AEDE 4310 Exam II Review
Sustainability
● Constanza Definition of Sustainability:
○ Human life can continue indefinitely
○ Humans flourish
○ Human culture can develop/ ecological life-support system is not destroyed
● 3 Components of Sustainability
○ Economic Forces
■ Profit, cost savings, economic growth, research/development
○ Social Forces
■ Standard of living, education, community, equal opportunity
○ Environmental/ Natural Forces
■ Natural resource use, environmental management, pollution prevention
○ Soc/Env
■ Justice, natural resource stewardship, local & global
○ Env/Econ
■ Energy efficiency, subsidies and incentives for nat. resources
○ Econ/Soc
■ Business ethics, fair trade, womens rights
● Spiraling: population-environment interactions can cause feedback processes which
produce extreme outcomes or crises in sustainable equilibrium
○ Prevention (Daly) ■ Limit human scale to level within carrying capacity
■ Changes in tech to increase efficiency and durability while preserving
input
■ Harvest rates of renewables/ limiting waste emission rates to
environmentally assimilative capacity
■ Restricting non-renewable use to level of creation of renewables
○ Sustainable economic growth without (Perrings) ■ Exhaustion of resources w/o substitute
■ Degradation of assimilative capacity of environment
○ Natural Capital: earth as life-support system
■ Irreversible and uncertain capital flows
■ Not producible by humans but CAN be modified AND more fundamental
than human/ manufactured capital
■ May not always be substituted with manufactured capital
■ Environmental changes influence availability of natural capital
○ Challenges to Sustainability:
■ Habitat destruction
■ Pollution
■ Invasive Species
■ Population
■ Over harvesting
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Extraction/ Disposal Cost
○ Disposal costs rise with rising wealth and increasing population densities
○ Without bearing full cost of disposal, economic agent will be more inclined to use
virgin materials and not recycle
○ When marginal social cost is lower than marginal private cost of recycling, we
have inefficiency on our hands
○ Host Fees: compensate community that agrees to house landfill
○ Disposal Fees: charges to dispose of waste
■ Adjusts so that consumer bears true marginal cost
■ Increase amount of recycling and extend economic life for depletable and
recyclable resources
○ New Scrap- residual material from products
○ Old Scrap- Recovered from used products
○ Refundable Deposit System: initial charge reflecting cost of disposal and to
provide refund that encourages recycling and helps conserve virgin materials
Water
● Groundwater
○ Underground largely renewable
○ Non Recharging Aquifers- considered nonrenewable resources
● Surface Water
○ Renewable resources consisting of lakes, rivers, reservoirs
○ Excess demand around the world causing stress on system
○ It is scarce and efficiency in presence of competing uses implies that the
marginal net benefit should be equalized across users
○ Efficient Allocation■ Not considered public good
■ Where demand curve intercepts net benefit of given supply condition
determines quantity allocated to user
■ Lower net benefit received from water implies more available substitutes
■ Efficient pricing requires price to equal marginal cost
● Usage Rights/ Allocation
○ Riparian Rights: allocate right to use water to owner of land adjacent to water
○ Prior Appropriation Doctrine: allows transfer of water away from stream for use
■ Allows for inefficiency– instead allowing water to move to higher valued
uses by allowing owners to sell conserved water
○ Preferential-Use Doctrine: gives certain uses highest priority during shortage
regardless of marginal net benefit of use
○ Water Trading: process of buying and selling access to water entitlements
■ Permanent transfer rights
■ Leasing amount of water/ time
■ Water leasebacks
■ Water right property exchanges
■ Banking water
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Benefits
● One price would allocate water according to each users demand
curve
● Marginal Values across all users equated
● Correct benefit to be used for choosing crops and water saving
tech
Downsides
● Externalities for fisheries (lower flows means reduced pollution
dilution, higher salinity, and water quality concerns
● Federal law and jurisdiction, endangered species act, regulated
minimum flows
Institutional Requirements:
● Voluntary buyers and sellers
● Ownership or allocation of vested rights (owning right to use
water) established by governing body
● Information
● Definition of rights (unit of measurement and source)
● Transferable from land rights
● Efficient system through maintaining/ updating rights
● Type of water use can be changed
Pricing
○ Uniform rate structure- cost per unit does not increase/ decrease with additional
units of consumption
○ Declining block rate consumption- high initial costs to obtain water but cost per
unit decreases with additional units of consumption
○ Increasing block rate structure- lower initial costs but increased cost per unit with
additional consumption
● Desalinization
○ Reverse osmosis- pumping seawater at high pressure through permeable
membranes
○ Significantly reduced price of desalinized water due to technological advances
Land Use
● Bid-Rent Curves
○ Firms prudence goods to maximize profits by choosing where to locate and how
this can maximize factors of production (land, labor, capital)
○ Households maximize utility by choosing how much housing to consume and
where to live
○ Land prices and use are determined here using bid-rent curves– the amount of
money households and firms are willing to pay to be located in a particular
location
○ Firms want to be located near CBD and so they have steep bid-rent curve here
■ Access to information
■ Interact with other firms and lower costs/ maximize profits –
transportation, labor, market space
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Households have flatter bid-rent curve
■ Less dependent on access to immediate info and services
■ Prefer larger lot sizes and are willing to commute
Shifters
■ Gas prices
■ Congestion
■ Highway construction
Von Thunen Model- same land may be used differently depending on access to a
market
■ Crops grown at particular location are determined by location rent- price
of accessibility to the market holding land quality constant when only
transportation costs vary
■ Net return: value of commodity after production and transportation costs
■ Highest value crops grown on land with highest quality location rent
Key Ideas
■ Closer to market, higher the rent– crops are grown in concentric rings
away from CBD with HIGHEST RETURN CROPS CLOSEST TO CBD
■ Assumptions:
● All land is equally productive
● All crops are sold in a central market
● Production costs and prices are constant
■ Highest transportation costs value near proximity to market the most…the
highest rent crop will grow closest to market
Ricardo Rent- value of the difference in productivity between a given piece of
land and the poorest piece of land producing same goods (crops) under same
conditions (labor, capital, technology)
■ Not all land is the same
■ Farmers produce same amount of corn with fewer inputs on fertile land
compared to less fertile land
■ Increased production on this land means price of fertile land is higher
■ Profits returned to land owner from farmers (rent)– income of farmer is a
“cost” (wage)
■ ATC= average total cost curve (to produce crop)-- higher the less fertile
the land
■ TR= total rent (profits) is market price of crop * quantity of crops produced
■ TC= total cost (to produce crop) higher up on y-axis denoting price to
produce given number of units
■ Rent= based on where marginal cost (MC) hits market price and then
when that line hits average total cost (ATC)
■ Higher rents (profits) on more fertile land because of lower costs to
produce same number of units
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Common City Patterns
■ Monocentric City one in which all economic activity occurs at a single
central business district (CBD)
● Good for small cities as transportation costs are less if all
economic activity is located at a single point
● Zero Profit Condition:
○ Rents increase as transport cost decrease
○ Land prices are highest at CBD
● Larger cities lead to some economic activity further away from
CBD– who remains in CBD?
● Households attracted to CBD because commuting costs are less–
budgeting consists of commuting and land (tradeoff between
location and house price)
● Suburbs: land prices increase in CBD and households begin to
settle further from central city
■ Polycentric cities are those formed as cities become larger and increased
commuting costs + congestion result in many new smaller CBD’s forming
● Declining inner city
Land Use Change
■ Population pressure causes migration and associated land use change
● Deforestation
● Logistics issues of urban development
■ Technology has resulted in more efficient use of agricultural land–
intensification
■ Climatic fluctuations have created self-reinforcing land use changes
● Desertification and overgrazing
■ Regional Changes
● Homestead Act: led to rapid settlement of the western US
○ 160 acres given away by the government for anyone
willing to cultivate land for at least 5 years
○ Corn and wheat belts developed in ‘50s and moved
westward due to rising land prices
■ Driver- anything that causes changes in land use whether directly or
indirectly (two approaches to identifying drivers)
● Cross-sectional analysis: single sample at one point in time
● Land Cover- vegetation, structures, or other features that cover
land
● Land Use- how land is used by humans
● Detailed case studies
● Studies of drivers
○ Priori- study designs a set of case studies before driver
results in land use change
○ Ex Post- looks at land use changes that has already
occurred to identify a driver
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Meta-analysis- combo of ex post studies with similar
variables
○ Look at changes across multiple areas and attempt to
identify drivers at work in each case
Endogenous Driver: something that arises as a result of land use
change– self-reinforcing effect
Exogenous Driver: something that is unaffected by land use
change but nevertheless causes it
○ Deforestation in small village with driver being a demand
for wood. Locally, demand is exogenous (village doesn’t
influence it) but nationally, increased population has led to
more housing and more demand for wood therefore it’s
endogenous.
Types of Drivers: influenced by mediating factors which, when
interacted with drivers, creates land use change–
pathway/trajectory
○ Proximate- immediate action or activity which causes land
use change
■ Human activities involving physical change and
referred to as direct drivers
■ Ex: wood extraction/deforestation, residential
construction, plowing of new fields
○ Underlying- fundamental forces which underlie proximate
drivers
■ Root causes referred to as indirect drivers and
often difficult to identify– operate over large areas
and across time
■ Ex: social norms (home ownership in US),
population change, economic subsidies (increased
agriculture)
○ Mediating Factors- intermediate or context variables which
shape, modify, or intervene to connect underlying driving
forces and approximate changes
■ Ex: gender, wealth, institutional arrangements
■ Ex: Existence of more males than females in
central american population increases the
likelihood of deforestation
○ Biophysical: natural capacity or pre existing environmental
condition that influences land use change
■ Ex: high winds are likely to reduce development of
housing but may result in a higher probability of
wind-farm location. Soil quality, elevation, slope,
water access.
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Economic: variables that have impact on decisions of land
managers and users
■ Subsidies, taxes, and consumption demand
■ US subsidies many types of agriculture and this
results in increased probability– so land is being
converted for ag use
Demographic: include aspects of population composition
and distribution which have either direct or indirect impacts
on land use
■ Migration for work
Institutional: legal or government policies which play role in
mediating land use change
■ Property rights
■ Low interest rates spur development by
encouraging borrowing
Cultural: ideals and political objectives
■ Culture results in large differences in land use
■ Suburban lots are a cultural norm in many parts of
the U.S resulting resulting in increased sprawl from
development
Timber
● Concession agreements: define the terms under which public
forests can be harvested
● Optimal time to harvest to maximize profit would be the age that
maximizes present values of benefits from the woods
○ Potential volume of woods given growth rate and price of
lumber
○ Net benefits are calculated by subtracting present value of
costs from value of timer at harvest age
● Infinite Planning Model: different from single-harvest model in that
in recognizes interdependencies between periods
○ Decisions to delay harvests impose costs on the next
harvest periods. Opportunity cost of delaying the next
rotation must be outweighed by the gain in tree of growth.
■ Optimal rotation is shorter in infinite harvest than
single-harvest.
Royalty/ Carbon
● Royalty Payments: grant payments to biologically rich countries
for all products