1. Natural Resources and Their Use
Monday, January 24

2. Institutions
Social devices that define the rights and obligations of participants in a decision process.
Market institutions
Government institutions
NOT agencies, business firms or schools

3. Contrast: Resource Development Resource Conservation
Resource Preservation
Ecosystem Management

4. Contrast: Extractive vs. non-extractive use Use value Non-use value
Existence
Option
Bequest

5. Natural Resource
Something that is useful and valuable in the condition in which we find it (Randall)
Naturally occurring resources and systems that are useful to humans or could be under plausible technological, economic and social circumstances (Howe)

6. Natural Resource Taxonomy
Nonrenewable resource
Recyclable resource
Renewable resource

7. Nonrenewable (Depletable) Resource
Rate of replenishment for these resources is so low that there is no augmentation of the stock within a reasonable planning horizon
Challenge is to allocate dwindling stock among generations while meeting the ultimate transition to renewable resources

8. Current Reserves
Known reserves that can be profitably extracted at current prices
Quantity can be expressed as a number

9. Potential Reserves Quantity is a function of prices
Costs of extraction
Demand
If recovery costs go down, quantity goes up
If demand (and market prices) goes up, quantity goes up

10. Recyclable Resource
Exists in a form allowing its mass to be recovered once its current use is no longer desirable
Extent of recycling depends upon economic conditions
Cannot achieve 100% recovery

11. Renewable Resource
Natural replenishment augments the flow at a non-negligible rate
Some can be stored, some cannot
Some can be exhausted/depleted
Challenge is to maintain an efficient sustainable flow of the resource

12. Modeling Natural Resource Use
S1 = S0 – Q0 + ΔS
Stock
Flow
Subscript for time; t=0 is current or first time period

13. Nonrenewable Resource
For current reserves
ΔS = 0
S1 = S0 – Q0
For potential reserves
ΔS > 0 if demand or technology change price or cost
Exploration and development

14. Recyclable resources
S1 = S0 – Q0 + αQ0
α < 1

15. Renewable Resources Replenishment but no accumulation
S1 = ΔS
Replenishment and accumulation/storage
ΔS > 0

16. Groundwater – a special case
Recharge
ΔS > 0
Mining
Qt > ΔS
ΔS = 0

17. Political Unit Problem
When evaluating resource management decisions, what boundaries do we use?
Global, international, national, state, regional, local
Whose interests count?
“Accounting stance”

18. Assignment for Wednesday:
Read Field, chapter 5 “Efficiency and Sustainability
You may want to bring a calculator.