AGENCY

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• AGENCY DISTRIBUTIONAL ISSUES (HIDDEN ECONOMICS)

Prof David K. Linnan USC LAW 666 Unit Five
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CONCEPTS

• BASIC CONCEPTS BEHIND ENVIRONMENTAL NATURAL
  RESOURCE ECONOMICS
• 1. Property rights issues with environment as
  provider of services
• a. Definition, defense transferability
• b. Public good problems (non-excludability
• non-rivalrous consumption)
• c. Common property problems slightly different
• 2. Externalities free riders
• a. Market failure arguments as justification
  for govt/intl regulation taxation as cost
  adjustment
• b. Agency cost issues once decision makers as
  agents do not bear full costs
• 3. Cost/benefit analysis at policy level
• a. Competing uses differing social and
  private marginal costs (taxes to merge, etc.)
• b. Utilitarian ethics vs public choice
  approaches)
• 4. Economic instruments idea can guaranty
  anti-pollution efficiency if problems resolved,
  but not distributive justice because most have
  hidden distributional consequences (plus prior
  allocation issues, for instance fishing quotas)

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ECON INSIGHTS I

• EFFICIENCY VS DISTRIBUTIVE EFFECTS
• 1. Technical arguments about environmental or
  natural resource economics as neoclassical
• a. Efficiency-based exercise as traditional
  microeconomics
• b. Remember eco-development piece chart
  including economic views (frontier economics
  property rights)?

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ECON INSIGHTS II

• EFFICIENCY VS DISTRIBUTIVE EFFECTS (CONTD)
• 2. Sustainable development entails what
  economic view (ecological economics)?
• a. Not efficiency based, but rather systems
  approaches measuring non- depletion
  (inter-generational equity)
• b. Maximizing what, depleteable
  non- depleteable effects?
• i. Non-declining well-being (capital stock)
• ii. Non-declining value of natural capital
• iii. Non-declining physical service flows

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ECON INSIGHTS III

• EFFICIENCY VS DISTRIBUTIVE EFFECTS (CONTD)
• 3. What should be anchor principle as to be
  maximized (back to issue of deep ecology, etc.)
• 4. Even staying with neo-classical
  microeconomic approaches, does not address
  distributional aspects
• a. Issues clear on economic instruments
  (taxes vs tradable permits, etc.)
• b. Both assigning property wealth
  disparities in market mechanism

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NATL RES ECON I

• NATURAL RESOURCE ECONOMICS AS NEO-CLASSICAL MICRO
  MODEL
• 1. Ultimately, conceive of environment as
  provider of goods/services (wetlands to filter
  water, clean air for O2, etc.)
• 2. Valuation issues on environment as asset,
  assuming ownership as with property rights
• a. Normal vs contingent (non-market)
  valuation
• b. Public goods question (who owns
  landscape vs the real property parcels)
• i. Non-excludability
• ii. indivisibility

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NATL RES ECON II

• NATURAL RESOURCE ECONOMICS AS NEO-CLASSICAL MICRO
  MODEL (CONTD)
• 3. Supply demand calculation for efficiency
  purposes
• a. Static (single period)
• b. Dynamic (multiple period, incorporating
  present value methodology for comparisons)
• c. Marginal vs average calculations

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NATL RES ECON III

• NATURAL RESOURCE ECONOMICS AS NEO-CLASSICAL MICRO
  MODEL (CONTD)
• 4. Problem of uncaptured effects in property
  right terms (externalities)
• a. Free services (pouring untreated
  pollutants out of smoke stack)
• i. Benefit (external economy)
• ii. Detriment (external diseconomy)
• b Attendant issues re calculation valuation
  of harm (remediation vs injury vs?)

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NATL RES ECON IV

• NATURAL RESOURCE ECONOMICS AS NEO-CLASSICAL MICRO
  MODEL (CONTD)
• 5. Concept of market failure as traditional
  basis for regulation (cannot rely on property
  rights to ensure efficient allocation decision)
• 6. Free rider issues (incentive questions)
• 7. Divergence of social private discount rates

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NATL RES ECON V

• NATURAL RESOURCE ECONOMICS AS NEO-CLASSICAL MICRO
  MODEL (CONTD)
• 8. Cost-benefit analysis for policy planning
  purposes
• a. Primary vs secondary effects
• b. Tangible vs intangible benefits
• c. Treatment of risk
• i. Probability of particular outcome
• ii. Uncertainty of effect
• iii. Anchoring misestimation (psych)
• iv. Individual differences re openness to
  risk vs risk aversion
• v. Private vs social discount rates in
  practice

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NATL RES ECON VI

• NATURAL RESOURCE ECONOMICS AS NEO-CLASSICAL MICRO
  MODEL (CONTD)
• 9. Impact analysis (like engineering study),
  typically in face of issues meaning no clarity
  on what to maximize so input/output study
• 10. Non-use or passive use (e.g., biodiversity),
  can treat as contingent valuation kind of
  problem too, but issue hidden is multiple
  possible uses, and change over time
• 11. Information assymetry problems

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ECONOMIC ACTIVITY

• WHAT DOES THE BELOW MAP TELL YOU ABOUT COUNTRIES
  AND ENVIRONMENTAL ECONOMICS/ACTIVITY?
• http//www.lfip.org/laws666f06/index.htm
• NOTE THAT THIS IS ALL IN EFFECT MACRO, WHILE MUCH
  OF NATURAL RESOURCE ECONOMICS MICRO
• BUT WHAT ARE CONNECTIONS INTERNATIONALLY?

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ECON INSTRUMENTS I

• CONCEPT OF ECONOMIC INSTRUMENTS ROLE
• 1. Idea of alternative to inefficient command
  control approach
• 2. Typical alternatives are taxes or tradable
  permits
• a. Green taxes may allow assigning costs
  otherwise skipped as externalities (e.g.,
  excise taxes on tires to pay for recycling them
  later, carbon taxes to pay for GCC abatement
  costs)
• b. Tradeable permits allow producers with
  different remediation costs to remediate vs
  buy right to pollute (to create which someone
  else remediates)

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ECON INSTRUMENTS II

• CONCEPT OF ECONOMIC INSTRUMENTS ROLE (CONTD)
• 3. Distributional aspects are introduced in two
  ways
• a. Taxation discourages lower income groups
  consumption (income elasticity)
• i. Preference for income over clean air,
  treat as legitimate?
• ii. Environmental justice problem writ
  large, exacerbating effects of income
  distribution

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ECON INSTRUMENTS III

• CONCEPT OF ECONOMIC INSTRUMENTS ROLE (CONTD)
• 3. Distributional aspects are introduced in two
  ways (contd)
• b. Permitting requires a prior assignment of
  property
• i. Grandfathering vs outright auction,
  with the difference whether benefit to
  government or private party
• ii. Then creates its own externalities, as
  with those residing near highly polluting
  facility that buys its way out of remediation
  in buying permit to pollute unequal
  remediation locally beyond lowest cost global
  efficiency arguments
• c. Differing long short term impacts on
  employees, consumers, etc. via adjustment
  cost concept

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AGENCY

• AGENCY AS ECONOMIC CONCEPT
• 1. Problem of incentives, assymetric
  information control by principal (agency
  costs analysis focusing on conflicts of
  interest, costs of monitoring, etc.)
• 2. Who does the agent represent, and in
  environmental setting how do you apply agency
  concept to competing candidates (government
  NGOs both claiming to represent people or public
  interest)?

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PROB CONCEPTS

• HIDDEN ECONOMIC CONCEPTS IN PROBLEMS
• How to apply the various economic concepts to
  the readings and problems?