UNIVERSITY OF
NATURAL RESOURCE ECONOMICS, Econ 3535-001
Lectures: MWF
Instructor: Vijaya R.
Sharma, Ph.D.
Office Hours: MWF
Voice mail: 303-492-3021; E-mail: vijaya.sharma@colorado.edu
Web site: http://spot.colorado.edu/~sharmav/
Course Introduction
This course presents theories of efficient utilization of natural resources and discusses issues related to current practices of use of resources. It also discusses issues of sustainability, conservation, and preservation. The course extensively uses graphical analyses and some mathematical models. It also assigns a number of readings. An introductory course in economics (Econ 1000) or principles of microeconomics (Econ 2010) is a prerequisite for this course.
Textbook and
1. There is no required textbook for this course. For reference you may have Environmental Economics and Policy by Tom Tietenberg. Lectures do not follow the exact order or format of the contents of this reference book.
2.
Prescribed
3. Web notes on many topics are also available on the instructor's web site.
Examinations and Grading
The course grade will base on performances in three exams (90%) and on fulfillment of assigned readings (10%). For each assigned reading students are required to submit a brief summary (maximum 2 pages) on or before its due date to get full credit. Only hard copy, no electronic copy, of summary is accepted. If a summary is not submitted on its due date, one-half credit can still be obtained with a late submission on or before the next exam that follows the due date. No further late submission will be accepted. Caution: non-fulfillment or only partial fulfillment of readings may hurt the overall course grade.
Examinations test students on the topics discussed in the lectures and the assigned readings. Each exam will be weighted equally (30%). Exam dates are:
Exam 1 on Sep 27, Monday
Exam 2 on Oct 29, Friday
Exam 3 on Dec 14,
Tuesday,
Course Outline and Tentative Schedule
1. Course Introduction (Aug 23; Chapter 1, Web Notes 1)
Syllabus and Grading Policy, Types of Resources (Resource Flows, Natural Resources, Environmental Resources), Further Classifications of Natural Resources- renewable and nonrenewable, Reasons of Studying Natural Resource Economics (Dynamic decisions, pervasive market failure, potential irreversible consequences, multidisciplinary knowledge), Broad Issues (Efficiency, Sustainability, Resource Scarcity and Economic Growth)
2. Review of Basic Economic Concepts (Aug 25; Chapter 2, Web Notes 1)
Law of Diminishing Marginal Returns, Demand, Marginal Willingness to Pay, Consumer Surplus
Law of Increasing
Rule of Economizing Behavior, Weighing of Personal Benefits and Personal Costs, Monetary and Non-Monetary Benefits and Costs, Importance of Marginal Analysis
3.
Economics Approach (Aug 27, 30; Chapters 2,3, Web Notes
1,
Economics Approach: Rationality and Anthropocentricity
Economic View of Natural Resources: Instrumentalist and Utilitarian, Economic Value vs. Environmental Value
Basis for Option, Discovery and Existence Values: Uncertainty, Lack of Information and Possible Irreversible Consequences (Measures of Caution)
Human Preference and Natural Availability as Determinants of Value of a Resource, Market Price as an Indicator of Marginal Value, Revealed Preference vs. Stated Preference Approaches of Determining Value
Reading #1 due on Aug 27 (submit one summary combining the following
two components):
a.
The Cost of
Fur ( a news piece published in the Economist of
b. Economic Assessment of Biodiversity and Protected Species, from Environmental Economics, Theory, Application, and Policy, by Duane Chapman, Addison Wesley Longman, 2000, pp. 273-281
4. Social Costs and Economic Efficiency (Sep 1,3,8,10; Chapters 2, 3, 5, Web Notes 1)
Private vs. Social Costs: Distinction and Examples
Efficiency, Pareto Efficiency, Kaldor Efficiency, Maximization of Social Net Benefits, Interpersonal Comparison of Benefits and Costs, Rule of Static Efficiency
Concept of Scarcity Rent
Dynamic Efficiency: Rate of Time Preference, Discounting and Present value formula, Discount Rate (Rate of Time Preference + Risk Premium), Treatment of Inflation Premium in Discount Rate, Choosing the Discount Rate, Rule of Dynamic Allocation of a Fixed Stock of Resource, Scarcity Rent, Marginal User Cost, Introduction to Issue of Sustainability
5. Property Rights and Environmental Problems, Market Failure Cases, Role of Government and Limitations (Sep 13,15,17; Chapter 4, Web Notes 1)
Characteristics of Well-Defined Property Rights, Market Failure Cases and Environmental Problems: Open Access Resources, Externalities, Public Goods, Divergence between Private and Social Discount Rates (why), Imperfect Competition
Role of Government: Public Policy Interventions and Possibility of Government Failure (Rational voter ignorance, short sightedness, special interest effects, and rent seeking)
6. Brief Introduction to Benefit-Cost Analysis (Sep 20,22,24; Web Notes on Benefit-Cost Analysis)
Net Present Value (NPV), Benefit-Cost Ratio (B/C), Internal Rate of Return (IRR), Payback Period, Choice among Mutually-Exclusive Projects
Exam 1 on the above materials: September 27, Monday (the last late submission date for Reading #1)
7. Economics of Nonrenewable Resources (Sep 29, Oct 4,6,8,11; Chapter 7 and also Natural Gas Price Controls in Chapter 8, Web Notes 2)
Resource Taxonomy (Current Reserves, Potential Reserves, Resource Endowment), Price and Size of Reserves
Theory of Efficient Extraction: Hotelling Rule, Mathematical and Graphical Explanations, Asset Market and Flow Market Equilibrium Conditions
Best Reserve First, Path of efficient prices and scarcity rent under Zero MEC, Constant MEC, Increasing MEC, Impacts of changes in discount rate, Price of substitute, Stock, MEC, and Demand, Extraction under Monopoly, Negative externality, Effects of Price Ceiling (Historical Regulation of Natural Gas Prices)
8.
Discussion on Energy Prices Paper and Recycling Paper
(Oct 13,15,18,20; Chapters 8,9, Web Notes 2 and
Reading #2 due on October 13:
The New Economics of Oil, by Peter Coy, Gary McWilliams,
and John Rossant, from the Business Week, November 3,
1997, pp. 140-146
Reading #3 due on October 18
Energy Resources - Cornucopia or Empty Barrel?,
by Peter McCabe, the American Association of Petroleum Geologists, 1998
Conventional scenario vs. Alternative Scenario of Energy Prices, Implications of Alternative Scenario on pollution and scarcity of oil, Hotelling Principle and Actual Price Trend, National Security Issue and Vulnerability Premium
Reading #4 due on October 20:
Recycling Programs, by Katherine McClain,
from the Handbook of Environmental Economics, edited by D. Bromely,
Blackwell Publishers Limited,
Implications of recycling to stock, exhaustion, and price of virgin resource, Economics of recycling (demand, quality, and cost)
9. Efficient Utilization of Water Resources (Oct 22,25,27; Chapter 10, Web Notes 3 and Reading #5)
Types and Growth Characteristics of Renewable Resources (Water, Forestry, Fisheries)
Safe Yield Use Principle of Ground Water, Use of ground water as an exhaustible resource, Equimarginal Principle of Allocation of Surface Water, Problems of water rights transfer, Pricing of Water
Reading #5 due on October 25:
Is Water Different?, by R. Miller, D. Benjamin, and D. North, from The Economics of Public Issues, by the same authors, 10th edition, 1996, pp. 37-41
Exam 2 on post-Exam 1
materials: October 29, Friday (the last late submission date for
10. Efficient
Utilization of
MAI rule of harvesting, Optimal Timber Harvesting Rules: Single Harvesting, Optimum Rotation, Efficient Harvesting when there are non-timber benefits of forests
11. Efficient Utilization of Fishery Resources (Nov 8,10,12; Chapter 13, Web Notes 3 and Reading #6)
Sustainable Fishery Harvesting Rules: Static Model, Dynamic Model
Reading #6 due on November 12 (submit one summary combining all the
following three components):
12. Problems Associated with Efficient Utilization of Renewable Resources (Nov 15; relevant sections of Chapters 12,13 and Web Notes 3)
Depletion Possibility, Regeneration a function of stock or time, Ecological Complexities, Open access, Nonmarket and Public Goods Services, Divergence in discount rate, Economies of scale, pollution, perverse incentives, possibility of species extinction
13. Population Problem and Trends of Resource Scarcity (Nov 17,19,22,24,29; Chapters 6 and 14, Web Notes on Population Problem, Web notes nonexistent on resource scarcity)
Pessimist vs. Optimist Views, The Population Problem, World and U.S. population growth, Impact of population growth on economic development and environment and vice-versa, Some general population control policies
Indicators of Physical Scarcity (static reserve index and exponential reserve index), Limitations of such Indicators
Trends of Economic Scarcity (Barnett and Morse 1963, Barnett 1979, Johnson, Bell, and Bennett 1980, Slade 1982, and Ahrens and Sharma 1997), Factors Mitigating Scarcity
14. Sustainability,
Conservation, and Preservation (Dec 1,3,6,8; Web Notes 4 and
John Rawl's sustainability principle as nondeclining welfare
Solow-Hartwick sustainability rule of nondeclining capital
Reading #7 due on Dec 3:
Sustainability - An Economist's Perspective, by Robert Solow, from Economics of the Environment, Selected
Readings, 3rd edition, edited by R. Dorfman
and N. Dorfman, W.W. Norton & company, 1993, pp.
179-187
Issue of Substitutability of Natural Capital with Manmade Capital, Sustainability as nondeclining flow of physical services of natural resources
Reading #8 due on Dec 6:
Measuring Sustainable Development, by David Pearce
and Giles Atkinson, from the Handbook of Environmental Economics, edited by D. Bromely, Blackwell Publishers Limited,
Weak Measure of Sustainable Development, Strong Measure of Sustainable Development, Empirical Findings on Sustainable Development in Selected Countries
Reading #9 due on Dec 8:
Conservation Reconsidered, by John Krutilla, from Economics of the Environment, Selected Readings, 3rd edition, edited by R. Dorfman and N. Dorfman, W.W. Norton & company, 1993, pp. 188-198
Assymetry of Technological Progress, Changing Preferences in Favor of Natural Resources, Irreversibility, Uncertainty, Safe Minimum Standard of Use (SMS), Preservation, and Conservation, Biological vs. Economic SMS
Exam 3 on post-Exam 2
materials: December 14, Tuesday,
Accommodations for Students with Documented Disability
The Economics Department will make reasonable accommodations for persons with documented disabilities. Students must notify the instructor within a week of the beginning of the class and provide documentation of the disability obtained from the Disabilities Services Office located in Willard Hall, Room 322.