AREC/ECON 540: Natural Resource Economics
Department of Agricultural and Resource Economics
Colorado State University
MWF, 2:00-2:50, Military Science 201
Fall, 2014
Course Syllabus
Dale Manning
B304 Clark
970-491-5706 (office)
336-260-0025 (cell)
Dale.manning@colostate.edu
OH: Mon-Wed: 3-4 pm, or any time by appointment
Final Exam: take-home, due 5 pm Monday, 12/15/14
Course Description
This course is a second-year masters-level class that will make use of micro-economic theory and
mathematical modeling tools to develop a rigorous understanding of the use and management of
natural resources over space and time. We will use mathematical techniques including optimal control
and dynamic programming to analyze problems related to renewable resources (e.g., fish, forests) and
nonrenewable resources (e.g., coal, oil). Concepts and mathematical tools introduced in AREC 540 will
be further developed in AREC 740.
Course Objectives
My goal is to expose students to the major natural resource economics models while emphasizing the
concepts and intuition of the models. Students should be able to extend these basic models to a wide
variety of natural resource economics topics that we will not have time to cover in this class. Also, this
course will provide an introduction to optimal control theory and other dynamic tools that can be
broadly applicable in economics research.
Prerequisites
According to RamWeb, prerequisites are AREC/ECON 340 (intro natural resource economics) and math
141 (calculus). I will assume everyone has taken at least intermediate microeconomics (AREC/ECON
306) and is comfortable with differential calculus and the basics of static optimization.
Recommended Texts and Readings
There will be no single book for this course so I will make required readings available online or in class
(see ‘class schedule’ for readings). In addition, I recommend several books as references for the class
and for your future research:
Caputo, Michael R., Foundations of Dynamic Economic Analysis: Optimal Control Theory and
Applications. Cambridge University Press, 2005.
Clark, Colin W., Mathematical Bioeconomics: The Optimal Management of Renewable Resources, John
Wiley and Sons, 2005.
Conrad, Jon M. Resource Economics. Cambridge University Press, 1999.
Conrad JM and CW Clark, Natural Resource Economics Notes and Problems, Cambridge University Press,
1987.
Dasgupta, P.S. and G.M. Heal. Economic Theory and Exhaustible Resources. Cambridge University Press,
1979.
Hartwick, John M. and Nancy D. Olewiler, The Economics of Natural Resource Use, Addison-Wesley
Educational Publishers, 1998.
Simon, Carl P. and Lawrence Blume, Mathematics for Economists, W.W. Norton & Co, 1994.
Grading
Grades will come from a mid-term (15%), a final (20%), a presentation (15%), homework assignments
(20%), a paper proposal (8%), rough draft (8%) and final draft (9%), and participation (5%). The midterm will be in class and the final, a take-home, will be due by the end of the scheduled exam day. I will
hand out a homework assignment about every 2 weeks and specify a due date (you will have
approximately 2 weeks per homework). You can collaborate on homework and turn in one problem set
per 3 people but exams must be done entirely independently. I encourage you to come to me for help
on homework as well. Homework answer keys will be available and should help in preparing for the
mid-term and final.
I will give grades based on a percentage score but use a curve to ensure that the average grade is
approximately a B+.
Class Schedule (subject to change)
Dates
8/25, 8/27, 8/29
Monday
Class intro, go over
syllabus, brief history of
resource topics
9/1, 9/3, 9/5
H&O Chapter 3
Labor day Holiday
9/8 9/10, 9/12
Conrad, Ch. 4
Forestry intro: biology,
mean annual increment,
etc.
“Economics of Forestry in
an Evolving Society,”
Samuelson
9/15, 9/17, 9/19
Conrad, Ch. 5
Wednesday
Conclude overview and
begin review of producer
theory, property rights,
“Betting on the Planet,”
John Tierney
Intro to land economics,
Ricardian rents,
institutions
Faustmann model
st
1 homework due
Friday
Review producer theory,
discounting, envelope
theorem, implicit function
theorem
Land economics and space
No Class (CU
Environmental and
Resource Economics
Workshop)
Forestry land valuation,
multi-aged stands, nonuse value, etc.
“The Harvesting Decision
When a Standing Forest
has Value,” Hartman
Modeling extensions
(green paradox, stockdependent costs)
“The Green Paradox,”
Hans-Werner Sinn
“The Logic Behind the
Green Paradox,” Osterle
Open access, MSY, and
economically optimal
fishery use, “The
Economic Theory of a
Common Property: The
Fishery,” Gordon.
Non-Renewable resources
intro
Hotelling model of
Exhaustible resources
“The Economics of
Exhaustible Resources,”
Through part 3, Hotelling
A brief history of Oil and
Gas in the US
Fishery intro: biology,
Gordon-Schaefer
production,
“Tragedy of the
Commons,” Hardin
10/6, 10/8, 10/10
Review/catch up
Population models
10/13, 10/15, 10/17
Caputo, Ch. 13
Intro to differential
equations, phase planes
Differential equations,
phase planes
Paper proposal* due
9/22, 9/24, 9/26
Conrad, Ch. 3
9/29, 10/1, 10/3
nd
Fisheries institutions—
open access, limited entry,
input restrictions, ITQ,
TURFs, Co-ops
“A Tale of Two Fisheries,”
John Tierney
2 homework due
Finish up fisheries basics
rd
3 homework due
3 (2)- hour Midterm Time
and place TBD
Differential equations,
stability
10/20, 10/22, 10/24
10/27, 10/29, 10/31
Caputo, Ch. 1-4
11/3, 11/5, 11/7
11/10, 11/12, 11/14
11/17, 11/19, 11/21
11/24, 11/26, 11/28
12/1, 12/3, 12/5
Open access dynamic
model—characterization
of fish stock and human
behavior using differential
equations
“Economics of Production
from Natural Resources,”
Smith, Marine Reserves,
including space “A
Bioeconomic model of
Marine Reserve
Creation,” Sanchirico and
Wilen
The Hamiltonian, intro, cv,
pv
Dynamic Optimization:
Numerical methods
Optimal control and Nonrenewable resources
“The Optimal Exploration
and Production of
Nonrenewable
Resources,” Pindyck
Industry resource use,
transitions, and
substitution, monopoly
power (time permitting)
“The Economics of
Resources or the
Resources of Economics,”
Solow
“Intergenerational Equity
and the Investing of Rents
from Exhaustible
Resources,” Hartwick
Fall Recess
Optimal control fishery
problem (linear)
Student Presentations*
12/8, 12/10, 12/12
12/15
*more details to follow
Final exam, due 5 pm
Dynamic optimization
introduction—optimal
control, dynamic
programming (briefly),
calculus of variations
th
(briefly), 4 homework
due
Maximum principle,
derivation of necessary
conditions, part 1
“An Economic
Interpretation of Optimal
Control Theory,” Robert
Dorfman
Capital theory example:
optimal investment
Dynamic Optimization:
th
Numerical methods, 5
homework due
Interpretations of user
cost, policy impacts,
Dynamic resource impacts
of policy
Transversality, Finish
capital theory
Dynamic Optimization:
Numerical methods
Optimal control fishery
problem (nonlinear),
Regulated open access
th
Homans and Wilen, 6
homework due
Optimal control fishery
problem, “The Objectives
of Sole Ownership,”
Anthony Scott
Fall Recess
Optimal control fishery
problem
Student Presentations*
Final Paper* due, Hand
out final
Fall Recess
Student Presentations*
Paper rough draft* due—
No Class
Student Presentations*