Environmental Economics - Midterm 1

ECON1050

Collective Action Dilemma

Outcome where if one person changed their actions they’d be made worse off, but if a group changes their actions they’re all made better off

Packaging

Costs and benefits are internalized to the person making the choice

Equity

How surplus is distributed

Efficiency

Total amount of surplus

Price ceiling impacts on equity and efficiency

Makes society as a whole worse off (reduces efficiency), but may make consumers better off (ambiguous effect; depending on feelings about consumer vs producer surplus)

Pareto Improvement

A change that makes at least one person better off while harming no one

Pareto efficiency

No Pareto Improvements to be made

Partial Pareto Improvement

A change that makes at least one person better off, and for which the gains to the gainers are greater than the losses to the losers (increases total surplus)

Kaldor-Hicks Efficiency

An outcome is K-H Efficient if there are no PPIs that can be made

Utilitarian Social Welfare Function

= U1 + U2 + U3 + U4 + …

Rawlsian Social Welfare Function

= min{U1, U2, U3, U4, …}

The future value in n years of having $a now

$a x (1+r)ⁿ

Present value of having $a in n years

$a / (1+r)ⁿ

Present value of getting $a per year, every year, for the next n years, starting next year

Stated preference methods

Survey people and ask how they value things

Revealed preference methods

Looking at related goods

Hedonic pricing adjustment

Compare, e.g., prices of homes in areas with good air quality vs poor air quality

Travel cost method

Look at costs of traveling to environmental goods (e.g., national parks, protected wildlife areas, etc)

Externality

Results when the actions of one individual (or firm) have a direct, unintentional, and uncompensated impact on the well-being of other individuals or profits of other firms

Negative externality graph

Positive externality graph

Private good

Rival, excludable

Club good

Non-rival, excludable

Open-access resources

Rival, non-excludable

Public goods

Non-excludable, non-rival

Tragedy of the Commons

A situation where individuals, acting in their own self-interest and without regulation, deplete a shared, limited resource, leading to its degradation or disappearance to the detriment of the entire group

Scarcity rent

Rent owners of a non-renewable resource collect

Rent

Price collected in excess of MC

Hotelling Rule

The percentage increase in scarcity rent equals the market rate of return when nonrenewable resources are managed optimally

Wicksell Rule

Harvest when r = (Vt1 - Vt0) / Vt0 ,, (aka growth rate = discount rate)

Faustmann Rule

Harvest when r = (Wt1 - Wt0) / (Wt0 + S - D) ,, W(t) = (p-c)V(t) ,, S = site value ,, D = cost of replanting

When to harvest if there are non-timber benefits

Harvest when r = (Wt1 - Wt0 + Ht1) / (Wt0 + S - D) ,, H(t) = value over time period t-1 to t of trees staying up

Dynamical system

Growth depends on how many individuals there are

Change in fish from time t to t+1

F(x_t) = rx_t - (r/k)x_t²

Maximum sustainable yield

Occurs at population k/2

Stable fixed point

A fixed point to which some points are attracted (ex: k, 0 when x<c ;; k when x>c)

Unstable fixed point

A fixed point from which some points are repulsed (ex: c)