Microeconomics

ENVIRONMENTAL ECONOMICS AND POLICY

Outline: A detailed overview of the course content is provided in the Lecture series overview and reading. An overview of the course is below:

  1. Introduction: environmental agenda, role of economics, theory of externalities, value and valuation methods.
  2. Cost-benefit analysis: Kaldor-Hicks compensation, discounting, equity weighting.
  3. Environmental policy: objectives and targets, optimal pollution, instruments (including regulation, taxation, permits, hybrids), distributional issues, polluter pays principle.
  4. Climate change economics: the Stern review, integrated assessment models, the optimal path, collective action problems, policy responses.

Reading: Detailed reading suggestions are provided in the Lecture series overview and reading. The lecture "handouts" are below:

  1. Slides from Lecture 1
  2. Slides from Lecture 2
  3. Slides from Lecture 3
  4. Slides from Lecture 4

Class Questions:

  1. Methods of non-market valuation are subject to a variety of biases. Do these biases imply that "no number is better than some number"?
  2. Is it feasible to place a value on the total environmental services provided by the planet? What about the total value of damages from the impacts from climate change?
  3. What is the optimal level of pollution? Under what circumstances would it be zero?
  4. Compare and contrast taxes, permits and command-and-control regulation as solutions to (a) externalities, and (b) public bads. Use examples to illustrate your answers (river pollution, acid rain, biodiversity loss, global warming).
  5. How does uncertainty affect the efficient discount rate?
  6. Is discounting a matter for ethics or economics?
  7. Should the polluter always pay?
  8. In carrying out a CBA study, how should (a) distorted prices; (b) non-market goods, and (c) future costs and benefits be treated?
  9. What assumptions underpin the conclusion of the Stern Review that urgent action on climate change passes a CBA? Are those assumptions valid?
  10. Is there any hope of overcoming the international collective action problem within climate policy? Why, or why not?

Recent Examination Questions:

Please note that lectures in 2006 did not directly address the issue of sustainability.

  1. Why do we not see more use of economic instruments such as emissions taxes and tradeable permits? (2001)
  2. Are current policies for dealing with climate change optimal? (2001)
  3. Can sustainability be justified as an environmental objective? (2002)
  4. Should the government use price or quantity controls in the presence of environmental externalities? (2002)
  5. Is the issue of climate change better addressed by taxes or permits? Is there any justification for the U.K. approach of using both? (2003)
  6. Is it possible to measure the cost of biodiversity loss? Are such losses sustainable? (2003)
  7. Is dealing with climate change a matter for international, as opposed to domestic, policy? (2004)
  8. "Since price-based instruments and quantity-based instruments are sufficient for solving environmental problems, further regulation is never necessary." Discuss. (2004)
  9. Are sustainable development and economic growth reconcilable? If so, how? (2005)
  10. How should uncertainty about the causes and effects of climate change affect the level and type of policy intervention? (2005)

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