ECON 235: PRINCIPLES OF ENVIRONMENTAL ECONOMICS
(Fall 2012)
Instructor:
Office:
Telephone:
Office Hours:
Ahmed M. Hussen
Dewing 306A
Ext. 7025; email address: hussen@kzoo.edu
M W & F (11-12a.m.) or by APPOINTMENT
COURSE DESCRIPTION AND OBJECTIVES:
This is an introductory-level course in environmental economics. As a sub-discipline of
economics, environmental economics deals with how human society attempts to handle the
following broadly defined subject matters:
(1) To lay bare the fundamental economic, ecological, and institutional ‘pre-analytic’
perceptions, assumptions, conceptual definitions, and theoretical premises that are essential for
understanding the two dominant perspectives on the relationship between nature and the human
economy;
(2) The development of alternative analytical models that are intended to illustrate both
the problems and solutions relating to the management (i.e., effective control) of environmental
pollution. Therein, the focus is on the design of technologies and policy instruments so that
pollution reduction consistent with the attainment of a specific environmental quality objective(s)
is achieved in the most cost-effective manner;
(3) The development of theoretical frameworks for the ‘valuation’ of non-marketable
environmental resources and the ‘evaluation’ of environmental projects. The rationale for this is
that mismanagement (i.e., unwarranted exploitation) of environmental resources can be avoided
only when the ‘true’ social values of environmental resources are properly imputed and the
appropriate method(s) of project assessment techniques are applied;
(4) A comprehensive look at the critical issues pertaining to impending major long-term
environmental problems. This is done by examining several alternative theoretical models that
have been specifically designed to enrich our understanding of the ‘biophysical limits’ to
economic growth. This area of environmental economics has a long history and is both evolving
and controversial. In its most recent variation, ‘limits to growth’ is explained by a reality that
seems to confront this observation: As the ‘scale’ of human economy relative to the natural
environment (ecosystems) continues to increase without definite boundaries, the potential for
‘irreversible’ damage to environmental resources that are essential as life support systems (such
as the global climate and biodiversity) has become an overriding societal concern.
This course is primarily designed for sophomores and juniors who want to study
environmental concerns with an interdisciplinary focus. More specifically, the course attempts to
incorporate basic principles of both economics and ecology that are essential for a comprehensive
understanding and critical assessment of humanities’ historical struggle to “coexist” with the
natural environment. These ecological and economic principles are also used to shed light on
some key contemporary and controversial environmental policy issues. Course prerequisite: Eco.
101.
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REQUIRED TEXT AND OTHER READINGS:
Hussen, A., M. (2004) Principles of Environmental Economics, London: Routledge Publishing.
Quinn, D. (1992) Ishmael: An Adventure of the mind and Spirit, New York: Bantam Books pub.
Others: Several other outside reading assignments are included in the complete reading list for
the course as presented in the last two pages of this syllabus.
ORGANIZATION OF THE COURSE:
The course is organized to address the following five major subject matters:
1. Analytical Foundations: Economics and ecology (5 lectures)
The main objectives of this section are to examine the following: (a) the ways in which
environmental resources are conceptualized in economics and ecological studies, (b) the
functional and structural attributes of the ‘human’ economy and the ‘natural’ ecosystems, and
(c) the interrelationships between the human economy and the natural ecosystems.
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The standard economics perspective on environmental resources and the roles these
resources play in the human economy
The ecological perspective on environmental resources and the roles these resources
play in the human economy
2. The Underlying Ecological, Technological, and Institutional Determinants of
Environmental Degradation (3 lectures)
In this section, an effort will be made to study the following two issues: (1) the factors that
affect the waste absorptive capacity of the environment, and (2) the institutional root causes
for why a free-market economy may fail to guide the allocation of scarce environmental
resources in ways that ultimately promote the well-being of society at large.
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The ecological and technological determinants of the waste assimilative capacity of
the natural environment
The environment as common property resources
Causes and consequences of environmental externalities: Market failure
The notion of transaction costs and the institutional challenges for correcting
(internalizing) environmental externalities
3. The Economics of Pollution Control: theories and policies (6 lectures)
This section has three objectives: (1) Construct a theoretical model for the purpose of
developing a general rule that can be used to determine the cost-effective reduction (control)
of pollution from a given source. (2) Explain the theoretical and practical significance of
several commonly used public policy instruments to control pollution. (3) Examine the
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empirical evidence for the effects of environmental regulations may have on job creation or
destruction.
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The determinants of environmental damage and control cost functions
The equi-marginal condition for cost-effective control (clean-up) of pollution
Alternative policy instruments to control pollution: Emission standards,
effluent charge, and transferable emission credits
Do environmental regulations hurt the economy? : A look at the empirical
evidence
4. Valuation of Ecosystem Services: theory and methods (6 lectures)
The main focus of this section will be to show the recent advances in economics in the
subject matter of imputing money value on ecosystem services. These advances are prompted
by the realization that attaching monetary value to ecosystem services is likely to lead to
greater natural resource conservation. Other related topics addressed in this section are costbenefit analysis and the issue of intergenerational equity.
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The methodological issues of assigning money values to ecosystem services
Alternative approaches to environmental valuation
The standard environmental project evaluation method: cost-benefit analysis
Short comings of the standard cost-benefit approach to environmental project
appraisal
Alternatives to cost-benefit analysis
5. Environmental Sustainability and Sustainable Development (6 lectures)
This section attempts to provide important clues to the answers for the following questions:
Can humanity expect to have unlimited economic growth in a world endowed with ‘finite’
natural resources? If ecological limits are important factors in determining future trends of
economic growth, what steps or precautions should be taken to avoid transgressing these
biophysical limits? Clearly, the key issue here is scale—the size of the human economy
relative to the natural environment. To such an extent, the focus of the subject matters
discussed in this section is not on efficiency but on sustainability.
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The old scarcity debate: The Malthusian and neo-Malthusian conception on
limit to growth
The new scarcity debate: climate change an biodiversity
Sustainable development in theory and practice
Population, development and environmental degradation: the case of the
developing nations
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GRADING POLICIES: The final grade for this class will be computed on the
following basis:
Exam I
Exam II
Final Exam
Short response papers/class discussion
Long paper (Group)
Scores
25%
25%
20%
10%
20%
The mid-term and final examinations will consist of objective questions and
short essays designed to test your understanding of theoretical concepts, models, and
factual materials covered in class lectures and assigned readings. No make-up exam
will be given.
The grades for “short response papers and class discussion” are awarded on the basis
of the efforts demonstrated to participate in class discussions and the quality of short response
papers. Class attendance is also part of this grade.
The long paper is designed to provide an opportunity for students to critically analyze
major global environmental issues. This paper is done with pre-assigned group of students.
The required textbook Ishmael (by Quinn) is used as background for writing this paper.
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READING LIST:
Part I: Foundations of the Economics and Ecological Perspectives
A. Analytical Foundation: Economics
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The natural environment and the human economy, Chapter 1, pp. 3-17.
Resource scarcity, economic efficiency and markets: How the Invisible Hand
works, Appendix A, pp. 323-334
Ausubel, J. (1996) ‘Can Technology Spare the Earth?’ American Scientist
Magazine 84(2): 166-178. http://phe.rockfeller.edu/sparetheearth/
B. Analytical Foundation: Ecology
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The natural environment and the human economy, Chapter 2, pp. 18-41.
O’Neil, R. and Kahn, J. R. (2002) ‘Home Economous as Keystone Species’,
BioSceince, 50(4), pp. 333-336.
Part II: Ecological, Technological, Economics and Institutional Determinants of
Environmental Damage Function
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Fundamental of the economics of environmental resources, Chapter 3, pp. 4558
Hardin, G. (1968), ‘The Tragedy of the Commons’, Science, 162, pp. 1243-48.
http://www.cs.wright.edu/~swang/cs409/Hardin.pdf
Zbere R. O. and McCurdy, H. (2000) ‘The End of Market Failure’,
Regulation 10, 23(3), pp. 1-5.
http://www.cato.org/pubs/regulation/regv23n2/zerbe.pdf
The Coase Theorem and its implications: Chapter 5, pp. 92-95.
http://www.sjsu.edu/faculty/watkins/coasetheorem.htm
Part III: The Economics of Pollution Control: theories and policies
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The Optimal Level of Pollution, Chapter 4, pp. 67-87
Regulating the environment: Emission Standards, Chapter 5, pp. 95-103.
Regulating the environment: Pollution taxes and markets for transferable
pollution permits, Chapter 6, pp. 106-124.
The macroeconomic effects of environmental regulations, Chapter 3, pp. 5863.
Farmer, A., Kahn, J., and O’Neill, R. (2001) ‘Rethinking the Optimal Level of
Environmental Quality: Justifications for Strict Environmental Policy’
Ecological Economics, 36: 461-473.
http://elmu.umm.ac.id/file.php/1/jurnal/E/Ecological%20Economics/Vol36.Issue
3.Mar2001/1165.pdf
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Part IV: Valuing the Environment and Environmental Projects
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Economic valuation of environmental services, Chapter 8: pp. 143-170.
A framework for assessing the worthiness of an environmental project: Costbenefit analysis and others, Chapter 9: pp. 170-197.
Beder, S. (1996), ‘Valuing the Environment’, Engineering World, pp. 12-14.
http://www.herinst.org/sbeder/enveconomics/ValuingEnviron.html
Part V: Biophysical Limits to Economics Growth and the Emerging Paradigm of
Sustainable Development
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Biophysical limits to economic growth: The Malthusian and neo-Malthusian
perspectives, Chapter 10, pp. 2001-219, Chapter 12, pp. 241-264.
Biophysical limits to economic growth: The neo-classical economics
perspective, Chapter 11, pp. 221-240.
The economics of sustainable development, Chapter 13, pp. 266-287.
Population, development and environmental degradation in the developing
world, Chapter 14, pp. 291-320.
Ausubel, J. H. (2004) ‘Will the rest of the world live like America?’,
Technology and Society, 26: 3343-360.
http://phe.rockefeller.edu/PDF_FILES/LiveLikeAmerica.pdf
Wilson, E. O. (2002) ‘The Bottleneck’, Scientific American, pp. 84-91.
http://cms.oregon.gov/DAS/LO/docs/sciam-bottleneck-wilson_lomar09.pdf,
or
http://www.mnforsustain.org/wilson_e_o_bottleneck.htm
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Straus, M. (2012) ‘Looking Back on the Limits to Growth’, Smithsonian
Magazine, April Issue: http://www.smithsonianmag.com/sciencenature/Looking-Back-on-the-Limits-of-Growth.html#ixzz25btSNL2X
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Understanding the limits to growth:
http://daryanenergyblog.wordpress.com/2011/07/31/understand-ltg/
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Quinn, D. (1992) Ishmael: An Adventure of the mind and Spirit, New York:
Bantam Books pub.
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