EnvironmentEconomics-Ch.ppt

Chapter1WHATISENVIRONMENTALECONOMICS?://highered.mcgraw-hill.com/sites/0073375705/student_view0/chapter1/narrated_powerpoints.htmlForSlidesonPropertyrights(a)Definewhatisenvironmentaleconomics(a)UnderstandwhatistheEconomicApproachtoenvironment(b)ExplainConceptslikeExternalities,PropertyRights,Benefits-costAnalysis,Sustainability,Tradeoff,ProductionFrontier,KuznetsCurve,CostEffectivenessetc.(Seepage23andpagereferencesfortheseconceptsinthebook).Note:Bioticisdefinedasoforrelatingtolife.Andintegrityisdefinedasthequalityorstateofcompleteness.Environmentaleconomicsisasubfieldofeconomicsconcernedwithenvironmentalissues.Thestudyofenvironmentaleconomicsisconcernedwiththefundamentalissuesofefficientallocatingresources(environmental)amongcompetinguses.[Economicsisthestudyofhowandwhypeople-whethertheyareconsumers,firms,governmentagencies-makedecisionsabouttheuseofvaluableresources.]Issuesofenvironmentaleconomics:conservationandvaluationofnaturalresources,pollutioncontrol,wastemanagementandrecycling,andtheefficientcreationofemissionstandards.EnvironmentaleconomicsdrawsuponbothfromMicroeconomics(thestudyofthebehaviourofindividual)andMacroeconomics(thestudyoftheeconomy/economiesattheaggregatelevel)KeyTermstounderstand*Scarcity*OpportunityCosts*TradeOff*MarginalBenefitsandMarginalcostsScopeofEnvironmentaleconomicsEconomicefficiency(EvaluatingmarginalBenefitsandCosts)EquityorFairness(Choosingamongalternativesthatattempttoimprovetheenvironment)BasicQuestionWhydopeoplebehaveinwaysthatcausesEnvironmentaldestruction?TwoAnswers(a)Environmentaldegradationcomesfromhumanbehaviorthatisunethicalorimmoral-peoplelackthemoralandethicalstrengthtorefrainfromthetypeofbehaviorthatdamagesenvironmentSolution?Moralawakening,(b)Lackof“economicincentives”(payoffs)andpropersocialinstitutions(e.g.,ownershipandpropertyrights)Anincentiveissomethingthatattractsorrepelspeopleandleadsthemtomodifytheirbehaviorinsomeway.Economist’Viewpoint(a)thecriticalroleofincentivesinproducingenvironmentaldegradationandindesigningenvironmentalpolicies,and(b)theimportanceofstudyingtheshort-andlong-runbenefitsandcostsofenvironmentalimprovementsAnysystemwillproducedestructiveenvironmentalimpactsiftheincentiveswithinThesystemarenotstructuredtoavoidthem.Wehavetolookintoanyeconomicsystemtounderstandhowincentivesystemworkandhowtheymaybechangedtoachievematerialprogress(economicgrowth)withoutenvironmentaldestructionTwoconceptsthatareimportanttounderstandtheincentivesinthecontextofenvironmentare:ExternalEffects(Externality)andPropertyRightsFundamentalpointLackofownershiprightstoenvironmentalresourcesmeansthattherearefewincentivestotaketheenvironmentalconsequencesofouractionintoaccount.HowExternalityandPropertyrightsareconnected?Examplepages8-9(classdiscussionfromthehandout)Question:Whyisthedogcasedifferentfromtheauto-emissioncase?ExternalitiesExternalitiesareunintentionalsideeffectsofanactivityaffectingpeopleotherthanthosedirectlyinvolvedintheactivity.Anegativeexternalityisonethatcreatessideeffectsthatcouldbeharmfultoeitherthegeneralpublicdirectlyorthroughtheenvironment.Anexamplewouldbeafactorythatpollutesasaresultofitsproductionprocess.Thispollutionmayposehealthrisksfornearbyresidentsordegradethequalityoftheairorwater.Eitherway,theownerofthefactorydoesnotdirectlypaytheadditionalcosttoaddressanyhealthissuesortohelpmaintainthecleanlinessoftheairorwater.Insomecases,however,theharmedpartiescanuselegalmeasurestoreceivecompensationfordamages.Apositiveexternality,ontheotherhand,isanunpaidbenefitthatextendsbeyondthosedirectlyinitiatingtheactivity.Oneexamplewouldbeaneighborhoodresidentwhocreatesaprivategarden,theaestheticbeautyofwhichbenefitsotherpeopleinthecommunityBenefit-CostAnalysisItisthemainanalyticaltoolusedbyeconomiststoevaluateenvironmentaldecisions.Benefit-CostAnalysisaimstoachievepointQ,wheremarginalbenefitandmarginalcostareequalinordertomaximizeeconomicefficiency.SustainabilityAlleconomiesusenaturalandenvironmentalResources.Asustainableeconomyisoneinwhichinvestmentinsocialcapital(renewableandnonrenewablenaturalresources,theenvironment,physicalcapital,infrastructure,educationetc)allowstheeconomytogrowsothatpeopleareatleastaswellofinthefutureastheyareatpresent,whilesustainingthehealthofecologicalsystem.sustainabledevelopmentThisisaprinciplewhichsaysthatadevelopmentplanmustnotcompromisethewelfareoffuturegenerationsforthebenefitofpresentgenerations.Theprinciplecanbeappliedinanumberofways,buttheyallrelatetoguaranteeingintergenerationalequity(somehowdefined).Thatis,theprincipleconcernsfairnessbetweengenerations..•Whensomethingscarceisallocatedtooneparticularuse,theopportunitycostofthatchoiceisthevalueofthebestalternativegivenup.•Whatisanexampleofanopportunitycost?•Opportunitycostcanbeeasyorve