Environmental economics : in theory and practice

484 Pages·2007·19.175 MB·English

by  Jason F. Shogren, Ben White, Nick Hanley

Environmental
ECONOMICS
In Tketry and Prnaice
NICK HANLEY
JASON F. SHOGREN
BEN WHITE

Environmental Economics

ENVIRONMENTAL ECONOMICS
IN THEORY AND PRACTICE
Nick Hanley
University of Stirling
Jason F. Shogren
University of Wyoming
and
Ben White
University of Newcastle upon Tyne
New York Oxford
OXFORD UNIVERSITY PRESS
1997
Oxford University Press
Oxford New York
Athens Auckland Bangkok Bogota Bomba
Buenos Aires Calcutta Cape Town Dares Salaam
Delhi Florence Hong Kong Istanbul Karachi
Kuala Lumpur Madras Madrid Melbourne
Mexico City Nairobi Paris Singapore
Tapei Tokyo Toronto
and associated companies in
Berlin Ibadan
Copyright © 1997 by Nick Hanley, Jason F. Shogren and Ben White
Published by Oxford University Press, Inc.,
198 Madison Avenue, New York, New York 10016
Oxford is a registered trademark of Oxford University Press
All rights reserved. No part of this publication
may be reproduced, stored in a retrieval system, or transmitted,
in any form or by any means, electronic, mechanical
photocopying, recording, or otherwise, without the prior
permission of Oxford University Press.
Library of Congress Cataloging-in-Publication Data
Hanley, Nick.
Environmental economics : in theory and practice / Nick Hanley
Jason F. Shogren, Ben White.
y‘
p. cm.
Includes bibliographical references and index.
ISBN 0-19-521254-1 (alk. paper). — ISBN 0-19-521255-X (pbk ■
alk. paper) •
(BeE„ncdicom ina™e"0n,iCS' '' Sh°gre"’ JaS°n E Whi,e’ Ben
HC79.E5H32923 1997
333.7—dc20
96-8717
CIP
Printed in Great Britain
Contents
List of Figures ix
List of Tables xii
Introduction xiii
Acknowledgements xv
1 The Economy and the Environment:
Two Parts of a Whole 1
1.1 Introduction 1
1.2 Interlinkages between the economy and the environment 2
1.3 The first two laws of thermodynamics 11
1.4 Conclusions 13
Technical note: game theory 14
2 Market Failure 22
2.1 Introduction 22
2.2 Incomplete markets 24
2.3 Externalities 29
2.4 Non-exclusion and the commons 37
2.5 Non-rivalry and public goods 42
2.6 Non-convexities 46
2.7 Asymmetric information 49
2.8 Concluding comments 56
3 Economic Incentives for Environmental Protection:
An Overview 58
3.1 Introduction 58
3.2 Price rationing: charges and subsidies 61
3.3 Liability rules: non-compliance fees, bonds, and
deposit refunds 29
3.4 Quantity rationing: marketable permits 87
3.5 Evaluative criteria
3.6 Practical conditions for use of economic incentives 95
3.7 Concluding remarks 97
Technical note: mathematical programming 98
v
vi Contents
4 Pollution Taxes for the Efficient Control of Pollution
106
4.1 Introduction
106
4.2 Efficiency properties of a tax on emissions *
107
4.3 Problems with pollution taxes
115
4.4 Conclusions
128
5 Tradeable Pollution Permits
130
5.1 Introduction
130
5.2 The basic theory of tradeable pollution permits
130
5.3 Research issues in tradeable permit markets
139
5.4 Conclusions
155
6 Transboundary Pollution Problems
159
6.1 Introduction
159
6.2 Transboundary pollution as a problem of international
externalities
163
6.3 Transboundary pollution and game theory
166
6.4 Conclusions
173
7 An Introduction to the Economics of Natural
Resource Exploitation
177
7.1 Introduction
177
7.2 Elementary capital theory
179
7.3 The maximum principle of optimal control theory
182
7.4 The application of the maximum principle to specific
fishery management problems
189
7.5 The discrete-time maximum principle and dynamic
programming
202
7.6 Wiener processes, Ito’s processes and stochastic calculus
206
7.7 Conclusions
214
8 Natural Resources: Types, Classification and Scarcity
216
8.1 Natural resource types and classification
216
8.2 Measuring resource scarcity
217
8.3 Conclusions
225
9 An Economic Analysis of Non-renewable
Natural Resources
227
9.1 Introduction
227
9.2 Market structure and the exploitation of
non-renewable resources
228
Contents vii
9.3 Production technology and extraction costs 248
9.4 Applying the theory 258
9.5 Government polic^ towards non-renewable
resource taxation 264
9.6 Uncertainty and the rate of resource extraction 266
9.7 Summary 270
10 Renewable Resource Economics 274
10.1 Introduction 274
10.2 Population growth models 276
10.3 Static models of fishery exploitation in continuous time 281
10.4 Static economic models of fisheries 286
10.5 Comparative dynamic models of fishing 288
10.6 Fisheries policy 298
10.7 Applying the theory and the discrete-time model 303
10.8 Extending the theoretical model 308
10.9 Strategic behaviour in fishery management 313
10.10 Fishing under uncertainty 325
10.11 Summary 332
11 The Economics of Forestry Exploitation 335
11.1 Introduction 335
11.2 The principles of commercial forestry economics 336
11.3 Multi-use forestry and the socially optimal forest rotation 340
11.4 Forestry land use and agriculture 343
11.5 Forest policies 350
11.6 The optimal forest rotation under uncertainty 352
11.7 Summary 354
12 The Theory of Non-market Valuation 356
12.1 Introduction 356
12.2 Measures of economic value 357
12.3 Valuing risk and ex ante measures of value 368
12.4 Issues in non-market valuation 372
12.5 Concluding comments 381
13 Methods for Valuing Environmental Costs
and Benefits ^83
13.1 Introduction ^
13.2 Direct methods of valuation 384
13.3 Indirect methods of valuation 404
13.4 Summary 418
viii Contents
^ The Economics of Sustainable Development 425
14.1 Introduction 425
14.2 Possible sustainability rules * 42g
14.3 Indicators of sustainability 433
14.4 The Common-Perrings model of sustainable development 443
Index
451