Bren School of Environmental Science & Management
University of California, Santa Barbara
Spring 2014
May 2, 2014
Professor: Gary Libecap
Office: 4412 Bren Hall
Phone: 805-893-8611
Email: glibecap@bren.ucsb.edu
Class meetings: M & W 8:30-9:45 1510 Bren Hall
Office hours: M 9-10 or by appointment
Course Objective
This course presents the roles of property rights and markets in addressing environmental and natural resource losses associated with the “Tragedy of the Commons.” Topics include:

The open access problem

Traditional Pigouvian tax and regulatory solutions

Ronald Coase, Nobel Prize 1991, and Coasean trading

Environmental markets in fisheries

Environmental markets in water

Environmental markets in conservation credits and tradable development rights

Environmental markets in cap and trade emission permits
Other areas, such as environmental benefits in energy markets are not covered due to limited time. Students will learn when rights-based systems are valuable solutions to open access losses and study the range of environmental markets. They will research and describe environmental markets.
Course Materials
Course readings include journal articles, book chapters, cases, and reports. There will be guest lectures. All materials will be posted on Gauchospace.
Course Requirements
Students are expected to complete all of the assigned reading before class. Course materials will be discussed in a seminar-style framework.
Requirements:
1.
Students are required to turn in a one-two page written synopsis of the key points in each required reading prior to class via Gauchospace and be ready to lead discussion.
2. We will have two student research teams; a). one working on Water Banks in California—their history, performance, implementation potential for the current drought,
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and impact. b). a second working on the Westlands Irrigation District/Oakdale Irrigation District water exchange effort that has encountered many obstacles. You will examine those obstacles and how they might be overcome. Teams will present their research findings on June 2 and June4. Each team will turn in a written research report of 10-15 pages by June 5, 8 am via Gauchospace.
Course Grades
Course grades will be based on daily class summary papers, (40%); discussion leadership
(30%); and final team paper (30%).

Syllabus over view.
 “Trees Block Solar Panels and A Feud Ends In Court,” New York Times, April
7, 2008. The opportunity and challenges of bargaining to reach environmental solutions.
. This is the fundamental problem that leads to environmental degradation or loss and too rapid and wasteful natural resource extraction.
All students will understand this problem and the reciprocal nature of environmental and resource problems.
Readings:

Terry L. Anderson and Gary D. Libecap, 2014 Environmental Markets , Preface
Chapter 1, “Who Owns the Environment?”
 Garrett Hardin, 1968, “The Tragedy of the Commons,” Science 162: 1243-8.
 H. Scott Gordon, 1954, “The Economic Theory of a Common Property Resource: The Fishery,” Journal of Political Economy 62(2): 128-35 only .

 T.R. Halliday, 1980, “The Extinction of the Passenger Pigeon Ectopistes Migratorius and Its Relevance to Contemporary Conservation,” Biological Conservation 17: 157-62.
 Dean Lueck, 2002, “The Extermination and Conservation of the American Bison,” Journal of Legal Studies , 31 (S2): S609-650.
We briefly review command and control regulation and tax options.
 Anderson and Libecap, 2014. Chapter 2, “Is Government Regulation the Solution?”

Extra: Charles Kolstad 2011, Environmental Economics 2 nd Ed, New York: Oxford University Press. Chapter 11, “Regulating Pollution,” 219-240; Chapter
12, “Emission Prices and Fees,” 241-261.
 Extra: Robert Stavins, 2007 “Market-Based Environmental Policies: What Can
We Learn from U.S. Experience (and Related Research), in Jody Freeman and
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Charles D. Kolstad, eds, Moving to Markets in Environmental Regulation: Lessons from Twenty Years of Experience , New York; Oxford University Press, 19-
47.

Extra: Ian W.H. Parry 2003 “Theory and Application of Externality Taxes: Editor’s Introduction”
Public Finance and Management , 3(1), 1-11.

Extra: Hilary Sigman, 2003 “Taxing Hazardous Waste: The US Experience,”
Public Finance and Managemen t, 3(1), 12-33.

Extra: James Boyd, 2003 “Water Pollution Taxes: A Good Idea Doomed to Failure,” Public Finance and Management , 3(1), 34-66
Environmental markets require some type of property right, formal or informal and there is then a potential for trading.
 Anderson and Libecap. 2014. Chapter 3 “Property Rights for the Common
Pool.”

Extra: Gary Libecap, 1989 Contracting for Property Rights , New York: Cambridge University Press, Chapter 2, “Analytical Framework,” 10-28 only .

Extra: Yoram Barzel, 1997, Economic Analysis of Property Rights, New York:
Cambridge University Press, 2 nd
ed, Chapter 1, “The Property Rights Model,”
3-11 only .
 Extra: Harold Demsetz, 1967, “Toward a Theory of Property Rights,” American
Economic Review 57(2): 347-59.
 Extra: Thomas Merrill and Henry Smith, Property , New York: Oxford University Press, 1-16, 43-50 only.
Markets reallocate resources to higher valued uses and provide price information about alternatives.
Coase addresses bargaining regarding environmental problems with different assumptions about transaction costs.
 Anderson and Libecap. 2014. Chapter 3 “Property Rights for the Common
Pool.”
 Ronald Coase, 1960, “The Problem of Social Cost,” Journal of Law and Economics 3: 1-44 only .
 Extra: Nathaniel Keohane and Sheila Olmstead, Markets and the Environment ,
2007, Washington: Island Press, “The Efficiency of Markets,” 54-63; Chapter
8, “Principles of Market-Based Environmental Policy,” 125-152; Chapter 9,
“The Case for Market-Based Instruments in the Real World,” 153-181.

Extra: Charles Kolstad 2011, Environmental Economics 2 nd Ed, New York:
Oxford University Press. Chapter 13, “Property Rights,” 262-283.
. Eric will discuss his dissertation research.
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 Anderson and Libecap. 2014. Chapter 4 “Local Property Rights to the Commons”
Check Westwater at www.waterexchange.com/
. They are the leading water brokers in the country in using water rights and markets. \

Anderson and Libecap. 2014. Chapter 5 “The Politics of Property Rights”
 Anderson and Libecap. 2014. Chapter 6: “From Property Rights to Markets”

Cooperation using Markets for Management on the Central California Coast. http://www.nytimes.com/2006/08/08/science/earth/08fish.html?pagewanted=all

Extra: Cooperation using Markets for Management on the Central California
Coast. http://www.nytimes.com/2011/11/28/science/earth/nature-conservancypartners-with-california-fishermen.html

Cooperation using Markets for Management on the Central California Coast.
The Nature Conservancy: http://www.nature.org/ourinitiatives/regions/northamerica/unitedstates/california/howwework/california-coastal-andmarine-program.xml?s_intc=tab1p3

IFQs (Individual Fishing Quotas). http://ifqsforfisheries.org/resources/index.php
•
Anderson and Libecap. 2014. Chapter 6: “From Property Rights to Markets”
•
Freshwater Trust: Brandon Scarborough, 2010, Environmental Water Markets:
Restoring Streams Through Trade PERC Policy Series 46.
 Nathaniel Keohane and Sheila Olmstead, 2007, Markets and the Environment ,
Washington : Island Press, “ Habitat and Land Management,” 201-206.
 Virginia McConnell and Margaret Walls, 2009, “Policy Monitor: U.S. Experience with Transferable Development Rights,” Review of Environmental Economics and Policy , Summer: 288-303.
 Extra: Margaret Walls and Virginia McConnell, 2007, Transfer of Development
Rights in U.S. Communities: Evaluating Program Design, Implementation, and
Outcomes , Resources for the Future, September: 8-27, skim 28-131.
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 Extra: Conservation Credit Exchanges: At least 13 states have conservation credits exchanges. South Carolina: http://www.conservesc.com/; Virginia and
New Mexico: http://conservationcreditexchange.com/; http://www.vcce.net/; http://dcr.virginia.gov/land_conservation/lpc.shtml; Colorado: http://www.coloradocredits.com/; Georgia: http://glcp.georgia.gov/00/channel_title/0,2094,82613131_114687036,00.html; More generally in Ecosystem Marketplace: http://www.ecosystemmarketplace.com/pages/dynamic/article.page.php?page_id=7546&section=news_articles&eod=1
 Anderson and Libecap, 2014. Chapter 6. “From Property Rights to Markets
General
 Extra: A. Denny Ellerman, 2007, “Are Cap-and-Trade Programs More Environmentally Effective than Conventional Regulation” in Jody Freeman and Charles
D. Kolstad, eds. Moving to Markets in Environmental Regulation: Lessons from
Twenty Years of Experience.
New York Oxford University Press, 48-62.

Extra: Tom Tietenberg, 2007, “Tradable Permits in Principle and Practice,” in
Jody Freeman and Charles D. Kolstad, eds, Moving to Markets in Environmental Regulation: Lessons from Twenty Years of Experience , New York; Oxford
University Press, 63-94.
 Extra: Richard G. Newell and Kristian Rogers, 2007, “The Market-Based Lead
Phasedown,” in Jody Freeman and Charles D. Kolstad, eds, Moving to Markets in Environmental Regulation: Lessons from Twenty Years of Experience , New
York; Oxford University Press, 2007, 171-193.
SO
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Markets
 Nathaniel Keohane and Sheila Olmstead, Markets and the Environment, 2007,
Washington: Island Press, “The U.S. Sulfur Dioxide Market,” 183-190.

Richard Schmalensee and Robert N. Stavins (2013), “The SO2 Allowance
Trading System: The Ironic History of a Grand Policy Experiment,”
Journal of
Economic

Perspectives 27(1): 103–122, 104–105
 Extra: Nathaniel Keohane, 2007, “Cost Savings from Allowance Trading in the
1990 Clean Air Act: Estimates from a Choice Based Model,” in Jody Freeman and Charles D. Kolstad, eds, Moving to Markets in Environmental Regulation:
Lessons from Twenty Years of Experience, New York; Oxford University Press,
194-229.

Extra: Dallas Burtraw, David A. Evans, Alan Krupnick, Karen Palmer, and
Russell Toth. 2005. “Economics of Pollution Trading for SO2 and NOx,” Annual Review of Environment and Resources , 30: 253-289
RECLAIM

US EPA. 2006. “An Overview of the Regional Clean Air Incentives Market.”
Washington,D.C.
 Extra: Annual Report/Review: http://aqmd.gov/reclaim/reclaim_annurpt.htm
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
Extra: US EPA. 2002. “ An Evaluation of the South Coast Air Quality Management District’s Regional Clean Air Incentives Market - Lessons in Environmental Markets and Innovation” Washington D.C. 1-70.
RGGI

Regional Greenhouse Gas Initiative webpage: http://rggi.org/

Extra: New Jersey leaves RGGI: http://www.environmentalleader.com/2011/05/27/new-jersey-pulls-out-of-rggi-bans-coal-plants/

Extra: States Use of Funds http://www.stateline.org/live/details/story?contentId=494460

Extra: Paul M. Bernstein, W. David Montgomery, and Sugandha
Tuladhar.2004, “Economic Consequences of Northeastern State Proposals to
Limit Greenhouse Gas Emissions from the Electricity Sector (RGGI).” Charles
River Associates Incorporated.
AB32

Overview via CARB: http://www.arb.ca.gov/cc/cc.htm

Extra: Michael Hanemann, 2008, “California’s New Greenhouse Gas Laws
Review of Environmental Economics and Policy , 2 (1): 114–129

Extra: Emission Permits Allocations 2010

Extra: Controversy--http://suspendab32.org/

Extra: That AB 32 Money Went Where? http://www.article-3.com/ab32-thatcap-and-trade-money-went-where-912923
EU ETS
 A. Denny Ellerman and Barbara K. Buchner, 2008, “
Over-Allocation or Abatement? A Preliminary Analysis of the EU ETS Based on the 2005–06 Emissions
Data,”
Environment and Resource Economics 4 1:267–287.

Extra: A. Denny Ellerman and Barbara K. Buchner, 2007, The European Union
Emissions Trading Scheme: Origins, Allocation, and Early Results,” Review of
Environmental Economics and Policy , 1(1): 66–87.
 Extra: A. Denny Ellerman and Paul L. Joskow. 2008, The European Union’s
Emissions Trading System in Perspective . Washington, DC: Pew Center on
Global Climate Change.
Fisheries are the classic common pool resource and a resource where rights-based management has grown dramatically.
 Jennifer Devine, Krista Baker and Richard Haedrich, 2006, “Fisheries: Deep-
Sea Fishes Qualify as Endangered,” Nature 439 January 5, 29.
 Ransom Myers and Boris Worm, 2003, “Rapid Worldwide Depletion of Predatory Fish Communities,” Nature 432, May 15: 280.

Ronald N. Johnson and Gary D. Libecap 1982. “Contracting Problems and
Regulation: The Case of the Fishery.” American Economic Review 72(5): 1005–
22.

Extra: Rögnvaldur Hannesson, 2004, The Privatization of the Oceans , Cambridge: MIT Press, Chapter 3, Property Rights in Fisheries , 43-68; Chapter 4,
Toward Individual Use Rights , 69-83; and Conclusion 163-78.
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 Christopher Costello, Steven Gaines, and John Lynham, 2008, “Can Catch
Shares Prevent Fisheries Collapse?” Science 321., September 19: 1677-78.
 Corbett Grainger and Christopher Costello. 2011. "The Value of Secure Property Rights: Evidence from Global Fisheries." NBER Working Paper 17019 .
 Extra: Ragnar Arnason, 2008, “ Iceland’s ITQ System Creates New Wealth,”
The Electronic Journal of Sustainable Development 1 (2).
 Extra: R. Quentin Grafton, Dale Squires, and Kevin Fox. “Private Property and
Economic Efficiency: A Study of a Common-Pool Resource,” 2000 Journal of
Law and Economics . 43(2): 679-713.

Extra: Keith E. Casey, James Wilen, and Christopher Dewees. 1995. “The Effects of Individual Vessel Quota in the British Columbia Halibut Fishery.” Marine Resource Economics 10(3): 211-30.

Extra: Distributional controversies: http://www.scientificamerican.com/article.cfm?id=progress-in-solving-fisheries-probl
 Extra: Christopher Costello, Leah Gerber, and Steven Gaines, 2011, Whale
Conservation Market, Nature.

Extra: Richard G. Newell, James N. Sanchirico, and Suzi Kerr 2005, “ Fishing
Quota Markets, “ Journal of Environmental Economics and Management , 49(3):
437-462.

Extra: Rögnvaldur Hannesson, 2008, “Sustainability of Fisheries,” The Electronic Journal of Sustainable Development (2008) 1(2)
Water may be the most misallocated and mismanaged resource. The role of property rights and markets.
 Eric Edwards and Gary Libecap. 2013. “Water Institutions and the Law of One
Price.” Handbook of Water Economics
 Gary D. Libecap, 2009, “Chinatown Revisited: Owens Valley and Los Angeles—Bargaining Costs and Fairness Perceptions of the First Major Water Rights
Transfer,” Journal of Law Economics and Organization 25(2): 311-37.
 Extra: Gary D. Libecap, 2011, “Water Rights and Markets in the U.S. Semi-
Arid West: Efficiency and Equity Issues,” in Daniel Cole and Elinor Ostrom, eds, The Evolution of Property Rights to Land and Other Natural Resources ,
Cambridge, MA: The Lincoln Institute, Chapter 13.
 Gary D. Libecap, 2011, Institutional Path Dependence in Climate Adaptation:
Coman’s “Some Unsettled Problems of Irrigation” American Economic Review
101: 64-80.

Extra: Gary D. Libecap, 2010, “Water Woes: Using Markets to Quench the
Thirst of the American West,”
Milken Institute Review October: 58-68.
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• Extra: Henry Smith, 2008. “Governing Water: The Semicommons of Fluid
Property Rights.” Arizona Law Review 50: 445-78.
 Extra: Gary D. Libecap, 2010, “The Economic Institutions of Water,” NBER
Reporter , 4, November.
•
Extra: Jedidiah Brewer Robert Glennon, Alan Ker, Gary D. Libecap, 2008,
“Water Markets in the West: Prices, Trading, and Contractual Flows,”
Economic Inquiry 46(2): 91-112.
•
Extra: Howard Chong and David Sunding. 2006. Water markets and trading.
Annual Review of Environment and Resources 31:239-264.
•
Extra: R. Quentin Grafton, Gary Libecap, Samuel McGlennon, Clay Landry, and Bob O Brien, 2011, “An Integrated Assessment of Water Markets: A
Cross-Country Comparison,” Review of Environmental Economics and Policy
5(2): 219-39.

Extra: Jedidiah Brewer Jedidiah and Gary D. Libecap, 2009, “Property Rights and the Public Trust Doctrine in Environmental Protection and Natural Resource Conservation,” Australian Journal of Agricultural and Resource Economics ;53:1-17.

Extra: Freshwater Trust: http://www.thefreshwatertrust.org/

Extra: Janet Neuman 2004, ‘The Good, the Bad, and the Ugly: The First Ten
Years of the Oregon Water Trust’, Nebraska Law Review , 83, 432, 439–40.

Extra: Jeffrey Michael, Richard Howitt, Josué Medellín-Azuara, and Duncan
MacEwan , 2010, A Retrospective Estimate of the Economic Impacts of Reduced Water Supplies to the San Joaquin Valley in 2009
 Anderson and Libecap. 2014. Chapter 7 “Tackling the Global Commons”
 Extra: Gary D. Libecap. 2014. “Addressing Global Environmental Externalities:
Transaction Costs Perspectives,”
Journal of Economic Literature.
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