1. 1 1. WHAT IS NATURAL RESOURCE ECONOMICS & WHY IS IT IMPORTANT? SPRING 2002 Larry D. Sanders Dept. of Ag Economics Oklahoma State University

2. 2 INTRODUCTION u Purpose: –to understand the concept of natural resource economics and its relevance u Learning Objectives: 1. Introduce the course & how it is to be administered 2.Define key terms. 3. Understand the purpose of studying environmental & natural resource economics. 4. Understand the classification of resources.

3. 3 INTRODUCTION u Natural Resource Economics Syllabus –Purpose –Evaluation –Schedule u Importance of Student Activity

4. 4 Instructor/Philosophy u Personal/Professional Background u Teaching Philosophy u Student Info

5. 5 “Anxiety Test” u “The ultimate test of a set of economic ideas... is whether it illuminates the anxieties of the time. Does it explain problems that people find urgent? Does it bear on the current criticism of economic performance?... Does it bear upon the issues of political debate? For these, though many have always preferred to believe otherwise, do not ignite spontaneously or emerge maliciously from the mouths of agitators to afflict the comfortable.” --John Kenneth Galbraith, Economics & the Public Purpose, 1973 [bold italics added by instructor]

6. 6 Where to get more information u Syllabus u Sources –Hackett –ERS-USDA Pub. No. 712 –Handouts –Supplementary Readings –Govt. Documents--Library –Congress, Legislature, St/Fed Agencies –Electronic sources (note biased vs. objective sources) –“Experts”

7. 7 Key Terms u Natural Resources –Specific attributes of the environment that are valued or have proven useful to humans [or have the potential to do so]* --G. Johnston –Aspects of nature that can be used by humans to satisfy human wants--Hite & Mulkey –key to human use: technology, time, accessibility, appli- cation, perception; conflicts often related to culture u Economics –the study of the production, processing, distribution, consumption of goods/services in an exchange system

8. 8 Key Terms (cont) u Natural Resource Economics –application of economics to manage naturally occurring resources for human needs/wants with efficiency as the primary goal –efficiency may be defined in market or nonmarket terms, focused on the short or long run, relative to current or future generations, local or global in scope –decision choices include maintaining the status quo, altering the status quo, or doing nothing with focus on relevant institutions –evaluation always includes the costs & benefits of a decision & to whom those costs & benefits accrue

9. 9 Key Terms (cont) u Environmental Economics vs. Natural Resources Economics (Hackett) –Environmental Economics: economic basis for pollution problems & policy alternatives –Natural Resources Economics: problems of managing common-pool* natural resources, determining optimal rates of extraction, & understanding resource markets –*common-pool natural resources: difficult to exclude access, but once extracted is no longer available to others (groundwater, rivers, fisheries, public forests) u Scarcity, Opportunity cost, economic rationality

10. 10 Why Study Natural Resource Economics? u Natural Sciences lack commonly accepted decision process u Economics may “assume” the problem away u Irreversibility u Market failure u Joint importance of economic and ecological systems u Physical-Natural-Economic System Links –Improves efficient functioning of system –Improves understanding about the world we live in

11. 11 Classification of Resources 1.Flow Resources (nondepletable) a.Nonstorable (sometimes called “environmental resources”) »Often indivisible »Inexhaustible (in human span of time) »Time & management relevant only to consumption, not supply »Examples u Sunshine (?), “weather”, ocean waves (?) u Forests, scenic views, unique ecosystems

12. 12 Classification of Resources (cont) 1.Flow Resources (cont) b.Storable »May be divisible »Time & management relevant to both to consumption & supply u Water u Solar, wind, wave, geothermal & hydro energy (services)

13. 13 Classification of Resources (cont.) 2.Fund Resources (stock or depletable resources) a.Exhaustible & Renewable »Regenerative within human use time frame »Assumes minimum & maximum threshold of use »Examples u Timber & crops u Animals, Fish & Humans u Soil & Water Quality, Grazing lands

14. 14 Classification (cont.) 2.Fund Resources (cont) b.Exhaustible & Nonrenewable »Relatively fixed stocks/fund within human use time frame »(1)Nonrecyclable--Examples: fossil-fuel energy resources (oil, natural gas, coal, peat) (2)Recyclable--Examples: some minerals (iron, aluminum, gold, silver)

15. 15 Natural Resource Examples FLOW RESOURCESFUND RESOURCE NONSTORABLE STORABLERENEW. NONRENEW.(1) NONRENEW.(2) 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

16. 16 Framing Natural Resource Issues u Quantity & Quality of: Land, Water, Air, Energy u Public vs. Private Management Question u Trend of Magnitude of Problem: –Persistent, Chronic, Cyclical, Declining, Growing? u Irreversibility u Geographic scope u Whose problem & who decides (ethics)? u Property rights u Time (short vs. long run; current vs. future generations)

17. 17 Optimism vs. Concern for Environment & Natural Resources u Concerns –Global warming & climate impacts –Over-population & biodiversity –Soil/water quality/Mineral/energy cost/availability –Pollution/resource shortage impacts on social & political institutions u Optimism –Legislative progress –Toxic release rates down –US competitiveness

18. 18 References for Lesson 1 Hackett text Hite, J.C., & W. D. Mulkey. Natural Resource Economics : An Introductory Textbook, draft unpublished text. Johnston, G.M., D. Freshwater & P. Favero (editors). Natural Resource and Environmental Policy Analysis: Cases in Applied Economics, Westview Press, Boulder, 1988.