1. exam 1 review

2. environmental decision making: benefit-cost analysis

3. how do we get those benefits?
Methods
Revealed pref
Stated pref
Direct
market price
contingent valuation
Indirect
travel cost
attribute-based models
hedonic property
conjoint analysis
hedonic wage
choice experiments
avoidance expenditures
contingent ranking

5. nature and causes of environmental problems
Nonexclusive property rights => Externalities
No property rights =>
Open access problem
Public goods

6. the market for steel

7. expect 5 results output of steel too great too much pollution produced
price of steel too low
no incentives to search for ways to yield less pollution per unit steel
recycling and reuse of polluting substances discouraged since release into river is so inefficiently cheap

9. to correct externalities
bargain (Coase)
taxation (Pigou)

10. open-access fishing / grazing rights / whales vs. chickens
tragedy of the commons
common-pool resources
nonexclusivity (exploited by anyone)
divisibility / rival (your use diminishes my use)

11. bison harvesting TB = constant price x growth
AB, MB = downward sloping because with more effort, smaller population size
Efficiency is MB = MC (Q1)
But no individual hunter has incentive to restrain themselves, compare their AB to MC/AC (do not say if I try harder this will make it harder for everybody else so marginal benefit will go down). Just compare their benefit and cost of hunting. (Q2) => too much effort!

12. public goods characteristics
nonexcludable (even if do not pay cannot be excluded from enjoying it)
indivisible / nonrival (my enjoyment does not lessen your enjoyment)
national defense / air / information / diversity
free-rider problem

15. how to think about the future?
Two period model
To maximize dynamic efficiency, set PV of MNB from the last unit in period 1 equal to the PVMNB from the last unit in period 2.

16. Demand: P = 8-0.4Q, MC = $2 (constant) 20 total units
Efficient allocation:
Period 1: / Period 2: 9.762
P = 8-0.4(10.238) = $ – 2 = $1.9048
P = 8-0.4(9.762) = $ – 2 = $2.0952
units in period 1 / units period 2
Efficient prices? Marginal user cost?

17. definitions of sustainability
Hartwick rule (“weak sustainability”)
value of the total (natural + physical) capital stock is maintained
Strong sustainability
value of the natural capital stock is maintained
Environmental sustainability
quantities of resources should be maintained (not value)