EEPSEA Short Course in
Environmental and Resource
Economics
Module 4: Economy-Wide Issues
Ian Coxhead
University of Wisconsin-Madison
Introduction
Some key points
• All environmental analysis needs rigorous
microeconomic foundations
• Policy analysis must address trade-offs between
environmental and other economic objectives.
– Can we ‘mainstream’ environmental policy?
– Esp. How do we define and measure ‘welfare’?
• Economy-wide and AGE models are key tools
– A common language with economic policy makers
• But cannot teach implementable AGE in 4 days!
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Introduction
Goals/overview of topics
I. Development-environment interactions
II. General equilibrium approaches—theory
III. Applied general equilibrium analyses of trade,
policy reform and the environment
IV. Analytical extensions and policy issues
V. Global issues and national responses
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Introduction
Sources and suggested reading
Main sourc e:
Ian Coxhead and Sisir a Jayasu riya. 2002. The Open Economy and the Environment:
Development, Trade, and Re sources in Asia. (Edwa rd Elgar, forthcoming ).
Dua lit y and basic trade theo rems:
Buffi e, E. F., 2001. Trade Policy in Developing Countries. (Cambridge)… or equivalent
Introduc tion to AGE models:
Shoven , J., and J . Wha ll ey, 1984. “App li ed gene ral equili brium models of taxa tion and
internationa l trade: an introduc tion and survey” , J. Econ. Lit. XXI I, pp. 1007-1051.
Applications and ex tens ions:
E.g.
Strutt, Anna and Kym Ander son, 1998. “Will Uruguay round and A PEC trade
liberalizations harm the env ironment in Indones ia ?” ”, CIES Working Paper No. 98.02.
… and many o thers, depend ing on time and c lass interests
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Introduction
I. Development-environment
interactions
A. Grow th, trade and the env ir onment: the long- term story
B. Th e EKC and dev eloping coun try ev idence
Sour ces:
* OEE Chap ter 1, Chapter 2, se ctions 2.1 and 2.2.
Jha and Wha ll ey 1999
* Antweil er, Copela nd and Taylor 2001.
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Introduction
II. General equilibrium
approaches—theory
A. Basic objects
B. Geo metric models of trade and env ironment
- What are we measuring? Environmental and welfare outcomes
C. Comparative static result s and standa rd theo rems
D. Sim ple models of trade and env ir onmental poli cy
- Environmental and welfare costs of trade poli cies.
Sour ces:
* OEE Chap ter 2, sections 2.3-2.5
* Buffi e 2001 , Ch. 2 (or equivalent cove rage of ana lytical tools )
Ulph 1999
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Introduction
III. AGE analysis of trade, policy
reform and environment
A. Core concepts and structura l features of AGE models
B. Coun try c ase studies
Sour ces:
* Shoven and Wha ll ey 1984
* OEE Chap ter 5, 6 and 7
Lee and Rola nd- Holst 1997 & other CGE studies
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Introduction
IV. Analytical extensions and
policy issues
A. Carbon taxes and fiscal interactions : are Pigovian taxes poss ible?
B. Economy -wide ‘drivers’ of agr ic ultural expans ion and intensific ation.
C. Overview: envi ronmental policies in a second-be st world
Sour ces:
Bov enberg and Goulder 1996
* Coxhead 2000
Brande r and Taylor 1997
* OEE Chap ter 3, Chapter 4.
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Introduction
V. Global issues and national
responses
A. Env ir onmental im pli cations of the WTO, and econom ic im pli cations
of MEAs.
B. Env ir onmental im pli cations of the Asia n econo mi c crisis and
associated refo rms
C. Decentrali zation of fiscal and envi ronmental m anda tes
Sour ces:
* Wha ll ey and Wigle 1991
* Strutt and And erson 1998
Dinan et al 1999.
Coxhead 2002.
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Introduction
Proposed assessment
• Day 2: test reviewing duality and GE
concepts.
• Day 3: test reviewing analytical (lowdimension) GE models.
• Day 4: Review an AGE application (case
study) and report findings to class.
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