Environmental Economics

Question: What is the difference between nonrenewable and renewable resources, economically speaking?

Fund Resources: Quantities of resources are fixed in their natural state

Flow Resources: Resources present use doesn’t prevent possible future use. Examples: Wind, rain, and sunlight

Question: What do cows and trees have in common? They both exhibit characteristics of flow and fund resources. Growing maturing cattle may be harvested without damaging the productivity of the parent stock. (the fund) They both exhibit characteristics of flow and fund resources. Growing maturing cattle may be harvested without damaging the productivity of the parent stock. (the fund)

Both of these resources are considered biological resources The product flow from these resources can be maintained indefinitely. Increased or decreased depending on management. The product flow from these resources can be maintained indefinitely. Increased or decreased depending on management.

Forests, ranges, livestock, fish and wildlife yield an annual product that may be taken without harm to the productive source of that output.

However, each could be used in a manner that may either enhance or diminish the quantity and productivity of that fund resource. Intense forest cuttingIntense forest cutting Range land overgrazingRange land overgrazing Ranchers selling breeding stockRanchers selling breeding stock

Question: How about the soil, is it a fund or flow? Plant Nutrients can increase, stay the same or decrease.Plant Nutrients can increase, stay the same or decrease. These things are like savings accountsThese things are like savings accounts

Management of Forests and other renewable resources Production EfficiencyProduction Efficiency Responding to economic influencesResponding to economic influences

What type of demands on forests are there? Market Goods - Wood, Homesites, Recreational home sites, Big game hunting permitsMarket Goods - Wood, Homesites, Recreational home sites, Big game hunting permits NonMarket Goods – Wilderness, Aesthetics, Nongame wildlife habitats, water quality, Oxygen production, Influencing air qualityNonMarket Goods – Wilderness, Aesthetics, Nongame wildlife habitats, water quality, Oxygen production, Influencing air quality

When do you harvest a tree? When the growth rate of the tree is less than the interest rateWhen the growth rate of the tree is less than the interest rate 5 % growth rate MVP $ When Marginal growth falls below average, replace

What makes a forest sustainable? Sustainability occurs when the resource inventory does not change over time.Sustainability occurs when the resource inventory does not change over time. There may be many possible sustainable states, and resource management policies entail choosing among them.There may be many possible sustainable states, and resource management policies entail choosing among them.

Amenity Valuation – How do we value things that aren’t sold in the marketplace? Contingent ValuationContingent Valuation Hedonic PricingHedonic Pricing Travel Cost MethodTravel Cost Method

Common Property Resource Problems For many of the nation’s natural resources, property rights are withheld from private ownership. Owned by the Government in the name of the public For many of the nation’s natural resources, property rights are withheld from private ownership. Owned by the Government in the name of the public

Common Property Federal forestsFederal forests Grazing LandsGrazing Lands Ocean and Lake fisheriesOcean and Lake fisheries Air we breathAir we breath

Individuals use these resources at rates optimized by their own private costs and returns Factories pollute air that is commonly owned

Point and Nonpoint Pollution

Externalities and Their Economic Impact on Society

Types of Externalities ConsumptionConsumption Both positive and negativeBoth positive and negative ProductionProduction Both positive and negativeBoth positive and negative

Consumption Local Residents - BakeryLocal Residents - Bakery

Consumption Local Residents – Truck StopLocal Residents – Truck Stop

Consumption Home owner – Neighbor playing loud musicHome owner – Neighbor playing loud music

Production Steel Mill – Fishery DownstreamSteel Mill – Fishery Downstream

Production Paper Mill – People Living DownstreamPaper Mill – People Living Downstream

Production Bee Keeper – Apple OrchardBee Keeper – Apple Orchard These are Mutual Positive Production Externalities

A negative production externality generates an external cost An external cost is one that does not show up in a firm’s profit and loss statement, yet is a real cost to someone in society

The impact of negative externalities on production Social CostsSocial Costs Private CostsPrivate Costs External Costs, whereExternal Costs, where Social Costs = Private Costs +External CostsSocial Costs = Private Costs +External Costs

Marginal External Costs Marginal External Costs Quantity of Output $

Marginal Willingness to Pay and the Social and Private Costs Marginal Private Costs Quantity of Output $ Marginal Social Costs Marginal Willingness to Pay