Transcript FYI

Natural Resource Economics:
An Introduction (2nd edition)
Barry Field, University of Massachusetts—Amherst
Ph.D. from University of California at Berkeley in 1967
Why this book?
• “A comprehensive, well-written text that has
appeal in many undergraduate programs.”
—Timothy Considine, Penn State University
• “Very readable and informative… not so
quantitative… extensive coverage of topics…”
• “…written in nontechnical terms…a clear
connection between natural resource uses and
the economy.”
• “a nice balance of theoretical principles and
policy analysis.”
An email from Dr. Barry Field
• From: Barry Field
[mailto:[email protected]]
Sent: Thursday, August 23, 2012 6:00 AM
To: Xiaobing Zhao
Subject: RE: Bing's questions about Natural
Resource Economics textbook
Professor Zhao
Thanks for your message. I have been on vacation
and out of touch… The course here is being taught by
my colleague John Stranlund… I remember Cheryl
Brown quite well, though it seems quite a long time
ago. Good luck with your course.
Barry Field
* Dr. Cheryl Brown was on Bing’s dissertation committee
back to West Virginia University. She earned her B.S. from
University of Massachusetts, Amherst in 1990, and Ph.D.
from University of California, Berkeley in 1997.
Table 4. Top Graduate Programs in Agricultural
Economics by Field
Field and School
B. Resource and Environmental Economics (n=17)
Source: Ranking M.S. and Ph.D. Programs
in Agricultural Economics–Spring 2004,
Gregory M. Perry
Oregon State
Maryland uses Barry’s text for
AREC 453: Natural Resources
and Public Policy!
Chapter 1
Important Issues in
Natural Resource Economics
1. Natural Resource Adequacy
• The longest-running issue—will future supplies
be sufficient to support the economic needs of
• In history:
– before the industrial revolution: wood and water
– the industrial revolution: coal
– the 1970s energy crisis: petroleum
– today: nonrenewable resources (petroleum, coal,
and natural gas)
Will Resource Scarcity Undermine
Economic Growth?
• Pessimists:
(1766 -1864)
– Thomas Malthus, An Essay on Population, London,
1798: population growth would inevitably outstrip
the ability of nature to provide sustenance in everincreasing amounts
– Donella Meadows et al., The Limits to Growth, New
York , 1972: scarcity along with pollution would
lead to output declines beginning in the 21st
“When asked if we have enough time to prevent
catastrophe, she'd always say that we have exactly
enough time—starting now.”
• Optimists:
– Scarcities will surely occur in the future
– But human beings have the capacity to overcome
scarcities by finding substitutes and by controlling
population growth
Long-Run Price Changes
• Resource economists examine the historical
paths of resource prices
• Rising prices signal increasing scarcity
• Prices have historically decreased due to
technological change
Natural Resource Substitution
• To mitigate scarcity
• Figure 1-1 (p6): substitution among energy
forms in the U.S. from 1949-2005
– Oil: 37% of total consumption to 43%
– Natural gas: 16% to 24%
– Coal: 37% to 24%
– Renewables: 10% to 9%
• Energy substitution: renewable energy for
nonrenewable forms
Global Warming
• Sunlight hits earth’s surface, radiates back into atmosphere,
where its absorption by GHGs heats atmosphere and
warms earth’s surface
• Somewhat like a greenhouse that allows sunlight through
the glass but prevents the heated air from escaping back
outside, thus “greenhouse effect”
• Primary GHGs is carbon dioxide (CO2)
– Accumulating CO2 is linked to fossil fuel combustion and
• Combustion of natural gas emits 30% less carbon dioxide
than oil, and 45% less carbon dioxide than coal.
2. Socially Optimal Rates of Resource Use
• Criteria
– Social efficiency: the maximum of net benefits
accrued by members of a society
– Sustainability: maintaining or augmenting some
valued index of human or ecosystem welfare
– Irreversibility (not reversible): avoid it; avoid the
destruction of unique natural resources
– Fairness: actions impact people in equitable ways
3. Natural Resource Policy: Moving Toward
the Optimum
• Natural resource misuse can arise from:
– The difficulties that prevent private markets from
functioning effectively (ocean fisheries: an openaccess resource)
– Misguided public policy and regulation (Federal
energy subsidies)
• New types of property rights help solve certain
– individual transferable quotas (ITOs), a closed-access
system based on private property rights for fisheries
Classic division of
goods in economy
(have to pay)
Not excludable
ECO324-Ch2-Slide 36
Rival in consumption
diminishes its value)
Not rival
private goods:
natural monopolies
(club goods):
cable TV
common resources:
fish in the sea
public goods:
national defense
tornado siren
Policy Options to Prevent Overconsumption of
Common Resources
• regulate use of the resource
• impose a corrective tax to internalize the externality
– example: hunting & fishing licenses,
entrance fees for congested national parks
• auction off permits allowing use of the resource
– example: spectrum auctions by the
U.S. Federal Communications Commission
• if the resource is land, convert to a private good
by dividing and selling parcels to individuals
Greg Mankiw: Microeconomics, Chapter 11: Public Goods and Common Resources
4. Natural Resource Accounting
• Conventional GDP
– does not allow for natural resource depletion or
depreciation in natural resource capital
– does not measure non-market goods and services
• Natural Resource Accounting
– Involves estimating the non-market value of
ecosystem services: scenic values, support for
outdoor recreation, biodiversity preservation……
5. Benefit-Cost Analysis in Natural Resource
• The Endangered Species Act (ESA) in 1973: to
protect no matter what the cost
• B/C: developed to evaluate federal water
• Should be applied to all natural resource and
environmental decisions in the public sector
• Applicability and accuracy
Please read Exhibit 1-4
on page 16!
6. Land-Use Issues
• For housing, work locations, roads, farms, parks,
wilderness areas….
• Decisions are made through private land
markets and public oversight
• To preserve agricultural land uses: development
rights purchase
– Public authority purchases the right to develop from
the farmers, leaving them with the remaining rights
on their land and the freedom to farm the land
FYI: Exhibit 1-5, p17
7. International Natural Resource Issues
Issue #1:
• Developing countries rely on natural resource
capital (endowments) for economic growth
– the Middle East: oil
– South America and Asia: timber
– Africa: minerals
– China: coal
– Mongolia: copper and gold
Please read Exhibit 1-6 on page 20!
Geologist David Bond exploring Altan Rio Minerals’
Chandman-Yol copper-gold project in western
Mongolia, BY MATTHEW KEEVIL, May 11, 2012
• Resource rents: the difference between what a
resource is worth in the market and what it
costs to extract, transport, and process it
– the net value of a resource prior to extraction (p248)
– What it would be worth if somehow an extra unit of
the resource could be added to the deposit (p175)
• Rent seeking: competition by the various parties
to appropriate larger share of the rents arising
from natural resource extraction
Labor: wages & salaries
Capital: interest
Land: rent
Entrepreneurship: profit
value added by a firm = factor payments by that firm
$200 – $25 = $110 + $10 + $15 + $40
200 = 25 + 110 + 10 + 15 + 40
200 = 160 + 40
250 = 160 + 40 + 50
ECO285-Ch6-Slide 36
Issue #2:
• Conflict among countries over access to
particular natural resources
– Surface water resources
– Productive fisheries
– Deep-sea minerals
– Undersea petroleum deposits
• Possible solutions
– Bilateral treaties (for the Pacific salmon between
Canada and the US)
– Multilateral agreements (the regional seas treaties)