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exam 1 review

exam 1 review. environmental decision making: benefit-cost analysis. how do we get those benefits?. nature and causes of environmental problems. Nonexclusive property rights => Externalities No property rights => Open access problem Public goods. the market for steel. expect 5 results.

harding-mercer
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exam 1 review

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  1. exam 1 review

  2. environmental decision making:benefit-cost analysis

  3. how do we get those benefits?

  4. nature and causes of environmental problems • Nonexclusive property rights => Externalities • No property rights => Open access problem • Public goods

  5. the market for steel

  6. expect 5 results • output of steel too great • too much pollution produced • price of steel too low • no incentives to search for ways to yield less pollution per unit steel • recycling and reuse of polluting substances discouraged since release into river is so inefficiently cheap

  7. to correct externalities • bargain (Coase) • taxation (Pigou)

  8. open-access • fishing / grazing rights / whales vs. chickens • tragedy of the commons • common-pool resources • nonexclusivity (exploited by anyone) • divisibility / rival (your use diminishes my use)

  9. bison harvesting

  10. public goods • characteristics • nonexcludable (even if do not pay cannot be excluded from enjoying it) • indivisible / nonrival (my enjoyment does not lessen your enjoyment) • national defense / air / information / diversity • free-rider problem

  11. how to think about the future? • Two period model • To maximize dynamic efficiency, set PV of MNB from the last unit in period 1 equal to the PVMNB from the last unit in period 2.

  12. Demand: P = 8-0.4Q, MC = $2 (constant)20 total units • 10.238 units in period 1 / 9.762 units period 2 • Efficient prices? Marginal user cost?

  13. definitions of sustainability • Hartwick rule (“weak sustainability”) • value of the total (natural + physical) capital stock is maintained • Strong sustainability • value of the natural capital stock is maintained • Environmental sustainability • quantities of resources should be maintained (not value)

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