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natural resource economics

Questions and Answers of Natural Resource Economics

This problem illustrates the problem with the TCM in regard to the dependence of estimated consumers surplus on estimated travel costs per unit distance. Re-work the steps in Box 12.1 assuming that
With E as some index of environmental quality and C1 and C2 as two ‘ordinary’ commodities, consider the following utility functions in regard to whether C1 is non-essential and whether C1 and E
Should decisions about environmental policy be made on the basis of cost–benefit analysis?E = 1 and Y = 100, calculate CS and ES for an increase in E to the level 2, and for a decrease in E to the
Discuss the contention that, where use values are at issue, contingent valuation is superior to indirect methods as it goes directly to the appropriate theoretical construct for welfare analysis.
Suppose that an individual has the utility function U = E0.25 + Y0.75 where E is some index of environmental quality and Y is income. From an initial situation where
Suppose an individual has the following utility function, where U denotes total utility and Q the quantity of a good or service consumed in a given period of time:(a) Obtain the individual’s
Discuss the contention that contingent valuation is, in general, superior to all other techniques for valuing non-marketed goods or services as it is the only technique capable of incorporating
Rework the MCA example considered in the chapter:a. With the following scoring of the qualitative assessment of the wildlife and amenity impactsb. With the following scoring of the qualitative
Solve equation 11.31 for a with NPV set at 0 to get an expression for a*, the value of a that makes the project marginal, in terms of r, X, P and D. Treat X, P and D as parameters and find∂a*/∂r.
The Safe Water Drinking Act required the United States Environmental Protection Agency to establish action standards for lead in drinking water. The EPA evaluated three options(labelled A, B and C
Consider the two social welfare functions WU = U(1) + U(2) (utilitarian)WR = min{U(1), U(2)} (Rawlsian)where Ui = ln(Xi) is the utility enjoyed by the ith generation from the consumption Xi, i = 1,
Derive the optimality conditions for the model specified in Appendix 11.1.
In the context of a proposed hydroelectric development in a wilderness area, has the Krutilla–Fisher argument about the relative price movements that should be assumed in ECBA been affected by
Should decisions about environmental policy be made on the basis of cost–benefit analysis?
Refer to Figure 10.10. Show how the relative slopes of the MB and MC functions, and the number of countries, N, determine(a) the magnitude of the efficiency gain from full cooperation, and(b) the
The world consists of two countries, X which is poor and Y which is rich. The total benefits (B)and total costs (C) of emissions abatement (A)are given by the functions BX = 8(AX + AY), BY = 5(AX +
The text mentioned that forests, agricultural lands and other terrestrial ecosystems offer significant carbon-reduction potential. Choose one country, and consider the ways in which this potential
Compare and contrast the cost-effectiveness of(a) a sulphur dioxide emission tax;(b) a sulphur dioxide emission tax levied at the same rate as in (a), together with an arrangement by which emissions
Consider the following extracts from an article in the Independent newspaper (28 March 1995)by the economist Frances Cairncross:Work by William Cline, a scrupulous and scientifically literate
Discuss the proposition that marketable emissions permits are more appropriate than emissions taxes for controlling regional and global pollutants because of the much lower transfer costs associated
The transactions table for a closed economy is:Agriculture Manufacturing Final demand Agriculture 10 20 50 Manufacturing 20 50 80 Primary inputs 50 80
Suppose now we can add the following information about tonnes of waste emissions to the dataset of Table 9.1:Industry of origin:Agriculture Manufacturing Services Total 4000 2500 150 6650 Calculate
(a) Calculate import, wage and other valueadded coefficients from Table 9.1 analogous to the intermediate input coefficients aij.Check that for each industry, the sum of the intermediate and primary
The transactions table for a closed economy is:Agriculture Manufacturing Final demand Agriculture 10 20 50 Manufacturing 20 50 80 Primary inputs 50 80
Suppose now we can add the following information about tonnes of waste emissions to the dataset of Table 9.1:Industry of origin:Agriculture Manufacturing Services Total 4000 2500 150 6650 Calculate
(a) Calculate import, wage and other valueadded coefficients from Table 9.1 analogous to the intermediate input coefficients aij.Check that for each industry, the sum of the intermediate and primary
You are given the following information:(a) A programme of air pollution control would reduce deaths from cancer from 1 in 8000 to 1 in 10 000 of the population.(b) The cost of the programme is
A regulator requires a company to reduce its emissions to a level below its (pre-regulation)profit-maximising level of emissions. The requirement will be implemented by the issue of a
We examined in this chapter a particular form of asymmetric information where a firm knows its emissions abatement costs but the regulator does not. The regulator must ask firms to reveal abatement
If the control authority does not know the marginal damage function, it will not be able to identify the economically efficient level of pollution abatement, nor the efficient tax or subsidy level.
Asymmetric information typically involves the regulator having less relevant information than the regulated parties. Find out what is meant by‘adverse selection’ and show why it can lead to
This exercise involves using an Excel file to undertake some simulations regarding the relative costs of alternative instruments, and to interpret and comment on your results.Instructions for the
In controlling emissions, there is an important difference between a command and control instrument and a tax instrument. Both require that the polluter pay the cost of attaining the emission
You are given the following information:(a) A programme of air pollution control would reduce deaths from cancer from 1 in 8000 to 1 in 10 000 of the population.(b) The cost of the programme is
Our discussion in this chapter has shown that if the control authority does not know the marginal damage function, it will not be able to identify the economically efficient level of pollution
Demonstrate that in the simple special case of a uniformly mixing flow pollutant, in which the value of the damage created by the emission is independent of the location of the emission source or the
In all discussions of pollution abatement costs in this chapter, the fixed costs of pollution abatement were implicitly taken to be zero.Do any conclusions change if fixed costs are non-zero?
Show that a pollution tax on emissions and a subsidy to output producers for each unit of pollution reduction would, if the rates of subsidy were identical to the pollution tax rate, lead to
The Coase theorem claims that a unique and efficient allocation of resources would follow from rational bargaining, irrespective of how property rights were initially allocated.Demonstrate that the
Using the Excel workbook Leastcost.xls, demonstrate that the cost penalty from sharing abatement equally between the two firms rather than using the least-cost distribution of abatement is larger the
Suppose that an EPA must select one instrument from two available. Two criteria matter: (a) P, the probability of the instrument attaining its target; (b) C, the proportionate saving in abatement
An interesting example of a regulatory failure relates to electricity generating stations in the UK. Several thermal power stations in the UK were required to install flue-gas desulphurisation (FGD)
Suppose that a municipal authority hires a firm to collect and dispose of household waste. The firm is paid a variable fee, proportional to the quantity of waste it collects, and is charged a fee per
Discuss the efficiency properties of a pollution tax where the tax revenues are earmarked in advance for the provision of subsidies for the installation of pollution abatement equipment.
Use diagrams to contrast pollution tax instruments with marketable emission permit systems, paying particular attention to the distributional consequences of the two forms of instrument. (Assume a
Distinguish between private and public goods externalities. Discuss the likelihood of bargaining leading to an efficient allocation of resources in each case.
Discuss the distributional implications of different possible methods by which marketable permits may be initially allocated.
Discuss the scope for the allocation of private property rights to bring the privately and socially optimal levels of soil pollution into line.
Evaluate the arguments for the use of market or incentive-based instruments versus‘command and control’ instruments in the regulation of environmental externalities under conditions of certainty.
Consider a good whose production generates pollution damage. In what way will the effects of a tax on the output of the good differ from that of a tax on the pollutant emissions themselves? Which of
Suppose that the EPA obtains damages from polluting firms in recompense for the damage caused by the pollution. Should the EPA distribute the moneys recovered from such damage settlements to the
This problem illustrates how marginal analysis might give misleading results in the presence of non-convexity. It is based on an example from Goodstein (1995). Nitrogen oxides (NOx), in combination
Using equation 6.20 or 6.21, deduce the effect of (i) a decrease in α and (ii) an increase in r(ceteris paribus) on:(a) M*(b) A*(c) µ*Note that you could answer this question analytically.
Explain the concept of the ‘efficient level of pollution’. What information is required in order to identify such an efficient quantity?
We have seen that the efficient level of pollution is the one that minimises the sum of total abatement costs plus total damage costs.Refer now to Figure 6.5. Show that if pollution abatement takes
Under which circumstances will the economically optimal level of pollution be zero?Under which circumstances will it be optimal to undertake zero pollution abatement?
Discuss the relevance and application of the concept of externalities in environmental economics
‘A clean environment is a public good whose benefits cannot be privately appropriated.Therefore private industry which is run for private gain will always be the enemy of a clean environment.’
‘Only the highest standards of environmental purity will do.’ Discuss.
Repeat Problem 4 for the case where pollution affects both lines of production as well as both individuals’ utility.
In considering producer-to-consumer externalities in Appendix 5.3, it is stated that where there are multiple sources of emissions, and where only individuals suffer from pollution, each source
In the chapter and in Appendix 5.3 we consider the two-person consumption-to-consumption externality. As invited in the Appendix, show that an efficient outcome could be realised if a planner
Demonstrate that equations 5.1 and 5.2 embody an assumption that there are no externalities in either consumption or production. Suppose that B’s consumption of Y had a positive effect upon A’s
Suppose that a wood pulp mill is situated on a bank of the River Tay. The private marginal cost (MC) of producing wood pulp (in £ per ton)is given by the function MC = 10 + 0.5Y where Y is tons of
While some economists argue for the creation of private property rights to protect the environment, many of those concerned for the environment find this approach abhorrent. What are the essential
Economists see pollution problems as examples of the class of adverse externality phenomena.An adverse externality is said to occur when the decisions of one agent harm another in an unintended way,
How is the level of provision of national defence services, a public good, actually determined? Suggest a practical method for determining the level of provision that would satisfy an economist.
Do you think that individuals typically have enough information for it to make sense to have their preferences determine environmental policy?
‘If the market puts a lower value on trees as preserved resources than as sources of timber for construction, then those trees should be felled for timber.’ Discuss.
Show that the equation G(S) = g(1 − {S/Smax})S gives the density-dependent growth shown in Figure 4.3, and that then S* is equal to , and express the maximum sustainable yield in terms of the
This is the Cobb–Douglas production function 4.7 for which panel b of Figure 4.2 is drawn. How do your results for the average and marginal products relate to the feasibility of indefinite constant
Find the marginal and average products of K and R for Q = KαRβ with α+β=
Can you think of any incentives that you face that encourage you to behave in ways consistent with sustainability? Can you think of any that have the opposite effects? How could the latter be changed?
Given that the question of the substitution possibilities as between human-made and natural capital is so important, how can the fact that we do not know the answer be explained?
To what extent are the ecologist’s and the economist’s concepts of sustainable behaviour mutually consistent?
Demonstrate that an unequal distribution of goods at a welfare maximum may occur when the weights attached to individual utilities are not equal, and/or when individuals have different utility
Prove that, under the assumption of diminishing marginal utility, the linear indifference curves in utility space in Figure 3.1 map into indifference curves that are convex from below in commodity
Suppose that one believed that each generation should have the same level of well-being as every other one. Demonstrate that we could not ensure the attainment of this merely by the choice of a
A river tumbles through forested ravines and rocky gorges towards the sea. The state hydro-electricity commission sees the falling water as untapped energy. Building a dam across one of the gorges
If society deemed it to be correct that some animals or plants have intrinsic rights (such as rights to be left undisturbed or rights to be reasonably protected), then such rights can be protected by
In discussing the work of Robert Nozick, it was argued that libertarian ethics have been adopted most enthusiastically by those who believe in a limited role for government. But we also noted that it
We argued in the text that Rawls’s Difference Principle asserts that it is only just to have an unequal distribution of wealth if all persons benefit from that allocation, relative to the situation
Take the following data as referring to 2000(they come from UNDP (2001), P and A are for 1999 and T uses CO2 data for 1997), and the world as being the sum of these three groups of nations.a.
What effect would one predict for desired family size if family members were to cease undertaking unpaid household labour and undertake instead marketed labour?
Suppose that families paid substantial dowry at marriage. What effect would this have on desired family size?
Use the microeconomic theory of fertility to explain how increasing affluence may be associated with a reduction in the fertility rate.
Does economic growth inevitably lead to environmental degradation?
How may the role and status of women affect the rate of population growth? What measures might be taken to change that role and status in directions that reduce the rate of population growth?
How effective are measures designed to increase the use of contraception in reducing the rate of population growth?
Many economists accept that a ‘Spaceship Earth’characterisation of the global economy is valid in the final analysis, but would dispute a claim that we are currently close to a point at which it
be introduced to ecological footprinting as an indicator of environmental impact
measure of economic welfare
learn about some suggested alternatives to national income as
encounter the difficulties that arise when trying to measure genuine saving
consider the idea of genuine saving as saving net of resource depletion so that non-negative genuine saving is necessary to prevent total wealth declining
have explained proposals made by national income statisticians with the aim of having the published national income accounts report on resource depletion and environmental degradation
learn about what economic theory says about defining national income so that what gets measured is sustainable income
find out about the steps that many countries are taking to use environmental indicators to report the state of the environment
specify an expression for the present value of an infinite sequence of identical forest rotations, obtain an analytic first-order expression for maximisation of that present value with respect to the
undertake comparative static analysis to show how the optimal stand age will vary with changes in relevant economic parameters such as timber prices, harvesting costs and interest (or discount) rate

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