2 Review Fund-service vs. stock-flow resources Rival, non-rival but congestible, non-rival, anti-rivalWhat’s the relationship between rivalness and fund- service, stock-flow distinctionExcludable and non-excludable
4 Are These Market Goods? Excludable Rival What about between generations?Resource Exhaustibility: A Myth Refuted by Entrepreneurial Capital MaintenanceBy John BrätlandWhat is the rule for efficient production of market goods?
5 How Important are Fossil Fuels? Are they essential to modern civilization?What are some of their critical uses?Wealth of Nations and patent on steam engine20,000 hours of work in a barrel of oilExtremely high energy return on energy investedAre there any suitable substitutes to conventional oil?Have we developed more substitutes or more complements since 1869?What do we know about their demand curve?
7 Negative Externalities = degradation of public goods What are some of the externalities?How serious are they?Are they affecting things that are essential?Are they affecting things with no substitutes?How long do they last?What is more essential and non-substitutable, fossil fuels or the things they degrade?At what spatial scales do they occur?
9 User Cost: The Value Arising from Scarcity What is the opportunity cost of extracting oil today?User cost: the opportunity cost of nonavailability of a natural resource at a future date that results from using up the resource today rather than keeping it in its natural state.Marginal user cost is the value of one more unit of the resource in its natural state; the opportunity cost of extracting one more unit today instead of in the future.What does marginal user cost equal in a perfectly competitive economy?The concept of RENT (royalties) and VCAT
10 User Cost: The Value Arising from Scarcity What’s the opportunity cost of not extracting oil?The Hotelling rule: balancing opportunity costsBackstop technology, discounting and time toWhat impact should user cost have on rates of extraction?What impact does it have?Why?
18 Characteristics of Water Stock-flow or Fund-service?We treat it here as a stock-flow. Examples?Renewable or exhaustible?Aquifers?Surface water?
19 What’s the demand curve look like? How does this compare with a conventional demand curve?
20 Will markets allocate water towards its best use? What is the best use?How do markets decide who gets to use something?What are the implications of income distribution with respect to the efficient allocation of water towards its best uses?
22 Will markets allocate water efficiently? Problem of natural monopolyHow do monopolists maximize profits?Current policies concerning waterDiscussion of externalities, user cost (for fossil aquifers), rent, also appliesBig issue for VCAT, also relevant to watershed management
23 Ricardian Land What is Ricardian Land? What creates the value in Ricardian land?Farmland?Urban land?Location, location, locationPositive externalitiesHow much of the value of Ricardian land is rent?What’s the supply curve for Ricardian land?