exam 1 review

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exam 1 review
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environmental decision makingbenefit-cost
analysis
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how do we get those benefits?
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nature and causes of environmental problems

• Nonexclusive property rights gt Externalities
• No property rights gt
• Open access problem
• Public goods

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the market for steel
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expect 5 results

• output of steel too great
• too much pollution produced
• price of steel too low
• no incentives to search for ways to yield less
  pollution per unit steel
• recycling and reuse of polluting substances
  discouraged since release into river is so
  inefficiently cheap

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to correct externalities

• bargain (Coase)
• taxation (Pigou)

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open-access

• fishing / grazing rights / whales vs. chickens
• tragedy of the commons
• common-pool resources
• nonexclusivity (exploited by anyone)
• divisibility / rival (your use diminishes my use)

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bison harvesting
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public goods

• characteristics
• nonexcludable (even if do not pay cannot be
  excluded from enjoying it)
• indivisible / nonrival (my enjoyment does not
  lessen your enjoyment)
• national defense / air / information / diversity
• free-rider problem

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how to think about the future?

• Two period model
• To maximize dynamic efficiency, set PV of MNB
  from the last unit in period 1 equal to the PVMNB
  from the last unit in period 2.

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Demand P 8-0.4Q, MC 2 (constant)20 total
units
10.238 units in period 1 / 9.762 units period
2 Efficient prices? Marginal user cost?
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definitions of sustainability

• Hartwick rule (weak sustainability)
• value of the total (natural physical) capital
  stock is maintained
• Strong sustainability
• value of the natural capital stock is maintained
• Environmental sustainability
• quantities of resources should be maintained (not
  value)