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1. WHAT IS NATURAL RESOURCE

ECONOMICS & WHY IS IT IMPORTANT?

AGEC 3503 SPRING 2006

Larry D. Sanders

Dept. of Ag Economics Oklahoma State University

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INTRODUCTION Purpose:

– to understand the concept of natural resource economics and its relevance

Learning Objectives:1. Introduce the course & how it is to be administered

2. Define key terms.

3. Understand the purpose of studying environmental & natural resource economics.

4. Understand the classification of resources.

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INTRODUCTION

Natural Resource Economics Syllabus– Purpose– Evaluation– Schedule

Importance of Student Activity

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Instructor/Philosophy

Personal/Professional Background Teaching Philosophy Student Info

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“Anxiety Test”

“The ultimate test of a set of economic ideas. . . is whether it illuminates the anxieties of the time. Does it explain problems that people find urgent? Does it bear on the current criticism of economic performance? . . . Does it bear upon the issues of political debate? For these, though many have always preferred to believe otherwise, do not ignite spontaneously or emerge maliciously from the mouths of agitators to afflict the comfortable.”--John Kenneth Galbraith, Economics & the Public Purpose,

1973 [bold italics added by instructor]

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Where to get more information

Syllabus Sources

– Hackett– ERS-USDA AH722– Handouts– Supplementary Readings– Govt. Documents--Library – Congress, Legislature, St/Fed Agencies– Electronic sources (note biased vs. objective sources)– “Experts”

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Team Exercise

1. Instructor assigns teams

2. Each team identify top 3 natural resource/environmental issues in 5 years

3. Be prepared to briefly explain each issue

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Key Terms

Natural Resources– Specific attributes of the environment that are valued or

have proven useful to humans [or have the potential to do so]* --G. Johnston

– Aspects of nature that can be used by humans to satisfy human wants--Hite & Mulkey

– key to human use: technology, time, accessibility, appli-cation, perception; conflicts often related to culture

Economics– the study of the production, processing, distribution,

consumption of goods/services in an exchange system

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Key Terms (cont)

Natural Resource Economics– application of economics to manage naturally occurring

resources for human needs/wants with efficiency as the primary goal

– efficiency may be defined in market or nonmarket terms, focused on the short or long run, relative to current or future generations, local or global in scope

– decision choices include maintaining the status quo, altering the status quo, or doing nothing with focus on relevant institutions

– evaluation always includes the costs & benefits of a decision & to whom those costs & benefits accrue

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Key Terms (cont)

Environmental Economics vs. Natural Resources Economics (Hackett)– Environmental Economics: economic basis for pollution

problems & policy alternatives– Natural Resources Economics: problems of managing

common-pool* natural resources, determining optimal rates of extraction, & understanding resource markets

– *common-pool natural resources: difficult to exclude access, but once extracted is no longer available to others (groundwater, rivers, fisheries, public forests)

Scarcity, Opportunity cost, economic rationality

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Special: Break for cartoon!

Sometimes some folks go to extremes to get our attention!

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Why Study Natural Resource Economics?

Natural Sciences lack commonly accepted decision process

Economics may “assume” the problem away Irreversibility Market failure Joint importance of economic and ecological systems Physical-Natural-Economic System Links

– Improves efficient functioning of system

– Improves understanding about the world we live in

Summary: Improved management of natural resources, whether for private, public or natural gain

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Classification of Natural Resources

NATURAL RESOURCES

FLOW RESOURCES

FUND RESOURCES

NONSTORABLE RESOURCES

(ENVIRONMENTALRESOURCES)

STORABLE RESOURCES

RENEWABLE RESOURCES

NONRENEWABLE RESOURCES

NONRECYCLABLE RESOURCES

RECYCLABLE RESOURCES

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Classification of Resources (continued)

1. Flow Resources (nondepletable)

a. Nonstorable (sometimes called “environmental resources”)

»Often indivisible

»Inexhaustible (in human span of time)

»Time & management relevant only to consumption, not supply

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Nonstorable Flow Resources

Sunshine

“Weather”

Ocean Waves

Ecosystems

ScenicViews

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Classification of Resources (cont)

1. Flow Resources (cont)

b. Storable (by nature, as in living matter; by humans with technology)

» May be divisible

» Time & management relevant to both to consumption & supply

» The services are what are significant for humans

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Storable Flow Resources

Solar

Wind

Wave Energy

Geothermal Energy

Hydrogen Energy WaterHydroPower

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Classification (cont.)

2. Fund Resources (stock or depletable resources)

a. Exhaustible & Renewable

»Regenerative within human use time frame

»Assumes use within minimum & maximum thresholds

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Exhaustible & Renewable Fund Resources

Timber & Crops

Animals(human & nonhuman

Fish

GrazingLands

Soil & Water Quality

Forests & someUnique ecosystems

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Classification (cont.)

2.Fund Resources (cont)

b. Exhaustible & Nonrenewable

»Relatively fixed stocks/fund within human use time frame

(1) Nonrecyclable--Examples: fossil-fuel energy resources (oil,

natural gas, coal, peat, many “renewable” resources when thresholds violated)

(2) Recyclable--Examples: some minerals (iron, aluminum, gold, silver)

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Natural Resource Examples

FLOW RESOURCES FUND RESOURCE NONSTORABLE STORABLE RENEWABLE NONRENEWABLE

nonrecyc. recyclable

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

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Framing Natural Resource Issues

Quantity & Quality of: Land, Water, Air, Energy Public vs. Private Management Question Trend of Magnitude of Problem:

– Persistent, Chronic, Cyclical, Declining, Growing? Irreversibility Geographic scope Whose problem & who decides (ethics)? Property rights Time (short vs. long run; current vs. future

generations)

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Optimism vs. Concern for Environment & Natural Resources

Concerns– Global warming & climate impacts– Over-population & biodiversity– Soil/water quality/Mineral/energy cost/availability– Pollution/resource shortage impacts on social &

political institutions Optimism

– Legislative progress– Toxic release rates down– US competitiveness

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References for Lesson 1

Hackett text

Hite, J.C., & W. D. Mulkey. Natural Resource Economics : An Introductory Textbook, draft unpublished text.

Johnston, G.M., D. Freshwater & P. Favero (editors). Natural Resource and Environmental Policy Analysis: Cases in Applied Economics, Westview Press, Boulder, 1988.

Kahn, J.R. The Economic Approach to Environmental and Natural Resources, second edition, 1998.

Sanders, various notes

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L1: Homework

Read Ch. 1, Hackett (10-12 Jan) Do Problem #1, p. 16 (12 Jan) –5 points Refer to “Internet Links” (12 Jan) –5 points

– Select 2 links– Briefly review, including

» Content

» Bias or objectivity

» Likely use of material