Wednesday, December 1, 2010

Blog opportunity

Since very few of you took me up on the extra credit opportunity, let's give it a shot here ...

1) What are some common themes that we've discussed throughout the course?

2) What is the role of economics in natural resource policy?

3) Are sustainability and economic growth complements or substitutes?

4) Are the players to blame for the over-use of natural resources, or is it the rules of the game?


Filorux said...

1 - Markets can fail. Those failures come in the form of externalities which point to less economic surplus that could otherwise be the case. Externalities arise because of the way in which incentives are aligned in the natural state of affairs. In as much as we are willing and able to recognize those externalities, it is within our power to rein them in with regulations, taxes, subsidies, etc... to reach a state of greater total surplus.

2 - Economics has been described as the study of decision making. Decisions are (at least) influenced by the incentives that decision makers face. Economics attempts to identify the incentives, trace them through to the results of decisions made, and compare those results with the outcomes that could have come about had there been different incentives in the first place. By identifying the outcome(s) that lead to greater overall surplus, economics can inform policy on what courses of action can be taken in order to realign incentives. To see the role of economics in natural resource policy, one must only recognize that in the realm of natural resources decisions must be made because resources are not infinite.

3 - As long as the sum of the discounted future net benefits of a sustainable stream of income are greater than the net gain that could be realized by cashing in that stream right now, they are complements. As they say in poker, "You can sheer a sheep many times, but you can only skin him once." So, as long as one stands to gain more by selling wool over time than selling sheepskin right now, the sheep should be sustained. The tricky part comes when the gambler is desperate. The promise of wool tomorrow means very little when Guido is promising to break his legs today.

4 - Ultimately I think blame will come back on the rules of the game. This is no excuse to remain ignorant of the rules and unwilling to correct for bad rules as far as the players are able, however. The rules of the game may be to blame for the actions of Hardin's sheepherders, but where does the blame fall once the rest of the village recognizes the problem and takes no action to correct for it? I say ultimately the blame rests on the rules of the game because perhaps there are other rules which discourage the villagers from acting. Maybe they can discover those rules, and their reaction to those rules will be subject to further rules, et cetera. Maybe the cycle ends with some fundamental set of rules, like the immutable laws of the universe. To remain blameless then, the players should pursue science to determine what is possible, and economics to determine what is profitable.

Catrina Hinds said...

1-2. Throughout the course we’ve looked at valuing the environment; trying to attribute monetary values to natural and environmental resources and how such values can influence policy decisions. For instance, whether forests should be removed to make room for agriculture, or whether the greater benefit can be derived from leaving it standing. Certain types of market failure were also examined – especially negative externalities and the end results of common-pool resources.

3. Sustainability and economic growth can be complementary, especially when one considers protected areas. Here, conservation efforts such as reducing overfishing not only safeguards fish stock, but it also help to support livelihoods.

4. In a sense, if we go by Hardin’s thesis, the overuse of natural resources can be viewed as “the rules of the game”. Each person while try to maximise his/her own net gains especially when they do not have to bear the brunt of the costs. It will be up to governments to generate greater awareness of the harm being done, and to place caps on the level of use. After such action, and if change does not occur, then it can be said that the players are to blame.

Paul said...

Common themes we've discussed include: dealing with scarcity, managing natural resources through economics and using economics to regulate the activities of humans. Suppy and demand, opportunity cost, tradeoffs, pricing, consumers, producers, production and markets are all features included.
Economics performs a crucial role in determining the influence of pricing and the interaction of markets to achieve efficiency and equilibrium. In natural resource policy economics helps to create a valuation for resources and regulate the activities of producers and production systems in supplying the demands of consumers. It also functions by using market mechanisms through policy to guide national, regional and international legislation to guide the management of natural resources.
In the context of resource economics the two are complements. Sustainability and economic growth can create the perfect marriage within any society. Economics can be used to formulate policy and dictate rules which govern the land encouraging sustainable practices. Ideally one can achieve economic growth through increased productivity thanks to economic incentives while discouraging unsustainable practices through economic penalties. A key concept of economics includes economic efficiency which partners well with sustainable practices.
Would it be fair to say both are responsible. When natural resources are open and unregulated this usually leads to overuse. This is not always a MUST. Ancient tribes have been recently discovered still exist with much of their natural resources in tact because of religious and philosophical position towards nature. Therefore they have restricted themselves and prevented the overuse of natural resources. However currently the problem of unregulated access and use of natural resources is now being blamed on the lack of rules which govern them. Within this year conservation groups have asked for more to be done to address the overfishing of the pacific blue fin tuna. Instigating the use of economics and political will to prevent the over fishing of the tuna. Economic restrictions and penalties upon those in violation should be used to prevent the extinction of the species. An interesting documentary which i have yet to watch myself is perhaps " The End of the Line" which speaks about overfishing.

IJEH said...

1. We started the course with the fundamentals of supply and demand, looked at the value and valuation of natural resources and examining cost-benefit analysis of resources. Issues of negative externalities from natural resource extraction and use. Management of land is critical in any nation for sustainability; we looked at the economic land rent, and the concepts of maximum sustainable yield (MSY) and efficient sustainable yield (ESY) of fishery. Common property resources and the theories of R. Coase, Garret Hardin and Adams Smith. Marginal costs and marginal benefits from utilizing resources, and deforestation mitigation using economics instruments.
2. Man's desire is insatiable and resources will always be scarce as population continues to grow. The application of resource economics helps us to understand the values of resources by analyzing the costs and benefits, it also enables us to determine the best possible ways to effectively manage natural resources to achieve the maximum benefit to the society and reducing externalities from their production and use.
3. The Brundtland Commission defines sustainable development as development that "meets the needs of the present without compromising the ability of future generations to meet their own needs. Economic growth and sustainability are complements. You can not cherish something, unless you come to terms with the value, though people's valuation of resources might be different based on the inherent nature of mankind.
4. There is a verse in the Christian bible where it is written in genesis that God gave man a command and said-"go ye into the world to increase, multiply and subdue it". The word "subdue", meaning to control. The need for effective planning and management of natural resources can not be overemphasized. Everyone wants the best in life, we all want to maximise profits in our business activities and when it comes to open access resources, the case is best understood. If there are regulations in place, players will stick to the rules and if found wanting will be fined. In the absence of rules, it becomes free for all battle.

Emily said...

1. Major themes we discussed in the course include the concept of maximizing efficiency, including market efficiency as well as social efficiency. We also focused on valuization of natural resources and different types of value (use and non-use), internalizing externalities through taxes, incentives, and command and control standards. An all-encompassing theme for the course is the tragedy of the commons- or how natural resources are degrading or depleted through open access policy. Fisheries, forests, oceans, mines, and the atmosphere are all exploited when there is no regulation guiding the use of them, and no economic policy that will guide the marginal costs and benefits of their use.
2. Economics is the study of how people use resources. We studied natural resources, and how economic policy can guide the responsible use of these resources. These policies included the implementation of Pigouvian taxes, the assignment of property rights to natural resources (Coase Theorem), standards or command and control solutions, and economic incentives like subsidies for appropriate use and management of resources.
3. In most cases they are complements. In the long run sustainable practices are essential to economic growth because if natural resources are all exploited today there will be no possibility of growth in the future. However, sometimes, especially in the developing world, the need for money and food from natural resources is pressing and they do not have the luxury of waiting another period to harvest, fish, or abate pollution and so resources are used for immediate benefit rather than long term sustainability, and in this case economic growth and sustainability are substitutes.
4. Both. The players in the game are all of us, and most of us consume too much and demand more than the Earth can sustainably supply. We make decisions at the margin and so long as the marginal costs of natural resource use are lower than the marginal benefits we will continue to overuse and follow that set of rules. When the rules are changed via taxes, standards, and incentives we follow a new set of rules and both we and the environment benefit in the long run. The rules of the game can be made to influence the players towards the betterment or the detriment of the environment.

Caitlin Hawkins said...

1. The common themes addressed throughout the course began with the valuation of natural resources and when natural resources need to be valued. Use and Non-use values were addressed using common valuation methods. Incorporated were externalities and market failure along with Piguvian taxes and the Coase theorem as solutions to our externalities. We then addressed standards for pollution and discounting. Our last two themes that were discussed in the course relied on property rights and land allocation along with optimal extraction of our natural resources, both mineral and forestry, and the trash and recycling associated with extraction.
2. Economics’ role in natural resource policy deals with the efficient and responsible use of our resources. Using economic policies to determine the efficient and most feasible way to regulate and use our natural resources can provide stability for our resources in the future. Acting as a guide, economics can help society achieve maximum benefit from natural resources.
3. Sustainability and economic growth can be considered complements. Both have to compromise with one another in order to achieve efficiency in the market for economic growth and healthy sustainability for the resource. If the two were substitutes their effect on one another would not require a compromise, because with sustainability you will forfeit some economic growth and with economic growth you will forfeit some sustainability.
4.More so I would say the rules are to blame, but the players are the ones who make the rules and abide by them, therefore in all reality it is both. The players go along with the rules they have made and/or if the players do not like the rules they go through strategic processes to change them. All of us use natural resources, it is impossible not to but in order to sustainably and efficiently use these resources we have to come up with rules that do just that.

Loren Albertson said...

1) What are some common themes that we've discussed throughout the course?
Definitely the biggest theme has been the tragedy of the commons, which can show up in any type of setting when the costs to the individual are lower than the benefits. This type of issue leads to externalities, which do not incorporate the costs to society in the market.

2) What is the role of economics in natural resource policy?
Money is universal and can make anyone pay attention. If you show a person hard evidence of market values, costs and profits, the policymakers will start changing their minds. Economics is a huge part of this, because many people associate environmentalism with high prices and fewer jobs, which is not necessarily true. Economics help to diminish that misconception through non-market evaluation techniques and the CVM.

3) Are sustainability and economic growth complements or substitutes?
Complements - especially when considering discounting. There is a market incentive to harvest unsustainably, but there is also incentive to work sustainably. This is especially true when ownership rights are awarded to a particular party, because that party will want to sustain their income as long as possible. There is also incentive NOT to flood the market with supply, causing demand to crash. This has been seen numerous times over history in the agriculture and property markets, but which government incentives to produce less at a more sustainable rate, the markets have stabilized.

4) Are the players to blame for the over-use of natural resources, or is it the rules of the game?
I don't think the players are "to blame" necessarily, but its everyone's fault. People should consider the welfare of society when making natural resource decisions - unfortunately many people (especially during throughout history when little was known about this subject) don't always know what's best for society. Human nature and fundamental market incentive pushes people to put another cow in the pasture if the costs are lower than the benefits. If the herder knew that one cow would cause him to have to move his stock to more fertile grazing lands 1 years sooner, then he may be more reluctant to overgraze. The government (or the rules) should step in at this point for education and regulation.

Ryan McKnight said...

(1) Common Themes
-MKT failures & externalities (Pigou and Coase solutions)
- Role of NRE in finding ways to maximize net gains to society and MKT participants (addressing externalities / finding where MC = MB)
- Command and control solutions (often less inefficient) vs MKT based incentives and penalties(often more efficient)
- Value (CBA, discounting, categories of value, etc.)
- Role of NRE in finding most efficient (and sustainable) resource extraction rate (minerals, forests, and fisheries)
- General economic concepts: Thinking at the margin, scarcity, rent

(2) Although policymakers often rely on command and control (C&C) regulation to manage natural resources, there are many cases in which MKT mechanisms are more efficient and effective. Moreover, MKT-based solutions (e.g. incentives and penalties) often provide a greater net gain to society than C&C regulations. With economic mechanisms such as the pigovian tax and the coase theorem, policymakers can more efficiently address negative externalities (e.g. environmental pollution). Furthermore, by using certain economic techniques (e.g. MKT-mechanisms that increase marginal costs), policymakers can address the “tragedy of the commons.” Through valuation and CBA that incorporates discounting and sensitivity analysis, economists can also help policymakers make socially and economically efficient decisions related to the size, location, and timing of development and conservation projects. Additionally, economics can help us determine optimal extraction rates for natural resources such as minerals, forests, and fisheries. In a broad sense, economics aids us in determining how to manage natural resources so that society, the environment, and all MKT participants receive the greatest benefit/utility at the lowest possible cost.

Ryan McKnight (2) said...

(3) In numerous cases, sustainability and economic growth are complements, not substitutes. In order to achieve sustainability, we do not have to forgo economic growth (and vice versa). Sometimes, sustainability is only possible if we utilize solutions from economics. Especially in the case of common property goods, certain economic incentives and penalties are needed if sustainability is to be achieved. Without these MKT restraints, each MKT participant reaps all of the benefits of consumption while passing on most of the costs to society. In other words, the MB of consumption is great while the MC is negligible. MKT restraints are thus needed to prevent overconsumption. Additionally, if we want to extend economic growth into the indefinite future, we need to sustainably manage our resources. Fortunately, the sustainable solution is often the best solution for economic growth as well. For instance, the rate of extraction for fisheries that is optimal (maximizes net gain) for MKT participants is also a rate that is environmentally sustainable.

(4) Although “the players” are physically responsible for the over-use of natural resources, they cannot be blamed for their actions. The MKT participants are simply attempting to maximize personal gain. Like the other animal species on earth, humans pursue their own self-interest. This is natural and to be expected. Unfortunately, this self-interest sometimes leads to the over-consumption of resources that are either common property or public goods. Consequently, if societies desire to curb over-consumption, they must alter the “rules of the game.” Sometimes, policymakers attempt to prevent or stop over-consumption through the use of C&C solutions (e.g. quotas and bans). More often than not, however, these govt. regulations are inefficient and fail to maximize net gains to society and MKT participants. As an alternative to C&C solutions, NRE offers a number of MKT-based mechanisms to address a wide variety of environmental dilemmas. Moreover, through the use of MKT-based incentives (e.g. subsidies) and penalties (e.g. taxes), we can induce more efficient use of natural resources by MKT participants. As a result, net gains to society and MKT participants often increase.