University of California at Santa Barbara
Bren School of Environmental Science & Management
ESM 204: Economics for Environmental Management
Winter 2013
(January 10, 2013)
Class: Tu Th 10:00-11:15pm (Bren 1414).
Sections: T1-1:50 (BH 1510), T2-2:50 (BH 3526), T3-3:50 (BH 3526), W2-2:50 (BH 2436)
Instructor: Professor Gary D. Libecap; glibecap@bren.ucsb.edu
Prof. Libecap's office hours: Tu 11:30-12:30 (4412 Bren Hall) and by appointment.
Teaching Assistant: Eric Edwards, eredwards@bren.ucsb.edu
Eric Edwards’ office hours: Th 11:30-12:30 (3308 Bren Hall)
Resources and Assignments: gauchospace.ucsb.edu
Introduction:
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What is economics from a practical, problem-solving point of view?
What is fundamentally different about environmental goods that require special analysis,
as compared to automobiles, restaurant meals, and the job market for MESM students?
What are the feasible solutions to environmental problems and how can economics be
used to analyze and address the tradeoffs involved?
The answers to these questions are the central themes of this core course in The Economics of
Environmental Management. Broadly speaking, economics is the science of how scarce
resources are allocated: how decisions are made; what costs and benefits are weighed; the
institutional structure in which decisions are made (individual, within firms, within NGOs,
within government agencies, within the political process); the impact of those decisions on
efficiency and equity.
Economics can provide a useful framework within which to analyze environmental problems and
approaches to solve them. Economic activity always has some environmental impacts and the
questions are whether these are considered in decision-making; whether the impacts are socially
acceptable; and if not what tradeoffs are inherent in the various options to address them.
Problems include (carbon emissions, overharvesting renewable resources, toxic releases as a byproduct of industrial production, rapid drawdown of aquifers; misallocation of resources, such as
water).
The purpose of the course is to give you a solid foundation in those aspects of economics and
quantitative policy analysis that are important to environmental and natural resource
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management and policy. The course will also serve as the foundation in economics for
management, economics and policy electives in the Bren School. It also provides you with the
economic analysis tools you need to address the kinds of environmental problems you can expect
to encounter as a practicing environmental professional.
Workload. This is a graduate level course with significant workload, both in terms of the
reading and out-of-class assignments. You can expect an average of 8-10 hours of work per
week.
Lectures. Lecture slides will be available shortly before the lecture on Gauchospace.
Readings. Most readings will be available on Gauchospace or in the Bren Commons Reading
Room. These suggested textbooks are:
1. Kolstad: Environmental Economics (2nd Edition, 2010).
2. A book that covers much of the material in the course at an elementary level is
Goodstein: Economics and the Environment (any edition). A copy is in the Bren
Commons Reading Room.
Video Assignment. To underscore the importance of communicating to others the concepts
used in this class, each of you will produce a one minute video explaining a key concept covered
in the course to an audience of first year MESM students who have not yet taken any classes at
Bren. You may work on a team of two people if you wish and only one of you need be on
camera (only one video needed from a two person team). You will be graded on (1)
effectiveness of your presentation in conveying concepts, (2) your explanation of the problem
you are explaining, (3) the correctness and completeness of your presentation, (4) the difficulty
of the concept you are explaining, and (5) the overall pedagogic effectiveness of your video. The
maximum length of time (excluding title and credits) is one minute (this is important). You
don’t need any special equipment – you can use your cell phone for this if you wish. Your video
must be uploaded to Gauchospace with a title that includes the surnames of the students
responsible. Deadline: March 15, 2013 (no exceptions).
Project Assignments. There are six assignments. The deliverable portion of the assignment will
be described in the assignment and will be turned in on Gauchospace. Make sure your last
name(s) is (are) in the title of the file. These projects are a very important part of the course (as
reflected in their contribution to your final grade). Writing quality counts! Assignments are by
the end of the day Monday, the week after they are assigned. Due dates are below and also on
Gauchospace. The assignments will be returned within a week in most cases. You may work in
a team of two on your assignments but you cannot keep the same partner for more than one
assignment – keep moving!
Assignment Due Dates:
Assignment 1
Assignment 2
Assignment 3
Assignment 4
January 21
January 28
February 4
February 25
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Assignment 5
Assignment 6
March 4
March 11
Exams. The midterm will be in class on Feb 14♥ and the final will be take-home, due at noon
March 19, 2013. The midterm will be closed book though you may bring one single sheet of
paper (8.5”x11”) with notes (on both sides) to the exam.
Grading. The course requirements are a midterm (15%), final exam (20%), homework/miniprojects (40%), video (10%) and class/section participation (15%).
Participation: Class participation will be based on two components. (1. Quantitative)
Section attendance (y/n) and participation (section quizzes). (2. Qualitative) Quality of
participation in section and lecture. The quantitative portion will be the primary mechanism for
determining the grade, but we reserve the right to increase a grade for exceptional contributions,
or decrease one based on disruption or lack of preparation.
Honor Code and Joint Work. Collaboration with your homework/project partner (who
changes with every assignment) is encouraged. Homework/project collaboration beyond this is
not appropriate for learning the skills you need individually.
Prerequisites . ESM 251 or its equivalent and Excel graphing and solver.
Course Outline The 10 weeks of the course are divided roughly as follows:
1) The Tragedy of the Commons. [3 weeks]
i) Environmental Economics.
ii) Open access outcomes.
iii) Rival and non-rival goods.
iv) Positive and normative analysis.
2) Solutions [3 weeks]
i) More complete assignment of property rights—group and private. Tradeoffs,
incentives, and political economy.
ii) Government regulation. Approaches, incentives, and political economy.
iii) Government tax policy. Approaches, incentives, and political economy.
iv) Distributional implications of each.
v) Transaction costs in solution selection.
3. Making Decisions about Environment Protection: Introduction to Benefit/Cost Analysis [2
weeks]
i) Discounting, risk, and uncertainty.
ii) Measuring the costs of environmental projects.
iii) Measuring the benefits of environmental protection (“Valuation”)
4) Renewable and Exhaustible Natural Resources [2 weeks]
i) Rent
ii) Renewable natural resources – fisheries, forests, water.
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iii) Exhaustible natural resources – minerals, aquifers.
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Week.
Topic
Content and Readings (*=required)
Environmental
Economics and
Open Access
1. *Kolstad, Chapter 1
2. *Garrett Hardin, 1968, “The Tragedy of the Commons,” Science 162:
1243-8.
3. * H. Scott Gordon, 1954, “The Economic Theory of a Common
Property Resource: The Fishery,” Journal of Political Economy 62(2):
128-42.
2. Tragedy of
the Commons
Open Access
Outcomes
1. * Jennifer Devine, Krista Baker and Richard Haedrich, 2006,
“Fisheries: Deep-Sea Fishes Qualify as Endangered,” Nature 439
January 5, 29.
2. * Scott Farrow, 1995, “Extinction and Market Forces: Two Case
Studies,” Ecological Economics, 13: 115-23.
3. * Dean Lueck, 2002, “The Extermination and Conservation of the
American Bison,” Journal of Legal Studies, 31 (S2): S609-650.
4. *Zeynep K. Hansen and Gary D. Libecap, 2004, “Small Farms,
Externalities, and the Dust Bowl of the 1930s,” Journal of Political
Economy 112(3): 665-694.
4. M. Scott Taylor, 2011, “Buffalo Hunt: International Trade and the
Virtual Extinction of the North American Bison,” American Economic
Review, 101 (December): 3162–3195.
5. Robert Stavins, 2011. “The Problem of the Commons: Still Unsettled
after 100 Years,” American Economic Review 101: 81–108.
3. Tragedy of
the Commons
Rival and Non
Rival Goods;
Positive and
Normative
Analysis
1. Tragedy of
the Commons
4. Solutions
Property Rights
1.
* Kolstad, Chapters 2, 5.
1. *Kolstad, Chapter 13.
2. *Avinash Dixit, 2004, Lawlessness and Economics: Alternative Forms
of Governance, Chapter 5, Private Protection of Property Rights, pp.
124-44.
3. *Harold Demsetz, 1967, “Toward a Theory of Property Rights,”
American Economic Review 57(2): 347-59.
4. * Gary Libecap, 1989 Contracting for Property Rights, New York:
Cambridge University Press, Chapter 2, 0-28 only.
5. *Yoram Barzel, 1997, Economic Analysis of Property Rights, New
York: Cambridge University Press, 2nd ed, Chapter 1, “The Property
Rights Model,” 3-11 only
6. * Elinor Ostrom, 1998, “Self Governance of Common-Pool
Resources,” The New Palgrave Dictionary of Economics and The
Law. Peter Newman, ed. New York: Macmillan, Vol. 3: 424-432.
7. *Christopher Costello, Steven Gaines, and John Lynham, 2008, “Can
Catch Shares Prevent Fisheries Collapse?” Science 321. September 19:
1677-78.
8. Richard Hornbeck, 2010. “Barbed Wire: Property Rights and
Agricultural Development,” Quarterly Journal of Economics, 125,
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767–810.
5. Solutions
6. Solutions
Regulation and
Tax Policies
Transaction Costs
1. *Kolstad, Chapters 11, 12.
2. *Sam Peltzman, 1976. “Toward a More General Theory of
Regulation,” Journal of Law and Economics 19 (2): 211-40.
3. *Ronald N. Johnson and Gary D. Libecap, 1982, “Contracting
Problems and Regulation: The Case of the Fishery” American
Economic Review 72 (5): 1005-22.
1. * Ronald Coase, 1960, “The Problem of Social Cost,” Journal of Law
and Economics 3: 1-44 only.
2. * Carl J. Dahlman, 1979, “Externality,” Journal of Law and Economics,
22: 141-62.
6. Midterm
7. Decisions
Risk, Uncertainty
& Decisionmaking,
Estimating
Benefits of
Environmental
Protection:
Revealed
Preference
8. Decisions
Revealed &
Stated Preference
9.Resources
Rent, Fisheries,
Forests, Water
10. Resources
March 19
noon
1. *Kolstad, Chapter 18
2. *Kolstad, Chapters 7, 8
3. *Maille & Mendelsohn, 1993. “Valuing Ecotourism in Madagascar,”
Journal of Environmental Management, 38:213-8.
1. *Kolstad, Chapter 10
2. * Nathaniel Keohane and Sheila Olmstead, 2007, Markets and the
Environment, Chapter 3, Island Press.
Exhaustible
resources:
Aquifers and
minerals.
Sustainability
Final Exam due
Final exam – take home. Available March 15 (submit to Gauchospace).
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