Environment

and Economic
Links
Lecture 1: October 10th,
2016

Welcome to
Environmental Economics!
This

class will be taught in English.

Class

Plan

Main Books Used

How Comfortable are You with

English?
How

comfortable are you with reading English?

How

comfortable are you with speaking in

English?

How

comfortable are you with listening to

English?

How

comfortable are you with writing in

English?

About Me: Lauren Rhodes

Education:

Ph.D from Texas A&M

University in Agricultural Economics
with a focus on Environmental and
Resource Economics

Topic
Fun:

I Like to Study: Climate Change

I am from Texas and I really like

theatre and folk music.

About You
Name
What

year are you in school?

What

do you want to do when you

graduate?

What

topics interest you?

Something

fun about you.

Al Gore Video: The Case for

Optimism
1.)

How are human activities effecting the climate?

2.)

What changes in the environment are we

observing?

3.)

How is the changing climate impacting human

activity?

4.)

What are some solutions to solving the climate

problem?

Al Gore Video: The Case for

Optimism
https://www.ted.com/talks/al_gore_the_

case_for_optimism_on_climate_change

Discussion Questions
1.)

How are human activities effecting the climate?

2.)

What changes in the environment are we

observing?

3.)

How is the changing climate impacting human

activity?

4.)

What are some solutions to solving the climate

problem?

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1.) What human activities are

effecting the climate?

Burning of carbon based used for energy

Agriculture
There are many

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2.) What changes in the

environment are we observing?
Higher

temperatures
Changes in ocean based storms
Increases in humidity
Increased rainfall events
Flooding
Fires
Mudslides
Changes in sea level

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3.) How is the changing climate

impacting human activity?

Destroys farms and livestock

Change in what we grow and raise

Human and animal displacement

Sea level rise

Food and water shortages

Changes in diseases (human, animals, and
plants)
Changes in species
Moving poleward
Changes in technology

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4.) What are some solutions to

solving the climate problem?

Use of cleaner energy sources

Pollution control

Wind
Solar
Nuclear (possibly)

Cap and Trade

Other ideas?

14

Natural Resources
Natural

Resources: Resources provided

by nature that can be divided and
allocated.

What

are some examples of natural

resources?

Oil, wood, fish

Primary

products

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Natural Resources

Renewable Resources

The initial resource must be responsible for

growth and regeneration
Plants
Animals

Exhaustible Resources

There is a finite amount of the resource.

Oil
Minerals

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Resource Flows
Resource

Flows: Resources that do

not regenerate but exist in a nonexhaustible flow.

Solar Energy
Wind Power

17

Environmental Resources

Environmental Resources: Resources that are

provided by nature but are indivisible.

Marginal quality instead of marginal quantity can be

examined.

Provide services instead of goods

An Ecosystem
An Estuary
The Ozone layer
Lower layer of atmosphere

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Why should we study this?

Natural sciences (ex. Ecology) do not consider

human-environment interactions.

Difference between conventional goods and

environmental resources.

Optimality decisions for conventional goods are

generally static in nature.
Pizza production today generally does not effect
pizza production next year.
Oil consumption today does effect oil consumption
next year.

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Why should we study this?

Decisions

on environmental resources cannot

be reversed.

Existence

of market failures

Ex: Externalities, public goods and open access

resources
We will get more into this next time.

Consider

how ecological systems will respond

to changes.

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Economy-Environment
Interactions
Production

Goods and Services

Factors of Production

Energy
and
Material
s

Waste
Sink

Amenity

Consumptio
n

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The Environment as a Sink for

Waste
Limited

ability for some environmental

resources to take in waste.

Limited assimilative capacity:

Emissions can occur up to a fixed point
without negative effects.
Probably

Threshold

not the case.

Effects: Abrupt changes to

environmental damages.

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Environmental Damages
Damages

Damages with
Threshold Effect

Pollution
Inputs

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Environmental Damages
Damages

Exponential Damage
Function

Linear Damage Function

Pollution
Input

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Stocks of Pollutants
Cumulative

Pollutants: Pollutants that

cannot be broken down in the
environment.

Some metals
Some chemicals used in pesticides

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Assimilative Pollutants
Stock

of an assimilative pollutant at a
given time t is:

(1)
is the stock of an assimilative pollutant
at time t
is the inflow of the pollutant at time t
is the amount assimilated at time t.

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Cumulative Pollutants
Stock

of a cumulative pollutant at a
given time is:

(2)

is the stock of a cumulative pollutant at

time t* which includes the total flow of
that pollutant from the first period of
emissions.

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How should we account for

valuations of the environment?

Social

welfare is the sum of individuals utility.

generalized utility function for an individual j:

(3)
is the utility of person j
are final goods that require natural resources as
inputs
are natural or environmental resources that are
not used as a part of production for another good

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Changes in Utility
Increases

in the X vector can result in

decreases in the Q vector

Example:

Increasing

car consumption one unit

decreases utility in this example.

29

Next Class

Market Failures

Chapter 3 of Hanley, Shogren and White

Chapter 3 of Kahn

Watch these videos to review for next class:

https://www.youtube.com/watch?v=13JOGWzY8kE
https://www.youtube.com/watch?v=j6TnMGJF9sA
https://www.youtube.com/watch?v=E1v5eRs0_fw