Environmental Econ

Positive: what is, was, will be. Normative: ought to be.

Maximization of economic surplus through allocation

Value consumers receive from an allocation minus what it costs them to obtain it (triangular area above price and below demand). Excess of total willingness to pay over the (lower) actual expenditure. Or, the difference between the price consumers willing to pay and the price they actually pay.

total amount that a producer benefits from producing and selling a quantity of a good at the market price (triangular area above supply and below price). Simply the difference between the price that companies are willing to sell products for and the prices that they actually get for them.

Bundle of entitlements defining the owner's rights, privileges and limitations for the use of the resource.

1. Exclusivity (benefits and costs accrue only to owner) 2. Transferability (all rights transferable from one owner to another) 3. Enforceability (secure from seizure or encroachment)

Theory is that owners of resources with well-defined property rights have incentive to use resource efficiently because a decline in the value of that resource represents a personal loss.

Whenever the welfare of some agent, either firm or household, depends not only on their activities but also on acitivites under the control of some other agent.

Pg 16 - demand curve, supply curve, Q*, P*, A = CS and B= PS

Pg 17 - private MC, social MC, demand curve, P*, Q*, Pm (private P max), Qm (private Q max)

External cost (negative) and External benefit (positive) and pecuniary

Nonexclusive and divisible. Bison or fish.

Nonexclusive and indivisible. Air or biological diversity.

someone who derives value from a commodity without paying an efficient amount for its supply

1. Imperfect market structures (monopoly) 2. Asymmetric information 3. Goverment failure

Social net benefits are maximized when the social marginal benefits from an allocation equal the social marginal costs.

pg 37 - y is MC, x is Q emitted, MC control, MC damage, total damage cost, total control cost, Q*

The minimum cost of achieving an environmental target will have been achieved when the marginal costs of the emissions reductions from all possible sources of reduction are equal.

Quantity-based, such as effluent or emission standards. Does not take into account costs of reaching standard.

1. Price mechanisms 2. Mixed price and quantity mechanisms 3. Information strategies

Per unit tax or fee. Allows profit maximizing firms to choose levels of control to equal marginal control costs. Requires trial-and-error.

Collective maximum limit on the use of a particular environmental resource with allowances that let firms set price.

Basic comparison of cost and benefits. Does not equal optimal.

Solution that minimizes costs given the objective. Does not equal optimal.

1. Survey approach: ask firms 2. Engineering approach

1. Primary v.s. Secondary effects 2. Geographical scale / scope 3. Whose benefits to include 4. With and Without principle: need to compare differences between alternate scenarios

Opportunity cost, or what we give up by choosing one thing over another

Individuals' willingness to pay

Marginal increase in present value of the economic damages resulting from small increase in CO2 emissions

Allows policy makers to include nonmarket values in benefit-cost analyses. More holistic view of benefits and costs, better decisions.

Direct benefits from use of primary good

Benefit from having the option for future use, either direct or indirect

1. Bequest value- ensure resource available for future generation 2. Existence value - benefit from knowing of existence

Use + Option + Nonuse values

1. Stated preference -- based on survey, used when value is not directly observable 2. Revealed preference -- directly observable choices with values inferred from choices

1. Contingent valuation -- creation of hypothetical market to which respondents asked to consider WTP based on this market. Simple WTP questions. 2. Choice experiments -- gives respondents bundles of attributes and asks them to select preferred option. Teases out WTP based on attribute preferences.

1. Strategic -- intentional biased answer to influence outcome
2. Information -- value attributes with which they have little to no experience
3. Starting-point -- will choose middle range if given predefined range of WTP
4. Hypothetical -- respondent feels the choices are contrived rather than real
5. Payment vehicle -- dislike payment vehicle such as tax
6. Gap between WTP and WTA -- typically report higher WTA than WTP

Specific, consequential ( address hypothetical by stating responses will inform policy), give enough information to make reasonable decision

1. Travel-cost -- construct WTP from how much consumer pays to get to recreation or which site they choose 2. Hedonic property and wage -- use market data to run regression for marginal WTP on discrete values

1. Value transfer 2. Function transfer 3. Meta-analysis

1. Measurement error -- original doesn't match to study 2. Generalization -- is it reliable 3. Scaling problem -- distance decay and local v.s. national

1. Provisioning -- producets from ecosystem 2. Regulating -- from regulation processes like water purifications, CO2 sequestration 3. Cultural -- nonmaterial like education, recreation, aesthetic

1. Payments for environmental services 2. Tradeable entitlement systems like wetlands banking 3. Ecotourism 4. Debt-for-Nature

1. Improve energy efficiency 2. Transition to low carbon energy

1. Specific goals with dates 2. Subsidies/tax credit 3. Renewable portfolio standards and energy credits 4. Feed-in tariffs 5. Better energy storage 6. Carbon pricing

1. Weatherizing homes 2. Fuel efficiency (taxes better than standards)

1. Strong incentives for change 2. raises revenue 3. more cost effective

1. How to direct revenue -- lump-sum rebate, revenue-neutral, subsidize further emissions, lower corporate tax rates, help retrain labor
2. Whether to allow offsets
3. Price volatility -- may introduce price floors & collars