Lecture Notes for Economics 435: Economics of Resources
Prepared by Gunnar Knapp, Professor of Economics
January 7, 2000 [revised by S. Colt on 15 Jan 2004]
INTRODUCTION
This course is an introduction to basic concepts in the economics of resources and the
environment, and the application of these concepts to resource and environmental public policy
issues.
Resource economics uses standard principles and techniques of economics to examine questions
relating to the management, use or allocation of natural resources, including the natural
environment. Resource economics focuses on the benefits and costs of resource use over time,
and how these benefits and costs are distributed among different groups.
As with all economic analysis, resource economics can take a “positive” or a “normative”
approach to an issue or question. These words are in quotes because they have specific meanings
in economics. Positive economics is about what is, what was, or what will be – a description of
reality. Normative economics is about what should be, or what ought to be. Using positive
analysis we might conclude that “The wild salmon industry is going to become economically
unviable under the current management regime.” If we were to say “The State of Alaska should
re-introduce fish traps and auction off the right to use them to the highest bidders” that would be
a normative statement.
Property rights are very important in resource economics. How property rights are defined
affects how resources are used and how different groups in society benefit from (or are harmed
by) resource use.
Time is an important consideration in resource economics, because how we use resources in one
period often affects our options in other periods.
One resource which is receiving ever more attention is the environment. Environmental
economics has become an important field of its own.
Economics of Resources Lecture Notes: Introduction, page 1
"Mainstream Resource Economics"
This course presents "mainstream" concepts of resource economics, as they are perceived by
most American economists. When I use the terms "resource economics" and "economists," I am
referring to "mainstream" resource economics and "mainstream" economics. You may find you
disagree with some of the conclusions of mainstream economics. That's OK. But you should
still try to understand them--if only to argue against them more effectively or to know when they
are abused or misapplied.
Mainstream economists are sometimes accused of ignoring important resource problems, such as
the effects of resource development upon the environment. In fact, economists are concerned
about these problems, and have important insights as to why they occur and what can be done
about them. If you keep an open mind, you may be surprised at how the breadth of issues
mainstream economics deals with, and the perspectives that it offers.
You may be disappointed that the course offers only limited alternative perspectives to
mainstream resource economics. However, there are two good reasons for this. First, time for
this course is very limited. In one semester, it is barely possible to cover even the most basic
topics in mainstream resource economics. If you understand this approach to resource economics
well, you will be better prepared to contrast it with other approaches. Second, my own
knowledge about alternative perspectives is limited.
Two Approaches to Mainstream Resource Economics
Throughout the semester, we will be discussing mainstream resource economics from two
different perspectives:

Mainstream approach. The textbook presents a mainstream approach to resource economics,
and much of the time I will also be presenting a mainstream approach. My goal is to help
you learn to think about resources like an mainstream resource economist. Regardless of
how you feel about it, it is important that you understand this mainstream approach.

Critique of the mainstream approach. I am not entirely comfortable with the mainstream
approach to resource economics. Over the course of the semester, in my lectures and through
some readings, I will be discussing limitations of the mainstream approach, based on my own
experience as an applied resource economist over the past twenty years in Alaska. These
include:

Mainstream resource economists are too quick to assume that "efficiency" should be
the goal. Most mainstream economists focus on "economic efficiency" as the primary
goal for resource utilization. My own experience suggests that many other factors--in
particular the allocation of resource benefits--need to be considered and deserve more
attention.

Mainstream resource economists are too quick to make "normative"
recommendations: Many mainstream economists are quick to offer "normative"
recommendations about the "best" way to address resource issues, which are often
Economics of Resources Lecture Notes: Introduction, page 2
based on the assumption that "efficiency" is or should be the goal. I believe
economists should be more careful to separate their scientific analysis from their
recommendations--which reflect their own value judgements.

Mainstream resource economists don't pay enough attention to resource markets.
Surprisingly, most textbooks devote relatively little attention to resource markets and
prices. However, resource prices and the factors that affect prices are extremely
important for most resource industries.
Economics of Resources Lecture Notes: Introduction, page 3