Transcript L8-the nature of natural resources

The Nature of Natural
Resources
__________ is a legal principle that when
enforced allows an owner to prevent others
from using his or her asset. __________ is an
inherent characteristic of certain resources
whereby consumption or use by one person
reduces the amount available for everyone
else.
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•
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•
A. Supply, Demand
B. Rivalness, Excludability
C. Privacy, Excludability
D. Rivalness, Privacy
E. Excludability, Rivalness
What are the scarce resources?
• Where do all raw materials come from?
• What is required in addition to raw
materials?
Laws of thermodynamics
• First law imposes constraint on total size
of economic system
– Can’t make something from nothing
– Only something available is the resources
provided by nature
Laws of thermodynamics
• Second law tells us that
disorder/uselessness increases
– All production requires low entropy energy,
and creates high entropy waste
• Is this true in ecosystems?
– Low entropy must be divided between
maintenance of natural capital and human
made (built) capital
– Finite stock of accumulated low entropy
– Solar energy is ultimate limit on physical size
of the economy
How much solar energy is
captured in the entire
United States (what is Net
Primary Production?)
Fourth law of
thermodynamics
• Matter is subject to entropy
– Controversial in theory
– Realistic in applications
• 100% recycling probably impossible
BUT…
• If all matter/energy moves towards greater
disorder, less usefulness, how do we
explain life?
• Doesn't information substitute for natural
resources?
– NYT Headlines: Data Barns in a Farm Town,
Gobbling Power and Flexing Muscle
– Power, Pollution and the Internet
Conclusion:
The ultimate scarce resource is
low entropy matter/energy
Low entropy/useful resources
provided by nature
• Abiotic resources
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–
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Fossil fuels
Minerals
Water
Land
Solar power
• Biotic resources
– Ecosystem goods
– Ecosystem services
– Waste absorption
capacity
What are the characteristics
of scarce resources
relevant to allocation?
Stock-Flow Resources
(raw materials, ecosystem goods)
• E.g. ecosystem structure converted to
economic products
• Production = material transformation
• Used up, not worn out: use = depletion
– My use leaves less for you to use
• Rate of flow can generally be controlled
– We choose how fast to consume fossil fuels
Fund-Service Resources
(ecosystem functions, services,
land, machines, labor)
• Structure generates function= ecosystem services
• Not transformed into what it produces
– My use may not leave less for you to use
• Human made fund-service resources wear out,
not used up
• Natural fund-service resources spontaneously
restored by solar power
• Rate of use cannot be controlled
Pizza example
• Is the cook a fund-service or stock-flow?
• Is the oven a fund-service or stock-flow?
• What happens if the price of labor
increases?
• Are the pizza ingredients a fund-service or
stock flow?
• What happens if the price of ingredients
increases?
So What?
• Raw material extraction depletes ecosystem
services
• Waste output depletes ecosystem services
• Services from nature include life support
functions
• We cannot treat ecosystem goods and
services independently– efficient allocation
must consider both
• Stock-flows and fund-services are primarily
complements, not substitutes
Macroallocation
• How much ecosystem structure should be
allocated toward economic production, and
how much should be left intact to provide
ecosystem services?
– Macro-opportunity costs: the ecosystem goods
and services given up when we allocate
structure towards economic production
Excludability
• Excludable resource regime
– One person can prevent another from using the
resource
– Necessary for markets to exist
• Non-excludable
– No enforceable property rights due to technology or
social institutions
– Can’t charge for use
• Some resources non-excludable by nature. None are
inherently excludable.
• Excludability is a product of institutions.
Rivalness
• Rival Goods
– My use leaves less for you to use
– All ecosystem goods (stock-flow resources) are rival
• Non-rival (or non-depletable)
– My use does not leave less for you to use
– Marginal cost for additional user = 0
– Efficient allocation: Price = marginal cost of production
– All non-rival resources are services
• Rival or non-rival is an innate characteristic of the
good, not a result of institutions
Rivalness (cont.)
• Congestible resources
– When abundant, one person’s use does not affect
another’s. Appears non-rival.
– When scarce, obvious that they are rival.
– Empty planet vs. full planet
So What?
Excludable
Rival
Non-rival
Non-Excludable
Market Good: cars,
houses, land, oil,
timber, waste
absorption capacity?
Open Access Regime:
Oceanic fisheries, timber
etc. from unprotected
forests, waste absorption
capacity
Tragedy of the noncommons:
patented information,
e.g. energy efficiency,
pollution control tech.
Pure Public Good:
Information, most ecosystem
services, e.g. climate
stability, coastline protection,
life support functions, etc.
Toll Good, club good:
Congestible Roads, parks, beaches,
etc.
Open access regime
(fund-services)