About the class

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About the class

• Who is the instructor?
• What does she do?
• How to contact the instructor?
• How can I get a good grade for this class?
• Not a quiz An entrance survey

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Chapter 1. Visions of the Future
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What is the natural resource and environmental
Economics?
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Thinking about Environmental and Natural
Resource Economics
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What is Environmental and Natural Resource
Economics?

• It is the study of the relationship between
  humanity and the environment and how that
  relationship affects, and is affected by,
  economic and political institutions.
• --Tom
  Tietenberg

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What is Environmental and Natural Resource
Economics?

• Natural Resource Economics is the study of how
  best to govern scarce natural resources,
  especially those are common rather than private
  property. (air, water, fisheries, forestry)
• Environmental Economics is the study of the
  impact of goods and services economy,
  particularly market systems of allocation, on
  environmental quality and ecological integrity.
• --Steve Hackett

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Some history examples
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Thinking about the History

• Is starvation only caused by the nature?
• Thomas Malthus An Essay on the Principle of
  Population(1789)
• population growth--growth of food supply
• Ancient powerful societies buried their own seeds
  of destruction
• Mayan civilization

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Mayan Civilization
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-extremely accurate calendar - the coming of
eclipses and the revolutions of Venus to an error
of one day in 6,000 years.
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• Population growth bumped into environmental
  constraints in the 5th century
• Population depended on a single crop maize
• In the early 6th century, the carrying capacity
  of the most productive local lands was exceeded.
• Farmers used more fragile parts of the ecosystem.
• Food production failed to keep pace with
  increasing population.
• Mid 8th century, population reached its historic
  apex
• Widespread deforestation, erosion
• High infant and adolescent mortality and
  malnutrition
• A.D. 820-822, the Roy dynasty collapsed abruptly.

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Easter Island
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Today

• Facts
• Since 1950s, world has lost 1/5 of the topsoil
  from its cropland
• Since 1950s, world has lost 1/5 of its tropical
  rain forests
• Thousand of extinct and endangered species

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Thinking about the Future Two Visions

• The Basic Pessimist Model
• Sources Report to Club of Rome
• Model developed by Jay Forrester
• the Limits to Growth (1972), and its revision
  Beyond the Limits (1992)

• The Basic Optimist Model
• Julian Simon and others
• Source the Ultimate Resource (1981)

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The Basic Pessimist Model

• Use system dynamicsa large-scale computer model
  to simulate future outcomes
• Use feedback loopsa closed path that connects an
  action to its effect on surrounding conditions,
  which in return can influence further action.

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The Basic Pessimist Model
Nature of the Model

• Exponential growth with fixed limits
• Principle of 70 years to double70/(growth
  rate x 100)
• Example Changes in population density in
  Charleston (pop. Growth rate2)

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The Basic Pessimist Model
Nature of the Model (Cont.)

• A large number of positive and negative feedback
  loops
• Positive feedback loop is self-reinforcing
• (eg. Methane and global warming)
• Negative feedback loop is self-limiting
• (output, pollution, death rates, population
  growth)

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Figure 1.1 Beyond the Limits Standard Run
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The Basic Pessimist Model
Conclusions

• Society will run out of nonrenewable resources
  within 100 years or less with no major change in
  the physical, economic or social relationships
  that have governed world development.
• This will cause a collapse of the economic
  system. There will be no gradual transition, but
  an overshoot and collapse.
• Piecemeal approaches to solving individual
  problems will not work.
•  
• Only by an immediate limit on population and
  pollution and a cessation of economic growth can
  the overshoot and collapse be avoided.

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The Basic Optimist Model
Nature of the Model

• The observations that Julian Simon found out
• The amount of land committed to agriculture is
  increasing and agricultural production is
  increasing
• Natural resources have not become more scarce
  over time
• Pollution levels have declined with increases in
  populations and incomes.
• As incomes rise, the demand for better
  environmental quality also rises. Thus rising
  incomes can be linked to declines in pollution.

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Figure 1.2 Environmental Indicators for Various
Country Income-Levels
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The Basic Optimist Model
Nature of the Model (cont.)

• Negative feedbacks create a self-limiting
  process that offsets scarcity. For example,
  scarcity will typically cause prices to rise.
  Rising prices cause people to use less, and to
  search for substitutes to help alleviate the
  scarcity problem.
• A continuation of these trends is expected
  because the ultimate resource on which future
  activity depends is not limited. This resource is
  people.

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The Basic Optimist Model
Conclusions

• The standards of living have been rising with
  population for as long as records have been kept
  and as such there is no reason to believe the
  trends will not continue.

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The Road Ahead

• A.    Does the earth have a finite carrying
  capacity?
• B.    How does the economic system respond to
  scarcity?
• C.    What is the role of the government in
  solving these problems? When is government
  intervention necessary and appropriate?
• D.    Do our economic and political systems deal
  well with the uncertainty associated with many
  environmental problems?
• E.    What is our obligation to future
  generations?
• F. Is sustainable development feasible?