1. WHAT IS NATURAL RESOURCE ECONOMICS

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1. WHAT IS NATURAL RESOURCE ECONOMICS WHY
IS IT IMPORTANT?SPRING 2002

• Larry D. Sanders

Dept. of Ag Economics Oklahoma State
University
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INTRODUCTION

• Purpose
• 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.

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INTRODUCTION

• Natural Resource Economics Syllabus
• Purpose
• Evaluation
• Schedule
• Importance of Student Activity

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Instructor/Philosophy

• Personal/Professional Background
• Teaching Philosophy
• Student Info

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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

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Where to get more information

• Syllabus
• Sources
• Hackett
• ERS-USDA Pub. No. 712
• Handouts
• Supplementary Readings
• Govt. Documents--Library
• Congress, Legislature, St/Fed Agencies
• Electronic sources (note biased vs. objective
  sources)
• Experts

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Key Terms

• Natural Resources
• 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

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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

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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

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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

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Classification of Resources

• 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
• Examples
• Sunshine (?), weather, ocean waves (?)
• Forests, scenic views, unique ecosystems

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Classification of Resources (cont)

• 1. Flow Resources (cont)
• b. Storable
• May be divisible
• Time management relevant to both to consumption
  supply
• Water
• Solar, wind, wave, geothermal hydro energy
  (services)

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Classification of Resources (cont.)

• 2. Fund Resources (stock or depletable resources)
• a. Exhaustible Renewable
• Regenerative within human use time frame
• Assumes minimum maximum threshold of use
• Examples
• Timber crops
• Animals, Fish Humans
• Soil Water Quality, Grazing lands

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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)
• (2) Recyclable--Examples some minerals (iron,
  aluminum, gold, silver)

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Natural Resource Examples

• FLOW RESOURCES FUND RESOURCE
• NONSTORABLE STORABLE RENEW. NONRENEW.(1)
  NONRENEW.(2)
• 1.
• 2.
• 3.
• 4.
• 5.
• 6.
• 7.
• 8.
• 9.
• 10.

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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)

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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

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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.