University of California at Santa Barbara

Bren School of Environmental Science & Management

ESM 204: Economics for Environmental Management

Winter 2008

 

Class: TuTh 9:30-10:45am (Bren 1414).

Sections: T 8:30-9:20 (BH 1424), T 3:30-4:20 (BH 1510) and T 4:30-5:20 (BH 1510).

Instructor:  Professor Charles Kolstad (3416 Bren Hall);

Prof. Kolstad's office hours: Tu 1:30-2:30, Tu 4:00-5:00 and by appointment. 

Teaching Assistant:  Jerry Brian (4520 Bren Hall).

Mr. Brian’s office hours:  MW2-4, and by appointment. 

 

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).  Consult the webpage regularly for precise assignments.  (Note that you only need to complete four projects over the course of the quarter.)  The course requirements are a midterm (20%), final exam (30%), homework/class projects (40%) and class/section participation (10%).  The midterm will be in class and the final will be takehome, due March 17.  (See sample midterm and midterm solutions.)  Both will be closed book though you may bring one single sheet of paper (8.5”x11”) with notes to the exams.  The final will also have a take-home portion that is open book.

Lectures.  Lecture slides will be available shortly before the lecture on R:\Winter2008\ESM204.

Announcements.  From time to time I will need to send an email to everyone in class.  I will send these to the aliases for current MESM students (grad2008@bren, grad2009@bren).  If you are not on one of these lists, please let me know so that I can make sure you receive emails.

Readings.  Most readings will be available via links on the course webpage (below).  Those that are not available on the webpage will be available in the Bren Student Commons.  There are no required texts for the course, though three texts will be relied upon heavily; 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. Kolstad: Environmental Economics (Oxford, 2000) [also available at the UCSB bookstore]

 A book that covers much of the material in the course at an elementary level is Goodstein: Economics and the Environment (any edition).  This is also on reserve in the RBR.

Assignments.  All of the homework assignments are in the form of mini-projects.  For most of these the deliverable is a one-page memo to your policy-maker boss and an appendix with details.  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!  Assignments are due in class unless otherwise noted and should be handed in to the TA.  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 there are a number of these assignments, you need only complete four of them.  If you complete more than four, you will not get extra credit (though the extra submissions will be graded and averaged in with your other completed assignments).

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 (on reserve at the RBR).  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  

Readings  Most readings are available via the hyperlinks.  Many of the hyperlinked readings are only available to users with a Bren account.  If you are accessing from home, you can use a remote terminal connection and snoop.bren.ucsb.edu. Some readings are pwd protected – try “bren” with the user name of “donald” (case sensitive).  Some readings (in pink) are on reserve in the RBR and the Bren Library.  Readings without an * can be skipped if you are pressed for time.

Section & Date

Topic

Content and Readings

Assignments

Section 1: Jan 8

Introduction, Project Evaluation, Public Goods, Externalities
  1. * Fullerton & Stavins, “How Economists See the Environment,” Nature, 395:6701 (1998).
  2. Kolstad, Environmental Economics, Ch 3.
  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).

Note:  Discussion sections will meet during week #1.

Assignment 1: "Reserve Siting for Species Viability"

Due Jan 17

Solution on R:

Section 1: Jan 10

Efficiency, Surplus & Doing Cost-Benefit Analysis
  1. *Boardman et al., Cost-Benefit Analysis, Ch 1 & 2.
  2. * Arrow et al., “Is There a Role for Benefit-Cost Analysis in Environmental, Health and Safety Regulations?,” Science, 272:221-2 (12 April 1996).
  3. Heather Ross:  “Clean-Air: Is the Sky the Limit?,” Resources, #143 (Spring 2001).
  4. * 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).

Assignment 2: "Cost Benefit Analysis of Hydrocarbon Seep Tents", Due Jan 24

Data for Assignment 2:

gas_flux_map.ppt, Engineering_costs.doc, gas_price.doc, health_benefits.doc, historic_capture.xls

Solution on R:

Jan 15

 

No class

 

Section 1: Jan 17

Finance, Inflation & Discounting
  1. *Boardman, Cost-Benefit Analysis, Ch 4.
  2. *“What Price Posterity,” The Economist, March 23, 1991.
  3. “Acid Rain: The Southern Company (A)”, Harvard Business School Case 9-792-060 (costs $ -- sorry).
  4. 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. *Kolstad, Environmental Economics, Ch 12.
  3. Postrel, “Would you Take the Bird in the Hand or a 75% chance of two in the bush?”, NYT, Jan 26, 2006.
  4. Tversky and Kahneman, “Judgement Under Uncertainty” Science, vol. 185, pp 1124-31 (1974)

 Assignment 3: Climate-friendly Mutual Fund

Due Jan 29

Solution

Section 2: Jan 24

Introduction to Estimating Costs & Benefits of Environmental Regulations.
  1. Kolstad, Environmental Economics, Ch 17 (pp 344-50).
  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, Environmental Economics, Ch 16.
  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]

Assignment 4: "Travel Cost Analysis: Taman Negara" Due Feb 5

Data for Assignment 4.

Solution on R:

Section 2: Jan 31

Revealed & Stated Preference

  1. *Kolstad, Environmental Economics, Ch 18.
  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, Environmental Economics, ch 2, 7-I, 7-II, 8.
  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).

Assignment 5: Conservation Banking

Due Feb. 12

Solution

Feb 6 (Wed)

 

Hold for extra class – 5:30-6:45 (same room)

 

Section 3: Feb 7

Regulatory Innovations
  1. *Ferraro and Simpson: “Cost-Effective Conservation”, Resources #143 (2001)
  2. *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.

 

Section 3: Feb 12

Incidence of Environmental Regulations
  1. * M. Burns, “Unusual Coalition Pushes for Creek Tax,” Santa Barbara News-Press, 10/23/2000.
  2. * Stiglitz: Economics of the Public Sector, (Third Ed, 2000), pp 482—92.
  3. * Been, “Unpopular Neighbors,” Resources, #115 (Spring, 1994).

Assn 6:  Incidence of SB Bed Tax.

Due Feb 21

Solution on R:

Feb 14

 

MIDTERM (In Class) – closed book with one sheet of notes allowed

 

Section 3: Feb 19

Spatial Dimensions of Regulations
  1. * Kolstad, Environmental Economics, chapter 9.

 

 

Section 3: Feb 21

Monitoring & Enforcement
  1. Kolstad, Environmental Economics, Ch 10-2, 11-3, 11-4.
  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).

Assignment 7: "Regulatory Efficiency", due Feb 28

Supporting docs for Assignment 7: A Cost Evaluation of Alternative Air Quality Control Strategies, Table 1, Figure 1, transfer matrix, Figure 3

Solution on R:

Section 3: Feb 26

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. Kolstad, Environmental Economics, Ch 13-1, 13-4, 14.
  7. * Joy Hecht, “Environmental Accounting,” Resources, #135 (Spring, 1999)
  8. Joel Darmstadter, “Greening the GDP,” Resources, #139 (2000).
  9. * I. Parry: "Reducing Carbon Emissions: Interactions with the Tax System," Resources, #128 (1997).
  10. * Barrett: "Montreal vs. Kyoto," in Global Public Goods, 1999.

 

Section 4: Feb 28

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: Mar 4

Fisheries Economics
  1. * Hartwick and Olewiler, "The Economics of Natural Resource Use", Ch 4 ***
  2. Sterner, "Policy Instruments for Environmental and Natural Resource Management", Ch 28.

NOTE:  Class starts at 8:30am – one hour early

Assignment  8: "Fishery Management in Costa Rica". Due March 11

Data for Assignment 8

Solution on R:

Section 4: Mar 6

Regulating the Fishery

1.  * Hartwick and Olewiler, "The Economics of Natural Resource Use", Ch 5 ***

 

Section 4: Mar 11

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.

NOTE:  Class starts at 8:30am – one hour early

 

 

Section 4: Mar 13

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

 

March 17

4pm 

Final Exam due

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

 

 Last updated: Mar 13, 2008