Natural Resource Economics Flashcards

Vocabulary flashcards covering core concepts of natural resource economics, discounting, compounding, benefit-cost analysis criteria, ecosystem services, equity, and decision-making under uncertainty based on the combined lecture notes.

Dynamic Analysis

An economic analysis conducted over time, required in natural resource economics because resource management problems focus on the allocation of resource stocks across multiple periods.

Discounting

The process of converting future values ($FV$) into present values ($PV$) using a discount rate $r$, expressed as $PV = \frac{FV}{(1+r)^t}$, based on the premise that a dollar today is worth more than a dollar in the future.

Compounding

The process of determining the future value ($FV$) of a present dollar amount ($PV$) over time using an interest rate $r$, given by the formula $FV = PV(1+r)^t$.

Compounding vs. Discounting

Compounding moves forward in time to calculate the future value of a present dollar, whereas discounting moves backward in time to calculate the present value of a future dollar.

Discount Rate

The interest rate used to discount future streams of costs and benefits into present value, reflecting a decision maker's view on the relative weight given to values occurring in different years.

Time Preference Approach

An approach to determining the discount rate based on how people value money over time, often approximated using average bank savings account rates or surveys measuring willingness to forgo current consumption.

Marginal Productivity Approach

An approach to determining the discount rate based on the marginal productivity of private sector investment, reflected in the interest rates banks charge business borrowers.

Commercial Feasibility Analysis

An assessment of a project's economic viability conducted from the perspective of a private firm, which typically accounts only for inputs and outputs that are traded in and priced by markets.

Benefit-Cost Analysis (BCA)

A public-sector feasibility analysis that evaluates social feasibility by comparing total social benefits against total social costs, accounting for both market and nonmarket inputs and outputs.

Ecosystem Services

The benefits people obtain from ecosystems, categorized by the Millennium Ecosystem Assessment (2005) into provisioning, regulating, cultural, and supporting services.

Provisioning Services

Ecosystem products directly harvested or obtained by humans, such as food production, water, wood and fiber, and fuel.

Regulating Services

Benefits obtained from the natural regulation of ecosystem processes, including climate regulation, flood regulation, weed control, and water purification.

Cultural Services

Nonmaterial benefits obtained from ecosystems through spiritual enrichment, aesthetic experiences, cultural identity, cognitive development, and recreation.

Supporting Services

Ecosystem processes necessary for the production of all other ecosystem services, such as nutrient cycling, soil formation, primary production, and habitat provision.

Phytelephas aequatorialis

The scientific name for the Ivory Palm (or Tagua), an endemic keystone palm species in Ecuador that provides multiple provisioning, regulating, supporting, and cultural ecosystem services.

Social Cost of Carbon (SCC)

A dollar estimate of the economic damages associated with emitting one additional ton of carbon dioxide (or equivalent greenhouse gas) into the atmosphere.

Consumptive Benefits

Benefits derived from natural resource use that directly reduce or deplete the remaining physical stock of that resource (e.g., hunting or fishing).

Nonconsumptive Benefits

Benefits derived from natural resource use that do not decrease or deplete the physical stock of the resource (e.g., wildlife viewing).

Net Present Value (NPV)

The sum of discounted net benefits across all time periods, calculated as $\text{NPV} = \sum_{t=0}^{\infty} \frac{B_t - C_t}{(1+r)^t}$, where a project is deemed desirable if $\text{NPV} > 0$.

Benefit-Cost Ratio (BCR)

The ratio of the total present value of benefits to the total present value of costs, calculated as $\text{BCR} = \frac{\sum_{t=0}^N \frac{B_t}{(1+r)^t}}{\sum_{t=0}^N \frac{C_t}{(1+r)^t}}$, where a project is desirable if $\text{BCR} > 1$.

Internal Rate of Return (IRR)

The discount rate at which the present value of benefits equals the present value of costs ($\text{NPV} = 0$); a project is desirable if its $\text{IRR} > r$.

With/Without Principle

An evaluation principle in benefit-cost analysis stating that project impacts must be measured by comparing outcomes with project implementation to outcomes without implementation, rather than comparing before and after implementation.

Sensitivity Analysis

The practice of recalculating project benefits and costs under alternative assumptions regarding time horizons, spatial limits, discount rates, or stakeholder scope to test the robustness of the recommendations.

Horizontal Equity

A distributional fairness criterion achieved when individuals or groups with similar income levels receive identical net benefits from a project or policy.

Vertical Equity

A measure of how the net benefits, costs, and impacts of a program are distributed among people of different income levels.

Progressive Project

A project or policy in which net benefits as a percentage of income are highest for individuals in the lowest income brackets.

Regressive Project

A project or policy in which net benefits as a percentage of income are highest for individuals in the highest income brackets.

Expected Value

In cost-benefit analysis under uncertainty, the single estimate obtained by weighting each possible outcome value by its respective probability of occurrence.