Syllabus of Economics 436
Environmental Economics
Winter 2013
Hendrik Wolff
Emails1:
Instructor: hgwolff@uw.edu - Grader: eh26@uw.eduj
Prerequisite: ECON 300.
Course goals and course description: This course aims at equipping students with economic
methods and tools to analyze basic environmental issues while strengthening group work skills.
This course combines theoretical analysis with discussions on specific environmental policies as
applied to water, air pollution, energy, climate change and human health issues. Within these
examples, particular topics that will be covered are the concepts of sustainability,
microeconomic analysis of environmental regulation, the problem of social cost, policy
instrument choice, and estimating costs and benefits of environmental improvements via
revealed preferences (hedonic analysis, travel cost method, household production) and stated
preferences via constructed markets.
Class Sessions
There will be two meetings per week, each lasting one hour and fifty minutes, Mondays and
Wednesdays from 3:30pm to 5:20pm in Loew Hall room number 105. Most class sessions will
involve a lecture and a discussion section.
Students are expected to do the suggested readings before the class. Since part of the exams,
the in class quizzes are often “open book”, it is suggested that you bring the respective reading
material to class. Active participation in the class is required.
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Feel free to email me any time at hgwolff@u.washington.edu for any research or urgent course
related questions. Please note, however, that emails with questions regarding course material
shortly before problem set due dates or exams will NOT be answered. As a general rule: If I
reply to an email, I may typically include into the cc of the email all other students of the class
too via econ436a_wi13@uw.edu. If you don’t want that I reply your email to all students, please
let me know in your email, otherwise I assume that the email is “forwardable”.
Also students can email to the entire class by sending an email to econ436a_wi13@uw.edu.
Please note you have to use your UW email account to successfully email to
econ436a_wi13@uw.edu. To avoid spams, all other email accounts (except your UW email
account) will NOT arrive at econ436a_wi13@uw.edu.
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Groups
Every student is expected to actively participate in one group during the quarter. Students will
chose groups of about 3 on January 14th 2013 (the exact number of students in each group will
be determined in early January). On January 14th 2013 an email should be send to me and cc
to eh26@uw.edu, including the names of your group members and your student ID numbers. It is
required that every group meets in addition to the classroom time for several hours every week
to prepare the group assignments and review classroom materials and discuss questions. Take
the group work seriously as a large portion of your final grade is made up of group assignments,
presentations and papers. Groups will complete 3 projects:
1. Final Group Paper
Groups will collaborate, write and present their final group paper. The group will receive one
grade for the completion of this project. The paper will be 13 to 17 pages on a specific
environmental issue. We will discuss possible paper topics in the first/second week of the class.
The basis for the paper will come from a set of recent academic articles in major environmental
economic or general economic journal (i.e. Journal of Environmental Economics and
Management, American Economic Review, Quarterly Journal of Economics, Review of
Environmental Economics and Management, Journal of Economics Perspectives etc.) that
discusses a very specific environmental issue with economic and policy consequences. In the
past topics included “nuclear economics”, “Payment for Ecosystem Services”, “Cap and Trade”,
“Traffic Restrictions to increase Air Quality”. The group paper should then have the following five
sections:
(i)
Summary
This is a maximum 1 page summary of your paper.
(ii)
Introduction (please include the following subsections):
(ii-a) What is the issue (define the problem)
(ii-b) why is this issue important?
In this subsection (ii-b) feel free to include quotes from major newspapers or
magazines, such as the New York Times or the Wall Street Journal or the
Economists, or some quote by some major public figure (politician etc.) that
discusses the problem.
(iii)
Economic Analysis:
How can economic tools be applied to analyze the issue?
Please include specific references to the existing academic literature (i.e. in
economic journals like i.e. Journal of Environmental Economics and Management,
American Economic Review, Quarterly Journal of Economics, Review of
Environmental Economics and Management etc.), that discusses this subject. This
Section (iii) is the most important Section of the paper and must include a thorough
literature review to back up your statements then under (iv)
(iv)
Conclusion
What lessons can we learn from the economics analysis (i.e. what are the policy
recommendations or what are the new insights for the business world or the
academic world etc.).
(v)
References
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List all the references used in your article. As of the style, we will go over styles in
class.
Please note: Handwritten papers will NOT be accepted, unless your handwriting looks as neatly
as the printing from a typewriter. The main text should be double-spaced. Do not use a font
smaller than 11 pt or larger than 12 pt. The length of the paper should not exceed 17 pages.
The following deadlines apply to this group paper:
(a) January 14th: Assignment/Choice of academic article(s) (on which the group paper is
based on). Please put these academic articles into dropbox as PDF files. I will introduce
you to dropbox in the first week of class.
(b) January 23th: One paragraph blurb on each of the above mentioned four points (i) to (iv)
& at least 4 references to academic journal articles that are related and discuss aspects
of this issue. Excluding the Bibliography, the 4 paragraphs should not exceed 1 page
total.
(c) From February 23 on, groups will hold ~20 min. presentations in class sharing their
research of the final group paper. If you have three people in your group, each person
gets around 7 minutes to present using Powerpoint.
(d) March 22nd: Submission of the final group paper. Put hardcopy into my mailbox Savery
Room 305. Also you are required to email your paper to hgwolff@uw.edu.
2. Presentation of the Group paper:
From February 13th on, groups will hold ~20 min. presentations in class sharing their research
of the final group paper. If you have three people in your group, each person gets 7 minutes.
Presentations are to be presented with PowerPoint slides. As a rule, it will not be allowed that
you ‘read’ from the PowerPoint slides, but you should try to speak freely. The PowerPoint slides
must be numbered, so that after the presentations, the audience can refer to a specific slide
number to enhance discussion. After each 5 minute presentation, there will be a brief Q&A for
the audience.
In addition
a) your last two PowerPoint slides have to include 2 questions about your group paper and
the corresponding answers. These questions should be used as a preparation tool for
the class to prepare the second midterm exam. Students should expect that those
questions could re-appear in the second midterm exam.
b) Each PowerPoint presentation has to include the references to your (at minimum) four
academic articles. You also have to assign one to a maximum of two articles that your
fellow classmates are required to read. These articles will serve as an additional study
tool for the exam preparation. You have to highlight which academic articles you want
your classmates to read. Please be considerate and chose articles that are not “too
technical”. As a hint, often articles in the “Review of Environmental Economics and
Policy” (and similar journals) provide good learning materials.
Finally, all PowerPoint presentations and the at minimum the four PDFs of the academic
articles (that your paper is based on) have to be electronically distributed to your fellow
classmates using dropbox, which I will introduce to you in class.
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3. Problem Sets:
(a) During the quarter your group will go over several problem sets which will require you to
apply the topics we discuss in class and in the readings. In order to solve the problem
sets some amount of math (calculus and a limited amount of statistics) is required.
(b) You are required to work in your group on the problem sets. You should write all the
names of the group members that participated in your study/problem set on each of the
problem sets and your group name.
(c) Upon the return of the problem sets, your group is required to scan, photograph the
problem set and distribute it to your group members, such that all group members have
the same version.
(d) Grading of the problem sets: The total number of problems sets is not fixed yet. Let’s
say, we have in total M problem sets. For your final grade M-1 problem sets will be taken
into account only. The problem set that will be dropped from the evaluation is your
problem set that received the least points during the quarter. So your study group can
screw up once without regret.
(e) Please write legibly or use a computer.
(f) Generally, PSs are due 3:30pm on the due date. If your group misses the deadline, you'll
obtain 0 points for the PS. Also, please always hand in ‘stapled’ PSs. Thanks!
Office Hours:
My weekly office hours are Tuesdays 15:40 to 17:00, Savery Hall Room 349. If this time window
systematically conflicts with your time schedule, please let me know in class, so that we can find
a different time. Also, feel free to email me at hgwolff@u.washington.edu for any research or
urgent course related questions. Please note, however, that emails with questions regarding
course material shortly before problem set due dates or exams will NOT be answered. As a
general rule: If I reply to an email, I may include into the cc of the email all other students of the
class too. If you don’t want that I reply your email to all students, please let me know in your
email, otherwise I assume that email is “forwardable”.
Exams:
There will two 100 minute midterm exams. They are tentatively scheduled for:
(a) Exam 1: February, 11, 3:30pm-5:10pm.
(b) Exam 2: March 13th, 2012, 3:30pm-5:10pm.
A small portion (typically the last 15 minutes) of these exams will be “open book”. Hence feel
free to bring the required Kolstad textbook that we have used during the quarter if you think it
could help you.
Assessment & Evaluation
Class Participation and Quizzes: 5%
PowerPoint Group presentation 5%
Meeting all deadlines for the Paper development 5%
Final Group Paper: 15%
Group Problem Sets: 20%
Midterm Test1: 25%
Midterm Test2: 25%
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Location
The location of Loew Hall can be viewed here: http://www.washington.edu/maps/?low
Course outline
The tentative outline of the course is as follows:
1. Introduction:
Note: This Introduction is based on Barry C. Field and Martha K. Field: Environmental
Economics, An Introduction. Sixth Edition, McGraw-Hill Irwin. (prior Editions also work
well)
What is “Environmental Economics”?
Why is it important?
A first simple model on the “Economy and the Environment”
 Derivation of 4 Policy Options to reduce impact of Economy on the
Environment
The Laws of Thermodynamics (in a closed system)
First Law of Thermodynamics: Input = Output
Second Law: Entropy can only increase
(see Handout of chapter on Thermodynamics by Nick Hanley et al.
Nick Hanley, Jason F. Shogren and Ben White: “Environmental Economics, In Theory and
Practice”, 1997, Chapter 1, in particular Figure 1.1 and Ch.1.3)
4 Categorizations of Environmental Pollutants according to Economic Criteria
Environmental Problems and Policy Solutions
Climate Change (example: see NYT article by Greg Mankiw)
Carbon Tax
Cap and Trade
Standards via Command and Control
3. Social Choice: How Much Environmental Protection? (Chapter 3 of Kolstad)
Individual Preferences Regarding Environmental Protection
Biocentrism
Anthropocentrism
Sustainability
Heal, Geoffrey (2012): Reflections—Defining and Measuring
Sustainability. Review of Environmental Economics and Policy, pp. 1–17
doi:10.1093/reep/rer023
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Solow, R. M. (1991). Sustainability: An economist's perspective. The
Eighteenth J. Seward Johnson Lecture. Woods Hole, MA: Woods Hole
Oceanographic Institution.
EPA on Sustainability (Handout)
Social Choice from Individual Values
Social Choice Mechanisms
Pareto Criterion
Potential Pareto Improvement
Compensation Principle (Kaldor Hicks)
Voting
Social Welfare Functions
Arrows Impossibility Theorem
Criticism of Utilitariasm
4. Efficiency and Markets
Efficiency in the Exchange of Goods and Bads
Efficiency in Production
First Welfare Theorem
Second Welfare Theorem
Consumer and Producer Surplus
Cost Benefit Analysis
5. Market Failure: Public Bads and Externalities
Public Goods and Bads
Pricing of Private versus Public Goods and Bads
Lindahl Prices and free riding
Externalities
6. Property Rights
Coase Theorem
7. Pigouvian Fees
Single Polluter single damage
Single Polluter multiple damages
Multiple Polluter and the Equimarginal Principle
Fees Versus Subsidies
Fees and Imperfect Competition
8. Regulating Pollution
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9. Emission Fees and Marketable Permits
10. Regulation with Unknown Control Costs
11. Environmental Demand Theory
12. Hedonic Price Methods
13. Household Production
14. Constructed Markets
15. Audits, Enforcement, and Moral Hazard
16. Risk and Uncertainty
17. International and Interregional Competition
18. Economy-Wide Effects of Environmental Regulations
Reading and Textbooks
Much of the reading will consist of journal articles, that summarize key advances in the
theoretical literature or provide recent empirical examples of evaluating environmental policies.
As textbooks for this course the following book is required:
Charles Kolstad: “Environmental Economics”, Oxford University Press, Second Edition.
Please see also the continuously update website
http://www.econ.ucsb.edu/~kolstad/EEBook/Errata.htm
for errata.
Also, I will draw some of the material from:
Nick Hanley, Jason F. Shogren and Ben White: “Environmental Economics, In Theory and
Practice”, 1997
as well as from
Barry C. Field and Martha K. Field: Environmental Economics, An Introduction. Fourth Edition,
McGraw-Hill Irwin.
If you would like to purchase textbooks, then I, next to the book by Charles Kolstads (that is
required) I’d like to recommend the textbook by Field & Field. Kolstads book is more formal than
the latter and prepares you well for mastering the mathematical-coneptual part of environmental
economics and the exam. The Fields & Field book is less technical but more intuitive and
provides useful applications of the theory to typical environmental problems.
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Overload Policy / Add Codes:
Thank you for your interest in ECON 436 – Environmental Economics. Please email the
instructor if you like to have an add code.
Missed Classes:
If you miss a class, it is your responsibility to get a copy of the lecture notes from your class
mates. Please understand that I do not provide private one to one lectures or summaries via
email of what has been covered in class. However, that being said, always feel free to come to
my office hours with questions concerning the class material or your research ideas.
Help with Writing
The Odegaard Writing & Research Center offers free, one-to-one help with all aspects of writing
at any stage in the writing process -- even if all you have is the assignment sheet. To make an
appointment and browse the center's online resources, please visit:
http://www.depts.washington.edu/owrc. Located on the third floor of the Odegaard Library, in
room 326, the OWRC is open Sunday from 1:30-6:00pm and Monday-Thursday from 12:009:00pm. To make the best use of your time at the OWRC, please bring a copy of your
assignment with you, along with notes and course readings to help tutors better understand the
writing context. We'll have lots of questions for you, but please know that the OWRC will not
proofread papers or talk with you about grades. Instead we're here to support you long-term as
a writer by helping you develop good habits and strategies suitable for a variety of writing
situations.
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