Environmental economics


Objectif

This class presents the economic analysis of resources management and environmental problems such as pollution. The economic concepts of externality, public goods (non-rivalry and non-exclusion)and market failure provide the rational for public intervention. Environmental regulations are compared using the notion of economic efficiency and the cost-benefit approach.Environmental risk and the precautionary principle are analyzed using the theoryof decision under uncertainty. Irreversible decisions and biodiversity problems are evaluated using the option valuation method. Macroeconomic growth models allow to explore the problem of sustainability and of the green growth.Finally, the problems of asymmetric information (regulation under adverse selection, monitoring, moral hazard)and of the public perception of regulations arediscussed. 

Plan

I – Environmental economics analysis 
Economic efficiency and markets 
Market failures and public intervention 
Cost-benefit analysis 

II – Environmental policies 
Decentralized policies: Liability laws, property rights. The Coase theorem 
Command-and-control versus incentive-based policies 
Regulation of stock pollutants 
Optimal depletion of non-renewable resources. The Hoteling’s rule 
Management of renewable resources 

III-Environmental risk
Environmental CBA and the discount factor
Economic analysis of the Precautionary Principle
CBA and uncertainty
Irreversibility and the option value 

IV -Economics of biodiversity

V -Growth and the environment
Limited resources and the Hartwick rule
Pollution and steady growth
Green growth & directed technical change

VI -Environmental regulationsdesign
Information asymmetry and regulations
Monitoring andthe enforcement of regulations
Limited liability and moral hazard
Risk perception and regulations
 

Références

Textbooks:

R. Perman, Y. Ma, J. McGilvray & MS. Common (2003), Natural resource and environmental economics, (third ed.), Pearson Education, Harlow.
D. Léonard & Ngo van Long (1992), Optimal Control Theory and Static Optimization in Economics. Cambridge University Press. 

Articles by topic:

  • Environmental policy analysis

Chapters 4 and 5 of Hanley, N., Shogren, J. F., and White, B. (2007). Environmental economics in theory and practice. Chapters 6 and 7 of R Perman, Y Ma, J McGilvray, MS Common, (2003), Natural resource and environmental economics, (third ed), Pearson Education, Harlow. 
Requate, T. and W. Unold (2003), “Environmental policy incentives to adopt advanced abatement technology: Will the true ranking please stand up?” European Economic Review. Regulation of stock pollutants.

  • Non-renewable resources

 

Chapters 15 and 16 of R Perman, Y Ma, J McGilvray, MS Common, (2003), Natural resource and environmental economics, (third ed), Pearson Education, Harlow. 
D. Léonard & Ngo van Long (1992), Optimal Control Theory and Static Optimization in Economics. Cambridge University Press. 
Renewable resources
Chapters 17 of R Perman, Y Ma, J McGilvray, MS Common, (2003), Natural resource and environmental economics, (third ed), Pearson Education, Harlow. Cambridge University Press. 

 

  • Environmental risk, precaution and irreversibility

Eeckhoudt, L., Gollier, C. & H. Schlesinger (2005), Economic and Financial Decisions under Risk, Princeton University Press. 
Gollier, C. (2001), The Economics of Risk and Time, MIT Press. 
Eeckhoudt, L., Gollier, C. & N. Treich (2005), Optimal consumption and the timing of the resolution of uncertainty, European Economic Review 49:761-773. 
Gollier, C., Jullien, B. & N. Treich (2000), Scientific progress and irreversibility: An economic interpretation of the precautionary principle, Journal of Public Economics, 75: 229-253. 
Gollier, C. & N. Treich (2003), Decision-making under scientific uncertainty: The economics of the precautionary principle, Journal of Risk and Uncertainty, 27(1): 77-103. 

  • Environmental discounting & risk

Gollier, C. (2012), Pricing the planet’s future: the economics of discounting in an uncertain world, Princeton University Press.
Dixit, A. & R. Pindyck (1994), Investment under Uncertainty, Princeton University Press.
Gollier, C. & J.-G. De-vezeaux (2001), Analyse quantitative de la réversibilité du stockage des d´echets nucléaires: Valorisation des d´echets, Economie et Prévision, 149: 1-13. 
Guéant, O., Guesnerie, R. & J.-M. Lasry (2012), Ecological Intuition Versus Economic “Reason”, Journal of Public Economic Theory, 14(2): 245272.
Gollier, C. (2010), Ecological discounting, Journal of Economic Theory, 145: 812-829.
W. Nordhaus (2007), A Review of the “Stern Review on the Economics of Climate Change” Journal of Economic Literature, 45(3): 686-702.
M. Weitzman (2007), A review of the Stern Review on the economics of climate change, Journalof Economic Literature, 45(3): 702-724.

  • Economics of biodiversity

S. Polasky, C. Costello & A. Solow (2005), The economics of biodiversity, Chapter 29 of Handbook of Environmental Economics, Volume 3. 
G. Rausser, & A. Small (2000), Valuing Research Leads: Bioprospecting and the Conservation of Genetic Resources, Journal of Political Economy, 108(1), 173-206. 
Simpson, D., Sedjo, R., Reid, J. (1996), Valuing biodiversity for use in pharmaceutical research, Journal of Political Economy, 104(1), 163-185. 
Weitzman, M.L. (1992), On diversity, Quarterly Journal of Economics 107(2), 363-405. 
Weitzman, M.L. (2000), Economic Profitability versus Ecological Entropy, Quarterly Journal of Economics 115(1), 237–263. 
Weitzman, M.L. (1998), The Noah’s ark problem, Econometrica, 66(6), 1279–1298. 

 

  • Growth and the environment

Dasgupta, P., & Heal, G. (1974). The optimal depletion of exhaustible resources. REStud, 41, 3-28. 
Stiglitz J (1974) Growth with exhaustible natural resources : Efficient and optimal growth paths. RESutd, 41 : 123 –137. 
Nordhaus W. & J. Boyer (2000). Warming the World. Economic Models of. Global Warming. The MIT Press. 
Nordhaus, W. (2014). Estimates of the social cost of carbon: concepts and results from the DICE-2013R model and alternative approaches. Journal of the Association of Environmental and 
Resource Economists, 1(1/2), 273-312. 
Pindyck, R. S. (2013). Climate change policy: What do the models tell us ?. JEL, 51(3), 860-872. 
Nordhaus, W. D. (2007). A review of the Stern review on the economics of climate change. JEL, 45(3), 686-702. 

  • Green growth and directed technical changes

Chapter 5 of Aghion, P & P. Howitt (1998), Endogenous growth theory, MIT Press. 
Part IV of D. Acemoglu (2009), Introduction to modern economic growth, Princeton University 
Nancy L. Stokey,  Are There Limits to Growth?, International Economic Review, 1998, 39(1), pp. 1-31.
Acemoglu, D,  Aghion, P, Bursztynz, L & D. Hemous (2012),  The Environment and Directed Technical Change, American Economic Review, 102(1): 131–166.

 

  • Information asymmetry and regulations

J-J. Laffont & D. Martimort (2001), The Theory of Incentives: The Principal-Agent Model, Princeton University Press.
P. Bontems & J.-M. Bourgeon (2000), Creating countervailing incentives through the choice of instruments,  Journal of Public Economics, Vol. 76(2), pp. 181-202.

 

  • Monitoring and the enforcement of regulations

Polinsky &  Shavell (2001), The Economic Theory of Public Enforcement of Law, Journal of Economic Literature, Vol. 38, No. 1, pp. 45-76.
J-J. Laffont & D. Martimort (2001), The Theory of Incentives: The Principal-Agent Model, Princeton University Press.
D. Mookherjee & I. P. L. Png (1994), Marginal Deterrence in Enforcement of Law, The Journal of Political Economy, Vol. 102, No. 5, pp. 1039-1066
Philippe Bontems et Jean-Marc Bourgeon, Optimal Environmental Taxation and Enforcement Policy, European Economic Review, Elsevier, vol. 49, n° 2, 2005, p. 409–435.

 

  • Unobservable actions and Regulations

J-J. Laffont & D. Martimort (2001), The Theory of Incentives: The Principal-Agent Model, Princeton University Press. 
Pitchford, R. (1995). How Liable Should a Lender Be? The Case of Judgment-Proof Firms and Environmental Risk. The American Economic Review, 85(5), 1171-1186. 
Balkenborg, D. (2001). How Liable Should a Lender Be? The Case of Judgment-Proof Firms and Environmental Risk: Comment. The American Economic Review, 91(3), 731-738. 
Y. Hiriart & D. Martimort (2006), The Benefits of Extended Liability, RAND Journal of Economics, Vol. 37, No. 3, pp. 562-582.

  • Risk perception and regulations

F. Salanié and N. Treich (2009), Regulation in Happyville, The Economic Journal, 119(537), p. 665–679.
Baron, D. P. (2001). Private politics, corporate social responsibility, and integrated strategy. Journal of Economics & Management Strategy, 10(1), 7-45. 
Baron, D. P. (2003). Private politics. Journal of Economics & Management Strategy, 12(1), 31-66. 
J. Daubanes and J.C. Rochet, A theory of NGO activism, WP-2016.