Transcript Institutions

Natural Resource Economics
Wednesday, January 11
Natural Resources
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Land
Minerals – iron, quartz, potash
Energy – petroleum, coal
Water
Forests
Fisheries
Biodiversity
Natural Resource Economics
is about:
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Resource Adequacy
Resource Scarcity
 Distinction between physical and
economic scarcity
Economic Scarcity
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A resource is scarce if there is less
available than would be demanded if
its price were zero
Scarcity is a function of demand as
well as supply
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e.g. gasoline
300
250
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100
50
0
nominal
real (2000 dollars)
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76
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97
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20
03
Cents per gallon
Annual Average Gasoline prices,
regular unleaded, 1976-2005
Year
Natural Resource Economics
is about:
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The allocation of scarce resources
across uses and users
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Space
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Criterion for allocation – static efficiency
Time
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Criterion for allocation – dynamic
efficiency
Natural resource economics is
concerned with externalities
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Externalities shift costs
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Across space
Across time
When goods are non-exclusive or have
high exclusion cost
When goods are indivisible in
consumption or non-rival
When goods are congestible
Externalities are ubiquitous
Natural resource economists
focus on institutions
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Social devices that define the
rights and obligations of
participants in a decision process
Produce incentives and
disincentives that cause or resolve
natural resource problems
Assume they are endogenous to
the analysis
Natural Resource
Economics
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Recognizes that natural resources
have extractive uses
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as inputs to production processes
Recognizes that natural resources
provide services in non-extractive
uses
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e.g. recreation, scenic value,
preservation of biodiversity
Natural Resource economists
work with resource valuation
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Efficient allocation of a scarce resource
between two competing uses requires that
we know its value in each use
Allocation issue may be between use and
non-use -- allocation between time periods
Using product and service markets to judge
natural resource values is limiting
Natural Resource economists
work with resource valuation
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Resources matter (have value)
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In extractive uses
In non-extractive uses
Assumption is that resources matter
(have value) because people think they
do
Natural Resources in Sustainable
Development
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To what extent should natural
resources be used to spur economic
development?
Will current resource use patterns
seriously undermine other important
aspects of the development process?
Natural Resource Use and
Economic Development
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Economic well-being is measured by
things like GDP, value of final goods
and services.
Growth of GDP implies economic
growth and progress (development)
If more cars are purchased, GDP
increases
GDP
Gross Domestic Product
Limitations of Economic
Accounting
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Increased production of cars to meet
demand – stocks of ore, petroleum
decline
Increased consumption of cars –
petroleum stocks decline
Reductions in natural resource
stocks are not reflected in GDP
Understanding value of natural
resources is key to refining
accounting measures
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What are the implications of mining for oil in
a remote wilderness area?
Should Great Lakes water be sold to Texas or
California?
How many fishers should be allowed access to
a particular fishery and should their catches
be limited?
What difference does clean water make to the
economic climate of a state or region?
Should land be set aside as open space or for
agriculture or for recreational uses?
Assignment for Wednesday, Jan. 19
Read “The Return of Malthus’ Ghost”
(On ANGEL)