agec5001 intro & economic thinking about the environment

positive externality

a benefit received by a third party as an indirect effect of the actions of an involved party (ex: getting your flu shot to benefit the public’s health)

negative externality

a cost imposed on a third party as an indirect effect of the actions of an involved party (ex: pollution from a factory affecting local residents’ health)

negative externalities lead to…

overproduction

public goods

goods that are non-excludable & non-rivalrous in consumption (ex: public parks, clean air)

private goods

goods that are excludable & rivalrous in consumption (ex: cars, houses)

common pool resource

a resource that non-excludable but rivalrous (ex: fisheries, forests)

tragedy of the commons

MC > MB = over consumption & resource depletion

solutions to the tragedy of commons

gov regulation, private property rights, community management

weak sustainability

natural capital is substitutable for man-made capital

strong sustainability

natural capital is not substitutable, critical natural capital must be preserved

sustainable development

development that meets the needs of the present w/out compromising the ability of future generations to meet their own needs

environmental Kuznets curve (EKC) theory

environmental quality first deteriorates, then improves with economic development

cost-benefit analysis

compares C&Bs of policies

market-based instruments

taxes, subsidies, cap & trade; harnessing market forces for environmental goals

regulatory approaches

standards, bans, mandates; common & control policies

valuation methods

revealed vs. stated preferences; puts prices on environmental goods

why is environmental valuation difficult?

many environmental goods don’t have market prices