Natural Resource and Environmental Economics Natural Resource and Environmental ...

726 Pages·2011·6.09 MB·English

by  Sriram Subramanya

Natural Resource and Environmental Economics
www.booksites.net
Roger Perman Yue Ma James McGilvray Michael Common 3rd edition
3rd edition
R N
Natural Resource and Environmental Economicsis o
among the leading textbooks in its field. Well written and Features: g a
roigf oprroeuviso uins ietsd iatipopnrso aacnhd, cthoinst itnhuireds e tdoi tpiorno vfiodlelo aw sc oinm tphree -vein • New chapterson pollution control with er P tu
hensive and clear account of the application of economic imperfect information; cost-benefit analysis e r
r a
analysis to environmental issues. The new edition retains all and other project appraisal tools; and stock m
l
of the topics from the second edition but has been pollution problems a
n R
reorganised into four Parts: I Foundation II Environmental • Substantial extensionsto existing chapters,
Pollution III Project Appraisal IV Natural Resource including a thorough account of game theory e
Exploitation. and its application to international Yu s
e o
environmental problems; fuller treatments of

This text has been written primarily for the specialist renewable resource and forestry economics; M u
market of second and third year undergraduate and and greater emphasis on spatial aspects of a r
postgraduate students of economics. pollution policy c
e
J
• New pedagogical featuresincluding a
m a
learning objectives, chapter summaries, Natural Resource and Environmental Economics
e n
further questions and more concise boxed s
cases M d
Roger Permanis Senior Lecturer in Economics,
Strathclyde University. His major research interests and • New accompanying websiteat cG E
publications are in the field of applied econometrics and www.booksites.net/permanprovides a rich ilv n Roger Perman Yue Ma James McGilvray Michael Common 3rd edition
environmental economics. variety of resources for both lecturers and r v
a
students y i
r
Michael Commonis Professor in the Graduate School of • Case studiesand examplesare used o

Environmental Studies at Strathclyde University. His major extensively, highlighting the application of M n
research interests are the development of ecological theory ic m
economics and policies for sustainability. h
• Further readings, discussion questionsand ae e
Yue Mais Associate Professor in Economics, Lingnan problemsconclude each chapter l C n
University, Hong Kong, and Adjunct Professor of Lingnan • Detailed mathematical analysisis covered o t
m a
College, Zhongshan University, China. His major research in appendices to the relevant chapters
m l
interests are international banking and finance, as well as
• Writing style andtechnical levelhave been o E
environmental economics for developing countries. n
made more accessible and consistent
c
o
The late James McGilvraywas Professor of Economics at
Strathclyde University. He made important contributions in n
the fields of input-output analysis, social accounting and o
economic statistics, and to the study of the economics of m
Cover Image ©Getty Images
transition in Central and Eastern Europe.
i
c
s
www.booksites.net www.pearsoneduc.com www.booksites.net
Natural Resource and Environmental Economics
We work with leading authors to develop the
strongest educational materials in resource
and environmental economics, bringing
cutting-edge thinking and best learning practice
to a global market.
Under a range of well-known imprints, including
Addison-Wesley, we craft high quality print and
electronic publications which help readers to understand
and apply their content, whether studying or at work.
To find out more about the complete range of our
publishing, please visit us on the World Wide Web at:
www.pearsoneduc.com
Natural Resource
and Environmental
Economics
Third Edition
Roger Perman
Yue Ma
James McGilvray
Michael Common
Pearson Education Limited
Edinburgh Gate
Harlow
Essex CM20 2JE
and Associated Companies throughout the world
Visit us on the World Wide Web at:
www.pearsoneduc.com
First published 1996 Longman Group Limited
Second edition 1999 Addison Wesley Longman Limited
Third edition 2003 Pearson Education Limited
© Longman Group Limited 1996
© Addison Wesley Longman Limited 1999
© Pearson Education Limited 2003
The rights of Roger Perman, Yue Ma, James McGilvray and
Michael Common to be identified as the authors of this work
have been asserted by them in accordance with the Copyright,
Designs and Patents Act 1988.
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 either the prior written permission of the
publisher or a licence permitting restricted copying in the United Kingdom issued by the
Copyright Licensing Agency Ltd, 90 Tottenham Court Road, London W1P 0LP.
IS BN 0273655590
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Natural resource and environmental economics / Roger Perman...[et al.].—3rd ed.
p. cm.
Rev. ed. of: Natural resource and environmental economics / Roger Perman,
Yue Ma, James McGilvray. 1996.
Includes bibliographical references and index.
ISBN 0-273-65559-0 (pbk.)
1. Environmental economics. 2. Natural resources—Management.
3. Sustainable development. I. Perman, Roger, 1949– Natural resource and
environmental economics.
HC79.E5 P446 2003
333.7—dc21 2002042567
10 9 8 7 6 5 4 3 2 1
06 05 04 03
Typeset in 9.75/12pt Times by 35
Printed and bound by Ashford Colour Press Ltd., Gosport
Contents
Preface to the Third Edition xiii
Acknowledgements xv
Notation xvi
Introduction xix
Part I Foundations
Chapter 1 An introduction to natural resource and environmental
economics 3
Learning objectives 3
Introduction 3
1.1 Three themes 3
1.2 The emergence of resource and environmental economics 4
1.3 Fundamental issues in the economic approach to resource
and environmental issues 10
1.4 Reader’s guide 12
Summary 14
Further reading 15

Chapter 2 The origins of the sustainability problem 16
Learning objectives 16
Introduction 16
2.1 Economy–environment interdependence 17
2.2 The drivers of environmental impact 28
2.3 Poverty and inequality 41
2.4 Limits to growth? 44
2.5 The pursuit of sustainable development 48
Summary 52
Further reading 52
Discussion questions 54
Problems 54
Chapter 3 Ethics, economics and the environment 56
Learning objectives 56
Introduction 56
vi Contents
3.1 Naturalist moral philosophies 57
3.2 Libertarian moral philosophy 58
3.3 Utilitarianism 59
3.4 Criticisms of utilitarianism 64
3.5 Intertemporal distribution 67
Summary 75
Further reading 75
Discussion questions 76
Problems 77
Appendix 3.1 The Lagrange multiplier method of
solving constrained optimisation problems 77
Appendix 3.2 Social welfare maximisation 80
Chapter 4 Concepts of sustainability 82
Learning objectives 82
Introduction 82
4.1 Concepts and constraints 83
4.2 Economists on sustainability 86
4.3 Ecologists on sustainability 92
4.4 The institutional conception 96
4.5 Sustainability and policy 97
Summary 103
Further reading 103
Discussion questions 104
Problems 104
Chapter 5 Welfare economics and the environment 105
Learning objectives 105
Introduction 105
Part I Efficiency and optimality 105
5.1 Economic efficiency 107
5.2 An efficient allocation of resources is not unique 109

5.3 The social welfare function and optimality 112
5.4 Compensation tests 113
Part II Allocation in a market economy 116
5.5 Efficiency given ideal conditions 116
5.6 Partial equilibrium analysis of market efficiency 119
5.7 Market allocations are not necessarily equitable 122
Part III Market failure, public policy and the environment 124
5.8 The existence of markets for environmental services 124
5.9 Public goods 126
5.10 Externalities 134
5.11 The second-best problem 142
5.12 Imperfect information 143
5.13 Government failure 144
Summary 145
Further reading 146
Discussion questions 146
Problems 146
Appendix 5.1 Conditions for efficiency and optimality 147
Contents vii
Appendix 5.2 Market outcomes 152
Appendix 5.3 Market failure 153
Part II Environmental pollution
Chapter 6 Pollution control: targets 165
Learning objectives 165
Introduction 165
6.1 Modelling pollution mechanisms 167
6.2 Pollution flows, pollution stocks, and pollution damage 169
6.3 The efficient level of pollution 170
6.4 A static model of efficient flow pollution 171
6.5 Modified efficiency targets 174
6.6 Efficient levels of emissions of stock pollutants 177
6.7 Pollution control where damages depend on location
of the emissions 177
6.8 Ambient pollution standards 179
6.9 Intertemporal analysis of stock pollution 181
6.10 Variable decay 186
6.11 Convexity and non-convexity in damage and abatement
cost functions 187
6.12 Estimating the costs of abating pollution 189
6.13 Choosing pollution targets on grounds other than
economic efficiency 193
Summary 194
Further reading 195
Discussion questions 196
Problems 196
Appendix 6.1 Matrix algebra 196
Appendix 6.2 Spatially differentiated stock pollution:
a nume rical example 201
Chapter 7 Pollution control: instruments 202
Learning objectives 202
Introduction 202
7.1 Criteria for choice of pollution control instruments 203
7.2 Cost efficiency and cost-effective pollution abatement
instruments 204
7.3 Instruments for achieving pollution abatement targets 206
7.4 Economic incentive (quasi-market) instruments 217
7.5 Pollution control where damages depend on location
of the emissions 228
7.6 A comparison of the relative advantages of command
and control, emissions tax, emission abatement subsidy
and marketable permit instruments 234
Summary 238
Further reading 239
Discussion questions 240
viii Contents
Problems 241
Appendix 7.1 The least-cost theorem and pollution
control instruments 242
Chapter 8 Pollution policy with imperfect information 247
Learning objectives 247
Introduction 247
8.1 Difficulties in identifying pollution targets in the context
of limited information and uncertainty 248
8.2 Sustainability-based approaches to target setting and the
precautionary principle 249
8.3 The relative merits of pollution control instruments
under conditions of uncertainty 251
8.4 Transactions costs and environmental regulation 261
Summary 266
Further reading 267
Discussion question 268
Problems 268
Chapter 9 Economy-wide modelling 269
Learning objectives 269
Introduction 269
9.1 Input–output analysis 270
9.2 Environmental input–output analysis 274
9.3 Costs and prices 278
9.4 Computable general equilibrium models 281
Summary 290
Further reading 290
Discussion questions 290
Problems 291
Appendix 9.1 A general framework for environmental
input–output analysis 291

Appendix 9.2 The algebra of the two-sector CGE model 295
Chapter 10 International environmental problems 297
Learning objectives 297
Introduction 297
10.1 International environmental cooperation 298
10.2 Game theory analysis 299
10.3 Factors contributing to enhancing probability of international
agreements or achieving a higher degree of cooperation 311
10.4 International treaties: conclusions 312
10.5 Acid rain pollution 312
10.6 Stratospheric ozone depletion 319
10.7 The greenhouse effect 321
10.8 International trade and the environment 339
Learning outcomes 342
Further reading 343
Discussion questions 345
Contents ix
Problems 346
Appendix 10.1 Some algebra of international treaties 346
Part III Project appraisal
Chapter 11 Cost–benefit analysis 351
Learning objectives 351
Introduction 351
11.1 Intertemporal welfare economics 352
11.2 Project appraisal 362
11.3 Cost–benefit analysis and the environment 373
Summary 385
Further reading 386
Discussion questions 387
Problems 387
Appendix 11.1 Conditions for intertemporal efficiency
and optimality 388
Appendix 11.2 Markets and intertemporal allocation 395
Chapter 12 Valuing the environment 399
Learning objectives 399
Introduction 399
12.1 Dimensions of value 400
12.2 The theory of environmental valuation 403
12.3 Environmental valuation techniques 411
12.4 The travel cost method 411
12.5 Contingent valuation 420
12.6 Other techniques 435
Summary 440
Further reading 440
Discussion questions 441
Problems 441
Appendix 12.1 Demand theory and environmental evaluation 442
Chapter 13 Irreversibility, risk and uncertainty 444
Learning objectives 444
Introduction 444
13.1 Individual decision making in the face of risk 445
13.2 Option price and option value 448
13.3 Risk and irreversibility 451
13.4 Environmental cost–benefit analysis revisited 457
13.5 Decision theory: choices under uncertainty 459
13.6 A safe minimum standard of conservation 461
Summary 464
Further reading 465
Discussion questions 466
Problems 466