Natural Resource Economics Exam Notes

Introduction to Natural Resource Economics (NRE)

• Definition: NRE is focused on the supply, demand, and allocation of Earth’s natural resources.

• Objective: The primary aim is to understand the role of natural resources in the economy to develop sustainable management methods.

Distinction Between Resource and Environmental Economics

• Resource Economics:

  • Concerned with the intertemporal allocation of renewable and non-renewable resources.

• Environmental Economics:

  • Focuses on waste management and the residual flows from production and consumption.

Production Economics

• Concept: Involves the creation of goods and services (output) using scarce resources (inputs).

Distinguishing Features of Resource Economists

• Institutions: Key to the analysis; they mitigate uncertainty and define the structure for exchange.

• Externalities: Common occurrence due to overlapping utility functions and weaknesses in property rights.

• Scarcity/Time: Major concern regarding the rate of use of exhaustible resources over time.

• Valuations: Reflect the human value associated with different natural resource configurations.

Institutions in Natural Resource Economics

• Definition: Ordered relationships among people defining rights, privileges, responsibilities, and exposure to others' rights.

• Roles:

  • Reduce uncertainty affecting economic performance.

  • Provide order and predictability in exchanges (North and Schmid).

Externalities

• Definition: Results from scarcity and the incompatible use of resources by different parties.

• Example Comparison: Pollution vs. hunger as different types of externalities without presumptive value judgments.

Understanding Scarcity

• Definition: Occurs when the quantity of resources is less than the quantity demanded at a particular price.

• Relative Price Significance: Scarcity is defined in terms of relative prices.

Valuation of Resources

• Importance: Measures how people value various natural resources.

• Policy Relevance: Policies and institutions are formed in response to human values regarding natural resource systems.

Trends in Economics Disciplines

• Shifts in Academic Focus: Over the past 40 years, subjects like Finance, Development, and Industrial Organization gained prominence, while Macroeconomics, Microeconomics, and Labor saw declines.

• Relevance to NRE: Continuous evolution necessitates involvement in practical policy implementation to enhance the impact of economics in addressing resource issues.