Natural Resource Economics and Policy

Natural Resource Economics EconS 581

Class Time: 12:00 – 13:15pm T, Th Class Room: Hulbert Hall 23 Professor: Gregmar I. Galinato Office: Hulbert Hall 203C Email: [email protected] Hours: 1:20 – 2:30pm T, Th Phone: 509-335-6382 or by appointment

Course Overview This course applies economic principles to natural resource issues. Economic theory will provide a framework to analyze questions of natural resource use and misuse, natural resource policy and law, scarcity and sustainability. Each topical section is chosen to allow application of a modeling approach distinct from other sections.

Administrative details Prerequisites: Prereq EconS 502; EconS 503; EconS 511 Credits: 3

Lectures and Attendance Policy: Lectures will be held in Hulbert Hall 23 from 12:00-13:15pm every Tuesday and Thursday. Attendance is very important for your success in this class. Attendance is not monitored but it is well documented to be highly correlated with academic performance.

Learning Goals This course aims at providing students a framework to try to understand issues related to natural resource and environmental economics. Students will be able to apply the models that you have learned to understand and appreciate a wide range of natural resource and environmental issues. By the end of the course, students should be able to: • understand and criticize related natural resource and environmental economics journal articles. • conduct and write a study on natural resource and environmental economics.

Course Outline: Week Topic 1-2 Introduction and Review of Optimal Control 3-4 Nonrenewable Resources; Scarcity and depletion 5-6 Renewable Resources 7 Forestry Economics 8 Trade, Natural Resources and the Environment 9 Spring Break 10 Trade, Natural Resources and the Environment 11-12 Economic growth and natural resources 13 Natural Resources and the Economics of National Income Accounts 14 Noncooperative Resource allocation 15-16 Research Presentations

Requirements

Exam: A midterm and final exam will be given.

Research Proposal: A research proposal will be due in the middle of the semester. The research proposal should be new and not something that has already been written for other classes.

Research Paper: The project will involve an analysis of an economic development problem. The choice of the topic is not limited to the topic outline in class. The project may be theoretical modeling or empirical (econometric) analysis with a solid theoretical framework. A full paper is not the main output. By the end of the semester you should have a solid research question, a set up of the theoretical model and preliminary results. If it is an empirical model, you need to have the data and conducted some preliminary estimation.

Presentation: You will present your paper in class and you will be assigned one reviewer to make constructive criticisms of your research.

Referee Report: You will be required to write a review of the research paper of one of your colleagues and present your comments.

Grading: The breakdown of weights are as follows: Final Exam – 20%, Midterm Exam – 20% Research paper – 30%, Research presentation – 15%, Referee report – 10%, Research proposal – 5%

Note: Missed exams: zero credit unless arrangements are prior to the exam or in the case of an emergency, in which case arrangements for makeups may be negotiated but are not guaranteed.

Important Dates:

Final Exam: Please see Registrar’s webpage. Note: Covers everything after Forestry Economics. Final Research Paper due: April 28, 2017 Presentations and referee report deadline: Second half of April, 2017 First Draft of Research Paper due on: April 6, 2017 Research Proposal due: March 2, 2017 Midterm Exam: February 24, 2017 Note: Covers everything from Introduction to Forestry Economics.

Guidelines for writing the paper and criteria for grading

Paper proposal:

Needs to contain two paragraphs: The first paragraph contains the research question (objective of the study) and its significance. The second paragraph is a literature review which verifies that the study fills a gap in the literature.

Criteria for grading: Clarity – 30% Significance of the study –35% Literature review – 35%

Final Paper: Needs to contain the following: 1) Revised version of the first two paragraphs highlighting the research question, significance and literature review. 2) Model – set up Note: remember to define all your variables 3) Model – solution 4) Model – results Note: all proofs need to be completely done step by step! Please do not make me have to work through each proof. Each step should be clearly outlined. Note: discussion does not need to be in complete paragraphs. I actually prefer bullet points.

If you plan to do something empirical, aside from including 1-4, you also need 5) Data – description of data Note: again bullet points are fine 6) Empirical model – this will need to connect clearly with the theoretical model 7) Preliminary estimation results Note: discussion does not need to be in complete paragraphs. I actually prefer bullet points.

Criteria for grading: Clarity, Significance, Literature review – 30% Appropriateness of model in answering research question – 35% Accuracy of solution and results – 35%

Topic Outline

( “*” indicates required reading. They will be covered in class and part of the exams.)

1. Introduction and Tools for Analysis.

*Leonard. D. and N.V. Long. 1992. Optimal control theory and static optimization in economics, Cambridge, Cambridge University Press, ch 2- 4.

*Neher, P. 1990. Natural Resource Economics: Conservation and Exploitation. Cambridge University Press. Ch 9.

Perman, R., Y. Ma, J. McGilvray and M. Common. 2002. Natural Resource and Environmental Economics. Pearson Addison Wesley. 3rd ed. Ch 1-4.

Chiang, A. 1999. Elements of Dynamic Optimization. Waveland Pr Inc.

2. Nonrenewable Resources; Scarcity and depletion

2.1 Theory of the mine 2.2 Comparative dynamics 2.3 Market structure 2.4 Backstop technology 2.5 Regulation 2.6 Defining and measuring Scarcity 2.7 Evidence relating to resource scarcity

*Perman, R., Y. Ma, J. McGilvray and M. Common. 2002. Natural Resource and Environmental Economics. Pearson Addison Wesley. 3rd ed. Ch 15.

*Eswaran, M., T.R. Lewis, and T. Heaps. 1983. On the non-existence of market equilibria in exhaustible resources with decreasing costs, Journal of Political Economy 91, 154-167.

*Neher, P. 1990. Natural Resource Economics: Conservation and Exploitation. Cambridge University Press. Ch 4, 17-20.

* Jeffrey A. Krautkraemer. 1998. “Nonrenewable Resource Scarcity.” Journal of Economic Literature, Vol. 36, No. 4. (Dec., 1998), pp. 2065-2107.

Dasgupta. P.S. and G.M. Heal. 1979. Economic theory and exhaustible resources, Cambridge, Cambridge University Press, Chapter 6.

Solow, R.M. and F.Y. Wan. 1976. Extraction costs in the theory of exhaustible resources. Bell Journal of Economics 7, 359-370.

Chakravorty, U. and D.L. Krulce. 1994. Heterogeneous demand and the order of resource extraction. Econometrica 62, 1445-1452.

Chakravorty, U., M. Moreaux and M. Tidball. 2008. Ordering the extraction of polluting nonrenewable resources. American Economic Review 98, 1128-1144.

Lozada, G.A. 1996. Existence of equilibria in exhaustible resource industries: Nonconvexities and discrete vs. continuous time. Journal of Economic Dynamics and Control 20, 433-444.

Holland, S.P. 2003. Set-up costs and the existence of competitive equilibrium when extraction capacity is limited. Journal of Environmental Economics and Management 46, 539-556.

3. Renewable Resources 3.1 Static Model of Open Access 3.2 Dynamic Model of Open Access 3.3 Market structure 3.4 Comparative Dynamics 3.5 Fishery Regulation

*Neher, P. 1990. Natural Resource Economics: Conservation and Exploitation. Cambridge University Press. Ch 4, 10-11.

*Perman, R., Y. Ma, J. McGilvray and M. Common. 2002. Natural Resource and Environmental Economics. Pearson Addison Wesley. 3rd ed. Ch 17.

Wilen, J.E. 2000. Renewable resource economists and policy: what difference have we made?, Journal of Environmental Economics and Management 39, 306-327.

Homans, F.R. and J.E. Wilen. 1997. A model of regulated open access resource use. Journal of Environmental Economics and Management 32, 1-21.

Homans, F.R. and J.E. Wilen. Markets and rent dissipation in regulated open access fisheries. Journal of Environmental Economics and Management 49, 381-404.

Heaps, T. 2003. The effects on welfare of the imposition of individual transferable quotas on a heterogeneous fishing fleet, Journal of Environmental Economics and Management 46, 557-576.

Boyce, J.R. Instrument choice in a fishery. Journal of Environmental Economics and Management 47, 181-206.

Weitzman, M.L. 2002. Landing fees vs harvest quotas with uncertain fish stocks. Journal of Environmental Economics and Management 43, 325-338.

Turner, M. and Q. Weninger. 2005. Meetings with costly participation: An empirical analysis. Review of Economic Studies 72, 247-268.

4. Forestry Economics 4.1 Single Rotation 4.2 Multiple Rotation 4.3 Regulation of Forests

*Perman, R., Y. Ma, J. McGilvray and M. Common. 2002. Natural Resource and Environmental Economics. Pearson Addison Wesley. 3rd ed. Ch 18.

Montgomery, C.A. and D.M. Adams. 1995. Optimal timber management policies, Handbook of Environmental Economics, (D. Bromley, ed.), Oxford, Blackwell, pp. 379-404.

Reed, W.J. 1986. Optimal harvesting models in forestry management − a survey, Natural Resource Modeling, 1 (1), 55-80.

Galinato, G.I. and S. Uchida. 2011. “The Effect of Temporary Certified Emission Reductions on Forest Rotations and Carbon Supply.” Canadian Journal of Agricultural Economics. 59(1): 145- 164.

Galinato, G.I. and S. Uchida. 2010. “Evaluating Temporary Certified Emission Reductions in Reforestation and Afforestation Programs.” Environmental and Resource Economics. 46(1): 111- 133.

Galinato, G.I., A. Olanie, S. Uchida and J.K. Yoder. 2011. “Long Term Versus Temporary Certified Emission Reductions in Forest Carbon-Sequestration Programs.” Australian Journal of Agricultural and Resource Economics. 55(4): 537-559.

5. Trade, Natural Resources and the Environment

*Brander, J. & M. Scott Taylor, 1997. "International Trade and Open-Access Renewable Resources: The Small Open Economy Case," Canadian Journal of Economics. 30(3): 526-52,

*Grossman, Gene M.; Krueger, Alan B. “Environmental Impacts of a North American Free Trade Agreement” ; The Mexico-U.S. free trade agreement, 1993, pp. 13-56, Cambridge and London: MIT Press

Chilchilnisky, G. (1994). “North-South Trade and the Global Environment,” American Economic Review 84: 851-874.

Antweiler, W.; B.R. Copeland; T.M. Scott. (2001). Is Free Trade Good for the Environment? American Economic Review, 91(4): 877-908.

Alpay, S. (2001). How Can Trade liberalization be Conducive to a Better Environment? A Survey of the Literature. Available at: http://www.gtap.agecon.purdue.edu/resources/download/1443.pdf

Brander, J. and M. Taylor (1997), “International Trade between Consumer and Conservationist

Countries,” Resource and Energy Economics, 19, pp. 267-97.

Copeland, B. and M. Taylor (1994). “North-South Trade and the Environment,” Quarterly Journal of Economics, (109): 755-787.

López, R. (1994). “The Environment as a Factor of Production: The Effects of Economic Growth and Trade Liberalization,” Journal of Environmental Economics and Management, 27(2): 163-84.

López, R. and Niklitschek (1991). “Dual Economic Growth in Poor Tropical Areas,” Journal of Development Economics, pp. 189-211.

Jinji, N. (2006). “International trade and terrestrial open-access renewable resources in a small open economy”, Canadian Journal of Economics, pp. 790-808.

6. Economic growth and natural resources

*Lopez Ramon, 1994. "The Environment as a Factor of Production: The Effects of Economic Growth and Trade Liberalization," Journal of Environmental Economics and Management, Elsevier, vol. 27(2), pages 163-184, September.

*Kijimaa, M., K. Nishideb, and A. Ohyamac. 2010. “Economic models for the environmental Kuznets curve: A survey.” Journal of Economic Dynamics and Control. Volume 34, Issue 7, July 2010, Pages 1187–1201

* Frankel, J. 2010. The Natural Resource Curse: A Survey. Harvard Working Paper Series.

*Grossman, G. and E. Helpman (1994). “Protection for Sale,” American Economic Review, pp. 833-50.

*Damania, R., & Bulte, E.H. (2008). Resources for sale: Corruption, democracy and the natural resource curse. The B.E. Journal of Economic Analysis and Policy, 8(1).

Brunnschweiler, C. and E.H. Bulte. 2008. “The resource curse revisited and revised: A tale of paradoxes and red herrings.” Journal of Environmental Economics and Management. Volume 55, Issue 3, May 2008, Pages 248–264.

Fredriksson, Per G. & Svensson, Jakob, 2003. "Political instability, corruption and policy formation: the case of environmental policy," Journal of Public Economics, Elsevier, vol. 87(7- 8), pages 1383-1405, August.

7. Natural Resources and the Economics of National Income Accounts

*Vellinga, N. and C. Withagen. 1996. On the concept of green national income. Oxford Economic Papers. 48: 499-514.

Aronsson, T. and K-G Lofgren. 1998. Green Accounting in Imperfect Market Economies: A summary of recent research. Environmental and Resource Economics. 11(3-4) 273-287.

8. Noncooperative Resource allocation

*Karp, L. 1992. Social Welfare in a Common Property Oligopoly. International Economic Review. 33: 353-372.

Reinganum, J. and N. Stokey. 1985. Oligopoly extraction of a common property resource: the importance of the period of commitment in dynamic games. International Economic Review 26: 161-173.

Kaitala, V., M. Pohjola and O. Tahvonen. 1992. Transboundary air pollution and soil acidification: a dynamic analysis of an acid rain game between Finland and the USSR. Environmental and Resource Economics. 2: 161-181.

Maler, K-G. and A. De Zeeuw. 1998. The acid rain differential game. Environmental and Resource Economics. 12(2): 167-184.

Fischer, R.D. and L.J. Mirman. 1996. The complete fish wars: biological and dynamic interactions. Journal of Environmental Economics and Management 30(1): 34-42.

Datta, M. and L.J. Mirman. 1999. Externalities, market power, and resource extraction. Journal of Environmental Economics and Management 37(3): 233-255.

Fudenberg, D. and D. K. Levine. 1988. “Open-Loop and Closed-Loop Equilibria in Dynamic Games with Many Players.” Journal of Economic Theory. 44(1): 1-18.

Student Disabilities Statement Reasonable accommodations are available for students with documented disabilities or chronic medical conditions. If you have a disability and need accommodations to fully participate in this class, please visit the Access Center website to follow published procedures to request accommodations: http://www.accesscenter.wsu.edu. Students may also either call or visit the Access Center in person to schedule an appointment with an Access Advisor. Location: Washington Building 217; Phone: 509-335-3417. All disability related accommodations MUST be approved through the Access Center. Students with approved accommodations are strongly encouraged to visit with instructors early in the semester during office hours to discuss logistics.

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Disclaimer: The instructor reserves the right to change the course content and number of problem sets assigned as the class proceeds through the semester. This syllabus is subject to change to facilitate instructional and/or student needs.