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Summary Environmental Economics and Management
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A complete summary of the course material to be known, before making the test in the lesson.
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InhoudsopgaveTheory and Tools of Environmental and Resource Economics.........................................................................2
Chapter 1: Introduction........................................................................................................................................2
A taxonomy of Resources................................................................................................................................2
Why Study Environmental and Resource Economics?....................................................................................3
Chapter 2: Economic Efficiency and Markets: How the invisible Hand Works.....................................................3
The invisible Hand and Social Welfare Maximization......................................................................................3
Market-failures and Environmental Issues......................................................................................................4
The Invisible Hand and Dynamic Efficiency.....................................................................................................5
Dynamic Efficiency and Exhaustible Resources...............................................................................................5
Chapter 3: Government Intervention in Market Failure......................................................................................6
Intro: Pigou vs. Coase......................................................................................................................................6
Types of Government Intervention.......................................................................................................................6
Moral suasion..................................................................................................................................................6
Direct prohibition of environmental quality....................................................................................................7
Pollution prevention........................................................................................................................................7
Command and control regulations..................................................................................................................7
Economic incentives........................................................................................................................................7
Choosing the Correct Level of Environmental Quality..........................................................................................7
The Marginal Damage Function.......................................................................................................................7
The Marginal Abatement Cost Function..........................................................................................................8
The Optimal Level of Pollution........................................................................................................................8
Social Costs When Pollution Level is GREATER than Optimal.........................................................................8
Social Costs When Pollution Level is LESS than Optimal.................................................................................8
Pursuing Environmental Quality with Command and Control Policies................................................................9
Pursuing Environmental Quality by Equating Marginal Abatement Costs......................................................9
The Role of Command and Control.................................................................................................................9
Pursuing Environmental Quality with Economic Incentives.................................................................................9
Economic Incentives and Minimized Total Abatement Costs.......................................................................10
Marketable Pollution Permits........................................................................................................................10
Other Types of Economic Incentives.............................................................................................................11
Chapter 4: Valuing the Environment..................................................................................................................12
What is value?................................................................................................................................................12
Value and Non-market Goods.......................................................................................................................13
Techniques for Measuring the Value of Non-market Goods........................................................................14
, The Economic Approach to
Environmental and Natural
Resources
Theory and Tools of Environmental and Resource
Economics
Chapter 1: Introduction
A taxonomy of Resources
Natural Resources:
o Examples: Barrels of oil, cubic meters of wood, kilograms of fish,…
o Provided by nature.
o Can be divided into increasingly smaller units and allocated at the margin.
o Exhaustible Resources: Stocks of natural resources may be fixed.
o Renewable Resources: Stocks of natural resources may have regenerative
capability.
Physical Resource Flows:
o Examples: Solar energy, wind power, tidal power and geothermal power,…
o Do not exist as a stock but have never-ending flows.
o Our consumption of these resources now has no effect on the stock or our
ability to consume them in the future.
Environmental Resources:
o Examples: An ecosystem, an estuary and the ozone layer.
o Provided by nature.
o They are indivisible, they can’t be allocated.
o They can be examined at the margin in terms of quality but not quantity.
o These resources are not consumed directly, but people consume the
ecological services provided by these resources.
A function of quality of the environmental resource.
These services are provided to both ecosystems and social systems.
It is important to develop environmental policy that not only reduces the direct
impact of pollution on humans, but also:
o Protects our environmental resources and the resulting flow of ecological
services.
o Takes care of the management of our natural resources.
o Makes smartly use of physical resources.
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