1. Dept. of Ag Economics Oklahoma State University
1. WHAT IS NATURAL RESOURCE ECONOMICS & WHY IS IT IMPORTANT? AGEC SPRING 2006
Larry D. Sanders
Dept. of Ag Economics Oklahoma State University

2. INTRODUCTION Purpose: Learning Objectives:
to understand the concept of natural resource economics and its relevance
Learning Objectives:
1. Introduce the course & how it is to be administered
2. Define key terms.
3. Understand the purpose of studying environmental & natural resource economics.
4. Understand the classification of resources.

3. INTRODUCTION Natural Resource Economics Syllabus
Purpose
Evaluation
Schedule
Importance of Student Activity

4. Instructor/Philosophy
Personal/Professional Background
Teaching Philosophy
Student Info

5. “Anxiety Test”
“The ultimate test of a set of economic ideas. . . is whether it illuminates the anxieties of the time. Does it explain problems that people find urgent? Does it bear on the current criticism of economic performance? Does it bear upon the issues of political debate? For these, though many have always preferred to believe otherwise, do not ignite spontaneously or emerge maliciously from the mouths of agitators to afflict the comfortable.”
--John Kenneth Galbraith, Economics & the Public Purpose, 1973 [bold italics added by instructor]

6. Where to get more information
Syllabus
Sources
Hackett
ERS-USDA AH722
Handouts
Supplementary Readings
Govt. Documents--Library
Congress, Legislature, St/Fed Agencies
Electronic sources (note biased vs. objective sources)
“Experts”

7. Team Exercise Instructor assigns teams
Each team identify top 3 natural resource/environmental issues in 5 years
Be prepared to briefly explain each issue

8. Key Terms Natural Resources Economics
Specific attributes of the environment that are valued or have proven useful to humans [or have the potential to do so]* --G. Johnston
Aspects of nature that can be used by humans to satisfy human wants--Hite & Mulkey
key to human use: technology, time, accessibility, appli-cation, perception; conflicts often related to culture
Economics
the study of the production, processing, distribution, consumption of goods/services in an exchange system

9. Key Terms (cont) Natural Resource Economics
application of economics to manage naturally occurring resources for human needs/wants with efficiency as the primary goal
efficiency may be defined in market or nonmarket terms, focused on the short or long run, relative to current or future generations, local or global in scope
decision choices include maintaining the status quo, altering the status quo, or doing nothing with focus on relevant institutions
evaluation always includes the costs & benefits of a decision & to whom those costs & benefits accrue

10. Key Terms (cont)
Environmental Economics vs. Natural Resources Economics (Hackett)
Environmental Economics: economic basis for pollution problems & policy alternatives
Natural Resources Economics: problems of managing common-pool* natural resources, determining optimal rates of extraction, & understanding resource markets
*common-pool natural resources: difficult to exclude access, but once extracted is no longer available to others (groundwater, rivers, fisheries, public forests)
Scarcity, Opportunity cost, economic rationality

11. Special: Break for cartoon!
Sometimes some folks go to extremes to get our attention!

12. Why Study Natural Resource Economics?
Natural Sciences lack commonly accepted decision process
Economics may “assume” the problem away
Irreversibility
Market failure
Joint importance of economic and ecological systems
Physical-Natural-Economic System Links
Improves efficient functioning of system
Improves understanding about the world we live in
Summary: Improved management of natural resources, whether for private, public or natural gain

13. Classification of Natural Resources
FLOW
RESOURCES
FUND
RESOURCES
NONSTORABLE
RESOURCES
(ENVIRONMENTAL
RESOURCES)
RENEWABLE
RESOURCES
NONRENEWABLE
RESOURCES
STORABLE
RESOURCES
RECYCLABLE
RESOURCES
NONRECYCLABLE
RESOURCES

14. Classification of Resources (continued)
1. Flow Resources (nondepletable)
a. Nonstorable (sometimes called “environmental resources”)
Often indivisible
Inexhaustible (in human span of time)
Time & management relevant only to consumption, not supply

15. Nonstorable Flow Resources
Scenic
Views
Ocean
Waves
Sunshine
“Weather”
Ecosystems

16. Classification of Resources (cont)
1. Flow Resources (cont)
Storable (by nature, as in living matter; by humans with technology)
May be divisible
Time & management relevant to both to consumption & supply
The services are what are significant for humans

17. Storable Flow Resources
Geothermal Energy
Wind
Wave Energy
Solar
Hydro
Power
Water
Hydrogen Energy

18. Classification (cont.)
2. Fund Resources (stock or depletable resources)
a. Exhaustible & Renewable
Regenerative within human use time frame
Assumes use within minimum & maximum thresholds

19. Exhaustible & Renewable Fund Resources
Timber
& Crops
Fish
Animals
(human &
nonhuman
Soil & Water
Quality
Grazing
Lands
Forests & some
Unique ecosystems

20. Classification (cont.)
2. Fund Resources (cont)
b. Exhaustible & Nonrenewable
Relatively fixed stocks/fund within human use time frame
(1) Nonrecyclable--Examples: fossil-fuel energy resources (oil, natural gas, coal, peat, many “renewable” resources when thresholds violated)
(2) Recyclable--Examples: some minerals (iron, aluminum, gold, silver)

21. Natural Resource Examples
FLOW RESOURCES FUND RESOURCE
NONSTORABLE STORABLE RENEWABLE NONRENEWABLE
nonrecyc. recyclable 1. 2. 3. 4. 5. 6. 7. 8. 9.
10.

22. Framing Natural Resource Issues
Quantity & Quality of: Land, Water, Air, Energy
Public vs. Private Management Question
Trend of Magnitude of Problem:
Persistent, Chronic, Cyclical, Declining, Growing?
Irreversibility
Geographic scope
Whose problem & who decides (ethics)?
Property rights
Time (short vs. long run; current vs. future generations)

23. Optimism vs. Concern for Environment & Natural Resources
Concerns
Global warming & climate impacts
Over-population & biodiversity
Soil/water quality/Mineral/energy cost/availability
Pollution/resource shortage impacts on social & political institutions
Optimism
Legislative progress
Toxic release rates down
US competitiveness

24. References for Lesson 1 Hackett text
Hite, J.C., & W. D. Mulkey. Natural Resource Economics : An Introductory Textbook, draft unpublished text.
Johnston, G.M., D. Freshwater & P. Favero (editors). Natural Resource and Environmental Policy Analysis: Cases in Applied Economics, Westview Press, Boulder, 1988.
Kahn, J.R. The Economic Approach to Environmental and Natural Resources, second edition, 1998.
Sanders, various notes

25. L1: Homework Read Ch. 1, Hackett (10-12 Jan)
Do Problem #1, p. 16 (12 Jan) –5 points
Refer to “Internet Links” (12 Jan) –5 points
Select 2 links
Briefly review, including
Content
Bias or objectivity
Likely use of material