Download 1. What is natural resource economics & why is it important?

2.
WHAT BASIC VALUE SYSTEMS &
ECONOMIC THEORY FORM THE
FOUNDATION TO STUDY NATURAL
RESOURCE ISSUES?
SPRING 2002
Larry D. Sanders
Dept. of Ag Economics
Oklahoma State University
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INTRODUCTION
 Purpose:
to understand the ethical & economic
foundations of natural resource issues
 Learning Objectives:
1. Explain the fundamentals of ethics & relation to
environmental/natural resource issues.
2. Provide a summary review of economic theory basics.
 References
(in addition to Hackett text)
– Hite, J.C., & W. D. Mulkey. Natural Resource Economics : An Introductory
Textbook, draft unpublished text.
– The Internet Encyclopedia of Philosophy
(www.utm.edu/research/iep/e/environm.htm)
– Rolston, H. Environmental Ethics, Temple University Press, 1988.
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Whether or not we are aware of it or can
express it, “ethics” seem to matter. . . .
“That there ought to be some ethic concerning
the environment can be doubted only by
those who believe in no ethics at all. For
humans are evidently helped or hurt by the
condition of their environment.”
--Holmes Rolston, 1988
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Some “environmentally ethical”
claims...
1.As long as more people are better off, development
should proceed.
2.Humans should be responsible for the welfare of
animals.
3.Animals have a right to a quality of life and
protection.
4.Land owners should be free to do what they want
on or with the land.
5.The world was made for man and man was made
to rule & conquer earth.
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Ethics: Some Fundamentals
 Ethics--branch
of philosophy concerned w/moral
duty & ideal human character
 Intrinsic rightness (Deontological Ethics)
–
–
–
–
what’s desirable (hypothetical imperative)
what’s necessary (categorical imperative)
Rawls “Justice” (fairness concept)
Leopold & “Deep Ecology”
 Instrumental
value (Teleological Ethics)
– end justifies means if desirable consequences result
(consequentialism)
– Natural Law & Utilitarianism
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Ethics: Some Fundamentals (cont)
 Logical
fallacy to believe that sciences of “what
is” can be applied to “what ought”
 Environmental Ethics--examines the moral
basis of environmental responsibility; 3
competing theories
1. Anthropocentrism
2. Species rights
3. Ecocentrism
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Utilitarian Principles & Economics
 Benefit
Cost Analysis
– preferred policy or choice: B > C & Net Benefits are
greatest
 Pareto
Efficiency Criterion
– policy can’t reduce the welfare of others
 Pareto
Superior
– winners must compensate losers
 Kaldor-Hicks
Criterion
– winners must have potential to compensate losers
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Alternative Methods of Economics
relate to inclusion of ethics
 Positive
Economics
– evaluates “what is” (the observable)
» the scientific method
– objectivity is key
 Normative
Economics
– determines/suggests “what ought” to be done
» based on the norms/standards of society/culture
– biased is assumed/explained in the process
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The Key Fundamental Questions of
Economics
1.“What” goods/services are produced?
2.“How” are goods/services produced?
3.“Who” gets benefits & costs?
NOTE: Often not discussed are related &
important ethical questions such as:
--Who decides?
--Who/what/how to represent the voices of those
who don’t have a voice?
--What’s fair & to whom?
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Market Allocation
 Pure/perfect
markets don’t exist
 Market capitalism--independently-functioning
institution to allocate scarce
resources/goods/services w/capital privatelyowned & individuals driving the system
motivated by self-interest
– centuries old & evolving
– “golen age” during Industrial Revolution in 19th
century
– the ethical dimension has driven evolution
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Market Allocation (cont.)
 Flow
of spending & markets & efficiency
 Supply & Demand & market equilibrium
 Consumer Surplus--when willingness-to-pay is
greater than price paid
 Producer Surplus--when price received is greater
than willingness-to-sell
 Market failure--when any of conditions required
for well-functioning competitive market not met
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The Flow of Spending in the Economy
PAYMENTS FOR GOODS/SERVICES
GOVERNMENT
TRANSFER/FACTOR PAYMENTS
TAXES
TAXES
RENT, WAGES, INTEREST
LAND, LABOR, FINANCIAL CAPITAL
BUSINESSES
HOUSEHOLDS
GOODS & SERVICES
MONEY PAYMENTS FOR GOODS & SERVICES
SAVINGS
SAVINGS
FINANCIAL
MARKETS
LOANS
LOANS
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Efficiency of Market System
 Market
efficiency:
Qd = Qs
MB = MC
Net Benefits maximized for private market
 Social Benefits maximized if
MBp = MBs = MCp = MCs
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Market Equilibrium
S=MCp=MWTSp
Price
P1
D=MBp=MVp=MWTPp
Quantity
Q1
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Market Failure--Costs
Price
S’=MCs
S=MCp
P2
D=MBp=MVp=MWTPp=MBs
Quantity
P1
Q2 Q1
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Market Failure--Benefits
S=MCp=MCs
Price
P2
D’=MBs
P1
D=MBp
Quantity
Q1
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Market Failure
 Inefficient
allocation of resources
 MBp = MCp
 MBs = MCs
 Sources
–
–
–
–
Imperfect Competition (market power)
Imperfect Information
Public Goods--property rights not assigned
Externalities--costs/benefits that don’t accrue to
economic unit that creates them
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Market Efficiency Issues
 Equity
– Efficiency may not be Equitable
» Distribution may be a problem
» “Best” is determined by Society
 Dynamic
Efficiency
– Static: 1 time period or multiple time periods
independent of each other
– Dynamic: Multiple time periods, dependent
on each other [Pt+1 = f (x,y, Pt, z)]
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