University of California at Santa Barbara

Bren School of Environmental Science & Management

ESM 204: Economics for Environmental Management

Winter 2009

 

Class: TuTh 11:00-12:15pm (Bren 1414).

Sections: W 10:30-11:20 (BH 1510), W 11:30-12:20 (BH 1424) and Th 3:30-4:20 (BH 1424).

Instructor:  Professor Charles Kolstad (3416 Bren Hall);

Prof. Kolstad's office hours: Tu 1:30-2:30, Th 12:30-1:30 and by appointment. 

Teaching Assistant: Laura Grant (4520 Bren Hall).

Ms. Grant’s office hours:  M1:00-2:30; F 10:30-12, and by appointment. 

Webpage:  gauchospace.ucsb.edu

 

Introduction:  What is economics from a practical, problem-solving point of view?  And how can economics be used to analyze and solve environmental problems?  The answers to these questions are the two central themes of this core course in The Economics of Environmental Management.  Broadly speaking, economics is the science of how scarce resources are allocated: how people and firms do this allocation and how society might want to make decisions about scarce resources.  When viewed in this way, it is clear that economics might provide a useful framework within which to analyze environmental problems and approaches to solve them.  Because many environmental problems are caused by economic activity (carbon emissions, overharvesting renewable resources, toxic releases as a by-product of industrial production, urbanization), we will examine different approaches to adjusting human behavior and therefore the externalities associated with it.

To do so in a meaningful way will require a lot of work..  The pace will be quick and the out-of-class workload will be heavy.  (Expect an average of 8-10 hours of work per week outside of class.)   The purpose of the course is to give you a solid foundation in those aspects of economics and quantitative policy analysis that are important to environmental and natural resource management and policy.  The course will also serve as the foundation in economics for management, economics and policy electives in the Bren School.

There will be readings prior to most class meetings and homework assignments (projects) due every week (more or less).  (Note that you only need to complete four projects over the course of the quarter – you choose which ones.)  Consult the webpage regularly for precise assignments. 

Grading.  The course requirements are a midterm (20%), final exam (20%), homework/mini-projects (45%) and class/section participation (15%).  The midterm will be in class and the final will be take-home, due March 16.   The midterm will be closed book though you may bring one single sheet of paper (8.5”x11”) with notes to the exam.

Lectures.  Lecture slides will be available shortly before the lecture on the class webpage (as pdf files).  Hint for conserving paper: print using the “4  pages per side” on the preferences menu when you go to print.

Readings.  Most readings will be available on the course webpage.  Those that are not available on the webpage will be available in the RBR.  Not all readings will be covered in class or section; the readings will be covered on the midterm and final. 

The one required text for the course is available from the Alternative Copy Shop in IV.  It is in two parts.  The first part is available at the Alternative Copy Shop in IV.  The remainder will be available as pdf downloads from the website:

Kolstad: Environmental Economics (2nd Edition)

Several optional texts will be relied upon heavily at certain points in the course; students may wish to acquire some or all of these texts through an internet bookseller.  One copy of each will be on 2-hour reserve in the RBR (Reserve Book Room in the main library).  Several are also available in the Bren reading room.  These suggested textbooks are:

  1. Boardman et al: Cost-Benefit Analysis, 2nd Ed (Prentice-Hall, 2001)
  2. Hartwick and Olewiler: The Economics of Natural Resource Use, 2nd Edition (Addison-Wesley, 1998)
  3. Thomas Sterner, Policy Instruments for Environmental and Natural Resource Management (Resources for the Future, Washington, 2002).

A book that covers much of the material in the course at an elementary level is Goodstein: Economics and the Environment (any edition).  A copy is in the Bren Commons Reading Room.

Assignments.  All of the homework assignments are in the form of mini-projects – approximately one per week (6-8 in total).  For most of these the deliverable is a one-page memo (typed, single spaced, 12 point) to your policy-maker boss and an appendix with details.  Upload a pdf of your entire assignment (memo and appendices – one document) to Gauchospace (TA can answer questions on procedures).  These mini-projects are a very important part of the course (as reflected in their contribution to your final grade).  I expect to see high quality, polished, professional work.  Writing quality counts!   Late work will not be graded (unless an exception has been granted prior to the due date).  The TA will grade the assignments and return them to you promptly (within a week in most cases).  You may work in a team of two on your assignments but you cannot keep the same partner for more than one assignment – keep moving!  Although approximately one of these assignments is made every week, you need only complete four of them.  If you complete more than four, your top four grades will be counted.  Help from the TA or the instructor prior to the deadline will be limited to answering pointed questions.  Do not expect the TA to lead you through the process of doing the project.  Figuring out how to answer the question posed is an important part of the course.

Honor Code and Joint Work.  Collaboration with your homework/project partner (who changes with every assignment) is obviously encouraged.  Homework/project collaboration beyond this is not appropriate and in fact constitutes a violation of the Bren Honor Code.  I know there is a temptation when solving a homework problem to shout “Eureka” and share your insights with your fellow students.  However, this defeats the purpose of the homework – to find a path to a solution on your own.  Furthermore, with grading on a curve, sharing of answers effectively reduces the grades of those doing the sharing.  So do your homework on your own and keep it to yourself!  It goes without saying that the exams are your own individual work and you are on your honor to execute your exam individually and neither give nor receive aid.

Prerequisites.  You are assumed to be fluent in multivariate calculus and to have completed a sequence in intermediate microeconomics at the level of Varian, Intermediate Microeconomics.  At UCSB, this would be Econ 100AB.  Alternatively, ESM 251 provides adequate preparation.  If you do not have the prerequisites, you should defer taking the course until prerequisites have been satisfied.  You are also expected to be conversant with Excel, particularly graphing and solver.  If not, please take the time to learn it.

Course Outline  The course is broken into the following 4 sections:

  1. Evaluating Public Environmental Projects,
  2. Measuring the Costs and Benefits of Environmental Projects,
  3. Regulation, and
  4. Policy and Dynamics of Renewable and Exhaustible Natural Resources  

Accessing Readings.  Some of the readings require access to a protected area of the server.  The user name is donald and pwd is bren.

Section & Date

Topic

Content and Readings (*=required)

Section 1: Jan 6

Introduction, Project Evaluation

  1. * Fullerton & Stavins, “How Economists See the Environment,” Nature, 395:6701 (1998).
  2. * Kolstad, Ch 2, 3(except IIIC, IIID)
  3. Robert Stavins, Environmental Defense Fund, “The Tuolumne River: Preservation or Development?” (March 1984).
  4. Levin. 1997. “Lead in Drinking Water”.  Chapter 8 of Economic Analyses at EPA.  Edited by R. Morgenstern.
  5. * Ando et al., “Species Distributions, Land Values and Efficient Conservation,” Science, 279: 2126-8 (27 March 1998).

Section 1 & 4: Jan 8

Open Access
  1. *Kolstad, Ch 5 (except section V).
  2. *M Scott Taylor, “Buffalo Hunt” [skim – skip the math]

 

 

 

Section 1:  Jan 13

Market Failure
  1. *John Tierney, “Where the Tuna Roam,” NY Times (Nov 4, 2006).
  2. *Hartwick and Olewiler, "The Economics of Natural Resource Use", Ch 4

Section 1: Jan 15

Efficiency, Surplus & Doing Cost-Benefit Analysis, Incidence
  1. *Boardman et al., Cost-Benefit Analysis, Ch 1 & 2.
  2. *Kolstad, Ch 4 (section III), Ch 6 (sections IA, IB, ID and II)
  3. Arrow et al., “Is There a Role for Benefit-Cost Analysis in Environmental, Health and Safety Regulations?,” Science, 272:221-2 (12 April 1996).
  4. * Been, “Unpopular Neighbors,” Resources, #115 (Spring, 1994).
  5. Heather Ross:  “Clean-Air: Is the Sky the Limit?,” Resources, #143 (Spring 2001).
  6. * Steven Kelman, “Cost-Benefit Analysis: An Ethical Critique”, with replies from DeLong, Solow and Butters, AEI Journal on Government and Society Regulation (Jan/Feb 1981).

Section 1: Jan 20

Finance, Inflation & Discounting
  1. *Boardman, Cost-Benefit Analysis, Ch 4.
  2. *Kolstad, Ch 6 (sections IC, III).
  3. *“What Price Posterity,” The Economist, March 23, 1991.
  4. “Acid Rain: The Southern Company (A)”, Harvard Business School Case 9-792-060 (costs $ -- sorry).
  5. William Goetzmann, An Introduction to Investment Theory, Ch 1.

Useful discounting formulae

Section 1: Jan  22

Risk, Uncertainty & Decision-making

  1. *Boardman, Cost-Benefit Analysis, Ch 6.
  2. *Postrel, “Would you Take the Bird in the Hand or a 75% chance of two in the bush?”, NYT, Jan 26, 2006.
  3. Tversky and Kahneman, “Judgment Under Uncertainty” Science, vol. 185, pp 1124-31 (1974)

Section 2: Jan 27

Introduction to Estimating Costs & Benefits of Environmental Regulations.
  1. Kolstad, Ch 7.
  2. Maille & Mendelsohn, “Valuing Ecotourism in Madagascar,” J. Env. Mgmt, 38:213-8 (1993).
  3. Deacon and Kolstad: "Valuing Beach Recreation Lost in Environmental Accidents," J. Water Res. Planning & Mgmt, 126: 374-81 (2000).
  4. * Economist, "A Price on the Priceless", (8/17/91).

Section 2: Jan 29

Revealed Preference Approaches
  1. Kolstad Ch 8, 9.
  2. Rosenberger & Loomis, "Benefits Transfer of Outdoor Recreation Use Values", Technical document part of US Forest Service Strategic Plan (2000).
  3. *Viscusi, “The Value of Risks to Life and Health,” J. Econ. Lit., 31:1912-46 (1993) [skim]

Section 2: Feb 3

Revealed & Stated Preference

  1. *Kolstad, Ch 10.
  2. Boyce et al., “An Experimental Examination of Intrinsic Values as a Source of the WTA-WTP Disparity,” Amer Econ Rev, 82: 1366-1373 (1992).
  3. * Paul Portney, “The Contingent Valuation Debate: Why Economists Should Care,” J. Econ. Perspectives, 8(4):3-17 (1994).

Section 3: Feb 5

Regulatory Options & Efficiency
  1. Kolstad, ch 11.
  2. * Passell, "Cleaning the Environment Gets Harder, But there are solutions," NYT, 1/5/95.
  3. Portney & Stavins, Public Policies for Environmental Protection (RFF, 2000; 2nd Ed), Chs 2 & 3.
  4. * Sandel: "It's Immoral to Buy the Right to Pollute," NYT, 12/15/97.
  5. * Gruenspecht, “Zero Emission Vehicles: A Dirty Little Secret,” Resources, #142 (Winter 2001).

Section 3: Feb  10

Regulatory Innovations
  1. *Kolstad, ch 17
  2. *Ferraro and Simpson: “Cost-Effective Conservation”, Resources #143 (2001)
  3. Kathleen Segerson and Na Li, “Voluntary Approaches to Environmental Protection,” in Folmer & Tietenberg (Eds), The Intl Yrbk of Env & Res Econ (1999), only pp273-81.

Feb 12

MIDTERM

In class.  Closed book.  You may have one sheet of notes (8.5” x 11” double sided).  Covers sections I and II.

Section 3: Feb 17

Spatial Dimensions of Regulations
  1. * Kolstad, chapter 14.

Section 3: Feb 19

Monitoring & Enforcement
  1. Kolstad , Ch 16.
  2. * Alberini et al., “Will Speeding the Retirement of Old Cars Improve Air Quality?,” Resources, #115 (Spring 1994).
  3. * Russell:  "Monitoring and Enforcement," in Portney (Ed), Public Policies for Env. Protection (1st ed, 1990).

Section 3: Feb 24

Regulation in Developed and Developing Countries, Macro, Green Accounting
  1. Sterner, "Policy Instruments for Environmental and Natural Resource Management", Ch 24.
  2. Sterner, "Policy Instruments for Environmental and Natural Resource Management", Ch 25.
  3. * Larry Summers, Global Env Pgm Memo, World Bank (December 12, 1991)
  4. * Sanger: "World Trade Group Orders US to Alter CAA," NYT, 1/18/96.
  5. * "Dirt Poor," Economist, 3/21/98.
  6. * Joy Hecht, “Environmental Accounting,” Resources, #135 (Spring, 1999)
  7. Joel Darmstadter, “Greening the GDP,” Resources, #139 (2000).
  8. * I. Parry: "Reducing Carbon Emissions: Interactions with the Tax System," Resources, #128 (1997).
  9. * Barrett: "Montreal vs. Kyoto," in Global Public Goods, 1999.

Section 4: Feb 26

Rent, Water, and Common Property
  1. * Hartwick and Olewiler, "The Economics of Natural Resource Use", Ch 3
  2. * Hillburg, "State to Get Thirstier", The Daily News of Los Angeles. (23 Dec. 2002)
  3. * G. Hardin, “Tragedy of the Commons,” Science, 162:1243-1248 (13 Dec 1968). ***

Section 4:

March 3

Regulating the Fishery
  1. Hartwick and Olewiler, "The Economics of Natural Resource Use", Ch 5
  2. *John Tierney, “How to Save Fish,” NY Times (Sept 18, 2008)

 

Section 4: Mar 5

Forest Economics
  1. * Hartwick and Olewiler, "The Economics of Natural Resource Use", Ch 10 ***
  2. Sterner, "Policy Instruments for Environmental and Natural Resource Management", Ch 30.

 

Section 4: Mar 10

Nonrenewable Resources & Energy
  1. * Hartwick and Olewiler, "The Economics of Natural Resource Use", Ch 8
  2. * Paul Joskow, “California’s Electricity Crisis” (2001)

Mar 12

 

Review

March 17

4pm 

Final Exam due

 Final exam – take home.  Due 4pm, Tuesday, March 17.  TA’s mailbox in Bren.

 Last updated: Mar 10, 2009