Barry Field, University of Massachusetts—AmherstPh.D. from University of California at Berkeley in 1967

Natural Resource Economics: An Introduction (2nd edition)

Why this book?• “A comprehensive, well-written text that has appeal

in many undergraduate programs.” —Timothy Considine, Penn State University

• “Very readable and informative… not so quantitative… extensive coverage of topics…”

• “…written in nontechnical terms…a clear connection between natural resource uses and the economy.”

• “a nice balance of theoretical principles and policy analysis.”

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FYI

An email from Dr. Barry Field

• From: Barry Field [mailto:field@isenberg.umass.edu] Sent: Thursday, August 23, 2012 6:00 AMTo: Xiaobing ZhaoSubject: RE: Bing's questions about Natural Resource Economics textbook

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FYI

Professor ZhaoThanks for your message. I have been on vacation and out of touch… The course here is being taught by my colleague John Stranlund… I remember Cheryl Brown quite well, though it seems quite a long time ago. Good luck with your course. Barry Field

* Dr. Cheryl Brown was on Bing’s dissertation committee back to West Virginia University. She earned her B.S. from University of Massachusetts, Amherst in 1990, and Ph.D. from University of California, Berkeley in 1997.http://www.umass.edu/resec/faculty/field/index.shtml

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FYI

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Table 4. Top Graduate Programs in Agricultural Economics by Field

Field and School

B. Resource and Environmental Economics (n=17)MarylandUC-BerkeleyUC-DavisOregon State

Maryland uses Barry’s text for AREC 453: Natural Resources and Public Policy!

Source: Ranking M.S. and Ph.D. Programs in Agricultural Economics–Spring 2004, Gregory M. Perry

FYI

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SECTION I Introduction

Chapter 1

Important Issues in Natural Resource Economics

1. Natural Resource Adequacy

• The longest-running issue—will future supplies be sufficient to support the economic needs of generations?

• In history: – before the industrial revolution: wood and water– the industrial revolution: coal– the 1970s energy crisis: petroleum– today: nonrenewable resources (petroleum, coal,

and natural gas)

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Will Resource Scarcity Undermine Economic Growth?

• Pessimists: – Thomas Malthus, An Essay on Population, London,

1798: population growth would inevitably outstrip the ability of nature to provide sustenance in ever-increasing amounts

– Donella Meadows et al., The Limits to Growth, New York , 1972: scarcity along with pollution would lead to output declines beginning in the 21st century

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(1766 -1864)

(1941-2001)

“When asked if we have enough time to prevent catastrophe, she'd always say that we have exactly enough time—starting now.”

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• Optimists:– Scarcities will surely occur in the future– But human beings have the capacity to overcome

scarcities by finding substitutes and by controlling population growth

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Long-Run Price Changes

• Resource economists examine the historical paths of resource prices

• Rising prices signal increasing scarcity • Prices have historically decreased due to

technological change

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Natural Resource Substitution

• To mitigate scarcity• Figure 1-1 (p6): substitution among energy

forms in the U.S. from 1949-2005– Oil: 37% of total consumption to 43%– Natural gas: 16% to 24%– Coal: 37% to 24%– Renewables: 10% to 9%

• Energy substitution: renewable energy for nonrenewable forms

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Global Warming• Sunlight hits earth’s surface, radiates back into atmosphere,

where its absorption by GHGs heats atmosphere and warms earth’s surface

• Somewhat like a greenhouse that allows sunlight through the glass but prevents the heated air from escaping back outside, thus “greenhouse effect”

• Primary GHGs is carbon dioxide (CO2)

– Accumulating CO2 is linked to fossil fuel combustion and deforestation

• Combustion of natural gas emits 30% less carbon dioxide than oil, and 45% less carbon dioxide than coal.

13ECO324-Ch13

Reading

2. Socially Optimal Rates of Resource Use

• Criteria – Social efficiency: the maximum of net benefits

accrued by members of a society– Sustainability: maintaining or augmenting some

valued index of human or ecosystem welfare– Irreversibility (not reversible): avoid it; avoid the

destruction of unique natural resources– Fairness: actions impact people in equitable ways

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3. Natural Resource Policy: Moving Toward the Optimum• Natural resource misuse can arise from:

– The difficulties that prevent private markets from functioning effectively (ocean fisheries: an open-access resource)

– Misguided public policy and regulation (Federal energy subsidies)

• New types of property rights help solve certain problems – individual transferable quotas (ITOs), a closed-access

system based on private property rights for fisheries 15

Classic division of goods in economy

Rival in consumption(consumption diminishes its value)

Not rival

Excludable(have to pay)

private goods: food clothing

natural monopolies (club goods): cable TV

Not excludablecommon resources: fish in the sea

public goods: national defensetornado siren

16ECO324-Ch2-Slide 36

Reading

Greg Mankiw: Microeconomics, Chapter 11: Public Goods and Common Resources

Policy Options to Prevent Overconsumption of Common Resources

• regulate use of the resource• impose a corrective tax to internalize the externality

– example: hunting & fishing licenses, entrance fees for congested national parks

• auction off permits allowing use of the resource– example: spectrum auctions by the

U.S. Federal Communications Commission• if the resource is land, convert to a private good

by dividing and selling parcels to individuals

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Reading

4. Natural Resource Accounting

• Conventional GDP– does not allow for natural resource depletion or

depreciation in natural resource capital– does not measure non-market goods and services

• Natural Resource Accounting– Involves estimating the non-market value of

ecosystem services: scenic values, support for outdoor recreation, biodiversity preservation……

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5. Benefit-Cost Analysis in Natural Resource Economics• The Endangered Species Act (ESA) in 1973: to

protect no matter what the cost• B/C: developed to evaluate federal water projects• Should be applied to all natural resource and

environmental decisions in the public sector• Applicability and accuracy

Please read Exhibit 1-4 on page 16!

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6. Land-Use Issues

• For housing, work locations, roads, farms, parks, wilderness areas….

• Decisions are made through private land markets and public oversight

• To preserve agricultural land uses: development rights purchase – Public authority purchases the right to develop from the

farmers, leaving them with the remaining rights on their land and the freedom to farm the land

FYI: Exhibit 1-5, p1720

7. International Natural Resource Issues

• Developing countries rely on natural resource capital (endowments) for economic growth– the Middle East: oil– South America and Asia: timber– Africa: minerals– China: coal– Mongolia: copper and gold

Please read Exhibit 1-6 on page 20! 21

Issue #1:

Geologist David Bond exploring Altan Rio Minerals’ Chandman-Yol copper-gold project in western Mongolia, BY MATTHEW KEEVIL, May 11, 2012

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FYI

• Resource rents: the difference between what a resource is worth in the market and what it costs to extract, transport, and process it – the net value of a resource prior to extraction (p248)– What it would be worth if somehow an extra unit of

the resource could be added to the deposit (p175)• Rent seeking: competition by the various parties

to appropriate larger share of the rents arising from natural resource extraction

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Labor: wages & salariesCapital: interestLand: rentEntrepreneurship: profit

value added by a firm = factor payments by that firm $200 – $25 = $110 + $10 + $15 + $40 200 = 25 + 110 + 10 + 15 + 40 200 = 160 + 40 250 = 160 + 40 + 50

ECO285-Ch6-Slide 36

Reading

• Conflict among countries over access to particular natural resources– Surface water resources– Productive fisheries– Deep-sea minerals– Undersea petroleum deposits

• Possible solutions– Bilateral treaties (for the Pacific salmon between Canada

and the US)– Multilateral agreements (the regional seas treaties)

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Issue #2:

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