1. Introduction 1 Definitions and Concepts of

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1. Introduction 1 Definitions and Concepts of basic terms The emergence of resource and environmental economics Why Study Environmental Economics 2 1.1. Definitions and Concepts of basic terms Natural resources: Are those sources and powers

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1. Introduction 1

Definitions and Concepts of basic terms

The emergence of resource and environmental economics

Why Study Environmental Economics 2

1.1. Definitions and Concepts of basic terms
Natural resources:
Are those sources and powers of nature that are or can be used by human individuals for production or consumption.
Found in nature and include arable land, oil, minerals, rivers, forests, air quality and oceans.
Have the potential to support a variety of primary (extractive), secondary (manufacturing) and even tertiary (service) industries. 3

Natural resources can be classified in various ways 4 Renewable resources Flow Resources Stock Resources Non renewable / exhaustible/ depletable resources Natural resources

Flow resources: The level of use today does not itself have any implications for the availability of tomorrow. Examples, solar radiation and the power of the wind.
Stock resources: Plant & animal populations and mineral deposits, have the characteristic that today’s use has implications for tomorrow’s availability.
renewable resources: Are biotic, plant and animal populations, and have the capacity to grow in size over time, through biological reproduction.
non-renewable resources: Are abiotic, stocks of minerals, and do not have that capacity to grow over time. 5

non-renewable resources are sometimes referred to as ‘exhaustible’, or ‘depletable’, resources.
This is because there is no positive constant rate of use that can be sustained indeﬁnitely – eventually the resource stock must be exhausted.
Renewable resources are exhaustible if harvested for too long at a rate exceeding their regeneration capacities.
In considering the efficiency and optimality of stock resources use, we must take account not only of use at a point in time but also of the pattern of use over time. 6

Common pool resources:

Rival in consumption but not excludable.
E.g., Common grazing land, ground water, public forest, rivers, fisheries

People can use common resources without paying, so they tend to overuse them.
Therefore, governments try to limit the use of common resources. 7

Public goods

Are goods that are non rival in consumption and/or their benefits are non-excludable

E.g: roads, education...

Characteristics
Non-rival: my consumption does not diminish what is available for you.
Non-excludable: A good is non excludable if once produced, no one can be excluded from enjoying its benefits. 8

Pollution:
Any chemical or physical change in the environment due to waste emission harmful to any living organism.

Given that not all emissions of waste damage the environment. 9

Externalities:

Unintentional side effects of an activity affecting people other than those directly involved in the activity.

Positive or negative.

Example:
A factory that pollutes as a result of its production process
A neighborhood resident who creates a private garden, the aesthetic beauty of which benefits other people in the community. 10

Economics:
Study of how society allocates scarce resources.
The study of:
the production,
processing,
distribution and
consumption of goods/services in an exchange system 11

Natural resource economics:
Study of how society allocates scarce natural resources;
e.g.: stocks of fish, stands of trees, water, oil, ...
Application of economics to manage naturally occurring resources for human needs/wants with efficiency as the primary goal
It studies about problems of managing common-pool natural resources, determining optimal rates of extraction & understanding resource markets.
Has an objective to better understand the role of natural resources in the economy in order to develop more sustainable methods of managing those resources to ensure their availability to future generations. 12

Environmental Economics:
Concerned with the conservation of natural environments and biodiversity.
Is the subset of economics that is concerned with the efficient allocation of environmental resources.
The environment and the economy interdependent.
For that reason, the way in which the economy is managed has an impact on the environment which, in turn, affects both welfare and the performance of the economy.
Environmental economics takes into consideration issues such as ;
The conservation and valuation of natural resources,
pollution control,
waste management and recycling, and
the efficient creation of emission standards. 13

Natural resource economics(established already in the first half of the 19th century)
Environmental economics (developed in the second half of the 20th century) have tended to be treated as separate and autonomous disciplines of neoclassical mainstream economics.
The practical needs of the current globalized world and a growing scientific knowledge argue that these two disciplines should be treated as a unified discipline.
They draw their techniques largely from ;
the field of pure and applied economic theory and
they had incorporated only some elements from natural sciences, system analysis and ethics. 14

1.3. Why Study Environmental Economics? Against:
Pollution
Externalities
Tragedy of commons
Global warming
Ozone Depletion
Acid Déposition
Loss of Biological Diversity
Resource degradation
………using economic principles/tools

Fundamental issues in the economic approach to resources Property rights, efficiency and government intervention
A central idea in modern economics is that, given the necessary conditions, markets will bring about efficiency in allocation.
Well-defined and enforceable private property rights are one of the necessary conditions.
Because property rights do not exist, or are not clearly defined, for many environmental resources, markets fail to allocate those resources efficiently. 16

What exactly do we mean by a clearly defined ownership right? From the perspective of resource allocation, the ownership of a resource is said to be clearly defined if it satisfies four conditions (Randall 1987).
First, the ownership rights of the resource are completely specified.
That is, its quantitative and qualitative features as well as its boundaries are clearly demarcated.
Second, the rights are completely exclusive so that all benefits and costs resulting from an action accrue directly to the individual empowered to take action. 17

Third, the ownership rights of the resource are transferable.
In other words, resources can be exchanged or simply donated at the ‘will’ of their owners.
Finally, ownership is enforceable.
That is, ownership of resources is legally protected.
When these four conditions are met, it can be shown that reliance on the self-interest based behavior of individuals will ensure that resources are used where they are most valued.
Deciding where a case for intervention exists, and what form it should take is the central in all of resource and environmental economics. 18

Efficiency and optimality have time dimension decisions
Intertemporal( , or dynamic,) dimension, as well as an intratemporal(, or static,) dimension.
Many pollution problems also have an intertemporal dimension, and it turns out that the analysis developed for thinking about the Intertemporal problems of resource use can be used to analyze those problems.
The relations between rates of return to capital as normally understood in economics and the rates of return on environmental assets must be taken into account in trying to identify efficient and optimal paths of environmental resource use over time. 19

Substitutability and irreversibility Substitutability and irreversibility are important, and related, issues in thinking about policy in relation to the natural environment.

If the depletion of a resource stock is irreversible, and there is no close substitute for the services that it provides, then clearly the rate at which the resource is depleted has major implications for sustainability. 20

There are two main dimensions to substitutability issues.
First, there is the question of the extent to which one natural resource can be replaced by another.
Second, there is the question of the degree to which an environmental resource can be replaced by other inputs, especially the human-made capital resulting from saving and investment. 21

1. Introduction 1 Definitions and Concepts of

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