UNIVERSITY OF COLORADO, FALL 2005NATURAL RESOURCE ECONOMICS, Econ 3535-001 Lectures: MWF 12:00 to 12:50 p.m. @ EDUC 220Instructor: Vijaya R. Sharma, Ph.D.Office Hours: MWF 11:00 a.m.-12:00 noon. @ Econ 4A or by appointmentVoice mail: 303-492-3021; E-mail: [email protected] site: http://spot.colorado.edu/~sharmav/Course IntroductionThis course presents theories of efficient utilization of natural resources and discusses issues related to current practices of use of resources. It also discusses issues of sustainability, conservation, and preservation. The course extensively uses graphical analyses and some mathematical models. It also assigns a number of readings. An introductory course in economics (Econ 1000) or principles of microeconomics (Econ 2010) is a prerequisite for this course. Textbook and Readings1. There is no required textbook for this course. 2. All readings that are prescribed in the course outline below are posted on the instructor's web site. 3. Web notes on many topics are also available on the instructor's web site.Examinations and GradingThe course grade will base on performances in three exams (30% each) and on fulfillment of assigned readings (10%). For each assigned reading students are required to submit a brief summary with comments (maximum 2 pages) on or before its due date to get full credit. Only hard copy, no electronic copy, of summary is accepted. If a summary is not submitted on its due date, one-half credit can still be obtained with a late submission on or before the next exam that follows the due date. No further late submission will be accepted. Caution: non-fulfillment or only partial fulfillment of readings may hurt the overall course grade. If a student is unable to take an exam (among the three exams offered), he/she can substitute it by writing a paper on an environmental issue or topic that has not been adequately discussed in the class. To utilizethis option the student needs to obtain the approval of the instructor. Exam 1: Sep 26, MondayExam 2: Oct 31, MondayExam 3: Dec 10, Saturday, 10:30 A.M.Course Outline and Tentative Schedule1. Course Introduction (Aug 22; Web Notes 1)Syllabus and Grading Policy, Types of Resources (Resource Flows, Natural Resources, Environmental Resources), Further Classifications of Natural Resources- renewable and nonrenewable, Reasons of Studying Natural Resource Economics (Dynamic decisions, pervasive market failure, potential irreversible consequences,multidisciplinary knowledge), Broad Issues (Efficiency, Sustainability, Resource Scarcity and Economic Growth)2. Review of Basic Economic Concepts and Economics Approach (Aug 24,26; Web Notes 1)Law of Diminishing Marginal Returns, Demand, Marginal Willingness to Pay, Consumer Surplus; Law of Increasing Opportunity Cost, Supply, Marginal Cost of Production, Producer Surplus; Economics Approach: Rationality and Anthropocentricity, Rule of Economizing Behavior, Weighing of Personal Benefits and Personal Costs, Monetary and Non-Monetary Benefits and Costs, Importance of Marginal Analysis Reading #1 due on Aug 26: The Cost of Fur (news piece published in the Economist of March 1, 2001)3. Economic View of Natural Resources (Aug 29,31; Web Notes 1)Economic View of Natural Resources: Instrumentalist and Utilitarian, Economic Value vs. Environmental Value Reading #2 due on Aug 29: Economic Assessment of Biodiversity and Protected Species, from Environmental Economics, Theory, Application, and Policy, by Duane Chapman, Addison Wesley Longman, 2000, pp. 273-281Basis for Option, Discovery and Existence Values: Asymmetry of Technological Progress, Changing Preferences in favor of natural amenities, Uncertainty, Lack of Information and Possible Irreversible Consequences (Measures of Caution), Safe Minimum Standard of Use (SMS); Human Preference and Natural Availability as Determinants of Value of a Resource, Market Price as an Indicator of Marginal Value,Revealed Preference vs. Stated Preference Approaches of Determining Value 4. Economic Efficiency, Allocation of Resources, and Equity (Sep 2,7,9,12,14; Web Notes 1)Private vs. Social Costs: Distinction and Examples; Efficiency, Pareto Efficiency, Kaldor Efficiency, Maximization of Social Net Benefits, Interpersonal Comparison ofBenefits and Costs, Rule of Static Efficiency; Concept of Scarcity Rent Dynamic Efficiency: Rate of Time Preference, Discounting and Present value formula, Discount Rate (Rate of Time Preference + Risk Premium), Treatment of Inflation Premium in Discount Rate, Choosing the Discount Rate, Rule of Dynamic Allocation of a Fixed Stock of Resource, Scarcity Rent, Marginal User Cost Introduction to Issue of Sustainability, Equity Consideration: Utility Possibility Curve, Efficiency and Equity Tradeoff, Egalitarian View, Social Welfare Function, John Rawls’ View 5. Property Rights and Environmental Problems, Market Failure Cases, Role of Government and Limitations (Sep 16,19,21,23; Web Notes 1)Characteristics of Well-Defined Property Rights, Market Failure Cases and Environmental Problems: Open Access Resources, Externalities, Public Goods, Divergence between Private and Social Discount Rates (why), Imperfect CompetitionRole of Government: Public Policy Interventions and Possibility of Government Failure (Rational voter ignorance, short sightedness, special interest effects, and rent seeking)Exam 1 on the above materials: September 26, Monday (the last late submission date for Readings #1 and 2)6. Economics of Nonrenewable Resources (Sep 28,30, Oct 3,5,7; Web Notes 2)Resource Taxonomy (Current Reserves, Potential Reserves, Resource Endowment), Price and Size of Reserves, Indicators of Physical Scarcity (static reserve index and exponential reserve index), Limitations of such Indicators; Theory of Efficient Extraction: Hotelling Rule, Mathematical and Graphical Explanations, Asset Market and Flow Market Equilibrium Conditions; Best Reserve First, Path of efficient prices and scarcity rent under Zero MEC, Constant MEC, Increasing MEC, Impacts of changes in discount rate, Price of substitute, Stock, MEC, and Demand, Extraction under Monopoly, Negative externality, Effects of Price Ceiling; Empirical findings onHotelling value 7. Discussion on Economic Indicators of Scarcity (Oct 10,12,17; Web Notes 2)Indicators of Economic Scarcity: price, marginal extraction cost, scarcity rent, factors mitigating scarcity, evidences on historical trends of natural resource commodity pricesReading