptive) Examples: drinkable water, irrigation water, recreation Indirect use Values: (functional) Nutrient retention and recycling Option and Quasi-option values Examples: Non-use values Existence values: "I feel better that this exists in the world and I am willing to make sacrifices to preserve it". (e.g., unique wild places, charismatic species, etc.) Bequest values: resources to be preserved for future generations due to their uniqueness or simply for the wellbeing of the future Cultural heritage values: Valuable in establishing community identity in the present and passing along the story of who we are (or think we are) to the future

Explain the basic assumptions serving as the foundation of Benthamite Classical Utilitarianism and how this framework natural leads to a policy prescription favoring egalitarianism. (Look at Jurewitz notes)

Utility human happiness as perceived by people themselves should be maximized Max SW = f (U1, U2, ..., Un) Everyone has, or should be regarded as having, an equal ability to get the same level of utility out of a given level of income and wealth The utility that everyone gets from income/wealth diminishes at the margin (and does so in exactly the same way) Peoples' utility levels should be regarded as cardinal quantities that can be meaningfully aggregated across individuals Society should pursue public policies that try to maximize the aggregate utility levels of all member of society ( Public policy should be directed at maximizing society's total happiness ) The greatest good for the greatest number SW = f(U1 + U2+...+Un) If everyone has the same ability to convert income intro happiness, and if an individual's utility is subject to diminishing marginal values, the the logical implication is that social policy should pursue an equal distribution of income across all individuals as an ideal objective

What is meant by "Willingness to Pay" (WTP) and "Willingness to Accept" (WTA) measures of a change in the wellbeing of an individual resulting from an environmental improvement? Which of these two measures is "income-constrained"? Which measure will result in a larger dollar measurement of the welfare improvement associated with the improvement in environmental quality? In what way does the choice between using one measure versus the other implicitly (if not, explicitly) involve a viewpoint about where the associated "property right" actually lies—or should lie? (Slides 19-22)

WTP AND WTA are ways to measure welfare changes. Willingness to Pay (WTP): A person's willingness to pay for an increase in an environmental service Willingness to Accept (WTA): A person's voluntary willingness to accept payment to suffer a decrease in an environmental service WTA is usually higher than WTP Choice between WTP and WTA is an implicit Normative question about how initial property right sought to be assigned Are property rights clearly established under some ex ante status quo If so, who factually holds the "property right" (if anybody)? i.e., Can any party be identified as having a clear legal right to receive the environmental service flow unless they voluntarily give it up? If not, who should be regarded as having the "property right"? If the party protected by a property right is not clearly designated ex ante, then who should be designated as the implicit ex ante rights holder?

What, in general, is known as a governmental "regulatory taking" and what relevance does this concept of a governmental regulatory taking have to the concept of property rights as a "bundle of rights" or "bundle of sticks".

A key question in the government regulation of nat resource use is the following: At what point does government regulation of your property become so onerous in terms of depriving you of one or more of the "sticks" in your property bundle that the government should be legally obligated to pay you compensation? Restrictions on the use of your land due to the newly discovered presence of endangered species.

Making explicit use of the isoquants from a neoclassical production function, explain in accompanying words and in an intuitively appealing way how some amount of additional economic growth might be achievable by substituting human-made capital for natural capital but also why this may be risky and perhaps we ought to adopt a "guardrail" rule-of-thumb to preserve some risk-averse precautionary level of natural capital. [Helpful hint: See page 54 of the respective Powerpoint.]

see slide 54

State the formula for compounding when compounding of interest payments takes place only at discrete intervals (e.g., monthly, quarterly, or annually).

Bt = A(1+r)^t

Now state the two respective formulas for discrete and continuous discounting.

Discrete Discounting: A = Bt/(1+r)^t Continuous discounting: A = BtE^-rt

To the extent that certain philosophers took a relatively strong stand that property rights should be afforded a strong degree of security, what arguments did they tend to advance to support such a view? What potential downsides/disadvantages do you see in affording property rights too strong a degree of security?

Must be secure to protect individuals from despotic state Reject ability for gove to redistribute property rights for its own collective goals (rejects confiscation or coercive redistribution) Downsides: fosters/tolerates extreme wealth and power inequalities

What is meant by the "Public Trust Doctrine"? What relationship does it bear to a state's vast "police powers"? To the extent that states truly have "Public Trust" obligations, what broad category of law must form the foundation of these obligations in order for these obligations not to be simply subject to periodic reinterpretation and adjustment by a state legislature or state government?

Trust = legal entity holds title to designated property and manages it on behalf of designated beneficiaries PTD: says gov have trust obligation in managing natural resources for the public Key Q: does gov have a public trust obligation relative to some natural resource Trust obligation = have trustee that holds certain limited title to property and obligated to manage property for beneficiaries Other side is that gov does not have trust obligation but really has broad police powers and can pass regulations to manage resource. Ceded to each state the lands seaward of the high-tide line as well as the soils under navigable rivers subject to the states acting as "trustees" for these seashores and under-river lands on behalf of their citizens

In Garrett Hardin's classic article entitled "The Tragedy of the Commons", how does he describe the nature of the "tragedy" and how does he recommend "solving" it?

Tragedy each man in a common pasture is locked into a system that compels him to increase his herd without limit- in a world that is limited. Ruin is the destination towards which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all Solutions: Sell land off as public property Keep land as public property but allocate the right to enter them

What exactly is meant by a person's "intrinsic rate of time preference"? What does it have to do with whether a person is, in some broad sense, fundamentally "patient" or "impatient"? Briefly explain.

A person's Intrinsic Rate of Time Preference refers to the numerical value of their Marginal Rate of Time Preference in the hypothetical situation in which they are equally endowed in both periods IRTP = best estimate of a consumer's general degree of psychic impatience Positive = Impatient Negative = Patient MRTP looks are preferences at the margin while IRTP looks at preferences overall/generally Looks at what would MRTP be if endowed in both consumption time goods equally.

What are the three basic categories of elements that, in one combination or another, are typically found in a reasonably complete ethical framework?

A theory of value: Judgements as to what is "good", or "desirable" These things or actions may have intrinsic value in themselves or instrumental value in support of related values Principles of Right Action: Actions which must be taken (obligations), or must not be taken (prohibitions). The "Moral Reference Class": Who or what really matters?

What are the bases for considering the federal administrative agencies and commissions to be a "fourth branch" of the federal government? In broad but specific terms, briefly explain how this fourth branch of government (i.e., these federal agencies) "controlled" or constrained by each the three branches of government (Executive, Legislative, and Judicial) that are explicitly established and empowered by the U.S. Constitution?

Administrative agencies = Regulatory Agencies and Independent Commissions Develop, adopt, and enforce rules consistent w/ quasi-legislative authority delegated to it by federal authorizing statutes Most part of federal government Legislative authorizes what they can do in statute; also get authority an budget from the legislative branch Controlled by Executive Branch Appoints and removes agency heads Can implement and execute agenda through executive orders or Policy and Enforcement Memoranda Controlled by Legislative Branch Hold oversight hearings at anytime Control agency budget through annual appropriations process Change an agency's authority by amending its enabling statute Amend the enabling statute with a sunset provision Controlled by Judicial Branch Interprets enabling statutes and may invalidate agency-adopted rules Reviews complaints about agency procedures and substantive appropriateness of agency-adopted rules and regulations

A schoolmate at the 5-Cs (but not in our class!) tells you that it is silly for economists to try to place a dollar value on clean water and clean air because it is obvious that water and air are absolutely essential to our existence and, therefore, their value ought to be regarded as "infinite". Without minimizing the challenges of applying dollar values in environmental decision-making, what do you think would be the best way to respond to your fellow schoolmates statement?

Cost benefit analysis does not seek to measure the total social value of some essential environmental service The TOTAL social utilitarian value is infinite No one would propose that is could be traded for something else in its entirety Appropriate benefit-cost analyses focus on finite incremental changes in water supplies I.e. the value of a decremental loss of water due to some policy decision

What basic provisions ("clauses") in the U.S. Constitution are the bases for the following specific exercises of federal authority: Establishing National Parks Resolving the allocation of the Colorado River water with Mexico: Regulating strip mining of coal: Building the Hoover Dam on the Colorado River:

Establishing National Parks: Property Clause Resolving the allocation of the Colorado River water with Mexico: Treaty Clause Building the Hoover Dam on the Colorado River: Tax and spending clause Regulating strip mining of coal: Commerce Clause

What was(and perhaps still is) the so-called "Sagebrush Rebellion"? How do the advocates of the Sagebrush Rebellion use the "equal footing doctrine" to plead their point of view? What are the best legal arguments in rebuttal to their viewpoint?

In 1976: Congress passed Federal Land Policy and Management Act ending homesteading and adopting policy ending the further disposal of fed land After passing, states right advocates complained that new federal policy was contrary to equal footing doctrine since it regulated huge amounts of land in west being permanently owned by fed government However, states agreed that as a condition of statehood that federal government can do whatever with the federal land in state lines these states had all agreed as a condition of statehood to disclaim forever "all right and title to the unappropriated public lands lying within said territory, and that the same shall be and remain the sole and entire disposition of the United States." Sentiment still persists today = arises when rancher has terms of access to federal land altered The "Sagebrush Rebellion" consisted of a variety of actions by activists: State and local legislation Court challenges to federal retention of lands Attempts to pass federal legislation The Sagebrush Rebellion was a movement during the 1970s and 1980s that sought major changes to federal land control, use and disposal policy in the American West where, federal government owns lots of land Notably, supporters of this movement wanted more state and local control over these lands, if not outright transfer of them to state and local authorities and/or privatization.

What is meant by a consumer's "marginal rate of time preference"? How does this differ from the concept of an individual's "intrinsic rate of time preference?

MRTP = Captures marginal rate at which an individual is willing to trade off between consumption today and future consumption. (@ the margin) Intertemporal indifference curves exhibit diminishing marginal rates of substitution like regular indifference curves. These marginal rates are known as Marginal Rates of Time Preference. MRTP = |MRS| - 1 where MRS = change in Co/change in C1 At point B, have lots of present consumption goods and little future consumption goods. Willing to give up 3 present goods to get just 1 future good Different attitude at point A: not willing to part with present consumption to gets a lot of future consumption Overtime less willing to give up a certain consumption time good (future or later) MRTP = negative = patient MRTP = positive = impatient MRTP looks at preferences at the margin while IRTP looks at preferences overall/generally Looks at what would MRTP be if endowed in both consumption time goods equally.

When individuals make intertemporal resource allocation decisions based on maximizing the discounted present value of their wealth, there can be no doubt that they are valuing the receipt of one more dollar in the future at less than one more dollar in the present. This behavior certainly seems to be evidence of their "impatience", i.e., their tendency to not value their future welfare as much as their present welfare. Briefly explain in plain English why this inference about their basic intertemporal attitude is too hasty—that is, the evidence is not sufficient to draw this conclusion. Be sure to include in your explanation the role played by the availability of intertemporally productive investment opportunities in explaining their observed "impatient" behavior.

Not a reflection of impatience rather it is a reflection of the fact they are living in world with positive interest rates They have alternative ways to make that amount in the future By making investment and having future amount grow They live in market where it does make sense not to discount Humans understand their environment and therefore understand discounted future

Briefly explain what is meant by "the equal footing" doctrine.

Once the new Constitution went into effect, Congress admitted Vermont and Kentucky on equal terms and thereafter formalized the condition in its acts of admission for subsequent states, declaring that the new state enters "on an equal footing with the original States in all respects whatever." Subsequently, Congress adopted the same policy of equal status as it adopted the language admitting each newly admitted state.

Explain briefly the various ways in which the U.S. federal government came to gain both sovereign and proprietary authority over so much of the landmass of the United States during the late 1700s and 1800s. What did the federal government do with most of this property?

Originally 13 colonies Proclamation of 1763 US gained territory through treaty of Paris in 1793: results in more territories being ceded to the US Initial land claims of the 13 Original US states Of the original 13 states, 7 had indefinite western boundaries. The other 6 had fixed western boundaries. The 6 bounded states feared that the other 7 would use their western lands to grow and enrich themselves and dominate the 6 bounded states. Between the Articles of Confederation and the adoption of the U.S. Constitution, the 13 states reluctantly agreed to cede their western frontier lands beyond the Appalachians to the federal government. Primarily to finance the new federal government, and to pay the back-pay owed to Revolutionary War soldiers. The states gave the federal government the authority to regulate the federal property. In October 1780—even before the Articles of Confederation had been ratified, the Continental Congress adopted a general policy for administering the lands transferred to the federal government: The federal lands were to be: "disposed of for the common benefit of the United States" "granted (to private parties and new state governments) and settled at such times and under such regulations as shall be hereafter be agreed on by the United States in Congress assembled"; and ( congress decides how things disposed of) "settled and formed into distinct republican states, which shall become members of the Federal Union, and shall have the same rights of sovereignty, freedom and independence, as the other States" (allow for new states to be formed and when they are admitted into union on same footing)

What is Paul Ehrlich's IPAT framework for trying to better understand the forces determining the overall of environmental impacts of various dynamic forces and trends? To illustrate that you understand the IPAT "model", give an illustration of its application in some specific environmental context (e.g., GHG emissions, oil consumption, etc.). In what sense is the IPAT model not really a predictive or behavioral model but instead simply a use tautological framework for getting a better grip on big-picture, complex environmental problems? Explain.

Other cautions associated with the IPAT model Increased affluence by itself will not solve the problems of world society. Instead, it will simply increase society's environmental footprint. Technological change is a double-edged sword: On the one hand, it can be used to reduce the environmental impact of various goods. But on the other hand, it can also introduce new goods and new "human wants" as well as exotic new pollutants, GMOs, and other hazards.

In the United States "federalist" system, in general terms, what powers are given to the federal government and what powers are given to the States. Are all of the federal government's powers explicit, or are some implicit?

Powers given to federal government: Explicit: FG sovereign in several areas explicitly stated in constitution Implicit: the SC has ruled that the FG has certain powers implicit in constitution Powers given to state 10th amendment: "the powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people." Everything else not explicit or implicit in constitution given to the states

The federal agencies are said to directly engage in both "quasi-legislative" and "quasi-judicial" activities. In general, what is an example of each of these two types of agency activity?

Quasi-legislative: Rulemaking: i.e. issuance of regulations of broad applicability Quasi-judicial: aimed at specific ind or group or ind/or asking for permit Enforcement: against individual violators of rules or statutes Adjudications: issuance of orders focused on individual actors Permitting and Approvals: of specific projects

Briefly identify and explain four of the Constitutional "clauses" that form the bases for explicit federal authority in the realm of

The Property clause In constitution: "Congress shall have power to dispose of and make all needful rules and regulations respecting the territory or other property belonging to the United States." When US 1st formed the 13 colonies ceded all frontier territories to fed gov. The fed initially owned all this land and gradually disposed of it to promote settlement and development. Fed still owns lot of land States have been allowed to regulate private activities on federal lands as long as they impose the same regulations on private entities operating on non-federal land. (states regulate rules on fed gov land. I.e state wildlife laws apply to fed land in state) Fed has typical proprietary ownership of land like a regular owner would have Examples: National Parks, National Forests The Treaty Clause: In constitution: "[The President] shall have power, by and with advice and consent of the Senate, to make treaties, provided two-thirds of the Senators present concur..." Only fed gov can draw international contracts w/ other countries (treaties) and treaties, when formalized, are all the exclusive jurisdiction of fed gov The federal government has very broad and exclusive power to make treaties with foreign governments. In conjunction with the Supremacy Clause, this means that a federal treaty would over-ride and nullify any state law whose provisions are inconsistent with the treaty. What precludes states from doing so is supremacy clause Example: Treaty with Mexico on the uses of the Colorado and Rio Grand Rivers, Convention on International Trade in Endangered Species, Convention on Biological Diversity, International Convention on Whaling The taxing and spending clause: In constitution: "Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare..." Fed gov. can spend money in all areas it is authorized to spend and when it does so it is sovereign. I.e. gov spends money in western states in building water projects. Authorized to do that in pursuit of activities to do that . It has authority to tax and spend within a given authority. Example: Spending on the water projects developed by the Bureau of Reclamation in the W. states The commerce clause: In constitution: "[The Congress shall have power] to regulate commerce with foreign nations, and among the several states, and within the Indian tribes" All interstate and intergovernmental regulations are strictly the jurisdiction of federal government. Grants congress full legislative authority over interstate commerce. Court must defer to a congressional finding that a regulated activity affects interstate commerce so long as there is any rational basis for such a finding Example: Federal regulation of strip mining of coal under the Surface mining reclamation act.

Briefly discuss how the federal courts oversee the conduct of the administrative agencies, including the basic standards they apply in reviewing agency rulings and orders, and the general types of actions a court may take in response to a formal filed complaint ("appeal") about an agency rule.

What are standards for review when someone complains about agency regulation? Main Process standards of Judicial Review Substantial Evidence: in court review of a rulemaking or adjudicatory proceeding, the court will uphold an agency's ruling if the record includes substantial evidence supporting the agency's findings even if the court would not have reached the same conclusion as the agency. Did your rule making process indicate you undertook exploration of substantial evidence. If it was substantial evidence we the court are not going to substitute judgement for the conclusion that you reached. If explanation not completely off wall then court will not go against it. Arbitrary and Capricious: Even if not supported by substantial evidence, the court may allow an agency action to stand so long as it is not clearly erroneous and is supported by some modicum of rationality. Otherwise the court may overturn the agency for being "arbitrary and capricious". The court may still not overturn rule of agency if there is some modicum of rationality. Types of court remedial actions Declaratory order or emergency injunction: Court can enjoin (put on hold) agency action pending further proceedings. Remand to the agency: After review, the court vacates certain agency action and remand the issues to the administrative agency for further deliberations Ultimately what usually happens when the court overturns it, it remands the regulation back to agency telling them to try again and giving them guidance about where they went wrong.

Briefly discuss the shortcomings of the narrowness of the typical depiction of the "circular flow" of commerce that serves as a central organizational construct in almost every college textbook explaining microeconomic principles.

focuses on endogenous variables; ignores exogenous variables: 1. level of tech 2. sunk cost/investment in capital stock 3. population 4. stocks of available resource inputs

Explain three broad factors or reasons that are likely to cause "market-driven' development to result in economically inefficient "overdevelopment" in the absence of some serious and fundamental institutional reforms.

"Nonmarketed" environmental services (missing markets): Most of the ecosystem services are not recognized in current markets; therefore, no one can "monetize" the benefits of preservation. Externalities: Development frequently generates external costs on surrounding systems. Misguided government subsidies for "development

State, in a reasonably exact or closely paraphrased way, the famous definition of "sustainability" proposed by the Brundtland Commission.

"Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs" "as well as the following corollary": "Sustainable development must not endanger the natural systems that support life on Earth"

What are the four broad classifications of "ecosystem services" used in the ecosystem services approach? Illustrate each with a rather typical example in each category.

1. Provisioning services: food, raw materials, water, minerals 2. Cultural Services: recreational experiences, inspirational value, science and education 3. Regulating Services: air and water purification, waste decomposition, pest and disease control 4. Supporting Services: nutrient recycling, soil formation, photosynthesis and primary production

What are the four key steps taken in the Ecosystem Services approach to analyze an environmental problem and recommend a remedial policy solution?

1. Develop much better understandings of ecosystem production functions and service flows 2. Establish reasonable ranges of values for ecosystem service flows 3. Identify alternative scenarios of human actions affecting ecosystem service flows 4. Design institutions that provide proper incentives to guide individuals and societies to make better choices

In lecture we briefly discussed the legal theory that "property rights", as they apply to any specific piece of physical property, can be thought of as a "bundle of rights" analogous to a "bundle of sticks". In the extreme, an owner of property may possess all of these "sticks", but in some cases and for some types of property the list of such "sticks" may be more limited. In lecture, we presented a typical list of such property rights "sticks". Demonstrate that you understand this concept of property rights as being a "bundle of rights" by stating SIX (6) such "sticks" that are typically held by someone who is said the have a property right in a specific object.

1. Exercise exclusive physical control 2. Determine how the thing is used 3. Use without unreasonable limitations 4. Own any respective income flows 5. Augment with investment 6. Be able to transfer title (ownership) to all or some of it 7. Have immunity from expropriation: someone just cant take it 8. Consume or destroy 9. Hold these rights in perpetuity: i.e. this is mine forever 10. Bequeath to heirs

What are the three main potential sources of shortcomings, or "failures", of the free-market in efficiently and equitably managing the allocation of natural resources?

1. Externalities: Producers are rewarded for production but not penalized for environmental degradation. Environmental services are "unpriced" and treated as "free". 2. Open Access: Many ecosystem resources are essentially open-access "commons". Access and use is not regulated by some external entity.. As a result they are subject to too much crowding, overuse, depletion, and lack of maintenance & investment. 3. Intergenerational (and intragenerational) equity: Future generations will only have what we leave them. Even if we were to use all natural resources "wisely" in the interest of the current living generation, there is no assurance that this behavior will necessarily pass long to future generations the same capacity for well-being

Briefly explain Paul Samuelson's Social Welfare Approach, which is essentially a rejoinder to simply using the Kaldor-Hick Compensation Principle to sort through the relative merits of alternative public policies.

A complete ordering of potential states of the world as to their efficiency and income distributional properties. In this sense it would be mechanically structures much like a consumer's preference function with social indifference curves exhibiting a diminishing marginal rate of substitution among the various goods. In the case of the social welfare function these goods would simply correspond to the utility level of all citizens.

In the study of American natural resource policy-making, what rather stark confrontation of two opposing "ideologies" or "social value systems" is all too frequently encountered?

A. Communitarian conservation ethics: see humans as part of a community of life who have obligations to this community and are interdependent with community in continuing health of community B Individualistic property rights ethics: see humans as autonomous being with possessed liberties who are able to do as they see fit as long as it does not infringe on the rights of others

According to the Jurewitz class notes, "Introduction to Environmental and Natural Resource Economics" and the corresponding introductory Powerpoint presentation, as a broad generalization, what tend to be the important differences in beliefs between so-called "ecological economists" and "neoclassical economists"?

7 Categories: 1. Human Wants 2. Resilience/stability of ecosystem 3. Kn and Kh 4. Technological progress 5. Markets 6. Societal Risk aversion 7. Future outlook/intergenerational equity

Briefly discuss how the answer to the previous question illustrated Bromley's critical observation that depending on the initial assignment of the "property right" to pollute, government regulation of pollution will be tend to be viewed as either protecting someone's prior rights or interfering with the otherwise free exercise of their property rights.

A negative externality is simply a cost that the source cause does not have to bear. This privilege is a matter of the prevailing institutional structure Thus, what is seen as an "externality" depends entirely on the status quo structure of current institutions. It is not some exogenous concept. It is entirely endogenous based on prevailing institutions Government regulation of pollution gets characterized by some as government interference with polluters rights ( in realty, their previous de facto privileges). One person's government interference is another person's government protection [In instances such as pollution, a key question is whether anyone's property has really been "interfered with" or whether a pre-existing ethical "duty" not to pollute has simply finally been enforced.]

Ostrom and Schlager present an interesting taxonomy of five key dimensions of property rights. Two of these are "operational-level" property rights and three of these are "collective-choice level" (i.e., governance) property rights. Discuss the nature of the rights involved in each of these five dimensions of property rights? O&S also identify 5 different combined configurations of property rights that are very typically bundled together. O&S characterize each of these five common bundlings with a specific name. Identify these five names and the bundles of property rights typifying each category.

Access rights: Can I access the resource to enjoy its "public goods" qualities in a non-destructive way? The right to enter a defined physical area and enjoy non subtractive benefits (i.e. hike, canoe) Withdrawal rights: Can I harvest some of the resource for my own consumptive use? The right to obtain the resource units or products fo resource (catch fish, appropriate water) Collective Governance Rights: Management rights: Do I have a voice in determining how the resource will be managed by the community? The right to regulate internal use patterns and transform the resource by making improvements Exclusion rights: Do I have the right to determine who will have membership access and withdrawal rights, and to determine how these rights will be transferred to others? The right to determine who will have an access right and how that right may be transferred Alienation Rights: Do I have the right to sell, lease, or transfer my management or exclusion rights to others? If the community decides to sell the entire resource, what right do I have to the proceeds of the disposal? The right to sell or lease either or both of the above collective rights In each can be: - authorized entrant - authorized user - Claimant - Proprietor - Owner

What do economists mean by "capital"? In what way are renewable resources and non-renewable resources illustrations of this concept of "capital"?What is the essential distinction between a non-renewable resource and a renewable resource? Occasionally, you'll see these two resource categories referred to as "non-depletable" and "depletable" resources. What's fundamentally inaccurate about this nomenclature?

Capital: a long-lived asset capable of providing a flow of services over an asset lifespan lasting for an extended period of time Examples of natural capital: Renewable resources: A stock of fish A stand of trees a plot of agricultural land Non-renewable resources: A pool of oil A deposit of minerals Nonrenewable energy resources, like coal, nuclear, oil, and natural gas, are available in limited supplies. This is usually due to the long time it takes for them to be replenished. Renewable resources are replenished naturally and over relatively short periods of time. The five major renewable energy resources are solar, wind, water (hydro), biomass, and geothermal.

What dueling views of "conservation" battled for influence and dominance during "the Progressive Era" (i.e., 1890s-1920s)—and still do battle today? What two famous personalities typified these two dueling viewpoints during the early 1900s and in which venue did these two opposing views meet head-to-head in California in the early 1990s? What was the outcome of this confrontation; who prevailed—at least for the moment?

Dueling views: Should conservation mean " Wise Use" or "Set-aside"? Gifford Pinchot: Wise use John Muir: Set Aside Congressional battle over damming the Hetch-Hetchy river in Yosemite (1908-1913) became an emblematic battle in this tension over the objectives of conservation. Muir lost

What central conclusion was reached in the Club of Rome-sponsored Limits to Growth published in 1972?

Central conclusion: The world socio-economic system was prone to overshoot and collapse

In view of the "lessons" of the Spaceship Economy model, in what directions should we attempt to direct future technological changes? (3 answers)

Certain types of technological changes will become more and more important as the world gets "more full": Technological advances that focus on reducing "throughput" through improvements in extraction, recycling, and product durability surely seem like a very good idea. Technological advances that reduce the intrusion and the amount of "crowding out" by the human footprint on the natural capital stock. Technological advances that improve our ability to access renewable energy flows-e.g., improvements in photovoltaic cells, more productive agricultural

In a nutshell, what exactly does the Coase Theorem say? Some misguided souls may interpret this Theorem to say that, in the allocation of society's resources, it really doesn't matter to whom the initial property rights are assigned; what matters is that they simply be fully and unambiguously assigned. So long as the property rights are completely assigned, regardless of what their pattern of initial assignment the final allocation of resources will be exactly the same and will be Pareto Efficient. Explain what's wrong with this misinterpretation of the Coase Theorem; in what way does the pattern of the initial assignment of property rights matter in determining the exact nature of the final resource allocation outcome?

Coase Theorem: It does not matter where you assign property rights to pollution as long as you allow bargaining to take place among the parties. This would result in efficient allocation of resources In reality he is saying no matter where you assign property rights we will get to efficient points but depending on where they are assigned they will be different efficient points.

What is the key distinction between the two broad categories of "consequentialist" and "non-consequentialist" normative ethical frameworks for guiding human behavior?

Consequentialist: the results and consequences of an action justify its pursuit The ends justify the means The ends is all that matter Non-consequentialist: Actions must be judged as either right or wrong based on considerations going far beyond their consequences alone. Ends do not justify the means

Answer the following questions about cost-benefit analysis and cost-effectiveness analysis: Briefly explain the basic framework and approach taken in cost-benefit analysis versus cost-effectiveness analysis. Be sure to explain not only what each is, but also to clarify how they differ from one another in terms of scope and objective. (see powerpoint for graphical representations) Cost-benefit analysis (slide 2): In the limit, one of these techniques can help in pursuing "overall" or "global" optimization of resource use, whereas the other technique never seeks to accomplish anything so grand. Which technique pursues the more ambitious objective and which the more limited objective? Which one of these techniques involves "weaker" value judgments (i.e., value judgments that it would be easier to build a consensus around)? Which one of these techniques might be regarded by some (many?) economists as being over-reaching (or, at least very ambitious) in its aspirations?

Cost-benefit analysis (slide 2): If an activity is beneficial it will generate benefits but incremental benefit will increase in a diminishing rate Total costs will increase at an increasing rate Goal: Maximize differences between benefits and costs Where (Total Benefits-Total cost) is the greatest Where Marginal benefits = marginal costs Cost-effectiveness: Objective: achieving a given goal at least cost Basic principle = equimarginal principle If there are multiple non-mutually-exclusive avenues for achieving the given objective, then you should pursue all avenues up to the same level of "at the margin" cost incurrence per unit of goal promoted. (i.e., equal "bang-per-buck" at the margin) Each method will have increasing marginal cost rise up all marginal cost curves equally until achieve objectives Cost benefit: optimization; ambitious and more far reaching Cost effective: cost reduction/minimization; weaker value judgements

Use this simple Knight two-road model to discuss the existence and meaning of a "crowding externality". What exactly is the nature of this crowding externality; what does it consist of? Whose decision-making process is this externality "external" to; i.e., who is ignoring this externality in their own decision-making process?

Each additional driver wanting to take the more direct road is not considering the externality of their actions. drivers ignore their impact on the other drivers on the narrow road (i.e., they ignore the social "externality" they are creating.) Under peak-demand conditions, open access to the more direct road completely destroys the social value of the direct road. Essentially, drivers are chasing a mirage that simply disappears as they all try to grab some of the potential social surplus available on the direct road. The social optimum can be reached if some "gate keeper" takes the crowding externalities into account and strictly limits the maximum number of drivers allowed to simultaneously use the narrow, direct road.

What are the three main drivers of economic growth in neoclassical growth theory (as typified, for instance, by the Solow-Swan model)? What basic views do so-called "neoclassical economists" typically have regarding economic growth, it social value, and its physical limits?

Economic growth Propelled by: Capital accumulation (investment) Labor Force growth Technological advances Typically saw growth as unbounded, good,

If natural capital and human-made capital were partially and imperfectly substitutable in production, how would these isoquants be shaped? In answering this question, draw the corresponding isoquant map and carefully explain why this map implies perfect input substitution.

Exhibit variable marginal rates of substitution Cant be used in exactly the same way as the other

On the other hand, what if a good or service is not rivalrous in use or consumption, but it is not very easy to exclude people from enjoying its benefits (or detriments) once it is produced? What do we call this category of market failure? Give a good example. What are the main adverse economic impacts that are encountered if we simply rely on the market to supply such a good or service?

If a good/service is not rivalrous but is not easy to exclude from people the results are "Public goods"; free-rider behavior; markets underprovide; government provision is usually needed. Adverse economic impacts Example:

What is the First Law of Thermodynamics? Briefly explain. What are its broad implications for environmental and natural resource economics? What does it imply about the ultimate material results of production and consumption?

First law of Thermodynamics: conservation of energy and matter. It states that both matter and energy each can neither be created nor destroyed- only transformed from one form to another. Implications of the law: the ultimate physical product of the economic system is waste Whatever material goes into the production and consumption processes must come out the other side (usually as waste) and does not disappear. Energy used in the production and consumption processes must come out the other side as waste (unusable energy). All matter is conserved and all manufactured goods tend to deteriorate and lose their usefulness eventually, the ultimate physical product of the economic system is waste

In the case of classic freeway congestion, explain what causes the flow of traffic to diminish when the freeway becomes too densely packed with cars. Explain why the "optimal" allocation (i.e., rationing) of drivers to the roadway would generally call for a lower density of cars than the density that maximizes flow (i.e., total driving-miles completed per hour). Why would we not simply want to maximize flow (ideally, speaking); this certainly seems like a good idea; what is not "exactly right" about it from an economic perspective?

Flow of traffic diminishes because as freeway fills, the following distance between cars becomes more constricted and people slow down Maximizing flow creates an externality (congestion) that have a very high social cost.

The concepts of "excludability" and "rivalry" are helpful in understanding the similarities and distinctions among various sources of market failure (e.g., open-access resources, "public" goods, collective-consumption goods, etc.). If a good or service is subject to "rivalry" in its use or consumption but it is very difficult to exclude people from using it, what kind of market failure results? Give a good example. What are the main adverse economic impacts of this kind of market failure?

If a good/service is subject to rivalry but is difficult to exclude the market failure that results is: Open access market failure Key problems: crowding, overuse, depletion, destruction, underinvestment Example:

In Herman Daly's article, "Economics in a Full World", what does Daly mean by "the futility limit" of growth? What three very broad objectives ("The Plan") does Daly prescribe? What several categories of fundamental institutional changes (i.e., specific "Adjustments" to achieve "The Plan") does Daly argue will be necessary/likely in order to achieve a viable long-run "equilibrium" accommodation between the human economy and the biosphere?

Futility limit: the point at which population is not adding any utility with its increased consumption THE PLAN: 1. Limit use of all resources to rates that ultimately result in levels of waste that can be absorbed by the ecosystem. 2. Exploit renewable resources at rates that do not exceed the ability of the ecosystem to regenerate the resources. 3. Deplete nonrenewable resources at rates that, as far as possible, do not exceed the rate of development of renewable substitutes. ADJUSTMENTS NEEDED: 1. Product Lifespans 2. Financial Sector 3. Taxes 4. Employment 5. Happiness 6. GDP growth 7. Trade

What does GDP measure? What's wrong with GDP as an index of human wellbeing? From an environmental economic standpoint, what major valuable services are omitted from the calculation of GDP? Name at least three general categories of such omitted environmental services.

GDP: Measure of aggregate "throughput" denominated in dollars. Measure of overall economic activity, not a measure of human well-being. Human well-being is ultimate objective and GDP does not directly measure human wellbeing If GDP were highly correlated with human well-being, GDP would at least be of some use as an index metric for judging success GDP leaves out some measure of natural capital and services coming from natural capital Leaving out: Pollution externalities Environmental service flows Net investment/disinvestment in natural capital Examples of environmental service flows: Life support systems (nitrogen cycle, water cycle, carbon cycle) Waste assimilation and reprocessing Harvest of renewable resources (crops) Extraction of non-renewable resources Aesthetics and amenity values

What are the four broad categories of types of law in the Anglo-American legal system? Explain how each of these categories is reasonably distinct from the others.

General Forms of Anglo-American Law: Constitution layout (Fed and State): Basic ind rights Outlines rules for selecting rulemakers; how we vote on politicians Constitution lays out template of laws for making laws Statutes Written laws adopted by elected legislatures Administrative regulations: Rules adopted by admin agencies as authorized by legislative statute and subject to due process requirements Have the force of statutory law Administrative agencies enforce statutes Common Law: Judge-made law applied by courts to situations covered by custom rather than statute Applies to stuff that was applied commonly to British institutions.

In broad terms, according to the Hartwick Rule, what must society do in order to assure it attains a sustainable consumption path? What intuitively appealing analogy can you draw between this Hartwick rule as applied to global society and the challenge facing a single society, such as Saudi Arabia or the United Arab Emirates, currently dependent on exploiting their major oil reserve while also trying to carve out a healthy economic future for their societies?

Hartwick tells you how much you have to invest in human-made capital to reach a sustainable consumption path Hartwick rules: "If you want to achieve sustainability in a world without technological advances, then you have to save and invest all the non-renewable resources economic rents" All the differential advantages of the non-renewable resource must be saved and invested. The differential advantages cannot simply be used to support higher consumption in the early years. Invest in substitutes for non-renewable resource

In what sense and in what ways do our political philosophies and values also usually find their way into our normative thinking about economic issues and policies? In other words, what key "political" (i.e., collective choice) issues and questions are typically raised in addressing just "how" (including decision-making processes and the identities of the respective sovereign decision-makers) resources "should" be allocated in society? To what extent do you think the resulting political choices are based on the pursuit of instrumental values compared to more direct intrinsic values? Are most prevailing political philosophies solely "consequentialist" or do they take into account at least some "non-consequentialist" considerations as well?

How should we draw the dividing line between individual rights vs. obligations to the community—and by what political processes should that line be drawn? What do you owe the community and what does the community owe you? What resource allocation decisions should be made through: Voluntary individual decision making (individual choices and "market" transactions) Voluntary collective decision-making (private "clubs", NGOs, etc.) Imposed collective decision-making (through governmental processes) By what political processes should the collective choices be made? Majority vote, super-majority vote, delegation to elite "experts", etc.

Briefly state "Hume's Law" and explain its relevance to the study of normative economics?

Hume's Law: Normative prescriptions cannot possibly be founded on only positive foundations. There must be at least one normative cornerstone.

When a dynamic process is subject to hysteresis, what in broad terms does this mean and what does this have to do with the concepts of "reversibility" and "irreversibility"? (Using a diagram in conjunction with a verbal explanation might be helpful in communicating the distinction.)

Hysteresis: when systems are temporarily but sufficiently disturbed, they don't necessarily revert to their previous state. History matters.

Not everyone views the objective of attaining "sustainability" in the same way. Briefly explain some of the broad differences in basic views regarding the key issue of exactly what it is that is supposed to be 'sustained".

Ideas of what exactly should be sustained differ, Possible viewpoints: All aspects of the status-quo environment and biosphere regardless of their "utility" to humans. All aspects of the status-quo environment and biosphere that are "sufficiently useful" to humans. Simply per-capita human well-being—however it is achieved.

What is meant by "market failure"? Exactly what is it that markets are failing to accomplish when there is a "market failure"? In other words, in what way are they "failing"?

Market Failure: markets fail to be efficient

What do economists mean by "investment"? What does it have to do with "capital"? What does it have to do with current "consumption" and future "consumption"? Name several broad categories of "investing" customarily observed in economic decisions.

Investment: the sacrifice of current consumption in order to increase the capacity for future consumption. Is critical to maintaining human well-being Broad Categories of Investment: Add to human-made capital base—e.g., build a factory, road, etc. Maintain the human-made capital base—e.g., maintaining a road Reduce the rate of depletion of a renewable resource—e.g., reduce a fish harvesting rate (i.e., invest in fish stocks) Reduce the rate of depletion of a non-renewable resource—e.g., reduce rate of oil extraction (i.e., current sacrifice) Restore or augment natural capital--e.g., restore wetlands

What natural resource "caution" is known as "the Jevons paradox"? In what context did Jevons hypothesize/forecast this paradox What specific resource was he concerned about?

Jevons Paradox: increases in energy efficiency tend to lead to more consumption of energy - not less Jevons (1865, The Coal Question) covered a breadth of concepts related to energy depletion and warned that economic growth in England would soon be arrested by the exhaustion of British coal supplies.

To the extent that various of these philosophers believed that property rights had some degree of "intrinsic" merit, what arguments were advanced in support of such a belief.

Justice: just entitlement to fruits of labor Personhood: some scope of control is necessary for full expression of personhood PR = natural right Humans started making things and they should have a right to what they make (sweat equity); rights to property arise from the application of one's own labor (Locke) Source = Commitment to social equity is paramount and based on our shared existence as human; the rights of property holders must be balanced with rights of liberty, equality and personal security; rejects claims of ownership based on labor or possession (Proudhon)

If natural capital and human-made capital were perfect complements and not the least bit substitutable, how would these isoquants be shaped? In answering this question, draw the corresponding isoquant map and carefully explain why this map implies perfect input substitution.

Kh and Kn have to be used together to satisfy utility consume both at the same ratio An individual's preference doesnt allow any substitution between Kn and Kh MRS = undefined

In lecture, we briefly introduced the idea that several types of government regulation essentially operate by creating so-called "licensed property". Identify three avenues of regulation in the U.S. that have proceeded by creating regulated "licensed property" rights.

Licensed property rights = property rights created by government policy Some Examples of Licensed Property Rights: Grazing rights on federal lands Mineral leases on federal lands Individual transferable fishing quotas: cap and trade program governing fishing; imposing regulation on fishery in which you create property rights and then enforce those property rights. Sulfur-oxide emission allowances under the Clean Air Act

What were the main points made by Kenneth Boulding in his famous 1966 article, "The Economics of the Coming Spaceship Earth", assigned as a reading in this class?

Modern neoclassical economics tends to treat the economy as a "cowboy" or "frontier" economy with no important resource limits. However, we are entering an era in which a model of a "spaceman" economy is necessary. "In a spaceman economy,throughput (matter and energy) is...to be something to be minimized rather than maximized. Hence, the essential measure of the success of an economy is not production and consumption, but the nature, extent, quality, and complexity of the total capital stock, including the state of the human bodies and minds included in the system." The future of humankind depends on our ability to design a sustainable economic system that regulates the flow of throughput with full recognition of ecological limits.

To the extent that certain philosophers took a much weaker stand that property rights should be afforded a strong degree of security, what arguments did they tend to advance to support such a view? What potential downsides/disadvantages do you see in affording property rights too weak a degree of security?

Property rights usufructuary (right to use things) and subject to continual redistribution to pursue greater equality Property rights may be changed or redistributed in support of evolving public priorities Downsides: Risks of tyranny, loss of individuals power, and investments disincentives

In order to guarantee that perfectly competitive markets will be "Pareto Satisfactory", it is generally the case that several conditions be met. What are these several conditions? (Hint: There are 5 that I listed in class.) In general, markets fail to be Pareto efficient because one or more of these assumptions are violated. Economists use various terms to refer to the market failures associated with the failure of each of these five market conditions. Name and briefly explain at least four of these reasonably distinct types and contexts of market failure, including a specific example of a real-world failure in each category. (Slide 44 Welfare econ) (Be sure that your examples help distinguish at least four reasonably distinct real-world categories of market failure.)

Necessary Market Conditions Sources of Market Failure Universality and enforceability of exclusive private property rights Open access "common resources" Insecurity of tenure Efficiency of exchange Price taking suppliers and demanders 0 transaction costs Information symmetry Monopoly Moral hazard Adverse selection No 3rd party effects externalities No non-excludable, non-rivalrous goods Public goods No non-rivalrous but excludable goods Network natural monopolies requiring public regulation

Although, technically speaking, the Second Law of Thermodynamics does not assert that matter is subject to entropy, in what sense does the Second Law seem to apply to matter as well as energy as a practical, economic matter?

Nicholas Georgescu-Roegen argued that matter was also subject to an entropy law- at least as a practical matter it was useful to think of matter in that same way In theory, if we applied enough energy, we could recycle all the copper used in making pennies As a practical/economic matter we cannot do this. So, the entropy law might as well be thought of as applying to matter as well as energy I.e. even matter trends to continually toward "disorder"

As a broad generalization, what "operational principles" and broad public policies do "Ecological Economists" (such as Herman Daly) generally advocate as ways to best achieve a proper balance between the human economy and the natural environment?

Operational Principles: Don't try to fine-tune to a path based on "weak sustainability". Just hold the level of natural capital constant. The range of substitutability of human-made capital for natural capital is extremely limited Direct technological change toward efficiency-increasing changes rather than throughput-increasing changes. Manage renewable natural capital by assuring that harvesting rates do not exceed regeneration rates and waste emissions do not exceed the assimilative capacities of natural resources. Manage non-renewable natural capital so that depletion rates do not exceed the creation of renewable substitutes (essentially, follow the "Hartwick Rule"). Broad Public Policies: Rebalance the tax system by taxing undesirable activities and reducing taxes on desirable activities: Comprehensive set of taxes on harmful emissions such as CO2, etc. Reduce taxes on labor earnings and investment earnings. Reduce physical throughputs and reduce habitat destruction by imposing depletion taxes on the use of natural capital. Poverty must be addressed by comprehensive income redistribution policies and world population control policies.

In 1973, Herman Daly—an economist trained in traditional neoclassical economics—famously broke with the neoclassical school and published a book titled Steady-State Economics. What was the central viewpoint and main policy points that Daly attempted to convey and advocate in this book?

Originally tried to influence the dialogue among neoclassical economists to include more interdisciplinary aspects of biophysical science: Neoclassical economics focuses on "intermediate" means and ends (production and consumption to the exclusion of "ultimate" means (low-entropy matter/energy) and ultimate ends (human spiritual satisfaction). This has led them to be advocates of unsustainable continuing "economic" growth. The world economic system needs to quickly transform to a "Steady-State Economy" (SSE) with a constant population and a constant stock of sustainable capital. Within this SSE, technological progress and economic progress would take the form of greater-valued service flows per unit of capital (i.e., greater service efficiency). To achieve steady-state economic system, we must: Constrain income inequality: Place minimum and maximum limits on individuals' incomes and wealth. Stabilize population: Control population by issuing transferable reproduction licenses to all fertile women at a level corresponding to zero-population growth. Achieve maximum sustainable capital stock: Issue transferable depletion licenses that place restrictions on extraction and throughput.

Explain what it means for an allocation of resources to be: Pareto efficient Pareto Inefficient Pareto-preferred to a different allocation of resources Pareto non-comparable to a different allocation or resources

Pareto Efficient: If a state of the world is Pareto efficient, it cannot be improved upon in such a way that some person will be made better off without simultaneously harming someone else. All points along utility possibility frontier This is not necessarily preferred under the Pareto principle to many states of the world. Pareto Inefficient: When you are at a point where it is still possible to make one person better off without making one person worse off Pareto-Preferred to a different allocation of resources Pareto Non-comparable to a different allocation of resources: if, in moving from one state of the world to another, some people are helped while others are harmed, then the two states are Pareto Non-comparable

Explain why in many (if not most) examples of open-access resources, the social damage done by open access is "self-limiting" in the sense that it simply results in the elimination of the potential social surplus associated with the open-access resource but does not do any economic damage beyond this—that is, it is in a sense "self limiting" in its destruction and does not lead to a negative-sum outcome. Explain why pollution externalities, even though they might be conceptualized as an abuse of an open-access resource (such as the air shed or the watershed) are not necessarily self-limiting and could lead to a negative-sum outcome.

Pollution Externalities: It is perfectly possible that the negative impacts of a pollution externality may be larger than the positive value of the main economic activity of which the pollution is a by-product (negative impacts > positive value). In other words, the sum of the social values of the two activities could be negative. In the case of pollution, there is no self-limiting mechanism. Open-Access Externalities: By contrast, open-access externalities are self-limiting. They do not result in net-negative value. They simply dissipate the positive value of the associated open-access resource. Any further crowding does not occur because it is privately unattractive. In short, when there's nothing attractive left to get, additional entry stops

What are the key differences between a "property right" that is governed by (1) property rules, (2) liability rules, or (3) inalienability rules?

Property rule: when right is protected by a property rule it is necessary for 2 parties to voluntarily negotiate a transfer price as part of any transaction For a right protected by this rule you have to voluntarily negotiate price to transfer from one owner to another. Must agree on transfer price. Liability rule: when a right is protected by a liability rule the transaction is involuntary and the exchange price must be determined after the fact and not necessarily subject to mutual agreement traffic accident (transaction); price is negotiated/decided after the fact; court would decide price after the accident Inalienability rule: When a right is protected by an inalienability rule, the owner of the right cannot voluntarily "alienate" that right In commercial sense, to alienate something means to sell it. Have certain rights that are inalienable rights. Rights are so inherent to me that I cannot sell you the right. Cannot voluntary "alienate" that right. Rights you don't have right to give away for money.

What is the Second Law of Thermodynamics? Briefly explain. If, according to the First law of Thermodynamics, energy is completely "conserved" and, therefore, constant, then why do we worry about energy scarcity? In what sense does the Second law of Thermodynamics involve the essentially economic principle that there are "no free lunches"—i.e., every action has a cost?

Second Law of Thermodynamics: The entropy law; the entropy of a closed system (amount of energy unavailable to do work) continually increases. Whenever we act there are "no free lunches". Something is always given up. So the benefits of taking an action may exceed the costs, but there will always be an energy cost to be considered. No Process is perfectly irreversible and the world can never be "put back to some prior state" All matter could be restored to its former configuration but this would require energy. So, the amount of energy available to do work could not also be restored to its prior state The orderly molecular structures of fossil fuels can release their energy only once While energy is conserved it is continually being transformed into an unusable from (energy unavailable to do work) so the amount of usable energy is constantly decreasing and thus is scarce. The large energy inputs we have obtained from fossil fuels are strictly temporary.

Using the basic abstract concept of an "environmental-quality/human production feasibility set", discuss how this construct can be used to illustrate the fundamental concepts of:

Scarcity: There are more human needs and desires than can be satisfied with available resources Choice: Either by default or by overt action, human beings will make decisions and these choices will affect both human economy as well as the broader ecosphere Efficient and inefficient choices: Because human needs and desires outstrip resources, resources should not be wasted. Institutions should be designed so that they exploit all opportunities to have more of one scarce resource will necessarily mean having less of another Trade-offs and opportunity costs: There will be many efficient allocations of resources. In choosing one efficient allocation over another efficient allocation, getting more of one scarce resource will necessarily mean having less of another Although economic development can surely proceed in alternative ways that are either more or less destructive to environmental quality, conflicts will inevitably be encountered between human economic activities, environmental quality, and resource depletion. In other words, there is a series of trade offs and opportunity costs to a significant amount of human production and the human footprint that this level of production causes. Society must find "rational" ways to deal with these conflicts by developing efficient ways of participating in production as well as minimizing choices that are inefficient, and there for destructive to environmental quality. Because the environmental system is made up of a finite amount of resources (not infinite), human beings must act in a way that reflects scarcity because there is no such thing as "free lunches" when it comes to environmental protection.Increased in environmental quality will require sacrifices of scarce economic resources. Preserving environmental qualities requires sacrifices and inevitable choices.

If natural capital and human-made capital were perfect substitutes, how would these isoquants be shaped? In answering this question, draw the corresponding isoquant map and carefully explain why this map implies perfect input substitution.

Slope of the isoquant does not change. when price of one drops you can perfectly subsitute for the other and receive the same substitution. the marginal rate of substitution is constant regardless of how much an individual consumes. Always willing to substitute the same amount of one good for on unit of the other

Briefly explain and distinguish the concepts of "stability" and "resilience" as they apply to natural systems, such as environmental habitats and local species populations. In what broad way does biodiversity tend to support stability and resilience of ecosystems?

Stability: the tendency of a system to return to its former state when disturbed by an exogenous (external) transitory (not permanent) stimulus Resilience: the ability of a system that is within the vicinity of a locally stable equilibrium to absorb external disturbances without being propelled toward some different equilibrium state. Characteristics of stability over a large range of changes. Can take a big punch and return to original equilibrium Role of biodiversity: generally supports system stability and resilience Diverse ecological systems are needed to support essential environmental functions. I.E. Water, carbon and nutrient cycles Diverse gene pools are likely needed to support commercial agricultural resilience Diverse gene pools provide insurance against collapse of natural economic systems (if disturbed by an invasive species or disease).

Name five specific stocks of natural capital and the categories of "ecosystem services" that each provides.

Stocks: Atmosphere water minerals soil trees fish animals habitats services: water consumption climate regulation waste processing food production soil formation raw materials fish harvest amenities pollination

What distinction do some people make between the terms "sustainable growth" and "sustainable development"? The people making this distinction frequently argue that while one of these is impossible, the other is both possible and desirable. Briefly explain.

Sustainable Growth: an increase in physical material output and throughput Growth often associated w/ increase in physical output/throughput (definite) Sustainable growth is impossible because of its serious physical limits to continuously increase in physical material output and throughput, Sustainable Development (as opposed to growth): is sometimes associated with resource-saving technological change and basic transformations in the way that people achieve happiness sustainable development is possible because resource saving technological change has no physical limits and more desirable as it transforms the way people achieve happiness through ways that don't exhaust resources for physical material output

Ostrom and Schlager tend to praise the virtues of local governance of natural resources, even if exercised communally, compared to more centralized control of these resources at the national governmental level. What comparative problems do O&S see in elevating the control and management of these resources to the national level? (Consult the O&S reading on Sakai.)

Systems of pr and rules defined, implemented, monitored and enforced by an resource users are likely to perform better than systems of pr and rules done by an external authority Locally devised property right systems Require less info about nature and structure of the resource and the norms and social mores of resource users Rules devised by resource users are based on years, decades, and sometimes centuries of experience in using a commonpool resource. Thus the rules are devised well to match the physical environment in which they will be used and well matched to the social and cultural environment of the resource users LDPR also economize on monitoring and enforcement costs. Rules are devised in a way that provide powerful incentives for resource users to monitor one another and that make it easy for monitoring to occur. Enforcement is also likely to be more effective External authorities would be hard pressed to devise such institutions because they lack the info and understanding to ensure their viability and longevity Locally devised governance systems perform better in regulating small to moderate sized resources that systems devised by an external authority If they fail to coordinate their use of shared resources, so too can local level organzations. While a given community of resource users may have devised PR and rules that reduce negative externalities among its members, the collective actions that they take or fail to take may have adverse consequences for adjoining communities of resources users Problems that extend beyond the boundaries of a local-level organization are extremely difficult to address by that organization

In order to address the major shortcoming of the Pareto Principle, in the 1930s economists Nicholas Kaldor and John Hicks proposed "the Kaldor-Hicks" Compensation Principle. What exactly does the Kaldor-Hicks Compensation Principle say about how to determine whether one allocation of resources is better than another? What is the main shortcoming of the Kaldor-Hicks Compensation Principle? What analytical methodology frequently used for evaluating public policies today employs the Kaldor-Hicks Compensation Principle, at least implicitly?

The Kaldor-Hicks Compensation Principle: In evaluating a potential change in the allocation of society's resources, if the winners could hypothetically compensate the losers and still remain better off, then the change is a good one and should be adopted. When moving from allocation point A to B, if winners gain more than losers lose then its good. There is no requirement that the compensation actually be paid !!! Involves complete willingness to trade off one individual's welfare for another's Problem: not favorable Cost benefit analysis in public policy employes the kaldor-hicks compensation principle: Benefits > Costs

What is the difference between a "closed" and an "open" system model?What would a more "closed" economic model attempt to take into account compared to the typical simple neoclassical model? Is the biosphere of the earth itself largely a closed or open system? If it is an open system, what is it mainly "open" to?What are the long-run economic implications of these insights?

The idea that production and consumption are bad things rather than good things are very strange to economists. Humankind must make transition into a sustainable economy- one that takes heed of the inherent biophysical limits of the global economy so that is can continue to operate long into the future. Must shift path from growth to development The closed earth of the future requires economic principles which are somewhat different from those of the open earth of the past

What intuitively appealing examples does Herman Day cite as illustrations of why human-made capital and natural capital are frequently far more complementary in production than they are substitutable in production.

The annual fish catch is now limited by the natural capital of fish populations in the sea and no longer by the man-made capital of fishing boats. Weak sustainability would suggest that the lack of fish can be dealt with by building more fishing boats. Strong sustainability recognizes that more fishing boats are useless if there are too few fish in the ocean and insists that catches must be limited to ensure maintenance of adequate fish populations for tomorrow's fishers. Materials being transformed and the tools for transforming them are complementary—not substitutable. -Can more oil refineries substitute for less crude oil? -Can more sawmills substitute for a scarcity of wood? -Can larger nets substitute adequately for declining fish stocks?

In what broad ways are the economic processes of production and consumption really very structurally similar to humans' physiological struggle to sustain life? In what sense are both types of processes a struggle to maintain a temporary dynamic thermodynamic disequilibrium?

The economic process that sustains human wellbeing is much like the metabolic process that sustains life. Life itself is a bit of an intangible and metaphysical thing itself. It is essentially the maintenance of a transitory thermodynamic disequilibrium state.

Next consider the "Frontier Economy" model (World B in the Powerpoint): In this model: What are the prospects for achieving a sustainable and even growing per-capita consumption path in this model? Briefly discuss the logic of the model in driving this result: that is, how is this result achieved within the assumptions of the model? Within the assumptions and workings of this model, what would you say about the risks of overshoot and collapse occurring in this model? Briefly explain.

The stock of natural capital is both renewable and nonrenewable (but no individual component is absolutely essential) Human and natural capital are completely compatible and complementary in production. Human capital can augment natural capital to an essentially indefinite extent. Increasing the stock of human-made capital directly increases the flows of services available from natural capital No risk of overshoot or collapse. So, It is very possible to achieve sustainable of even growing per capita consumption; Indefinite growth in per capita consumption completely feasible.

During lecture, we also considered how the open-access equilibrium described in the previous question might shift if the "commons" were converted into a closed "club" in which membership in this club, and the associated right to use the commons, was strictly regulated by the members of the club. Explain why, in this closed-membership club model, the club would attempt to limit membership in the club and, therefore, limit crowding onto the hitherto "commons". Would this club optimum correspond to the optimum application of labor to the land that would be chosen by a profit-maximizing owner of the land, or would it tend to lead to some other equilibrium? Explain in words why or why not.

They would limit enrollment to maximize their own profit A new equilibrium would be chosen where the MVP >wage rate

Using the congestible freeway example, carefully explain why it is never an optimal policy to ration access to a resource in such a way as to completely eliminate all congestion externalities (i.e., always limit entry to entirely avoid any congestion externality whatsoever).

Want to maximize your flow

Briefly explain Thomas Malthus's theory of the growth trajectory of the total national product/income and the growth trajectory of per-capita product/income. What were the two main interactions that Malthus believed would determine the trajectory in per-capita income? What level of per-capita individual human wellbeing prevailed in the long-run "steady state" in Malthus's theory of economic growth? What dynamics continually propelled society toward that steady state? In what way was Malthus's economic growth theory really primarily a behavioral theory of population growth? What hypothesized human reproductive behavior played the central role in Malthus's theory? Briefly explain.

Use graph

David Ricardo had his own distinct theory of growth leading to a long-run "steady state". What were the main forces at work driving society toward this long-run steady state? What simple enduring economic principle of production lies at the heart of Ricardo's growth theory? What was the nature of individual human wellbeing in Ricardo's long-run steady state? Much like Malthus's growth theory, Ricardo's growth theory can be interpreted as really being a behavioral theory of population growth. Briefly explain.

Use graphs

In the case of psychologically-based crowding in wilderness recreation, briefly explain why the application of a typical utilitarian welfare economics approach (such as cost-benefit analysis) will inevitably result in an "optimal" admissions policy that will admit more users to the wilderness recreation area than any single user would regard as the most preferred number from their own individual perspective. (Using an appropriate diagram might help you to make the point best.)

Utilitarian focused on marginal cost = marginal benefit and maximizing total social utility

What is the basic distinction sometimes drawn between "strong sustainability" and "weak sustainability"? Which of these two conceptualizations of sustainability would a neoclassical economist be more likely to endorse? Which one would an ecological economist or life-science-educated ecologist be more likely to endorse, and why?

Weak sustainability: requires that the capabilities for providing non-declining per-capita human well-being be maintained intergenerationally It focuses on the "bottom-line" from utilitarian standpoint Neoclassical economist standpoint Strong Sustainability: requires that certain critical aspects of the environment and biosphere be preserved AS WELL AS the capabilities for providing non-declining per-capita human well-being Ecologist standpoint Strong sustainability may be motivated by either Anthropocentric or Non- Anthropocentric viewpoints Non-Anthropocentric: Aspects of the environment and biosphere have intrinsics value or rights This perspective necessarily gives rise to "sustaining" more than simply human well-being, aspects of the environment and biosphere have intrinsic value or rights Anthropocentric: Only human well-being matters and all else is merely "instrumental". A risk averse policymaker might certainly feel more comfortable as a pragmatic matter by adopting certain "rule-of thumb" constraints

In the same article, Herman Daly makes an interesting point about public policies structured as "cap-and-trade" programs. In what way do cap-and-trade programs (a leading example of so-called "market-based" public policy) illustrate the useful marriage of government policy intervention and exploitation of market efficiency? What political, philosophical and economic values are promoted by the use of markets in this way, compared to more direct and specific command-and-control approaches? What are some examples of cap-and-trade programs?

a limit is placed on the total amount of throughput allowed, in conformity with the capacity of the environment to regenerate resources or to absorb pollution. Economic theory has traditionally dealt mainly with allocation (the apportionment of scarce resources among competing uses). It has not dealt with the issue of scale (the physical size of the economy relative to the ecosystem). Properly functioning markets allocate resources efficiently, but they cannot determine the sustainable scale; that can be achieved only by government policy. Cap-and-trade systems that have been implemented include the Environmental Protection Agency's scheme for trading sulfur dioxide emission permits to limit acid rain and New Zealand's reduction of overfishing by individual transferable fish-catch quotas.

During lecture, we considered the example of an agricultural commons of fixed size on which labor can freely enter and extract value but can do so only subject to diminishing marginal productivity of labor. Thoroughly explain the nature of the open-access equilibrium and how it differs from the optimal application of labor to the commons. In doing so, be sure to explain how this model of open-access compares to the traditional theory of labor demand by a profit-maximizing firm. What role does rent "socialization" versus "privatization" play in explaining the open-access market failure? Specifically, how does rent "privatization" solve the problem? Is it the only institutional way to solve the problem? Briefly discuss.

i dont know