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Larry D. Sanders

2. WHAT BASIC VALUE SYSTEMS & ECONOMIC THEORY FORM THE FOUNDATION TO STUDY NATURAL RESOURCE ISSUES? AGEC 3503 SPRING 2006. Larry D. Sanders. Dept. of Ag Economics Oklahoma State University. INTRODUCTION.

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Larry D. Sanders

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  1. 2. WHAT BASIC VALUE SYSTEMS & ECONOMIC THEORY FORM THE FOUNDATION TO STUDY NATURAL RESOURCE ISSUES?AGEC 3503SPRING 2006 Larry D. Sanders Dept. of Ag Economics Oklahoma State University

  2. INTRODUCTION • Purpose: to understand the ethical & economic foundations of natural resource issues • Learning Objectives: 1. Explain the fundamentals of ethics & relation to environmental/natural resource issues. 2. Provide a summary review of economic theory basics. • References (in addition to Hackett text) • Hite, J.C., & W. D. Mulkey. Natural Resource Economics : An Introductory Textbook, draft unpublished text. • The Internet Encyclopedia of Philosophy (www.utm.edu/research/iep/e/environm.htm) • Rolston, H. Environmental Ethics, Temple University Press, 1988.

  3. Class Activity: Ethics

  4. Whether or not we are aware of it or can express it, “ethics” seem to matter. . . . “That there ought to be some ethic concerning the environment can be doubted only by those who believe in no ethics at all. For humans are evidently helped or hurt by the condition of their environment.” --Holmes Rolston, 1988

  5. Natural Resource Disciplines/Approaches Environmental Policy Ethics Biology Social Sciences (i.e. Economics) Adapted from Wilson, E.O., Consilience, Knopf, 1998.

  6. Some “environmentally ethical” claims... 1. As long as more people are better off, development should proceed. 2. Humans should be responsible for the welfare of animals. 3. Animals have a right to a quality of life and protection. 4. Land owners should be free to do what they want on or with the land. 5. The world was made for man and man was made to rule & conquer earth.

  7. Ethics: Some Fundamentals • Ethics--branch of philosophy concerned w/moral duty & ideal human character • Intrinsic rightness (Deontological Ethics) • what’s desirable (hypothetical imperative) • what’s necessary (categorical imperative) • Rawls “Justice” (fairness concept) • Leopold & “Deep Ecology” • Instrumental value (Teleological Ethics) • end justifies means if desirable consequences result (consequentialism) • Natural Law & Utilitarianism

  8. Ethics: Some Fundamentals (cont) • Logical fallacy to believe that sciences of “what is” can be applied to “what ought” • Environmental Ethics--examines the moral basis of environmental responsibility; 3 competing theories 1. Anthropocentrism 2. Species rights 3. Ecocentrism

  9. Class Activity: Teams • Return to teams for “top 3 issues” • Briefly identify ethical dimension of each issue

  10. Utilitarian Principles & Economics • Benefit Cost Analysis • preferred policy or choice: B > C & Net Benefits are greatest • Pareto Efficiency Criterion • policy can’t reduce the welfare of others • Pareto Superior • winners must compensate losers • Kaldor-Hicks Criterion • winners must have potential to compensate losers

  11. Alternative Methods of Economics relate to inclusion of ethics • Positive Economics • evaluates “what is” (the observable) • the scientific method • objectivity is key • Normative Economics • determines/suggests “what ought” to be done • based on the norms/standards of society/culture • biased is assumed/explained in the process

  12. The Key Fundamental Questions of Economics 1. “What” goods/services are produced? 2. “How” are goods/services produced? 3. “Who” gets benefits & costs? NOTE: Often not discussed are related & important ethical questions such as: --Who decides? --Who/what/how to represent the voices of those who don’t have a voice? --What’s fair & to whom?

  13. Market Allocation • Pure/perfect markets don’t exist • Market capitalism--independently-functioning institution to allocate scarce resources/goods/services w/capital privately-owned & individuals driving the system motivated by self-interest • centuries old & evolving • “golden age” during Industrial Revolution in 19th century • the ethical dimension has driven market evolution

  14. Market Allocation (cont.) • Flow of spending & markets & efficiency • Supply & Demand & market equilibrium • Consumer Surplus--when willingness-to-pay is greater than price paid • Producer Surplus--when price received is greater than willingness-to-sell • Market failure--when any of conditions required for well-functioning competitive market not met

  15. The Flow of Spending in the Economy PAYMENTS FOR GOODS/SERVICES GOVERNMENT TRANSFER/FACTOR PAYMENTS TAXES TAXES RENT, WAGES, INTEREST LAND, LABOR, FINANCIAL CAPITAL BUSINESSES HOUSEHOLDS GOODS & SERVICES MONEY PAYMENTS FOR GOODS & SERVICES SAVINGS SAVINGS FINANCIAL MARKETS LOANS LOANS

  16. Efficiency of Market System • Market efficiency: Qd = Qs MB = MC Net Benefits maximized for private market • Social Benefits maximized if MBs = MCs

  17. Market Equilibrium S=MCp=MWTSp Price P1 D=MBp=MVp=MWTPp Quantity Q1

  18. Market Failure—Costs S’=MCs S=MCp Price P2 D=MBp=MVp=MWTPp=MBs P1 Quantity Q2 Q1

  19. Market Failure—Benefits S=MCp=MCs Price P2 D’=MBs P1 D=MBp Quantity Q1

  20. Market Failure • Inefficient allocation of resources • MBp = MCp • MBs = MCs • Sources • Imperfect Competition (market power) • Imperfect Information • Public Goods--property rights not assigned • Externalities--costs/benefits that don’t accrue to economic unit that creates them

  21. Market Efficiency Issues • Equity • Efficiency may not be Equitable • Distribution may be a problem • “Best” is determined by Society • Dynamic Efficiency • Static: 1 time period or multiple time periods independent of each other • Dynamic: Multiple time periods, dependent on each other [Pt+1 = f (x,y, Pt, z)]

  22. Class Activity: Teams • Return to Teams • Sketch MC & MB for Team’s “top issue”

  23. Anatomy of a Public Decision

  24. Transition to a Post-Modern Era • Modernism: pursuit of scientific truth(s) “The Victory of Science over Ignorance Ignorance is the curse of God Knowledge is the wing wherewith We fly to heaven.” --Missouri Botanical Gardens, St. Louis, MO: Victory Sculpture (1885); Italian artist Carlo Nicoli copy of a piece by Cosani in Pitti Palace, Florence, Italy; installed in 1885 as a gift from Henry Shaw, Gardens founder.

  25. Transition to a Post-Modern Era (cont.) Postmodernism – a simple definition: The philosophical viewpoint in which “All pretense to objectivity is abandoned in favor of the position that there are many different [individual] standpoints, each telling a different story about how the world is, and no one of these stories is better than any other. Science, [values, and any form of policy analysis are] just one possible story.” (Curd and Cover)

  26. Transition to a Post-Modern Era (cont.) • Key Features of Modernity(ism) • Industrial/Capitalist society • Urbanization • Bureaucracy (strong central govt) • Knowledge from science/rational thinking • Progress based on science/technology is good & preferred Note: Info on this and the following slides found at http://www.hewett.norfolk.sch.uk/curric/soc/POSTMODE/key.htm

  27. Transition to a Post-Modern Era (cont.) • Key Features of Post Modernity(ism) • Growth of service sector, decline in mfg, increase in part-time work and home business, rising unemployment • Globalization • Fragmentation—increasing diversity • Science in disrepute • Enlightenment in disrepute—no progress, instead a “playful celebration of chaos”

  28. Transition to a Post-Modern Era (cont.) • Implications of postmodernism for U.S politics and policy: • Objectivity of value knowledge and scientific knowledge are impossible and can even be undesirable. • All knowledge regarding policy alternatives and consequences is subject to “encyclopedic skepticism” (“Global warming is a hoax”-Sen. Inhofe) • “The [postmodern] political culture, like the new popular culture, is skeptical of certainties and fixities and welcoming of novelties so long as they provide the audience with the satisfactions it seeks at the moment.” (Schier) (“Intelligent design”)

  29. L2: Homework • Read Ch. 2, Hackett (17 Jan) • Do # 1, p. 35 (17 Jan) –5 points • Read Ch. 3, Hackett (19 Jan) • Do # 1, p. 50 (19 Jan) –5 points • Refer to “Internet Links” (19 Jan) –5 points • Select 2 links (one from pp. 35-6; one from pp50-1) • Briefly review, including • Content • Bias or objectivity • Likely use of material

  30. References Hackett, text. http://www.hewett.norfolk.sch.uk/curric/soc/POSTMODE/key.htm Sanders, various notes. Schweikhardt, D. selected notes on postmodernism (see instructor for specific citation) Ward, G. Teach Yourself Postmodernism, Hodder Education, Great Britain, 2003.

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