Natural Resource and Environmental Economics

Natural Resource and Environmental Economics Fourth Edition Roger Perman Yue Ma Michael Common David Maddison James McGilvray Addison Wesley is an imp...

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Natural Resource and Environmental Economics Fourth Edition

Roger Perman Yue Ma Michael Common David Maddison James McGilvray

Addison Wesley is an imprint of

Harlow, England • London • New York • Boston • San Francisco • Toronto Sydney • Tokyo • Singapore • Hong Kong • Seoul • Taipei • New Delhi Cape Town • Madrid • Mexico City • Amsterdam • Munich • Paris • Milan

Contents

Preface to the Fourth Edition Acknowledgements

XV

Notation

XX

Introduction

Part I Chapter 1

1.1 1.2 1.3 1.4

Chapter 2

2.1 2.2 2.3 2.4 2.5

Chapter 3

3.1

X1I1

xxiii

Foundations An introduction to natural resource and environmental economics Learning objectives Introduction Three themes The emergence of resource and environmental economics Fundamental issues in the economic approach to resource and environmental issues Reader's guide Summary Further reading

3 3 3 4 10 13 14 15

The origins of the sustainability problem

16

Learning objectives Introduction Economy-environment interdependence The drivers of environmental impact Poverty and inequality Limits to growth? The pursuit of sustainable development Summary Further reading Discussion questions Problems

16 16 17 31 42 46 50 54 55 57 57

Ethics, economics and the environment

59

Learning objectives Introduction Naturalist moral philosophies

59 59 60

Contents 3.2 3.3 3.4 3.5

Chapter 4

Part I 4.1 4.2 4.3 4.4 Part II 4.5 4.6 4.7 Part 111 4.8 4.9 4.10 4.11 4.12 4.13

Libertarian moral philosophy Utilitarianism Criticisms of utilitarianism Intertemporal distribution Summary \ Further reading * Discussion questions Problems Welfare economics and the environment Learning objectives Introduction Efficiency and optimality Economic efficiency An efficient allocation of resources is not unique The social welfare function and optimality Compensation tests Allocation in a market economy Efficiency given ideal conditions Partial equilibrium analysis of market efficiency Market allocations are not necessarily equitable Market failure, public policy and the environment The existence of markets for environmental services Public goods Externalities The second-best problem Imperfect information Public choice theory - explaining government failure Summary Further reading Discussion questions Problems

Part II

Environmental pollution

Chapter 5

Pollution control: targets

5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10

Learning objectives Introduction Modelling frameworks Modelling pollution within an economic efficiency framework Pollution flows, pollution stocks and pollution damage The efficient level of pollution A static model of efficient flow pollution Efficient levels of emission of stock pollutants Pollution control where damages depend on location of the emissions Ambient pollution standards Intertemporal analysis of stock pollution Variable decay

Contents 5.11 5.12 5.13 5.14

Chapter 6

6.1 6.2 6.3 6.4 6.5 6.6

Chapter 7

7.1 7.2 7.3 7.4

Chapter 8

8.1 8.2 8.3 8.4

Departures from convexity or concavity in damage and abatement cost (or pollution benefit) functions 'No regrets' policies and rebound effects The double dividend hypothesis Objectives of pollution policy Summary Further reading Discussion questions Problems

159 164 165 168 172 175 176 176

Pollution control: instruments

177

Learning objective Introduction Criteria for choice of pollution control instruments Cost efficiency and cost-effective pollution abatement instruments Instruments for achieving pollution abatement targets Economic incentive (quasi-market) instruments Pollution control where damages depend on location of the emissions A comparison of the relative advantages of command and control, emissions tax, emission abatement subsidy and marketable permit instruments Summary Further reading Discussion questions Problems

177 177 178 179 181 195 210

218 223 224 225 226

Pollution policy with imperfect information

229

Learning objectives Introduction Difficulties in identifying pollution targets in the context of limited information and uncertainty Sustainability-based approaches to target setting and the precautionary principle The relative merits of pollution control instruments under conditions of uncertainty Transactions costs and environmental regulation Summary Further reading Discussion question Problems

229 229

Economy-wide modelling

251

Learning objectives Introduction Input-output analysis Environmental input-output analysis Costs and prices Computable general equilibrium models

251 251 253 257 264 268

230 232 233 243 248 249 249 250

vil

vlii

Contents Summary Further reading Discussion questions Problems Chapter 9

9.1 9.2 9.3 9.4 9.5

Chapter 10

10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8

Part III Chapter 11

I l.l 11.2 11.3

International environmental problems Learning objectives Introduction Game theory analysis International environmental agreements Other factors conducive to international environmental cooperation Stratospheric ozone depletion Global climate change Learning outcomes Further reading Discussion questions Problems Trade and the environment Learning objectives Introduction An environmental extension to traditional trade theory Does free trade harm the environment? A partial equilibrium analysis General equilibrium models of trade and the environment Do governments have an incentive to manipulate environmental standards for trade purposes? Environmental policy and competition between jurisdictions for mobile capital Banning trade in endangered species The General Agreement on Tariffs and Trade and the World Trade Organisation The empirical evidence on environmental regulations and the pattern of trade Summary Further reading Discussion questions

Project appraisal Cost-benefit analysis Learning objectives Introduction Intertemporal welfare economics Project appraisal Cost-benefit analysis and the environment Summary Further reading

Contents

Chapter 12

12.1 12.2 12.3 12.4 12.5 12.6 12.7

Chapter 13

13.1 13.2 13.3 13.4 13.5 13.6

Part IV Chapter 14

Part I 14.1 14.2 14.3 14.4 14.5 Part II

Discussion questions Problems

408 409

^Valuing the environment

411

Learning objectives Introduction Categories of environmental benefits The theory of environmental valuation Contingent valuation Choice experiments The travel cost method Hedonic pricing Production function-based techniques Summary Further reading Discussion questions Problems

411 411 412 413 415 429 435 442 451 452 453 453 454

Irreversibility, risk and uncertainty

455

Learning objectives Introduction Individual decision making in the face of risk Option price and option value Risk and irreversibility Environmental cost-benefit analysis revisited Decision theory: choices under uncertainty A safe minimum standard of conservation Summary Further reading Discussion questions Problems

455 455 456 459 462 468 470 472 478 479 480 480

Natural resource exploitation The efficient and optimal use of natural resources

485

Learning objectives Introduction A simple optimal resource depletion model The economy and its production function Is the natural resource essential? What is the elasticity of substitution between K and Rl Resource substitutability and the consequences of increasing resource scarcity The social welfare function and an optimal allocation of natural resources Extending the model to incorporate extraction costs and renewable resources

485 485 486 486 486 487 488 492 498

ix

Contents 14.6 14.7 14.8 14.9

Chapter 15

15.1 15.2 15.3 15.4 15.5 15.6 15.7 15.8 15.9 15.10

Chapter 16

16.1 16.2 16.3 16.4

Chapter 17

17.1 17.2 17.3 17.4

The optimal solution to the resource depletion model incorporating extraction costs 499 Generalisation to renewable resources 501 Complications 502 A numerical application: oil extraction and global optimal consumption 503 Summary 507 Further reading 507 Discussion questions 508 Problems 508 The theory of optimal resource extraction: non-renewable resources Learning objectives Introduction A non-renewable resource two-period model A non-renewable resource multi-period model Non-renewable resource extraction in perfectly competitive markets Resource extraction in a monopolistic market A comparison of competitive and monopolistic extraction programmes Extensions of the multi-period model of non-renewable resource depletion The introduction of taxation/subsidies The resource depletion model: some extensions and further issues Do resource prices actually follow the Hotelling rule? Natural resource scarcity Summary Further reading Discussion questions Problems Stock pollution problems Learning objectives Introduction An aggregate dynamic model of pollution A complication: variable decay of the pollution stock Steady-state outcomes A model of waste accumulation and disposal Summary Further reading Discussion question Problem Renewable resources Learning objectives Introduction Biological growth processes Steady-state harvests An open-access fishery The dynamics of renewable resource harvesting

509

Contents 17.5

Should one use a continuous-time model or a discrete-time model of the open-access fishery? 17.6 Alternative forms of biological growth function in which there is a positive minimum viable population size « 17.7 Stochastic fishery models 17.8 'The private-property fishery 17.9 Dynamics in the PV-maximising fishery 17.10 Encompassing the open-access, static private-property and PV-maximising fishery models in a single framework 17.11 Socially efficient resource harvesting 17.12 A safe minimum standard of conservation 17.13 Resource harvesting, population collapses and the extinction of species 17.14 Renewable resources policy Summary Further reading Discussion questions Problems Chapter 18

18.1 18.2 18.3 18.4 18.5 18.6 18.7

Chapter 19

19.1 19.2 19.3 19.4 19.5 19.6

574 575 576 576 584 585 586 589 591 594 601 602 604 604

Forest resources

606

Learning objectives Introduction The current state of world forest resources Characteristics of forest resources Commercial plantation forestry Multiple-use forestry Socially and privately optimal multiple-use plantation forestry Natural forests and deforestation Government and forest resources Summary Further reading Discussion questions Problems

606 606 607 612 614 622 625 626 630 631 631 632 632

Accounting for the environment

634

Learning objectives Introduction Environmental indicators and state of the environment reporting Environmental accounting: theory Environmental accounting: practice Wealth and genuine saving Sustainable development indicators Concluding remarks Summary Further reading Discussion questions Problems

634 634 635 639 649 659 666 674 675 676 677 678

References

679

Names Index

697

Subject Index

703

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