1.
WHAT IS NATURAL RESOURCE
ECONOMICS & WHY IS IT
IMPORTANT?
AGEC 3503
SPRING 2006
Larry D. Sanders
Dept. of Ag Economics
Oklahoma State University
1
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.
2
INTRODUCTION
 Natural
Resource Economics Syllabus
– Purpose
– Evaluation
– Schedule
 Importance
of Student Activity
3
Instructor/Philosophy
 Personal/Professional
Background
 Teaching
Philosophy
 Student Info
4
“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 AH722
Handouts
Supplementary Readings
Govt. Documents--Library
Congress, Legislature, St/Fed Agencies
Electronic sources (note biased vs. objective sources)
“Experts”
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Team Exercise
1.
2.
3.
Instructor assigns teams
Each team identify top
3 natural
resource/environmental
issues in 5 years
Be prepared to briefly
explain each issue
7
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, application, 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
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decision & to whom those costs & benefits accrue
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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Special: Break for cartoon!
 Sometimes
some
folks go to
extremes to get our
attention!
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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
 Summary:
Improved management of natural resources,
whether for private, public or natural gain
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Classification of Natural Resources
NATURAL RESOURCES
FLOW
RESOURCES
NONSTORABLE
RESOURCES
(ENVIRONMENTAL
RESOURCES)
FUND
RESOURCES
RENEWABLE
RESOURCES
NONRENEWABLE
RESOURCES
STORABLE
RESOURCES
NONRECYCLABLE
RESOURCES
RECYCLABLE
RESOURCES
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Classification of Resources (continued)
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
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Nonstorable Flow Resources
Scenic
Views
Ocean
Waves
Sunshine
“Weather”
Ecosystems
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Classification of Resources (cont)
1. Flow Resources (cont)
b. Storable (by nature, as in living matter;
by humans with technology)
» May be divisible
» Time & management relevant to both
to consumption & supply
» The services are what are significant
for humans
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Storable Flow Resources
Geothermal
Energy
Wind
Solar
Hydro
Power
Wave
Energy
Hydrogen Energy
Water
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Classification (cont.)
2. Fund Resources (stock or depletable
resources)
a. Exhaustible & Renewable
»Regenerative within human use time
frame
»Assumes use within minimum &
maximum thresholds
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Exhaustible & Renewable Fund Resources
Timber
& Crops
Fish
Animals
(human &
nonhuman
Soil & Water
Quality
Grazing
Lands
Forests & some
Unique ecosystems
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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, many “renewable” resources
when thresholds violated)
(2) Recyclable--Examples: some minerals
(iron, aluminum, gold, silver)
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Natural Resource Examples
FLOW RESOURCES
NONSTORABLE
STORABLE
FUND RESOURCE
RENEWABLE
NONRENEWABLE
nonrecyc. recyclable
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)
22
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.
Kahn, J.R. The Economic Approach to Environmental and
Natural Resources, second edition, 1998.
Sanders, various notes
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L1: Homework
 Read
Ch. 1, Hackett (10-12 Jan)
 Do Problem #1, p. 16 (12 Jan) –5 points
 Refer to “Internet Links” (12 Jan) –5 points
– Select 2 links
– Briefly review, including
» Content
» Bias or objectivity
» Likely use of material
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