GY426 Environmental

and Resource Economics

Introduction and Overview

Dr Ben Groom (course convenor)
Associate Professor in Environment and Development Economics
b.groom@lse.ac.uk
Todays Lecture

Presentation of the course:

Objectives;

Lecture and seminar format;

Assessment

Introduction to Environmental and Resource

Economics
About me
Dr Ben Groom
Programme Director MSC EECC
GY426 convenor
Director of the PHD in environmental economics
Research Interest and Expertise
Social discounting and intergenerational equity
Adaptation to climate change and agricultural
economics
Deforestation and development
Office hours
1330-1500 Fridays. STC 420
Other Teachers
Pr. Susanna Mourato Dr Charles Palmer Dr Sefi Roth Kirk Hamilton
Can I take this course?

Compulsory for MSc EECC.

Open to students from other programmes subject to
availability and with my permission.
Application via the LSE for You online course
choice system.
Admission criteria very strong background in
economics and quantitative analysis typically,
only students with a straight degree in economics
are admitted).
Course Objectives and Structure

Providea rigorous treatment of the theory of

environmental and resource economics

Show how formal economic thinking can assist in

environmental policy making

Expose you to the most recent developments in the

field
 PART I: Environmental Economics and Pollution Control (Michaelmas Term)
Lecture 1: An Introduction and Overview of Environmental and Resource Economics

GY426

Lecture 2: Welfare Economics and the Environment
Lecture 3: Market Failures, Externalities, and the Coase Theorem
Content Lecture 4: Environmental Taxes and Subsidies
Lecture 5: Tradable Emission Permits
Lecture 6: Environmental Regulation with Uncertainty
Lecture 7: International Environmental Problems, Coalition Formation, and Fairness
PART II: Behavioural Economics, Evaluation and the Environment (Michaelmas Term)
Lecture 8: Evaluation Methods: Hedonic Price Methods
Lecture 9: Health Economics and the Environment
Lecture 10: Behavioural Economics and the Environment
PART III: The Economics of Natural Resources: Efficiency, Optimality and Sustainability (Lent Term)
Lecture 11: Dynamic Optimisation: Theory and Application
Lecture 12: Natural Resources: Efficiency, Optimality and Sustainability
Lecture 13: The Theory of Optimal Resource Extraction: Non-Renewable Resources
Lecture 14: The Theory of Optimal Resource Extraction: Renewable Resources
Lecture 15: Intergenerational Equity and the Social Discount Rate
Lecture 16: Sustainability Concepts and Measures
Lecture 17: Natural Resources: Curse or Blessing?
Lecture 18: On the Value of Biodiversity
Lecture 19: Forestry
What happens in Lectures and Seminars?

Lectures (Weekly, 1.5 hours, MT and LT) Intended to:

i) guide you through the reading material; and
ii)provide a theoretical /conceptual grounding in which to
subsequently explore applications and examples

Seminars (Weekly, 1 hour, MT and LT, Start in week 2)

Differentformats: problem sets, debates and breakout
group exercises/discussions
Seminar Group Allocation

You Must sign up on Moodle

Based on first come first served

Opens
Today at 12pm and closes on
Wednesday at 12pm
Readings/Moodle

Core and Additional Readings

Same for lecture and seminar unless otherwise
specified
Main reference texts
Perman et al (2011) or (2003) Available as an e-book.
Conrad (2010) Available as E-book
Heal (1998) Valuing the Future
Articles in top journals:
m
Moodle is not the only source!!
How am I assessed?

One 3000 word summative essay in LT

Deadline: 10th March 2016, 4pm: 25%

Three-hour exam in the ST: 75%

Exam Format

Two Sections
Section I: Problem sets
Section II: Essay-type questions
You
must answer ONE question from section I and
TWO questions from section II
Eachproblem set and essay question has the same
weight
How will I get prepared for this?

One 2500 word formative assignment in the MT

you will receive written feedback

Revision questions/Problem sets before the Xmas

break

Revision session and mock exam in the LT or ST

QUESTIONS?
 Tell someone that you study
environmental economics and the
usual response is a look of
puzzlement and the query: just
what is that?
Kolstad, 2000, p1

Economics is irrelevant
.
V. important member of Friends of the Earth, 1995.
What is environmental economics about?

Environmental Economics is concerned

with:
The impact of the economy on the environment
Thesignificance of the environment to the
economy and well-being more generally
The appropriate way of regulating economics
activity
 The Origins of Environmental Economics

Adam Smith David Ricardo Thomas Malthus J.S. Mill Karl Marx Alfred Marshall
(1723-1790) (1772-1823) (1766-1834) (1806-1873) (1818-1883) (1842-1924)

Classical Political Economy Marginalist

movement

Kenneth Arrow
(1921-.)

Neoclassical
Arthur Pigou Harold Hotelling
Economics
(1877-1959) (1895-1973)
Economists and the market
Modern Environmental Economics

David Pearce Maureen Cropper

Elinor Ostrom

Partha Dasgupta Martin Weitzman William Nordhaus

Paul and Anne Ehrlich

Key Concepts and Principles
(Perman et al 2011)
Efficiency
Optimality Weeks 2 & 3 MT
Market Failures

Environmental Economics
How economies may avoid inefficiencies in the
allocation and use of natural and environmental
resources
Pollution Problems
What is the right amount of pollution?
Computing the costs of pollution control and damages
from pollution
Cost
Benefit Analysis (Susana Mourato, Sefi Roth, Ben
Groom) Week 9-11, GY455
Combining these elements to determine a societal
objective: Efficiency, optimality

How can we get polluters to control emissions?

A plethora of instruments from economic analysis
Positive vs Normative Perspectives

Positive / Descriptive Perspective:

Why things work the way they do and why they are the way they
are
E.g. what are the incentive mechanisms through which
environmental taxes operate? Week 3-5
How does the spatial distribution of emissions change when a
tradable permit scheme is established to regulate SO2 emissions?
Why has The Montreal Protocol been successful and the Kyoto
Protocol not? Week MT 8: See also The Economist
Explanatory, descriptive value free.
Normative-Perspective
Normative Perspective
What should be done in a particular set of circumstances
E.g. Should a government intervene to regulate pollution? If
yes, how? Which approach should be used
Thisrequires defining what is best, what is somehow
worth it
This involves value judgements, ethics
Stern Review..vs Nordhaus
Week 7 LT
 Harriet Taylor Mill

Ethical Foundations

Utilitarianism
Utility and Welfare 1807 1858

Consequentialist theory
Alternative perspectives: motivist, deontological theory
Ethical Foundations

Whose consequences count?

Anthropocentrism

Non-human entities ignored?

Environmental and Resource Economics???
A dichotomy or a redundancy??
Natural Resources: Taxonomy

Divisible can be allocated at the margin

Barrels of oil, tons of fish, cubic m of water.

Stocks and flows

The stock may be fixed or have regenerative
capacity
Exhaustible vs renewable resources: Weeks 1-5 LT
Natural Resources: Taxonomy
Environmental Resources
Indivisible
can be examined at the margin in terms of quality
but not quantity
Clean air, Not consumed directly: we consume services provided
by natural resources
Lifesupport, climate regulation, aesthetic
benefits.ecosystems

Someresources can be classified into more than one

category of course
Trees: renewable, but part of a forest ecosystem
Sustainability

Irreversibility

Non-linearities

Thresholds
A guide to week 1 reading

Core readings
Perman et al (2011), Ch1,; Pearce (2002) intellectual
history of environmental and resource economics
Heal (2007) overview of the main issues in modern ERE

Additional Readings
Perman et al (2011), Ch2 about subsequent parts of the
course, e.g. sustainability: week 2 & 6 LT
Perman et al (2011), Ch 3 to elaborate further on
ethical foundations and limitations of utilitarianism
Next week

Social
choice mechanisms, efficiency
and markets