Environmental Economics

Robert D. Mohr
Fall 2005
Week 1
Organization
Syllabus
Textbooks
Groups
Lecture I
Outline of remaining lectures
Lecture II
Week 1
Lecture I. Defining environmental economics
Definitions
Central questions
Paradigms (models)
Outline of course content

Lecture II. Economic theory on the role of government
First welfare theorem
Property rights approach
Materials balance approach
Assignment for group I
Defining environmental economics
Environmental issues on the boundaries
of economic and natural systems, are
undoubtedly complex and in many cases
contain inherently uncertain outcomes.
The sub-discipline of environmental
economics which seeks to analyze issues
consequently sits on the boundaries
--Pierce and Turner (pg. 4)
Defining environmental economics
In this book you will study
environmental and natural resource
economics [with] a general focus on
economic development in the presence of
limited environmental and natural
resources. --Tietenberg
Environmental Economics vs.
Natural Resource Economics
Closely linked & lots of overlap
Environmental classes normally emphasize economics
of pollution
Externalities, analysis is often static
Natural resource economics generally emphasizes
resource management problems
Public goods and common access resources
Generally intertemporal
Renewable (fisheries, timber, etc.)
Non-renewable (oil, coal, water)
Central Questions
Sustainability
Are market economies consistent with environmental
sustainability? Are markets good or bad for the
environment?
Do environmental concerns imply the need for
government regulation?
If yes, is this extensive regulation to carefully manage
overall resource use, growth and patterns of
development
Or do we propose more limited regulation for particular
environmental and resource issues?
How should regulations be designed?
Is there an optimal level of pollution, etc.
Paradigms & Models
Both texts start with contrasting different
paradigms and models that we might
apply to environmental economics
Pearce & Turner start with a history of
economic thought
Tietenberg starts with a contrast of an
optimist and a pessimist model.
Fullerton and Stavins identify myths about
how economists think about the environment.
Paradigms & Models
Common Themes:
Analysis of environment-economic interactions is based
on models (either implicit or explicit).
Models are simplified versions of reality (analogous to a
map).
Different models might be built on different assumptions.
We therefore need to apply some criteria to assess the
models. (See Tietenberg, pg. 11).
Although the class is primarily based on one type of
paradigm (mainstream or neoclassical, see P&T), we
need to be aware of limitations of this viewpoint.
Primary Paradigm for this Course
This course is mainstream in the sense that it builds on
the tools students typically learn in a principles of
microeconomics course.

Markets are characterized by independent supply and
demand curves.
Firms (typically suppliers) wish to maximize profits
Consumers (people) have clearly defined and stable
preferences, which can be represented with utility.
Often assume rigorous (perfect) competition, perfect
information, etc
Read Fullerton and Stavins for a discussion of this
paradigm.
Outline of remaining lectures
Role of government
Comparing alternative policy instruments
Midterm exam
Policy design
Measuring environmental benefits
Topics: Recycling, cars, other topics by
student input