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122 Cards in this Set

  • Front
  • Back
What is the paradox of happiness and growth? What two reasons were given in class which resolve this seeming paradox?
Increasing income goes with increasing happiness across individuals and countries. But within rich countries rising income is not associated with rising happiness.

People's happiness appears to also be dependent on outcomes for others.

TWO REASONS FOR THIS
1) Rivalry (Keeping up with the Joneses)
2) Adaptation (Happiness depends on past experience)

Being optimistic, smiling, and healthy also can lead to happiness.
Draw a total utility function for two different people who have different utility functions. Explain why these differences could make the use of utility functions problematic when considering welfare economics questions?

SEE GRAPH
Utility functions are different for each person. This approach won't work if:

1) Social welfare function isn't just a sum of individual welfare functions
2) If weights for each person are identical
What are the 3 reasons we wrote down in class for why using utility functions to maximize social welfare is problematic.
U utility functions different for everyone
I dental weights will make it not work
W elfare is not a function of the sum of everyone's welfare function
What is the difference between a pareto improvement and a potential pareto improvement?
A pareto improvement is where an action hurts nobody and helps one or more person. (Holy grail).

A potential pareto is where there isn't pareto efficiency, thus a potential improvement (compensating losers)
What is the difference between ordinal and cardinal utility?
Ordinal utility only gives higher/lower value. (Does bundle give higher/lower utility)

Cardinal utility uses actual numbers. Ordinal not useful for comparing individuals.
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What is welfare economics?
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How allocation of resources affects well being. For utilitarians, outcomes that increase welfare is good, and decreases is bad. Only outcomes are important.
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What is consumer sovereignty and why is it important in considering the utilitarian position?
People determine their own preferences. You know what is best.

Important because our choices increase/decrease utility, or happiness. (This is utilitarianism)
List the 6 basic tenets of utilitarian philosophy we wrote down in class. Give an example of a humanist utilitarian environmental policy position and a naturalist utilitarian environmental policy position.
Environmental economics makes systems for humans and non humans to make utility value choices

O utcomes are what is important

U utilitarianism can extend to non humans
W elfare economics
A ctions that increase welfare = right (VV)
U utility is our level of happiness

Humanist: Do something for benefit of humans only
Naturalist: Don't develop Alaskan oil land (animals)
Explain in a sentence or two what libertarian philosophy is. What is the main way it is different from utilitarian philosophy. Give an example of a libertarian answer to an environmental question.
Humanist position where individual rights paramount.

Different because not concerned with outcomes, unlike utilitarians.

They would take away government control of environmental protection and give it to individuals / private companies
What is Kant’s categorical imperative? Give an example of a humanist categorical imperative regarding environmental policy, and a naturalist categorical imperative regarding environmental policy.
Kant: Actions are morally justified if done out of sense of duty to a universal ethical rule.

Naturalist: Protecting land for national parks, those special environmental areas.

Humanist: Protecting fisheries, more out of ensuring long term viability and not just human consumption.
Describe the humanist and naturalist philosophies in a sentence or two. Give an example of an ethical question for which these two broad philosophies would have different answers. What might those answers be for each philosophy?
Humanist: Rights and obligations only to people.

Naturalists: R/O given to some natural system. Does it "preserve integrity, stability of biotic community". See that higher functioning animals like dogs, chimps, etc deserve respect, freedom from suffering.

Ethical question: Do animals and humans have different rights?
What is the main ethical philosophy mainstream economics uses to make value judgements?
Utilitarianism
Know the difference between positive and normative economics.
Positive: Objective. "If X happens, what happens to Y"?

Normative: Subjective. Most informed choices. What should be done, policy. Usually referred to as welfare economics.
What natural resources were we worried about running out of 60 years ago? Why is this no longer a problem?
Tin and copper. Plastic has replaced much of previous uses for tin. Fiber optic cables made from sand have replaced the overwhelming need for copper wire.
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What is Mankiw’s basic answer to the question “Are Natural Resources a Limit to Growth?” What evidence does he provide to support his position?
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Mankiw says most aren't concerned. Tech progress usually gives ways to avoid these limits.

We use resources much more efficiently. Hybrids use less gas, homes insulated better.

Also, market would have a say. If supply were low, prices would reflect this.
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What is the difference between what Krugman calls the Ramp approach to climate change, and the Big Bang approach to climate change.
Ramp up: Slow, long period of time. Slowly raise prices. Current carbon is not seen as horrible like Bangers.

Big Bang: HUGE, price changes today. Gives more weight to future generations welfare.
What two different types of uncertainty are created by corrective taxes versus marketable pollution permits a.k.a. cap-and-trade?
Corrective Taxes. People know what they'll pay, but government won't know how much will be produced.

Cap and Trade: Government knows total pollution, but people don't know the price.
What is the principle problem with relying on command regulations to fight negative externalities. Give an example of a command regulation which nonetheless seems to be working well.
"Does not offer any scope for flexibility and creativity"

However, specific emissions standards and no smoking laws are effective.
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What is a negative externality? Give one example. What are the three general types of policies we can enact to fight negative externalities.
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"Costs economic actors impose on others without paying a price for their actions". (Car emissions)

Goal is to get people to internalize their external choices

Command Control: Specific regulations

Marketable pollution permits
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What are the three recommendations from the Brundtland report which we discussed in class?
R educe material content of economic activity

E conomize on the use of resources

S ubstitute reproducible capital for environmental capital
In Limits to Growth, and Beyond the Limits, Meadows et al reach 3 conclusions about economic growth based on their World3 model. States these conclusions in one simple sentence for each.
G rowth not sustainable on current path

S sustainability only if we change what do

Q uicker we act, the better
What is the definition of a positional good?
Good whose value determined by its desirability for others, in comparison to substitutes.

Satisfaction from consuming something, relative to other people.

IE: Education less valuable the people get it.
Why do economists care so much about economic growth? Give one positive effect of economic growth and one negative effect of economic growth?
It might be the key to environmental improvement and getting rid of poverty.

Allows poor to get richer without taking from rich.

Positive is reduced poverty, negative is more pollution from developing economies.
Draw the basic Kuznets curve shown in box 2.3. Be sure to label your graph and explain why it is shaped like it is. Finally, explain what are the long-run implications for environmental impact of humanity depending on if a or b turns out to be true.

e= ay
emissions are some function of income
More income leads to higher environmental impact but reaches some threshold where income causes impact to fall to level "k", or maybe "0" in long run.

Says growth is key to fixing environment, not a threat.

"a" shows income is panacea. "B" implies rising income making impact at constant level "k". (>0) . "b" probably most realistic.
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What are four policies Perman notes seem to reduce family size?
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R educe incentives for large families
E ducation, especially women
E lderly pensions
E conic development (More income, less children)
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What is the definition of Human Energy Equivalent (HEE)? What was the HEE for the average person in: the hunter-gatherer period before 10,000 B.C? During the agricultural phase of human development from 10,000 B.C. to 1800 A.D? In 1900? What is it today for the U.S.A. and for Bangladesh?
Average amount of energy human needs in one year.

In HG era, about 2 HEE.

In Agricultural era, about 3-4 HEE.

1900 about 14 HEE

US about 93 HEE, and Bangladesh about 4 HEE.
Tell me in one sentence or two how the IPAT identity can be useful.
It can be useful for thinking about certain scenarios. Can be useful in looking how supply and demand affect price inputs.
Know the IPAT identity. Know how we measure P, A, and I, and how from this T can be derived. Get out a calculator and practice calculating all the values in table 2.4. Be prepared for me to give you new values for 3 of these variables and ask you to calculate the 4th .
Simple model showing economic impact on environment. (I = PAT)

Global emissions = Population x Affluence x Technology

Population and affluence have grown dramatically in past 100 years.
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How many earths did Wackernagel and Rees estimate they say humanity was using in 1961? In 1999? In 2003?
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1961: 0.7 (70%)

1999: 1.2

2003: 1.25
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It is earths capacity for production and waste disposal.
What are the four main findings of the Millennium Ecological Assessment (MEA) discussed in your textbook?
Dramatic ecosystem change in past 50 years, reducing biodiversity

Lives improved, but environment damaged, unsustainable

Likely worse in next 50 years

Degradation is reversible, with new policy, institutions, practices.
What is the definition of biodiversity? What are three ways we measure it? Describe one problem with measuring biodiversity which we discussed in class.
DEF: ecosystem with large variety of species, and large populations within each species.

Species biodiversity: Distinct kinds
Ecosystems: Diversity important
Population: Genetic diversity increases survivability

We don’t have solid criteria for measuring diverse ecosytems, sometimes large animals might be hunted and biodiversity is reduced, but number of animals stay constant.
Explain what it means to say “Dose-response relationships may exhibit non-linearities and discontinuities” Show this graphically. Give an example of it.
Low level pollution maybe negligible, but maybe a tipping point eventually.

"Dose response relationships may involve thresholds".

Water pollution tolerable at low level, but maybe a threshold could be crosses, giving discontinuity.
What is the definition of resilience?
The ability of an ecosystem to retain its organizational and functional structure after a disturbance.
What is the definition of stability?
Ability for ecosystem to return to equilibrium after a disturbance
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What is the definition of ecology we gave in class?
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Study of the distribution of an ecosystems plant and animals with their abiotic environment.
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What are the three implications of Materials Balance model?
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1) Mass of B + C + D = A
What we take (A) must be given back

2) Treatment of residuals doesn't alter their mass, but can change their form or location

3) Recycling is important because for any E, the larger F is, the smaller A will be.
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Be prepared to draw figure 2.2, showing the Materials Balance model of economy-environment interactions.
a) What is the materials balance principle?
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Term used by economists to describe law of conservation of mass.

All production comes from the environment and will return to it.
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For most of human history, what limited the amount of work that could be accomplished on Earth. What has allowed humans in the past 200 years to exceed this limit? According to Perman, does this path appear to be sustainable in the long-run?
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Solar energy from outside the solar system.

Fossel fuels have allowed us to overcome this, for now. Sustainable if we find new source of energy (fusion)

If not, we could fall back to the pre fossil fuel era.
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Which economist called the Second Law of Thermodynamics ““The ultimate basis for scarcity in economics.” What did he mean by this?
Georgescu-Roegen

Can't recycle 100%, completely recycling not possible.

Therefore we have scarcity
State the First and Second Laws of Thermodynamics.
1) Energy neither created or destroyed, only transformed

2) Heat flows spontaneously from hotter to cooler bodies, not transformed 100% efficiently. (Entopy is unavailable energy)
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In this model, what are the two possible substitutions for environmental services? How does human capital normally play a role in this process?
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1) Substitute human capital with technology (Sewage treatment)



Built Human capital to get knowledge to build and hopefully make better environmental decisions and develop new technology, use resources more efficiently
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In this model, what are the two purposes that recycling serves?
Reduce strain on assimilative capacity of environment

Reduce total demand on resource base
What two reasons does Perman give when discussing figure 2.1 for why Fossil Fuels should be separated out from other minerals?
1) Fossil fuels are a distinguishing characteristic of industrial economies.

2) Their combustion is irreversible

Minerals used as inputs to production can be recycled.
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What is the difference between a resource flow and a resource stock?
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Resource flow is one whose current use doesn't affect future availability (solar, wind)

Resource stock is one whose current use DOES affect future availability (fish, oil, coal) Either renewable (trees) or non renewable (oil)
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What is the only thing that crosses the black border that represents the environment in this model?
Solar energy
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What are the 4 basic functions of the environment?
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L ife support (recyle, water)
A menity flow
W aste sink (Sewage)
R esource base (planes, rail)
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Give two reasons why economists value economic growth so highly? Give one reason why some ecologists more skeptical of the benefits of economic growth?
1) If you buy it, growth will be panacea for environment
2) Could also be solution to poverty (No Robin Hood)

Maybe we won't get the tech breakthrough (fusion) we need. Maybe we'll pollute forever, despite rising income.
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What do we mean when we talk about the depletion of a resource being reversible or irreversible. Give an example of each kind of depletion.
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Irreversible is oil. Can't let its capacity grow with time.

Reversible is animal populations (biotic). Back of hunting them. Extinction is irreversible.
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What are the two broad dimensions of sustainability Perman discusses in Chapter 1?
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1) Question if one resource can be replaced by another (solar instead of fossil)

2) Can environmental resource be replaced by other inputs, especially human made capital?
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Explain the difference between natural resource stocks and natural resource flows, giving an example of each. Also explain the difference between biotic stocks and abiotic stocks.
Resource stock - Current use does affect future availability (oil)

Resource flow - Current use does not affect future availability (solar, wind)

Renewable are biotic, plant and animals, can grow with time.

Nonrenewable are abiotic, stock of minerals, can't grow over time, are exhaustible.
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Explain why well-defined property rights are so important if markets are going to allocate resources efficiently. Why do markets often fail if property rights are not well-defined.
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They are necessary for market efficiency in allocation.

A failure can exist if not defined or enforced well.

Sometimes prices may not reflect true social costs (cigarettes, emissions). Failures seem abundant in environmental economics.
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Explain with 2-3 short sentences Kenneth Boulding’s thesis and main points regarding Spaceship Earth.
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Earth closed system except to solar energy. Rejects endless frontier of resources (cowboy economy).

Our main goal should be to have high stocks of knowledge and human capital to satisfy us.

Create as much health and happiness, especially with fewer resources, which are finite.

Humans must fin a sustainable place in this spaceship. Prices may be helpful, but not solution
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What, according to Perman, is the central principle of ecological economics?
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Our economics system is a part of the larger system that is "planet earth", or the environment. They are interdependent.

Only two disciplines, concerned directly with central problem of sustainability.
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What Greek root word is shared by both “economics” and “ecology?” What does it mean?
"oikos" root for eco. Means household.

Ecology is the study of natures "housekeeping" and economics is the study of "human housekeeping".
What is welfare economics? What is the difference between Pareto efficiency and a Pareto improvement?
It is how the allocation of resources affects well being.

Pareto efficiency (optimality) is where no one can be made better off without making someone else worse.

Pareto improvement is a change where at least one person is made better off without making someone else worse off.
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What is Delong’s definition of sustainability? Why does Delong feel thinking about Global Warming is more important than thinking about Harry Potter?
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"Engaging in behavior today that keeps our options open tomorrow"

Having policies that preserve and enlarge future options.

Mor important because it LITERALLY affects lives of 2 billion people, and others.

Entertainment vs. Reality
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What are the three broad themes covered in Chapter 1? Explain each with one sentence.
S ustainability: Behave today, keep options tomorrow.
Work to maintain systems indefinitely, for posterity

O ptimality: Use resources most effectively. Optimal if it reaches some objective within given restraints

E fficiency: Find ways to get greater output with fewer inputs.
How do incentive-based instruments differ from mandatory regulations?
They are a market based solution.

They alter the structure of the payoffs, getting people to voluntarily change behavior.

Taxes and subsidies is one approach, and marketable permits another.
Figure 6.5 p. 197
Shows an emissions tax. Uses economy wide MB and MD. M hat is where private MB is 0, the pre tax level. If an emissions tax M* happens, profit maximizing firms will pollute at M*. Putting Mu* on the y-axis incentivizes the targeted level of emissions M* on the x axis.

Cost is Y axis, E can be instead of M on X.
What is the remarkable feature of an emissions tax in terms of the marginal cost of abatement for each firm? How does this ease the EPA’s need for information gathering?
An efficient pollution tax will produce identical marginal cost of abatement for all firms, because they will equate their marginal costs to the tax.

This eases EPA's need because if they know aggregate pollution damage and aggregate abatement cost functions they won't need to know for all individual firms.
If the EPA has some other policy objective besides efficiency, what does it need to know to set an optimal tax? How does this further ease the EPA’s need for information gathering?
If you know marginal benefit function and set it some exogenous level and then tax to the level to get it there.

Further eases because, The EPA doesn't need to know
1) Aggregate marginal demand function, because knowing the aggregate abatement cost function is sufficient
Although abatement subsidies can essentially achieve the same results as a pollution tax, what are the two caveats we noted make the use of such subsidies problematic?
1) A subsidy might make industry bigger, offsetting abatement gains.
2) Firms would not have an incentive to lay about the level of uncontrolled emissions.
Describe two examples discussed in box 6.4 of emissions taxes in practice.
1) Taxes on new paint bought in British Columbia to support safe disposal of used paint.
2) Increase in wastewater fees in Germany in order to save water, has incentivized water saving dishwashers and toilets.
3) Countries such as Sweden, Norway, and Finland have imposed taxes on pesticides and fertilizers.
What are the 6 features of Cap and Trade? What is the distinguishing feature of such a system that distinguishes it from CAC emissions permits?
1) Deciding total allowable emissions
2) Create permits to equal that limit
3) Mechanism to determine initial allocation of permits
4) A rule limiting emissions to the amount allowed by permits the polluter owns
5) System for monitoring and penalties for exceeding limit
6) Guarantee that permits can be exchanged freely.

Distinguishing feature is that permits can be traded
What are the two ways the initial allocation of cap-and-trade permits can be accomplished? How will the amount and price of pollution be different with each method? What other outcome might differ between the two allocation methods?
1) The EPA will auction permits
2) EPA allocates permits at no cost, but this requires another distribution rule.
- If sold, bids will show market demand curve for pollution, identical to aggregate marginal benefits from pollution
- If distributed at no cost, firms will buy and sell permits, setting an equilibrium price.
+ The net outcome will be the same either way, but equity could differ because auctions provide government revenue and free permits provide revenue for firms.
What are the three features of an Emissions Reduction Credit (ERC) system? How has the EPA been using these in practice?
1) Baseline emissions profile established for each source and aggregate industry
2) Penalties for going over this baseline
3) Firms below baseline can sell what they don't need to those who are above

+ The EPA has used this for water pollutant concentration standards
Explain what a flexible permit system is, including drawing a picture similar to Fig. 6.12 on page 209.
Controlled emitters can buy offsets from uncontrolled emitters if the uncontrolled agree to reduce emissions by appropriate amount.

1) Controlled emitters will buy offsets if cost is less than the permit cost
2) Uncontrolled will sell if revenue is greater than marginal benefit of emissions.
+ It is more flexible than traditional cap and trade and have lower cost of emissions.
Figure 6.12 on p. 209 for CO2
The controlled sector in the circle, 1-6
Uncontrolled sector in the rectangle around and outside the circle, A-D

The circle is a, cap and trade
The rectangle b, is a flexible permit system with offsets.

a inside b shows where their are offsets, controlled emitters can buy more from the uncontrolled if the uncontrolled source can reduce its use. They can work together
What are the three reasons we listed in class for why CAC rules are likely to be less efficient than either taxes/subsidies or marketable permits? What are the two caveats we noted could sometimes make CAC rules superior to incentive-based solutions?
1) CAC less efficient, leading to less flexibility and creativity
2) Markets better at processing information
3) Markets encourage abatement at least cost, and can lead to dynamic gains with time.

Two caveats to this,
1) CAC can curb pollution quickly
2) Increases outcome certainty
What is the likely distributional impact (fairness) aspect of emissions taxes, and how might we offset this impact? How likely is that to happen?
1) Emissions taxes likely regressive

1) Gains from consumption emissions taxes could be used to offset this, but it rarely occurs.
What is welfare economics and what are the two basic concepts associated with welfare economics?
1) Efficiency
2) Optimality

How resource allocation affects well being
What are the three efficiency conditions that need to be satisfied? (PEE)
P roduct Mix Efficiency
E fficiency in Consumption
E fficiency in Production
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BOX 4.1 about Ocean fisheries (p.96)
Why relative to the ocean’s potential do we presently have under-harvesting of fish and over capacity of fisihing fleets? What two types of externalities are associated with ocean fisheries?
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High Value Fish DOWN
Low Value Fish UP

Despite down harvesting, still catching more fish, maybe 10% more.

Crowding: Everyone’s harvest raises costs
Intertemporal: No incentive to reduce fishing
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What is the definition of market failure I gave in class?
When markets Fail to allocate resources efficiently or fairly.
Why is it important to have a social welfare function when making policy choices? Why do we not generally have one to work with?
More accurate SWF = Better Policy decisions

We don't have a SWF because it is hard to measure and involves value judgments.
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What are the three reasons we focus on allocation in a market economy as opposed to a centrally planned economy? (FMD)
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1. F ree Markets allocate resources more efficiently
2. M arkets are standard around the world
3. D ictators don't have enough information
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What are the 7 conditions that Perman argues need to be met if markets are going to efficiently allocate resources? Which two of these have often not been satisfied in our discussion of environmental economics?

(AMPNAAM)
A ll agents maximize
M arkets widespread
P roperty Rights are strong
N o externalities
A ll utility functions behave well
A ll goods are private
M arkets are perfectly competitive with perfect info


Externalities and property rights not satisfied by these conditions.
What property rights problems are associated with Resource Base (including stocks, renewable and non renewable flows) Amenity Services, Waste Recepticles and Life Support systems?

Resource Base
No rights for flows usually, except for land we get them from (solar/wind)

Non renewable stocks usually have property rights
Renewable stocks have property rights concerns

Having property rights for these can allow efficient level of use
What property rights problems are associated with Resource Base (including stocks, renewable and non renewable flows) Amenity Services, Waste Recepticles and Life Support systems?

Amenity Services
Usually don't have property rights but could be for LAND you enjoy service.

It's hard to CALCULATE REVENUE FROM AMENITIES, easier for a commercial development

EXAMPLE: Congestion at a national park
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What property rights problems are associated with Resource Base (including stocks, renewable and non renewable flows) Amenity Services, Waste Recepticles and Life Support systems?

Waste Receptacle
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Historically NO PROPERTY RIGHTS, but more awareness leading them to become COMMON PROPERTY RESOURCES. The atmosphere seen as a free access waste sink, CO2 global warming everywhere. Getting more property rights with time.
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What property rights problems are associated with Resource Base (including stocks, renewable and non renewable flows) Amenity Services, Waste Recepticles and Life Support systems?

Life Support System
HAS NOT TRADITIONALLY HAD PROPERTY RIGHTS. But global agreements on warming limits are trying to turn this free access waste sink into a common property resource.

EXAMPLE: Atmosphere has been seen as free access waste sink
In the context Life Support systems, what can efforts to combat global warming be seen as?
An effort by countries to turn this waste sink into a common property resource.
TABLE 4.4

Non Rivalrous and Excludable
Club Goods

Costco and Netflix
TABLE 4.4

Rivalrous and Excludable
Private Goods

Laptop
TABLE 4.4

Rivalrous and Non Excludable
Common Resources

Atmosphere
Non toll roads
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What does it mean to say a good is rival and what does it mean to say a good is excludable?
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One persons use can affect someone else's use

Excludable if someone can have their use of it prevented.
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How does Nordhaus calculate GED? How are most of these damages actually realized in the study?
1) Calculate baseline damage
2) Add a ton of emissions
3) Recalculate damage to get marginal damage
4) Multiply this marginal price by total emissions to get GED

Damages realized through health decline and reduced agriculture.
NORDHAUS:

What was the value of these damages in 2002, and what percent of GDP does this represent?
In 2002 they were $184 billion

OR

1.5% of a $13 trillion economy
NORDHAUS:

According to Table 1, what are the three sectors with the highest GED/VA ratio. (AUT)
1) Agriculture and Forestry
2) Utilities
3) Transportation
NORDHAUS:

List 3 of the pollutants and three of the adverse consequences Nordhaus, Mendelsohn and Muller measure. (SVA and HHH)
3 POLLUTANTS:

SO2, VOC, Ammonia

ADVERSE CONSEQUENCES:

Human health declines, Hurts agriculture yield, Harms recreations services.
Nordhaus Graph:

Marginal External damages is?
Is "v" or the shadow price
Nordhaus:

State one reason why the damages calculated in the paper are probably understated, and one reason why the GED/VA ratio is probably overstated.

GED/VA is costs/benefits
Understated: Aren't capturing ALL pollution (water, noise, etc)

Overstated: They aren't calculating all of the VALUE ADDED (amenity services)
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Box 4.3
What does Swanson mean when he says in that box “. it is information property rights rather than just intellectual property rights that should be protected and rewarded.” Explain your answer in the context of biodiversity.
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NO information property rights.
Biodiversity critical for future tech and development, must protect. (Pharma)
We give property rights for intellectual property, at first.
Should do same for informational property rights for those who protect and sustain biodiversity.
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What is the decision-making rule economists favor when thinking about providing public goods like a clean environment. What is the difficulty in determining the appropriate level of public good production?
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Marginal social benefit = Marginal social cost

Hard to determine the social benefit of public goods
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What are the two things the government needs to determine the appropriate level of public goods?
1) Info about benefits that is difficult to get
2) To make equity judgments
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What is the general goal of any policy designed to correct for either a positive or a negative externality?
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To get decision makers to INTERNALIZE the EXTERNAL effects of their choices.
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What are the two key features of Perman’s definition of externalities? What was Mankiw’s definition of externalities we gave in class?
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1) Unintendedness
2) Lack of compensation

“The uncompensated impact of one persons choices on the well being of a bystander”
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What does the second best theorem say?
With two failures, fixing one may not be efficient, could make situation worse.
**
What are the two broad categories of solutions to negative externalities governments can enact?
**
**
1) Command regulations
2) Monetary instruments like taxes and subsidies
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State the Coase Theorem. Give an example of private parties solving an externality problem on their own. Then give an example of an externality that cannot be solved by private parties because one or both of the conditions of the Coase theorem is not satisfied.
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1) Good property rights
2) Low transaction costs
3) People will solve externalities themselves

Solvable: Apple Trees, wood staining at Dan's

Unsolvable: Second hand smoke (complex)
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What are the two major economic questions regarding pollution?
**
1) How much pollution?
2) Best way to reach this pollution level?
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Economic activity generates emissions, or residual flows that impose loads on environmental systems. The extent depends on what four factors? (LATE)
L location, where/who affected
A assimilative capacity
T tastes and preferences
E existing emissions
**
Give an example of pollution flow damage and an example of pollution stock damage. Why are we generally more concerned with pollution stock damage than pollution flow damage? Why, on the other hand, do we generally fight stock pollution damage by controlling flow pollution?
**
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a. FLOW: light pollution or noise
b. STOCK DAMAGE: CO2 emissions
c. Pollution STOCK DAMAGE CAN HURT HEALTH, hurt growth rate of plants and timber
d. Pollution will automatically drop as the flow of the pollutant goes away.

It is more practical to reduce flows rather than stocks
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What are the two conditions that together cause pollution stocks to accumulate? (PE)
P positive lifespan
E exceeds assimilative capacity
Give two examples of pollution stocks which environmental media practically speaking have zero absorptive capacity.
1) Heavy metals like lead and mercury
2) Synthetic chemicals like PCB's and DDT
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What are 3 prominent types of stock damage pollution problems? (HHH)
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H uman health hurt
H arms agriculture yields, marine pop’s
H urts structures (buildings and art)
**
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Why can pollution be desirable? There are still tradeoffs, but pollution can be indirectly beneficial
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Can ALLOW PRODUCTION of a good that couldn't otherwise be made

AND

Produce those goods at a lower cost
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Explain why the efficient level of pollution is the level that maximizes the net benefits from pollution. How are these net benefits defined?
1) Net benefits maxed when
2) Pollution externality internalized

Pollution benefits - Pollution damages
What does it mean to say pollution is uniformly mixed? Give an example of a pollutant that uniformly mixes.
1) It is dispersed quickly (Greenhouse gases)
2) Location doesn't matter here, only total E
Assuming pollution is not uniformly mixed, What is the socially efficient level of pollution from each source. What are two controversial results that flow from this conclusion? How do regulators often try and overcome these controversial results?
Emissions where:

Private Marginal benefit = Marginal damage

1) Efficient level of pollution varies firm to firm, and receptor to receptor

2) HARD TO TELL people that some should have higher pollution than others

They'll usually set a maximum allowable level of pollution stock.
I might just put figure 5.6 on the exam and ask you to explain it. What environmental resource here on campus has experienced the kind of variable decay described in 5.6 (b)
Decay rate of water pollutant —> zero
as some threshold is met.
Too much pollution builds and assimilative capacity is zero, causing water to die.

POTTER LAKE
What is a perfectly persistent pollutant and why are such pollutants a problem? How might we still be able to live with a positive level of perfectly persistent pollutant emissions?
There is no decay, it persists indefinitely

We can work to clean it up if we can finance it somehow. If we do this we can artificially reduce it.

It's where there is no steady state where E=0. Lead is an example.
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What is the double-dividend hypothesis? How does Mankiw’s proposal reflect an effort to achieve such a double dividend?
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Find things that correct negative externalities (Tax them)
Use this tax to reduce others that distort and lower efficiency.

Mankiw’s Carbon Tax
Taxes carbon use more
Uses taxes to lower income tax.
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Besides tasty, tasty efficiency, list 3 other alternative environmental policy goals (ESP)
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E quity
S ustainability
P rotect health
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List 5 of the 9 Instrument selection criteria we listed in class (CIDED)
1) C Cost effectiveness
2) I nformation requirements
3) D ependability
4) E quity
5) D ynamic Efficicency
Give an example of a pollutant where cost efficiency of abatement instrument is probably important to consider. Then give an example of a pollutant where the cost of abatement is probably not relevant.
Important:
CO2, find efficient cost effective way to reduce.
Unimportant:
Cost not relevant, must reduce horrible pollutant like lead and asbestos.

A cost effective instrument is one that uses the smallest amount of resources to pollution control, or the minimum opportunity cost.
State the least-cost theorem of pollution and the two implications that follow from this theorem.
Where:

Marginal cost of abatement is EQUAL for all firms

1) Least cost doesn’t usually mean equal abatement by all.
2) Lowest cost abaters usually will abate more (Not all)
Explain the difference between strict liability and negligence liability. What is the principle difference between the two in terms of property rights?
Strict: Pay victim for harm
Negligence: Pay victim only if you don’t take precaution

Both give property rights, strict to the victim and negligence to the firm if they took appropriate precaution.
What do all efforts to use liability as an environmental policy instrument have in common?
Establishing a property right that some externality is causing
Explain why encouraging people to behave in a more socially responsible fashion can actually help achieve some environmental policy goals. Give two examples of how this has worked. What is Mankiw’s attitude toward such efforts in the Carbon Tax America Could Live With article?
Encouraging through socially responsibility often better than political policy.
Seen in rise of green parties, environmental labeling in Germany.
Free recycling bins in cities (Olathe, OP)

Mankiw:
People aren’t always going to be conscious, they have their own lives, knowing impact also hard.
In box 6.3, what are the two trends in environmental policy the USA has been following recently? Give two examples discussed in the box.
1) EPA is using many different incentives
2) State and local governments incentive programs have grown rapidly.

Market based pollution permits
Subsidies for farmers to conserve
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List two advantages of command and control (CAC) instruments. What are the principle two problems with such instruments
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Pro's:
1) Curb pollution quickly
2) Increases certainty of outcomes

Con's:
1) Often inefficient
2) Unlikely to EQUALIZE marginal abatement costs between Firms/People
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