Ec 476 Professor TietenbergColby College Miller Lib 234Spring, 2002 email: thtieten

Tel: 3143

Advanced Topics in Environmental Economics

As a senior seminar, this course will acquaint you with the latest developments in the field (many of the papers we shall consider have not even been published yet.) We shall examine the basic research (theory, and the empirical work) as well as the lessons that can be learned from implementation experience as these ideas have been put into practice.

This course is designed as a seminar in which all participants are expected to contribute to group learning, not merely to absorb material passively. Sustainable Development, a concept that lies on the frontier of environmental economics, provides the focus for our inquiry. Analyzing this concept closely reveals the large contributions that economic analysis can make in understanding the nature of the problems and in providing guidance on solutions, but it also raises fundamental questions about the appropriate domain for economic analysis. You will be exposed to both the emerging insights and the controversies and given ample opportunities to develop your own perspective.

Topics will be examined using both discussion and presentation formats. Discussion Format : Having read the background readings, each participant will be expected to contribute to a

discussion that extracts the major insights in the readings and assesses their validity and import. My role will be to ask leading questions and to probe the responses.

Presentation Format: These sessions will focus on presentations by student and faculty members of the seminar.

Some World Wide Web Sites of Interest

This information can be very useful in selecting topics and researching the two projects required for this class.

Colby’s Sustainable Development/Economics Page: http://www.colby.edu/personal/thtieten/sustain.html

National Center for Environmental Economics (EPA) Site: http://www.epa.gov/economics/

Free U. of Brussels Sustainable Development Site: http://www.ulb.ac.be/ceese/meta/sustvl.html

Institute for Sustainable Development: http://iisd1.iisd.ca

NSF Environment and Global Change: http://www.nsf.gov/geo/egch/

OECD Environment Reports: http://www.oecd.org/env/online.htm

United Nations Development Program: http://www.undp.org/

United Nations Environment Program: http://www.unep.ch/index.html

National Institute for the Environment: http://www.cnie.org/

Association of Environmental and Resource Economists: http://www.ecu.edu/econ/aere/

And finally when only humor will do: http://netec.wustl.edu/JokEc.html

Let me know if you find some helpful sites not on this list.

The texts for this course will be:

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Bromley, Daniel W., ed. The Handbook of Environmental Economics (Oxford, UK: Blackwell, 1995)

Stavins, Robert N., Economics of the Environment: Selected Readings (New York: W. W. Norton & Company)

The United States Experience with Economic Incentives for Protecting the Environment by Robert Anderson ( EPA#-240-R-10-001), This is a very helpful EPA report that can be downloaded in sections from http://www.colby.edu/economics/ec476tietenberg/ec476tietenberg.htm Reading this pdf report requires Acrobat Reader. If you don’t have it, it can be downloaded free from http://www.adobe.com/products/acrobat/readstep2.html

This course presumes that you have had a survey course in environmental and natural resource economics. If you wish to review that material you may want to consult:

Tietenberg, T. (1999). Environmental and Natural Resource Economics. 5th ed. Reading, MA: Addison-Wesley Longman. orTietenberg, T. (2000). Environmental Economics and Policy. 3rd ed. Reading, MA, Addison-Wesley Longman.

The grades in this course will be based upon: (1) class participation (quality and consistency of contributions - zeros are assigned for each missed class), 20%, (2) concept paper (content, analytical depth, organization and style), 25% (3) class presentation report 20%, (4) two oral presentations (organization, content and delivery), 20%, and (5) the internet project. 10%.

Each student will be expected to have set up an email address and to check it regularly. I will use email to communicate with participants in the intervals between classes.

Research Projects and Oral Presentation Assignments:

Conceptual Paper: Each student in the class is responsible for writing a major paper on some economic aspect of sustainable development policy. While the internet project (described below) is designed to focus on implementation issues in the context of a specific economic and cultural setting, the conceptual paper is designed to provide a broad overview of both the theory and empirical evidence which lie behind our current level of understanding of that issue. The target audience for your paper is assumed to be economically literate, but not familiar with your particular topic. Models for this type of paper would be the survey articles that appear at the beginning of each issue of the Journal of Economic Literature. The normal paper will about 7000 words. I have included a list of possible topics at the end of this syllabus. (These are meant to be suggestive, not meant to limit your choice.) Please include your word count on the title page of your paper.

Paper Proposal: The paper proposal will consist of a two-page, single spaced document which provides: (1) the title of the project, (2) the scope of the project (research questions, coverage, etc.), (3) a tentative outline (using three levels of headings) of the final report and a tentative bibliography of sources you will consult. This proposal should reflect sufficient knowledge of the literature that you can specify both the subjects to be covered by the report and how they fit together. This proposal will count 10% of the conceptual paper grade. Due: Monday, March 4 at noon.Optional First Draft: At your discretion you may submit a first draft of the paper for my critique. I will make comments on the paper and provide suggestions for improvement. No grades will be assigned to the first draft. You can use the comments to improve the paper. If you chose this option, I must receive the paper by noon, Friday, April 17. For me to make comments the paper must be substantially complete—no half written sections of papers, missing references or footnotes to be added later or spelling errors that could easily have been detected by a spelling checker. (No exceptions—plan ahead.)Final Paper: The final paper is due at noon Friday, May 8. A three-point-per-day penalty will be assigned (out of 100) for each day the paper is late. This implies, for example, that a

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paper, which, if handed in on time, would have received an 82%, would, after a three-day-late penalty, receive a 73%.

Conceptual Paper Oral Presentation: Each member of the class will be responsible for a major oral presentation on the work covered by the concept paper. Each presenter will have fifteen minutes for the presentation. The presentation will be judged on organization, depth of analysis, breadth of coverage and synthesis of findings and delivery. Fo

The Class Presentation Project. Each seminar participant will be responsible for writing up and reporting orally one case study to the class. The options are listed below.

Presentation Proposal: Your proposal should list: (1) the complete citation for the case study, (2) the focus of the study, and (3) the features which appear to make this a particularly interesting case study for the class to hear. This will count 10% of your final case study grade. Due: One week before the presentation at class time.

Final Report: The final report is due one week after the class at class. A three-point-per-day penalty will be assigned (out of 100) for each day the case study is late.

Oral Presentation. Each member of the class will be responsible for a 15 minute presentation on the nature of the case study. The presentation will be judged on organization, depth of analysis, and the value of the insights for the class.

Class Presentation Project Descriptions

These reports will be graded on the quality of the description of the case study, the relevance of it to our study of sustainable development and the quality of the critique, including its contribution to class understanding.

The Four Valuation Case Studies. Each seminar participant choosing this option will be responsible for selecting one study that uses a specific valuation methodology to shed light on some subject of interest to the field of environmental and natural resource economics. (To provide an entry into the literature one short list of such studies is provided in Session 6 on this syllabus. Many more studies exist and you are free to chose any study you wish, whether it is on this list or not.) For the chosen study the participant will be responsible for: (1) identifying the focus of the research, (2) briefly describing the valuation technique used and any unique aspects of its use in this context, (3) the results of the exercise and (4) the participant's critique of the exercise.

The Two Measurability Case Studies. Each seminar participant choosing this option will be responsible for describing one of the two major alternatives to traditional economic measures of sustainability: Ecological Footprint and the Genuine Progress Indicator/ Index of Sustainable Economic Welfare (these are related indicators). These reports will describe how these measures are constructed, assess their strengths and weaknesses vis a vis economic measures and discuss the lessons that can be extracted from any applications. I can supply references.

The Four Natural Resource Sustainability Case Studies: This assignment involves writing a brief, but revealing report on the application of the principles of sustainable development and conventional economic analysis to one particular natural resource problem (fisheries, agriculture, energy, deforestation, etc.) in a specific geographical and cultural setting. Do not choose studies that simulate what might happen if the policies or circumstances were changed. These presentations are designed to reveal actual, not hypothetical or possible outcomes. Having selected a specific case, the author will review the evidence that is available on that subject. Each report will identify the important facts of this case study and the lessons that can be taken away from it.

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The Two Corporate Sustainability Case Studies. This assignment involves writing a brief report and making an oral presentation on some corporation that has made an explicit attempt to build sustainable development into its business practices. The case study should examine what the corporation did and how it worked out both economically and environmentally. Are there any more general lessons that emerge from this study about when sustainability and profitability are might be compatible? Was this experience the result of very special circumstances or do you think it could be generalized?

The Two Trade and Environment Case Studies. This assignment involves writing a brief report and making an oral presentation on one or more studies that analyze a specific trade and environment relationship. The study or studies should involve an actual situation involving actual data, not a conceptual model.

The Environmental Taxation Case Study. This assignment involves selecting and reporting on the experience of a country that has used environmental taxation to control pollution. What does the tax system look like? How are the rates determined? What activities are they applied to? What happens to the revenue? How did it work out?

Internet Project. This assignment involves creating material (one implementation case study) to be put on the sustainable development home page created here at Colby for the World Wide Web. Using a prescribed format (I will supply a template) those who select the option will write a brief, but revealing report on the application of the principles of sustainable development and conventional economic analysis to one particular environmental problem (air pollution, fisheries, agriculture, energy, deforestation, etc.) in a specific geographical and cultural setting. Do not choose studies that simulate what might happen if the policies or circumstances were changed. These internet studies are designed to reveal actual, not hypothetical or possible outcomes. Having selected a specific case, the author will review (and write a short executive summary report on) the evidence that is available on that subject. (Examples of previous reports can be found on the worldwide web at http://www.colby.edu/personal/thtieten/ sustain.html. The reports in this class obviously should not duplicate case studies already on the web site.) Each report will attempt to condense down to no more than two pages the major conclusions to be taken away from that case study. (These are to take the form of extended Boxed Inserts in a typical text). The objective is to make available to worldwide audience brief, but revealing, summaries of the application of economic principles to sustainable development. (If you pique web readers’ interest, they can get the details from the cited articles on which these summaries are based.) The internet reports should be forwarded to me as an attachment via email. I will load them on the web. It can be the same topic as your concept paper, but not the same as your class presentation.

Topic Proposal: Your topic proposal should list: (1) the title of the case study, (2) the main subject to be examined, (3) the features which appear to make this a particularly interesting case study for the class to hear and (4) the literature on which this case study will be based. This will count 10% of your final case study grade. The Colby Sustainable Development site contains a large bibliography separated into specific areas of interest. Due: Monday, February 25th. at noon.

Final Report: The final internet project report is due at class time on Friday March 22nd. A three-point-per-day penalty will be assigned (out of 100) for each day the case study is late. Since these reports will be placed on the internet please be sure they are in the same format as all the others. I will share with you the format, but you can also visit the site to see how the others were done.

Part I. The Basics

Session #1 An OverviewMonday, February 4

Faculty Presentation Format

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This session will open with an overview of the material to be covered and the mechanics of coverage.

Sessions #2-3 Defining and Modeling Sustainable DevelopmentWednesday, February 6Monday, February 11

Discussion Format

Assigned Reading

John Pezzey, Sustainable Development Concepts: An Economic Analysis (Washington, DC: World Bank Environment Department Report #2) 9-16.

Robert M. Solow, “Sustainability: An Economist’s Perspective” in Stavins, Robert N., Economics of the Environment: Selected Readings (New York: W. W. Norton & Company): 131-138.

Toman, Michael A., John Pezzey, and Jeffrey Krautkramer, “Neoclassical Economic Growth Theory and Sustainability” in Daniel Bromley, ed. The Handbook of Environmental Economics (Oxford, UK: Basil Blackwell, 1995): 139-165.

Alan Randall and Michael C. Farmer, “Benefits, Costs and the Safe Minimum Standard of Conservation” in Daniel Bromley, ed. The Handbook of Environmental Economics (Oxford, UK: Basil Blackwell, 1995): 26-44.

Some Questions to Consider:

1. The concept of sustainability involves an obligation? Who owes the obligation? To whom is it owed? What is the nature of the obligation?

2. Bob Solow suggests that “the less you know about it, the better is sounds.” He goes on to say that this is an essential vague concept, but it is not at all useless. Why is it vague? Why is it not useless?

3. Solow also points out that “we do not owe the future any particular thing.” This conflicts with the “safe minimum standard” idea that is developed by Randall and Farmer. Why does Solow believe the obligation does not involve preserving any particular resource? Why do Randall and Farmer come down on the other side? Is this an argument over assumptions or objective functions?

4. In another section of his essay Solow suggests that environmental protection regulation contributes to sustainability if it comes from consumption, but not if it comes from investment? Why? What is the nature of his argument?

5. Near the end of his essay Solow suggests that one of the purest forms of sustainability policy involves controlling population. Why does he say that?

6. The Pezzey piece confronts the task of trying to sort out what we mean by sustainability. In particular he attempts to bridge the gap between “this vague concept” and the way in which we might systematically investigate the implications of this concept within economic models.

7. Why has a call for “sustainable” development arisen? What “needs” are being addressed by this new concept?

What is the difference between sustainability and survivability?

8. The concept of sustainable development is primarily driven by ethical concerns. How does it relate to the traditional economic concept of efficiency?

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9. How does the economic approach to sustainable development differ from other approaches to the same concept? Is an integration possible? Or are the various approaches mutually contradictory?

10. At what level should the concept of sustainable development be applied? At the global level? national? regional? local? individual resource? all of these?

11. Economists tend to think about complex issues by translating them into mathematical terms and using those formulations to derive specific results. How do economists model sustainable development? What is being maximized? Is this constrained optimization or unconstrained optimization? Do these models faithfully follow the definitions described in the preceding class? How well do they capture the noneconomic views of sustainability? If they leave some crucial ingredients out, what are those crucial ingredients?

12. How does sustainability depend on such crucial parameters as the rate of population growth, the rate of technical progress, rate of social time preference? How do the results differ depending whether technological progress is present or not? What is the rate of time preference and how does it affect outcomes? What difference does it make whether the economy is characterized as simply consuming a depeletable resource or whether the resource can be turned into capital?

13. How do the formulations of these three concepts differ for depletable resources and renewable resources? What difference does it make whether stock effects are present or not? Can sustainable development ever involve the use of depletable resources? How can a development plan use depletable resources without depriving future generations?

14. What is the Hartwick Rule? How is it used?

15. What role do “stock effects” play in the analysis of sustainability? Why do they matter? What is the consequence of including “stock effects” in the models?

16. What are the consequences of including “pollution effects” in the models?

17. Is the notion of carrying capacity relevant for modeling sustainable development?

Sessions #4 Measuring SustainabilityWednesday, February 13

Discussion Format

Assigned Reading

David Pearce and Giles Atkinson, "Measuring Sustainable Development" in Daniel Bromley, ed. The Handbook of Environmental Economics (Oxford, UK: Basil Blackwell, 1995): 26-44.

Eric Neumayer, "On the Methodology of ISEW, GPI and Related Measures: Some Constructive Suggestions and Some Doubt on the "Threshold" Hypothesis" Ecological Economics, Vol. 34, No. 3, September 2000

Student Presentations on the Genuine Progress Indicator and the Ecological Footprint

Information on the Genuine Progress Indicator can be found at: http://www.rprogress.org/progsum/nip/gpi/gpi_main.html

Information about the approach known as the ecological footprint can be seen at http://www.rprogress.org/progsum/nip/ef/ef_main.html

Some Questions to Consider

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1. How can we tell whether current actions are consistent with sustainable development or not? What tests can be established?

2. Can we use the national income accounts as currently constructed to determine whether we are on a sustainable path or not? Why or why not? If they can be used, define the appropriate use. If not, discuss what modifications would need to be made to get a sustainability measure. Does the search for appropriate measures of sustainability depend on whether one is using the strong or weak definition of sustainability? Why or why not?

3. At what level of geographic aggregation should sustainability indicators be measured? Global? National? Regional? Local?

4. Can we use broad economic aggregates or should we complement these with a host of other more specific measures? If we can rely on the broad economic aggregates, why are they sufficient? If we cannot, what else do we need? And why do we need it?

5. The ISEW/GPI approaches take basic national accounting measures and modify them in specific ways to come up with an aggregate welfare measure. Studies using this methodology have been accomplished for several countries. All seem to find a “threshold effect” in which growth in the economy is seen to beneficial only up to a point-the threshold. After that further economic growth is seen as resulting in a deteriorating quality of life. The studies uniformly find that industrialized countries have already passed the threshold. Eric Neumayer examines these measures in some detail and concluded that the threshold effect is an artifact of poor measurement strategies. What components of these measurements does he examine? What criticisms does he level? Are you convinced? Why or why not?

6. The "ecological footprint" approach developed by William Rees and his students represents another possible path. How does it work? What do you see as its main strengths and weaknesses?

Session #5 Environmental Valuation: The Concepts and MethodsMonday, February 18

Faculty Presentation Format

Assigned Reading

Kenneth Arrow, et. al., “Is there a Role for Benefit Cost Analysis in Environmental, Health and Safety Regulation?” in Stavins, Robert N., Economics of the Environment: Selected Readings (New York: W. W. Norton & Company; 319-324.

Steven Kelman, “Cost-Benefit Analysis: An Ethical Critique (with replies)” in Stavins, Robert N., Economics of the Environment: Selected Readings (New York: W. W. Norton & Company; 355-370.

Richard C. Bishop, Patricia A. Champ, and Daniel Mullarkey, "Contingent Valuation" in Daniel Bromley, ed. The Handbook of Environmental Economics (Oxford, UK: Basil Blackwell, 1995): 629-654. An alternative web source is: http://www.ecosystemvaluation.org/contingent_valuation.htm Nancy E. Bockstael, "Travel Cost Models" in Daniel Bromley, ed. The Handbook of Environmental Economics (Oxford, UK: Basil Blackwell, 1995): 655-671. An alternative web source is: http://www.ecosystemvaluation.org/travel_costs.htm

A. Myrick Freeman, III, "Hedonic Pricing Models" in Daniel Bromley, ed. The Handbook of Environmental Economics (Oxford, UK: Basil Blackwell, 1995): 655-671. An alternative web source is: http://www.ecosystemvaluation.org/hedonic_pricing.htm

Additional Reading

Carson, R. T.; Flores, N. E. and Meade, N. F. “Contingent Valuation: Controversies and Evidence”. Environmental and Resource Economics, June 2001, 19(2), pp. 173–210.

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Woodward, R. T. and Wui, Y. “The Economic Value of Wetland Services: A Meta Analysis”. Ecological Economics, May 2001, 37(2), pp. 257–70.

Some Questions to Consider

1. A case recently before the Supreme Court (American Trucking Association v. EPA) raised a fundamental question: How should environmental standards be set? What criteria should be used? Who should set them? What role should benefit cost analysis play? What role does it currently play? How is benefit/cost analysis connected to the economic concept of efficiency? What are the strengths and weaknesses of this approach? 3. What are the main criticisms of benefit/cost analysis levied by Kelman? How do his critics rebut these arguments? Which arguments do you find most compelling. Why?

2. How is benefit/cost analysis connected to the economic concept of efficiency? What are the strengths and weaknesses of this approach? What do you see as its proper role? Do you agree with the Arrow et al. point of view? Why?

3. What are the main criticisms of benefit/cost analysis levied by Kelman? How do his critics rebut these arguments? Which arguments do you find most compelling. Why?

4. Valuation of environmental amenities is required by the government regulatory agencies for benefit cost analysis and by the courts to discover how much damage was done by pollution (the Exxon Valdez oil spill, for example).

a. What values are being measured?

b. What concepts lie behind the measurements?

c. What broad techniques are available to apply these concepts?

3.Contingent valuation is the newest technique to be applied to valuing environmental resources. How does it work? In what contexts is it used? What are is strengths and limitations?

4. Why is assessing the validity of contingent valuation difficult? How do the concepts of content validity, construct validity and criterion validity differ?

5. What kinds of things can undermine content, construct or criterion validity? What strategies can be invoked to improve the validity of a particular survey?

6. How is hedonic estimation accomplished? What are the basic concepts that lie behind it? What kinds of data are needed? What kinds of valuation problems can be attacked with hedonic approaches?

7. How does the travel cost model work? What kinds of circumstances might it be used for? What seem to be the strengths and weaknesses of this particular approach?

1. What was the NOAA panel? What did it conclude?

2. Now that you have examined the various types of valuation techniques think about how you would decide what techniques to use. Does the context matter? How?

Part II. Sources of Unsustainability

Session #6 Sources of Unsustainability: Externalities and Property RightsWednesday, February 20

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Discussion Format

Assigned Reading:

Garrett Hardin, “The Tragedy of the Commons” in Stavins, Robert N., Economics of the Environment: Selected Readings (New York: W. W. Norton & Company): 9-22.

Yandle, Bruce, “The Technologies of Property Rights: Choice Among Alternative Solutions to Tragedies of the Commons. Ecology Law Quarterly, 2001, Vol. 28 Issue 1, 124-168. http://www.colby.edu/economics/faculty/thtieten/ec476/Yandle.pdf

A site which describes the work on user managed common property regimes see:http://www.ifpri.cgiar.org/reports/0694RPT/0694B.HTM

Some Questions to Consider:

1. Property rights are said to consist of a bundle of entitlements. In a very useful classification Elinor Ostrom and her colleague Edella Schlager have identified the primary entitlements as: Access, Withdrawal, Management (defined by them as the right to regulate internal use patterns and transform the resource by making improvements), Exclusion and Alienation ( right to transfer). Can you think of examples of resources that may have some or all of these characteristics? How does the presence or absence of these characteristics relate to the efficiency of use? How can property rights be a source of environmental problems? What are some examples of ill-defined property rights?

2. Three Property Right Regimes have been identified: common-property, state (or public) property and common property. Hardin’s classic essay deals with a circumstance in which the normal behavior of normal individuals operating in a common property environment inevitably destroys the resource. What, in his estimation, is the source of this “tragedy?” What would in his estimation be the solution? Why?

3. In the classic literature Pigou had suggested that one major source of environmental problems was externalities. And furthermore, he suggested, the solution was to internalize the externalities by imposing a tax on the offending behavior. What would be some examples were externalities are a source of environmental problems? Are externalities rare or relatively common?

5. Coase suggests that Pigou’s view is too simplistic. What is the nature of his argument? What are the implications of his argument?

6. Yandle and Morriss argue that the choice or property right regimes is in part determined by technologies. ( In their definition of technologies they not only include the traditional sense of a manner or process for accomplishing something, but also the institutions that give rise to these technologies (specifically the statutory and common law systems). In their story the system evolves toward the most efficient property rights regime given the technological constraints. What are some examples of this evolution? They also note that the evolution can be “path-dependent”? What does that mean? When might it occur?

7. This story is sympathetic to the evolution of property right approaches. Yet these approaches have also generated significant controversy. Why do you suppose that it is so controversial? Does the story leave something out?

Session #7-8 Sources of Unsustainability: Trade and the EnvironmentMonday, February 25Wednesday, February 27

Discussion Format

Four Student Presentations

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Assigned Reading:

C. Ford Runge, "Trade, Pollution and Environmental Protection" in Daniel Bromley, ed. The Handbook of Environmental Economics (Oxford, UK: Basil Blackwell, 1995): 353-378.

Adam Jaffe, et. al. “Environmental Regulation and the Competitiveness of U. S. Manufacturing: What Does the Evidence Tell Us? Robert N. Stavins ed., Economics of the Environment: Selected Readings (New York: W. W. Norton & Company): 141-179.

Michael E. Porter and Claas van der Linde, “Toward a new Conception of the Environment-Competitiveness Relationship” Robert N. Stavins ed., Economics of the Environment: Selected Readings (New York: W. W. Norton & Company):180-202.

Karen Palmer, et. al. “Tightening Environmental Standards: The Benefit-Cost or the No-Cost Paradigm” Robert N. Stavins ed., Economics of the Environment: Selected Readings (New York: W. W. Norton & Company): 203-216.

Some Questions to Consider

1. Basic economic theory suggests that due to the “law of comparative advantage” trade makes both trading parties better off. What is the “law of comparative advantage” and why does it suggest that both parties will be made better off? What is the economic logic that lies behind the presumption that trade is good for the participating countries? What preconditions are necessary for this logic to hold?

2. Recently with the clashes in Seattle conflicts over trade and the environment have intensified. Why? What has been the basis for the attacks on free trade coming from the environmental community? What are the specific issues that have precipitated these conflicts? If trade makes both parties better off, what is wrong with it? Do the conflicts simply reflect ignorance about basic economic principles? Or are there legitimate reasons for concern? If so, what are they?

3. Conventional wisdom suggests that subjecting firms to more environmental regulation raises their costs and makes them less competitive. In what has now become known as the “Porter Hypothesis”, Michael Porter suggests that subjecting firms to environmental regulation can actually increase their competitiveness. What is the logic behind this supposition? What are the implications of his analysis assuming he is right?

4. If regulations do raise costs, we could expect firms and consumers to react in various ways. In an attempt to seek out less stringent regulations firms might locate their production facilities in countries with lax regulations. (This is known as the “pollution havens” hypothesis.) Consumers might switch to lower cost goods imported from countries with lax environmental regulations. What is the evidence for these two reactions?

5. One suggested approach for dealing with problems caused by international trade involves the use of countervailing tariffs on the products coming from countries with lower environmental standards than the importing country. Would this represent a move toward efficiency or not? Why or why not?

6. The WTO draws a distinction between “process pollution” (associated with the process of production) and “product pollution” (associated with the product itself such as pesticides). It tends to suggest that countries have the right to regulate trade involving product pollution, but not trade involving process pollution. Do you agree? Why or why not?

7. The US Marine Mammal Protection Act (P.L. 92-522, 86 Stat. 1027), enacted in 1972, requires the US government to take steps to curtail the incidental killing of marine mammals by commercial fishermen, both domestic and foreign. Specifically, the MMPA instructs the Secretary of Commerce to prohibit the importation of tuna products from countries whose dolphin kill ratio (dolphin deaths per net dropped) exceeds that of US fisherman beyond a certain margin. In 1988, believing that dolphins in the Eastern Tropical Pacific Ocean were being killed by foreign tuna fisherman in violation of the law, Earth Island Institute, a California -based environmental group, sued to enforce the congressional mandate (Earth Island v. Mosbacher, 929 F.2d 1449,

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1991). A federal judge agreed that the government was failing to uphold the law and ordered Mexican tuna imports banned from the United States.Mexico argued that its right to sell tuna in the United States had been violated and asked for a GATT dispute settlement panel to adjudicate the matter. How should GATT have ruled? Why? Is this a legitimate and efficient way to protect tuna or an inefficient infringement on international trade?

Part III. Strategies for Managing the Transition to Sustainable Development

Session #9 Natural Capitalism: Can Profit-Maximization Be Compatible with Sustainable Development?

Wednesday, March 4

Discussion Format

Assigned Reading:

Lovins, A., L. H. Lovins, et al. (1999). "A Road Map for Natural Capitalism." Harvard Business Review: 145-158. http://www.colby.edu/economics/faculty/thtieten/ec476/Lovins-Hawken.pdf

Questions

1. The traditional economic story suggests that capitalism in general and the profit motive in particular are incompatible with either efficiency or sustainability. What is that traditional economics story? On what assumptions is it based?

2. One of the premises of natural capitalism is that the modern capitalist firm can “do good and do well” at the same time. In other words it can make a profit while being socially responsible. How is that possible? Is the conventional wisdom wrong? If so, what is wrong with it? If not, is the natural capitalism story flawed? If so, how?

3. Do the case studies tell us anything about when environmentally responsible firms might also be profitable? Is this a general phenomenon or limited to special circumstances? If the answer is special circumstances, what are they?

4. Could it be that the cases of firms that have found new profit opportunities from acting in an environmentally responsible way are merely picking the low hanging fruit and that once these are gone the conventional wisdom will be back? Will only “first movers” benefit?

Session #10 Natural Capitalism: Can Profit-Maximization Be Compatible with Sustainable Development?

Monday, March 6

Four Student Presentations

Session #11 Efficiency Standards for Automobiles: What is the Evidence?

Monday, March 11

Discussion Format

One Student Presentation

Assigned Reading:

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Greene, D. L. (1998). "Why CAFE Worked." Energy Policy 26(8): 595-613.http://www.colby.edu/economics/faculty/thtieten/ec476/CAFE.pdf

Questions1. What are the CAFE standards? What was their objective? What do they attempt to control? How do they attempt to control it?

2. How well have the standards accomplished their objectives? Does your answer depend on the time period being investigated? Why?

3. This is a traditional “command-and-control” regulatory approach. “Command-and-control” approaches are traditionally condemned in the economics literature. This article finds that they worked. Do you agree? If so, how can this view be squared with the more conventional view? If not, what is wrong with this analysis?

3. Fuel efficiency seems like a concept that auto purchasers should be capable of valuing? Can any case be made for transferring this decision to the government?

4. The traditional economic model would suggest that a ‘command-and-control” approach (as we are examining here) would have flaws. In particular the model would suggest that the government-imposed rules would simply set in motion a new set of consumer and manufacturer behaviors that would maximize welfare, given the regulatory constraint. And furthermore that these reactions might undermine the achievement of the original objectives. Is there any evidence of that here? What form does that evidence take? Is there any evidence of “rent-seeking” behavior discussed by Yandle earlier?

Additional Sources:

Agras, J. and D. Chapman (1999). "The Kyoto Protocol, Cafe Standards, and Gasoline Taxes." Contemporary Economic policy 17(3): 296-308.

Dowlatabadi, H., L. B. Lave, et al. (1996). "A free lunch at higher CAFE? A review of economic, environmental and social benefits." Energy Policy 24(3): 253-264.

Krupnick, A. J., M. A. Walls, et al. (1993). "Global Warming and Urban Smog: Cost-Effectiveness of CAFE Standards and Alternative Fuels." Energy Journal 14(4): 75-97.

Teotia, A., A. Vyas, et al. (1999). "CAFE compliance by light trucks: economic impacts of clean diesel engine." Energy Policy 27(15): 889-900.

Session #12 The California Deregulation Nightmare: What is the Evidence?

Wednesday, March 12

Assigned Reading:

Severin Borenstein, Jim Bushnell and Frank Wolak, “Measuring Market Inefficiencies in California’s Restructured Wholesale Electricity Market” a paper presented at the American Association meetings in Atlanta, January 2001http://www.colby.edu/economics/faculty/thtieten/ec476/Wolak.pdf

Questions:

1. If you were trying to model the California deregulation situation, what features of the system seem to you to be worth including? How did they move from the regulated to the deregulated state? Was the result a completely unfettered market? Or were there some lingering constraints?

2. One hypothesis is that California was simply the victim of largely unusual and unanticipated changes in supply and demand. (a kind of “perfect storm” view). What were the changes in supply and demand?

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3. Another hypothesis is that the nightmare resulted from flaws in the design of the deregulation system. What features of the system have been singled out as bearing some special responsibility? What would a standard economic analysis say about the market reaction to these features? Are the model results consistent with this expectation?

4. Suppose you were the advisor to a state that had not yet deregulated its electricity generation, but was considering doing so in the near future. What would you advise them to do? Bag it? Full speed ahead? Or Wait-and-see?

5. Maine has already deregulated. Suppose you were an economic advisor to the state and the governor is concerned that California may simply be the leading edge of a national trend and Mine may not be far behind? What would you say? What analysis would you do to try to answer his question with evidence?

Additional Sources:

Dahl, C. and J. Ko (1998). "The Effect Of Deregulation on US Fossil Fuel Substitution in the Generation of Electricity." Energy Policy 26(13): 981-988.

Palmer, K. and D. Burtraw (1997). "Electricity Restructuring and Regional Air Pollution." Resource and Energy Economics 19(1-2): 139-174.

Soderholm, P. (1999). " The Effect Of Deregulation on US Fossil Fuel Substitution in the Generation of Electricity: a Comment on Dahl and Ko." Energy Policy 27(8): 495-499.

Session #13 Property Right Strategies-I: FisheriesMonday, March 18

Faculty Presentation Format

Assigned Reading:

R. Bruce Rettig, “Management Regimes in Ocean Fisheries” in Daniel Bromley, ed. The Handbook of Environmental Economics (Oxford, UK: Basil Blackwell, 1995): 26-44.

Lee G. Anderson, “Privatizing Open Access Fisheries: Individual Transferable Quotas” in Daniel Bromley, ed. The Handbook of Environmental Economics (Oxford, UK: Basil Blackwell, 1995): 26-44.

Some Questions to Consider

1. Lots of evidence suggests that many fisheries around the world are overfished. Why? What are the economic and environmental consequences of this overfishing?

2. Several decades ago the government asserted jurisdiction over waters within 200 miles of our coast. What affect did this have on the overfishing problem?

3. One approach to controlling fishing involves the imposition of a total allowable catch limit. Once this limit is reached, fishing activity is stopped for the season. Does this provide an efficient resolution to the overfishing problem?

4. One approach to controlling the problem involves the imposition of individual transferable quotas. How does it work? What are its economic and environmental properties?

5. Congress has currently placed a moratorium of new ITQ systems. Why would they do that? What are the sources of controversy associated with ITQs?

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Session #14 Property Right Strategies-III: Tradable Permits for Pollution ControlWednesday, March 20

Faculty Presentation Format

Assigned Reading

Tom Tietenberg " Tradable Permit Approaches to Pollution Control: Faustian Bargain or Paradise Regained?" , downloaded from http://www.colby.edu/personal/thtieten/papers.html

The United States Experience with Economic Incentives for Protecting the Environment by Robert Anderson Chapter 6: Trading Systems

Michael Sandel, “Its Immoral to Buy the Right to Pollute” in Stavins, Robert N., Economics of the Environment: Selected Readings (New York: W. W. Norton & Company):449-450. see also the replies 451-452.

Some Questions to Consider

1. What is the economic theory associated with the use of tradable permits?

2. How do tradable permits work? What have been the economic and environmental consequences?

3. How have tradable permit systems been used to control pollution?

4. What have we learned from the empirical work and the implementation experience about when they work and when they don’t?

5. Is it immoral to buy the right to pollute? Why or why not?

Session #15 Natural Resource Sustainability Case Studies

Monday, April 1

Four Student Presentations

Session #16 Price-Based Strategies for Pollution ControlWednesday, April 3

Discussion FormatOne Student Presentation

Assigned Reading

T. H. Tietenberg, “Economic Instruments for Environmental Regulation” Robert N. Stavins ed., Economics of the Environment: Selected Readings (New York: W. W. Norton & Company): 373-395. Focus on the emission charge component of this survey and its comparison with tradable permits.

Foreign Experience with Economic Incentives for Protecting the Environment by Robert Anderson Chapter 11: Foreign Pollution Charges, Fees and Taxes (This is a section of an earlier report.)

Additional Reading

Nash, C.; Sansom, T. and Still, B. “Modifying Transport Prices to Internalize Externalities: Evidence from European Case Studies”. Regional Science and Urban Economics., July 2001, 31(4), pp. 413–31.

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Some Questions to Consider

1. What are the chief differences between controlling pollution by environmental taxes and by tradable permits?

2. The reading for today on “Foreign Experience” suggested that pricing is used a lot in other countries. What are some examples of circumstances where pricing is used?

3. Suppose we were using environmental taxation to control pollution. How can efficient taxes be determined? What are the information requirements? Suppose that monitoring emissions is difficult or impossible. What can be done? Is the taxation of inputs a good alternative? Why or why not?

4. Environmental taxation raises the possibility that revenue can be raised. Is the tax rate that raises the most revenue the same tax rate that produces efficient incentives? What role does the distribution of that revenue play in the desirability of environmental taxation?

5. Sweden’s NOx tax is particularly interesting because it is rather different. What are is the characteristics? Is this a good idea or a bad idea? Why?

6. For the sale of a resource such as timber, water, minerals or energy will market prices normally be efficient or not? Why or why not? Can you identify some specific examples?

Sessions #17 Environmental Pricing and Taxation: Solid WasteMonday, April 8

Discussion Format

Assigned Reading

Katherine McClain, "Recycling Programs" in Daniel Bromley, ed. The Handbook of Environmental Economics (Oxford, UK: Basil Blackwell, 1995): 222-244;

Kinnaman, T. C. and D. Fullerton (2000). The Economics of Residential Solid Waste Management. The International Yearbook of Environmental and Resource Economics 2000/2001. T. Tietenberg and H. Folmer. Cheltenham, UK, Edward Elgar: 100-147.

The United States Experience with Economic Incentives for Protecting the Environment by Robert Anderson Chapter 5: Deposit-Refund Sustems

Some Questions to Consider

1. Can the market be relied upon to provide the appropriate efficient choices among the solid waste disposal options? Why or why not? If there are sources of market failure, what are they?

2. What should the government role be in solid waste disposal? Why? Should solid waste disposal be a federal, sate or local concern? Why? Can we formulate an economics theory to explain the appropriate level of government to solve particular environment problems? What would be the main elements of that theory? How does solid waste fit into this theory?

3. A key aspect of the transition to recycling involves the behavior of the markets for recycled materials. These markets seem more unstable than other markets. Can economic analysis suggest any reasons why that may be so? Suppose that we wanted to reduce this instability. Is this a self-correcting problem or does the government have a role? Why? What kind of role?

4. Several policy instruments exist to promote efficiency in solid waste disposal. These include:

Mandatory recycling content laws

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Taxes on virgin materialTaxes on packagingDisposal bans on designated recyclable materialsProduct bansPlastics codingVolume pricing of disposalProcurement policies

What can economic analysis contribute to our understanding of the consequences of various policy choices?

5. In terms of their economic incentive effects how do deposit refund systems differ from volume pricing schemes?

6. The German system takes a very different approach. It requires manufactures to take back packaging (and recently used products). Can economic analysis help us understand the how the consequences of this system might differ from the consequences of a system based purely on pricing?

7. What are performance bonds? How do they work? Where are they used? What incentive effects do they have?

Session #18 Environmental Pricing: WaterWednesday, April 10

Discussion Format

Assigned Reading

Sheila M. Cavanagh, W. Michael Hanemann, and Robert N. Stavins, Muffed Price Signals: Household Water Demand Under Increasing-Block Prices, a paper presented at the American Economics Association Meetings in Atlanta, January, 2001

Questions:

1. One of the resources that is usually cited by observers as running into real scarcity in many parts of the world in the near future is water. Water can come from either groundwater and from streams, rivers, lakes, etc. How would you design an efficient price for groundwater? What considerations would matter/ Why?

2. When water is supplied by a regulated utility, pricing becomes more difficult because the desire to promote efficiency may clash with the desire to assure reasonable prices. Why?

3. Block pricing is one approach to dealing with the problem posed in (2) above. How does it work? Would efficiency normally call for declining block pricing or increasing block pricing? Why? Is one always preferred to the other or does it depend on the context? If it does depend on the context, how does it depend on the context?

4. Why does the existence of block pricing cause a problem for econometric studies of demand elasticity? How can this problem be resolved?

5. This paper suggests that long run elasticities are quite a bit higher than short run elasticities. What are short run elasticities? long run elasticities? Why would long run elasticities be higher?

6. Suppose utilities price water at the recent historic average cost of acquiring and delivering the water. Is that likely to be efficient? Why or way not? Is marginal cost likely to be higher than or lower than average cost? Why?

7. What are the most important conclusions to be drawn from this analysis? What are the policy implications?

Session #19 Environmental Pricing and Taxation: Liability and Penalty StructuresMonday, April 15

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Discussion Format

Assigned Reading

Kathleen Segerson, "Liability and Penalty Structures” in Daniel Bromley, ed. The Handbook of Environmental Economics (Oxford, UK: Basil Blackwell, 1995): 272-294.

The United States Experience with Economic Incentives for Protecting the Environment by Robert Anderson Chapter 8: Liability Approaches

Some Questions to Consider

1. How does liability law work to provide efficient incentives? What kinds of environmental problems has it been applied to?

2. Two liability doctrines are strict liability and negligence. How do they differ from each other? Can anything be said about the efficiency properties of one verses the other?

3. The joint and several liability doctrine is used in the Superfund program. How does it work? How efficient is it?

4. Liability law is frequently complemented by criminal law. Can an efficiency case be made for adding criminal law to the policy mix?

Session #20 Disclosure StrategiesWednesday, April 17

Faculty Presentation Format

Assigned Reading:

Tom Tietenberg and David Wheeler, "Empowering The Community: Information Strategies For Pollution Control" Frontiers Of Environmental Economics Conference, Airlie House, Virginia, October 23-25, 1998 downloaded from http://www.colby.edu/personal/thtieten/papers.html

The United States Experience with Economic Incentives for Protecting the Environment by Robert Anderson Chapter 9: Information Disclosure

Want to see the latest developments in the field? Check out: http://www.worldbank.org/nipr/pub_info.htm

Some Questions to Consider

1. Initially information schemes were implemented primarily for ethical reasons. Consumers were presumed to have the right to know the risks to which they were being exposed. More recently. however, information strategies have taken their place along side more traditional pollution control remedies such as charges or tradable permits. What do we mean by information strategies? What kinds of policies would be included? Why have they become so prominent recently?

2. Information strategies are playing an increasingly large role in developing countries. Why? What is their special appeal in that setting?

3. Two major information schemes in the U. S. are the Toxic Release Inventory and Proposition 65. How do they work? What have been the effects?

4. Labeling provides a way to provide information directly to consumers. What kind of labeling efforts exist for pollution control? Under what kinds of conditions would it improve efficiency? Would you expect labeling to replace traditional regulation? Why or why not?

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Session #21 Land Use ControlMonday, April 22

Discussion Format

Assigned Reading

Ian Hodge, “Public Polices for Land Conservation” Daniel W. Bromley, ed. The Handbook of Environmental Economics (Oxford, UK: Blackwell, 1995): 89-107.

Julia D. Mahoney, ‘Perpetual Restrictions on Land and the Problem of the Future” University of Virgina School of Law Working paper

James Boyd, Kathryn Caballero, and R. David Simpson, Carving Out Some Space: A Guide to Land Preservation Strategies. Dowloadable at http://www.rff.org/resources_archive/pdf_files/136_boyd.pdf (A very short-4 pages- but helpful review.)

Additional Reading

Fleming, W., et al. “Transfer of Development Rights As an Option for Land Preservation in a Historic New Mexico Community: La Cienega Valley, Santa Fe County, New Mexico”. Natural Resource Journal., Spring 2001, 41(2), pp. 427–43.

Johnson, M. P. Environmental Impacts of Urban Sprawl: A Survey of the Literature and Proposed Research Agenda. Environment and Planning A, April 2001, 33(4), pp. 717–35.

Some Questions to Consider

1. The general proposition is that the analysis of a particular commodity is affected by its characteristics. What are the characteristics of land that differentiate it from other commodities? How are the prices of land determined relative to uses?

2. One of the hot topics in the environmental field is “smart growth”. As the name implies, this approach suggests that the traditional approaches lead to “dumb growth”. In particular the movement suggests that traditional approaches have created a very inefficient pattern of urban sprawl. Does the market present an efficient process for allocating land among the various land uses? Why or why not? What role might transportation policy play in your answer? 3. What should the role of the government be in controlling land use? What level of government should be involved (federal, state, local)? What instruments does the government have at its disposal? ? How do they work? Can we differentiate among these policy instruments in terms of their economic effects? In what sorts of circumstances might one instrument be preferred?

4. What is the “Takings Issue”? And how does it affect policy to control land use? Should landowners be compensated for regulations that lower their value? Why or why not?

5. Does the private sector have a role? How about organizations such as Nature Conservancy? (Note the similarity to CARTs in Britain as discussed by the Hodge article) Can they replace government?

6. In addition to organizations that perform a conservation role (such as trusts) it is possible for private individuals to get involved. One device for implementing a private solution is a conservation easement. How does it work? Why would any landowner want a conservation easement? What are the advantages and disadvantages?.

7. Another hot area in land use control involves the use of land swaps. In these arrangements the government (usually the federal government) swaps a piece of land it owns for a piece of land a private holder owns that it wants. What might be the advantages and disadvantages of land swaps?

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8. A number of subsidies have been designed to enhance the environment. What might be the advantages or disadvantages of using subsidies in this context?

Part III. Student Presentations of Conceptual Papers

Sessions #22 First Student SessionWednesday, April 24

Student Presentation Format

Sessions #23 Second Student SessionMonday, April 29

Student Presentation Format

Sessions #24 Third Student SessionWednesday, May 1

Student Presentation Format

Sessions #25 Fourth Student SessionMonday, May 6

Student Presentation Format

Session #26 Fifth Student SessionWednesday, May 8

Possible Conceptual Paper Topics

The topics listed here are not designed to limit your possibilities, but rather to indicate the range of possible topics. You can choose from this list or come up with a topic on your own. Each topic should be addressed by only one seminar participant.

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Mathematical Models of Sustainable Development: What Can We Learn from Their Evolution?

Modifying National Income Accounts to Account for Resource Degradation: What is the State of the Art?

Modifying National Income Accounts to Account for Environmental Degradation: What is the State of the Art?

Measuring Sustainable Development Using Noneconomic Approaches: What is the State of the Art?

The “Tragedy of the Commons” Revisited: What Have We Learned?

The Environmental Kuznets Curve: A Solution to the Poverty/Environment Connection?

Micro Lending: How Effective Is It?

Investing in Women’s Education: What is the Payoff?

Transferable Development Rights: Effective Means of Protecting Land from Development?

The Takings Issue: Should Landowners Who Suffer Diminution of Value from Environmental Regulations Get Compensation?

Pricing Solid Waste Disposal: What is the Evidence?

Pricing Water: What Have We Learned?

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Pricing Transportation: Getting a Handle on Mobile Source Pollution.

The Economics of Sustainable Agriculture

Mitigation Banking and the Protection of Wetlands

Industrial Ecology: What are the Lessons for Economics?

Structural Adjustment and the Environment: What is the Evidence?

The Role for Discounting in Project Selection for Controlling Global Warming

The “Pollution Havens” Hypothesis: How Does It Stand Up?

The “Porter Hypothesis”: Is Environmental Regulation Good for the Economy?

Does the Regulation of International Trade to Protect Endangered Species Do More Harm than Good? The Case of CITIES.

Trade and the Environment: the Case of NAFTA

The Costs of Controlling Climate Change: What Do the Models Show?

International Environmental Agreements: What Can Game Theory Models Tell Us?

Environmental Capitalism: Can Acting Sustainably be Profitable for Firms?