1

2. WHAT BASIC VALUE SYSTEMS & ECONOMIC THEORY FORM THE

FOUNDATION TO STUDY NATURAL RESOURCE ISSUES?

AGEC 3503SPRING 2006

Larry D. Sanders

Dept. of Ag Economics Oklahoma State University

2

INTRODUCTION

Purpose: to understand the ethical & economic foundations of natural resource issues

Learning Objectives:1. Explain the fundamentals of ethics & relation to

environmental/natural resource issues.2.Provide a summary review of economic theory basics.

References (in addition to Hackett text)– Hite, J.C., & W. D. Mulkey. Natural Resource Economics : An Introductory

Textbook, draft unpublished text.– The Internet Encyclopedia of Philosophy

(www.utm.edu/research/iep/e/environm.htm)– Rolston, H. Environmental Ethics, Temple University Press, 1988.

3

Class Activity: Ethics

4

Whether or not we are aware of it or can express it, “ethics” seem to matter. . . .

“That there ought to be some ethic concerning the environment can be doubted only by those who believe in no ethics at all. For humans are evidently helped or hurt by the condition of their environment.”--Holmes Rolston, 1988

5

Natural Resource Disciplines/Approaches

Environmental Policy

Ethics

BiologySocial Sciences (i.e. Economics)

Adapted from Wilson, E.O., Consilience, Knopf, 1998.

6

Some “environmentally ethical” claims...

1.As long as more people are better off, development should proceed.

2.Humans should be responsible for the welfare of animals.3.Animals have a right to a quality of life and protection.4.Land owners should be free to do what they want on or

with the land.5.The world was made for man and man was made to rule

& conquer earth.

7

Ethics: Some Fundamentals

Ethics--branch of philosophy concerned w/moral duty & ideal human character

Intrinsic rightness (Deontological Ethics) – what’s desirable (hypothetical imperative)– what’s necessary (categorical imperative)– Rawls “Justice” (fairness concept)– Leopold & “Deep Ecology”

Instrumental value (Teleological Ethics) – end justifies means if desirable consequences result

(consequentialism)– Natural Law & Utilitarianism

8

Ethics: Some Fundamentals (cont)

Logical fallacy to believe that sciences of “what is” can be applied to “what ought”

Environmental Ethics--examines the moral basis of environmental responsibility; 3 competing theories1. Anthropocentrism2. Species rights3. Ecocentrism

9

Class Activity: Teams

Return to teams for “top 3 issues”

Briefly identify ethical dimension of each issue

10

Utilitarian Principles & Economics

Benefit Cost Analysis– preferred policy or choice: B > C & Net Benefits are

greatest Pareto Efficiency Criterion

– policy can’t reduce the welfare of others Pareto Superior

– winners must compensate losers Kaldor-Hicks Criterion

– winners must have potential to compensate losers

11

Alternative Methods of Economics relate to inclusion of ethics

Positive Economics– evaluates “what is” (the observable)

» the scientific method– objectivity is key

Normative Economics– determines/suggests “what ought” to be done

» based on the norms/standards of society/culture– biased is assumed/explained in the process

12

The Key Fundamental Questions of Economics

1.“What” goods/services are produced?2.“How” are goods/services produced?3.“Who” gets benefits & costs?NOTE: Often not discussed are related &

important ethical questions such as:--Who decides?--Who/what/how to represent the voices of those

who don’t have a voice?--What’s fair & to whom?

13

Market Allocation

Pure/perfect markets don’t exist Market capitalism--independently-functioning

institution to allocate scarce resources/goods/services w/capital privately-owned & individuals driving the system motivated by self-interest– centuries old & evolving– “golden age” during Industrial Revolution in 19th

century– the ethical dimension has driven market evolution

14

Market Allocation (cont.)

Flow of spending & markets & efficiency Supply & Demand & market equilibrium Consumer Surplus--when willingness-to-pay is

greater than price paid Producer Surplus--when price received is greater

than willingness-to-sell Market failure--when any of conditions required for

well-functioning competitive market not met

15

The Flow of Spending in the Economy

RENT, WAGES, INTEREST

LAND, LABOR, FINANCIAL CAPITAL

HOUSEHOLDSBUSINESSES

GOODS & SERVICES

MONEY PAYMENTS FOR GOODS & SERVICES

GOVERNMENT

FINANCIAL MARKETS

LOANS

SAVINGSSAVINGS

LOANS

TAXES

TRANSFER/FACTOR PAYMENTS

TAXES

PAYMENTS FOR GOODS/SERVICES

16

Efficiency of Market System

Market efficiency:Qd = Qs MB = MCNet Benefits maximized for private market

Social Benefits maximized ifMBs = MCs

17

Market Equilibrium

Price

Quantity

P1

Q1

D=MBp=MVp=MWTPp

S=MCp=MWTSp

18

Market Failure—Costs

Price

QuantityQ1

D=MBp=MVp=MWTPp=MBs

S=MCpS’=MCs

Q2

P2

P1

19

Market Failure—Benefits

Price

Quantity

P1

Q1

D=MBp

S=MCp=MCs

D’=MBsP2

20

Market Failure

Inefficient allocation of resources MBp = MCp MBs = MCs Sources

– Imperfect Competition (market power)– Imperfect Information– Public Goods--property rights not assigned– Externalities--costs/benefits that don’t accrue to

economic unit that creates them

21

Market Efficiency Issues

Equity– Efficiency may not be Equitable

» Distribution may be a problem» “Best” is determined by Society

Dynamic Efficiency– Static: 1 time period or multiple time periods

independent of each other– Dynamic: Multiple time periods, dependent on

each other [Pt+1 = f (x,y, Pt, z)]

22

Class Activity: Teams

Return to Teams Sketch MC & MB

for Team’s “top issue”

23

Anatomy of a Public Decision

F a c ts

P u b lic D e c is ion

M yth s V a lu es

P u b lic P ro b lem

24

Transition to a Post-Modern Era

Modernism: pursuit of scientific truth(s)“The Victory of Science over Ignorance Ignorance is the curse of God Knowledge is the wing wherewith We fly to heaven.”

--Missouri Botanical Gardens, St. Louis, MO:Victory Sculpture (1885); Italian artist Carlo Nicoli copy of a piece by Cosani in Pitti Palace, Florence, Italy; installed in 1885 as a gift from Henry Shaw, Gardens founder.

25

Transition to a Post-Modern Era (cont.)

Postmodernism – a simple definition:

The philosophical viewpoint in which “All pretense to objectivity is abandoned in favor of the position that there are many different [individual] standpoints, each telling a different story about how the world is, and no one of these stories is better than any other. Science, [values, and any form of policy analysis are] just one possible story.” (Curd and Cover)

26

Transition to a Post-Modern Era (cont.)

Key Features of Modernity(ism)– Industrial/Capitalist society– Urbanization– Bureaucracy (strong central govt)– Knowledge from science/rational thinking– Progress based on science/technology is good

& preferred

Note: Info on this and the following slides found at http://www.hewett.norfolk.sch.uk/curric/soc/POSTMODE/key.htm

27

Transition to a Post-Modern Era (cont.)

Key Features of Post Modernity(ism)– Growth of service sector, decline in mfg,

increase in part-time work and home business, rising unemployment

– Globalization– Fragmentation—increasing diversity– Science in disrepute– Enlightenment in disrepute—no progress,

instead a “playful celebration of chaos”

28

Transition to a Post-Modern Era (cont.)

Implications of postmodernism for U.S politics and policy:– Objectivity of value knowledge and scientific knowledge

are impossible and can even be undesirable.– All knowledge regarding policy alternatives and

consequences is subject to “encyclopedic skepticism” (“Global warming is a hoax”-Sen. Inhofe)

– “The [postmodern] political culture, like the new popular culture, is skeptical of certainties and fixities and welcoming of novelties so long as they provide the audience with the satisfactions it seeks at the moment.” (Schier) (“Intelligent design”)

29

L2: Homework

Read Ch. 2, Hackett (17 Jan) Do # 1, p. 35 (17 Jan) –5 points Read Ch. 3, Hackett (19 Jan) Do # 1, p. 50 (19 Jan) –5 points Refer to “Internet Links” (19 Jan) –5 points

– Select 2 links (one from pp. 35-6; one from pp50-1)– Briefly review, including

» Content» Bias or objectivity» Likely use of material

30

References

Hackett, text.http://www.hewett.norfolk.sch.uk/curric/soc/POSTMODE/key.htmSanders, various notes.Schweikhardt, D. selected notes on postmodernism (see instructor

for specific citation)Ward, G. Teach Yourself Postmodernism, Hodder Education,

Great Britain, 2003.