Fatih University
Faculty of Economics
Department of Economics and Administrative Sciences
Course Information for Environmental Economics
Presented
in slides
I. COURSE DESCRIPTION
Course Code: ECON
373.
Course Name: Environmental
Economics.
The focus of the course is on the application of the economic theory on microeconomic, macroeconomic
and international (global) levels and on policy making solutions in accordance with the principles of
sustainable development. It includes valuing environmental goods, micro and macro aspects of
environmental policy, assessment of environmental projects by cost- benefit analysis, economic of natural
resources, the principles of ecological economics (economics of the ecosystems) and natural resources,
international and global environmental economics in the context of sustainable development. The course thus
involves many practical examples of Environmental Economics in a public policy framework. The benefit of
this course for the students is that it provides an opportunity to develop their core economic training in
practical environmental issues that are of increasingly commanding attention at industry, national and
international levels.
Course Objectives: The focus of the course is on the application of the economic theory on microeconomic
level and on policy making solutions in accordance with the principles of Sustainable Development. The
course thus involves many practical examples of environmental economics in a public policy framework.
The benefit of this course for the students is that it provides an opportunity to develop their core economic
training in practical issues that are increasingly commanding attention at industry, national and
international levels.
The teaching is student oriented. It means every student has individual homeworks and
individual examinations (tests, quizzes, exams).
Learning outcomes:
On successful completion of the course the students should be able to (Bologna criteria):
1. Knowledge – Describe in creative manner the basic concepts of Economics of Culture, to be able
easily to distinguish between traditional and cultural goods in the everyday life.
2. Comprehension – Construct own vision of the economic issues of culture and ability to interpret
them in theoretical manner.
3. Application – Relate the problems of culture for solution of practical tasks, illustrate current
observations with the theoretical postulates formulated during the classes. .
4. Analysis – Estimate the basic tendencies in the cultural sector of economy and outline the current
problems emerging in this sector.
5. Synthesis – Propose solutions of economic problems of culture using the theoretical and practical
knowledge accumulated during the classes.
6. Evaluation - Critically appraise the up-to-date problems in the cultural sector and creatively
interpret them in terms of Economics of Culture. Formulate own outlook on the existing problems
related to the cultural aspects of present economic development.
:
1. Apply in creative manner the modern economic approaches to environment protection for
solution of practical tasks related to various aspects of environment protection.
2. Critically evaluate and test modern assumptions related to the Environmental Economics
theories.
3. Create own outlook on the existing problems and alternative solutions concerning the policy of
environment protection.
Prerequisites:
A good knowledge of microeconomics and welfare theory is required. Mathematical requirements for this
course are modest: students should be comfortable with elementary calculus.
Special Requirements: During the lectures normally there are short cases which will be discussed in class at
the appropriate times. Students are expected to orally participate in these cases.
Environment protection is an area where changes occur daily. Students are encouraged to read, in addition to
the assigned textbook reading, periodicals which report current development in this field. Some readings will
be presented to the students by the lecturer.
Teaching Method:
This course has been prepared for the four-year students in the Faculty of Economics of Fatih University. It
includes 42 academic hours divided into 12 discussion lectures plus two summary discussions (consultations
for the exams) and mid-term and final exam. Every lecture includes 3 academic hours. All teaching
materials – syllabus, lecture summary and tests are provided in my Fatih homepage in Internet.
The students may find the corresponding test on the discussed topics in the Section “Test your knowledge” in
Internet after every lecture. It is presented in the same form as the exams. In such a way the students are
trained how to pass exams since the very beginning of our discussions. All students may consult me by Email or appointment on the questions of concern.
Remember that the best training you receive within the discussions during the lectures. Regular attendance
thus is the best way to reach high results on the exam.
To be successful in the courses I teach I recommend you the following rules:
1. Attend regularly the lectures and try to make detailed notes. If for some reasons you could not
attend a lecture, try to get the notes of your friends.
2. If you do not understand some parts of the lecture visit my office during the consultation hours.
For students with poor English I provide detailed explanations by request in forms of handouts
on disk. Come to me always with disk. You may have some interesting materials to help you in
your study.
3. If you have problems with understanding my written explanations, we could discuss the
problems during my consultation hours.
Instructor: Prof. Dr. Alexi Danchev, Ph.D.
Office: F-502, E-mail: adanchev@fatih.edu.tr
II. COURSE CONTENTS
The lectures will introduce the key concepts and issues from an economic viewpoint, and then proceed to
set out the proposed solutions in the context of policy making.
Week.
Topics.
PART ONE. THEORY OF ENVIRONMENTAL ECONOMICS
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Problem 1.1. INTRODUCTION IN ENVIRONMENTAL ECONOMICS
1. Our joint work during the semester.
2. Origin of Environmental Economics. Economics and Ecology. Environmental Economics as
a new branch of Economics. Environmental Economics – science of sustainable development.
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3. Modeling in Environmental Economics. Environmentally Possibility boundary. The drivers
of environmental impact. The IPAT identity. Environmental Kuznets curve. Economic growth
and environment.
Basic papers and textbooks:
Perman R., Chapter 1, pp. 3 – 15; chapter 2. pp. 16 - 55.
Tietenberg, T. Chapter 1, 2. pp..
VIDEO: INTRODUCTION. EPA: UNDERSTANDING AIR POLLUTION.
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Problem 1.2. WELFARE ECONOMICS AND THE ENVIRONMENT
1. Efficiency and optimality. Pareto optimality. Basic kinds of efficiency. Utility possibility
boundary.
2. Allocation problems of environment. Efficiency in ideal conditions. Partial equilibrium
analysis. Efficiency and equity. Welfare theorems and environment.
Basic papers and textbooks:
Perman R., Chapter 5, pp. 105 – 123.
Tietenberg, T. Chapter 1, pp..
VIDEO: PARETO OPTIMALITY
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Problem 1.3. ECONOMICS OF DEPLETABLE RESOURCES
1. Depletable (non-renewable) resources. The scarcity of natural resources. Classification of
resources. Marginal cost of extraction. Marginal user cost. The role of substitute.
2. Optimal resource extraction. Environmental effect of resource extraction. Backstop
technologies. Hotelling rule.
3. Recycling. Ecological and economic aspects of incineration. Sustainable alternatives.
Basic papers and textbooks:
Perman R., Chapter 15, pp. 506 – 533.
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Problem 1.4. ECONOMICS OF RENEWABLE RESOURCES
1. Depletable but replenishable resources. Public and Commercial use of resources. Biological
growth function.
2. Renewable resources: common property. Dynamic efficient sustainable yield. The influence
of innovations.
3. Economics of biodiversity. Conservation of natural resources.
Basic papers and textbooks:
Perman R., Chapter 17, pp. 555 – 592.
Quiz No. 2. Cost-Benefit analysis and Environment.
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Problem 1. 5. ENVIRONMENT, PUBLIC GOODS, EXTERNALITY
1. Environment as public good. Merit goods.
2. Optimal provision of clean environment. Public goods and economic efficiency.
3. Externality. Market failure. Basic kinds of externality. Private and social cost. Externality
and economic efficiency. The Coase theorem.
Basic papers and textbooks:
Perman R., Chapter 5, pp. 124 – 145.
Mid-term exam.
PART TWO. ECONOMICS OF ENVIRONMENTAL POLICY (MIXED
REALITY CONCEPT)
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Problem 2.1. BASIC PRINCIPLES OF ENVIRONMENTAL POLICY
1. Why do we need environmental policy? The free rider problem.
2. Basic principles. Pollution Pay Principle – PPP. Equi-marginal principle.
3. Precautionary principle. Integrated pollution prevention and control.
Basic papers and textbooks:
Perman R., Chapter 6, pp. 165 – 196.
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Problem 2. 2. ENVIRONMENTAL RISK ASSESSMENT
1. Environmental risk and uncertainty. Safety standard. Basic drawbacks of the safety
standards. Risk assessment. Basic stages.
2. Dose-response approach. Risk management. Case study: Value of life.
Basic papers and textbooks:
Perman R., Chapter 13, pp. 444 – 465.
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Problem 2.3. COMMAND-AND CONTROL INSTRUMENTS
1. Direct regulation. Instruments of CAC regulation. Subsidy. Environmental standards.
2. Economic motivation of the standard. Ambient and Emission standards.
3. Uniform standard emission. Equal percentage reduction. Minimizing of total costs.
Basic papers and textbooks:
Perman R., Chapter 7, pp. 202 – 239.
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Problem 2.4. ECONOMIC INSTRUMENTS OF ENVIRONMENTAL POLICY
1. Regulation by incentives. Environmental taxation. Pigouvian tax.
2. Property rights approach. Tradable permits.
3. Bubble and offset concepts. Netting.
Basic papers and textbooks:
Perman R., Chapter 8, pp. 247 – 261.
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Problem 2.6. COST-BENEFIT ANALYSIS OF ENVIRONMENTAL PROJECTS
1. What is CBA? Basic problems solved with CBA. Basic stages of CBA. The drawbacks of
CBA.
2. Intertemporal Welfare economics. Intertemporal optimality. The choice of social discount
rate.
3. Estimation of costs. Time in CBA. From accounting to economic estimation. Shadow price.
Basic papers and textbooks:
Perman R., Chapter 11, pp. 351 – 387.
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Problem 2.7. VALUING ENVIRONMENT
1. Basic kinds of benefits. Consumer surplus as a measure of benefit. Use and non-use value.
Option value. Bequest value. Existence value.
2. Methods of direct measurement. Surrogate market methods – Travel cost, Hedonic prices.
Constructed market-based methods. Contingent valuation methods. The problem of biases.
3. Criteria for assessment of environmental decisions: NPV, BC ratio, Internal rate of return.
Basic papers and textbooks:
Perman R., Chapter 12, pp. 399 – 441.
Tietenberg, T. Chapter 2, pp.
VIDEO: COST- BENEFIT ANALYSIS.
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Problem 2.8. (OPTIONAL) SUSTAINABLE DEVELOPMENT
1. Theoretical basis of sustainable development. Factors of sustainable development:
man-made, human and natural capital. Phases of sustainable development.
2. Axiomatic and operational principles of sustainable development. Minimal Safe
Standard.
3. Depletable resources from point of view of sustainable development. Social discount
rate, Discount tyranny.
Basic papers and textbooks:
Perman R., Chapter 4, pp. 82 – 97.
Quiz No. 4. Environmental policy
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Problem 2.9. (OPTIONAL) ECONOMICS OF THE CLIMATE CHANGE
1. Economics of climate change. The atmosphere as a global commons. The economic
aspects of causes and impacts of climate change.
2. Cost-Benefit Analysis of Climate Change: Estimating damages from climate change,
Balancing costs and benefits, Economic optimum versus climate stabilization.
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3. Policy Responses to Climate Change: Prevention and mitigation, Carbon taxes and
transferable permits, The transition to sustainable energy systems.
Basic papers and textbooks:
Perman R., Chapter 10, pp. 297 – 342.
Final exam.
IV. EXAM DATES, GRADING POLICY AND ATTENDANCE
Exam Dates
Midterm Exam: to be announced additionally
Final Exams:
to be announced additionally
Grading Policy
The final results are composed in the following way:
Kind of work
Non-exam works.
1. Homework: Analyzing professional text and case study.
2. Quiz: training for the exam
3. Participation in class discussion
Total non-exam results
Exams.
Mid-term exam
Final exam
Total exam results
Total results
% share
each
Number of
units
% share
total
2,5%
2.5%
20%
40%
4
4
1
10%
10%
20%
40%
20%
40%
60%
100%
1
1
20%
40%
60%
100%
This grading policy gives chance to all students to reach the highest results they wish, depending on their
motivations. It is composed of the following kinds of work:
1. Homeworks. The aim of the homeworks is to train you for the exam. The homeworks are presented
according to the schedule prepared in the beginning of semester. No homeworks are accepted after the
deadlines unless there are serious reasons. Every student has 4 individual homeworks: the first two are used
for training for the mid-term exam and the second two – for the final exam. Every homework includes:
1.1. Analysing professional text. It includes writing essay after reading several pages from your basic
textbook. The essay should be no more than one page. It is aimed at reproducing the essay you are supposed
to write on the exam. My very strong recommendation is to write with your own words, not to copy the text.
This is your chance to train yourself for the exam. Normally I propose some structure of the essay in form of
answering the questions formulated from the text in your basic manual. It helps you to prepare a good survey
of a given economic problem with a training of correct citation.
1. 2. Analyzing case study. It includes a case in point analysis - answering the questions formulated in the
case studies in your basic manual. Based on the discussions during the semester the students are to calculate
several practical tasks. Note that for me the most important are not the correct calculations, but the analysis
and the conclusions following from them. There is a detailed instruction in my homepage how to complete
the calculation of this homework. It can be found in the corresponding section. Please, do not cite any text of
this instruction in your homework. It can not be a part of your essay.
Be careful! This is individual, not collective homework. If I receive the same text in the homeworks (very
easy to check in my computer) both homeworks will be eliminated without any right for repeating.
During the semester you have to complete the following homeworks:
Number
Topic
Homework No. 1
Sustainable Environment
Homework No. 2
Cost-Benefit analysis
Homework No. 3
Risk assessment
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Homework No. 4
Environmental policy: Command-and-Control and Economic instruments.
The homeworks are prepared in a way, which helps you to train yourself better for the exams. Unduly
completion means not only to miss the chance for preparing better for the exams; you receive twice less
points bringing your homeworks after the deadlines. Besides, you confuse strongly my normally tight
schedule
2. Quizzes. There are four quizzes aimed at preparing you better for the exams. For details in preparing a
good quiz presentation, please click here.
3. The participation in class discussion scores (20%) are based on the following criteria:
1. Attendance according to the official record and my personal observations. Student which makes notes
during the discussions and does not make noise receives 0.5% per lecture. The attendance is recorded to the
administration after every lecture by Internet. Students, who are absent over 70% of the class time,
automatically fail the course. Working is not accepted as an excuse.
2. Punctuality – preparing your homeworks in due time according to the schedule.
3. Participation in the class discussion in form of explaining to the other students some problems during the
lectures.
4. Participation in the class discussions.
Normally the participation is calculated as weighted average of the official attendance and my
records of making notes (points 1 and 2). Points 3 and 4 however are important for the border cases.
4. Exams. There are two mid-term exams and final exam. Every exam includes 5 professional
terminology definitions (PT), 5 complete the missing text questions (MTQ), 5 multiple choice
questions (MCQ), one compulsory theoretical question and one case study essay-type question.
The PTs include some basic concepts you have to define briefly. They are to identify your basic
knowledge of the course.
The MTQs include 5 questions, in which part of the text is missing. You have to complete the
missing text.
The 5 MCQ are composed from the discussions during the semester.
The theoretical question is aimed at presenting your understanding of the theory discussed during
the course.
The case study essay-type questions reproduce examples from the real life. You have to identify the
theoretical problem hidden behind the question and to outline the theoretical and practical aspects
in it.
Please, indicate explicitly which answer from which section you have chosen to answer. Answering
only by graphs is not accepted. Graphic illustrations are appreciated when they are supported by the
proper verbal explanation. Note that in the theoretical and case study essay questions you have two
questions of every kind and you have to choose only one out of two. Answering all the questions
does not increase your results; I take the result only of one question from every section.
There is no make up for the quizzes and the mid-term exams.
The distribution of the scores from the exams is as follows:
Part
Number of
Maximum scores for each
questions
mid-term exam
I. PTQ
5
2%
II. MTQ
5
1.5%
III. MCQ
5
1.5%
IV. Theoretical questions 1 out of 2
2.5%
V. Practical questions
1 out of 2
2.5%
Total
10%
Maximum scores
total (Final exam)
10%
5%
5%
10%
10%
40%
According to the University grading rules your final results are estimated by means of a curve
distribution. It means that your grades reflect not your own absolute results, but relative to the results
of the other students in the group. Usually I apply a curve in which students collecting less than 50%
fail and students collecting more than 90% receive A grade.
Every student has individual exam paper. To see a model of an exam paper please,
click here.
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Honor Code: All work done on the exams will be done on your own and pledged. Students may discuss homework
concepts and approaches, but the work will be done by the individual. Group or copied solutions are not permitted.
Homework is considered pledged simply by its receipt.
Late Work and Examinations: Normally, homework is due one week from the assigned date, unless
otherwise indicated or previous arrangements are made. Late homework will be accepted due to sickness
only. Students who know that they are going to miss class should make arrangements in advance. Only
selected homework problems may be graded from the set turned in. The others will be checked for
completion.
According to the University grading rules your final results are estimated by means of a curve
distribution. It means that your grades reflect not your own absolute results, but relative to the results
of the other students in the group. Usually I apply a curve in which students collecting less than 50%
fail and students collecting more than 90% receive A grade.
Attendance
Classroom attendance is mandatory.
Our weekly schedule:
No.
Dates
1 week
28.09 – 02.10
2 week
04.10 – 09-10
3 week
12.10-16.10
4 week
5 week
6 week
7 week
8 week
9 week
10 week
11 week
12 week
19.10-23-10
26.10-30.10
02.11-06.11
09.11-13.11
16.11-20.11
23.11-27.11
30.11-04.12
07.12-11.12
14.12-18.12
13 week
14 week
21.12-25-12
28.12-01.01
Lesson ECON373 – Thursday 1, Friday 2
Problem 1.1. INTRODUCTION IN ENVIRONMENTAL ECONOMICS.
Problem 1.2. WELFARE ECONOMICS AND ENVIRONMENT.
Problem 1.3. COST-BENEFIT ANALYSIS OF ENVIRONMENTAL
PROJECTS.
Problem 1-4. VALUING ENVIRONMENT.
Problem 1.5. ECONOMICS OF RENEWABLE RESOURCES.
Problem 1.6. ECONOMICS OF DEPLETABLE RESOURCES.
Quiz 1
The Mid-term
Problem 2.1. EXTERNALITY AND ENVIRONMENT
Problem 2. 2. RISK ASSESSMENT.
Problem 2.3. BASIC PRINCIPLES OF ENVIRONMENTAL POLICY.
Problem 2.4. ECONOMIC INSTRUMENTS OF ENVIRONMENTAL
POLICY.
Problem 2.5. ECONOMICS OF THE CLIMATE CHANGE
Summary of discussion, Quiz 2
Basic Textbook:
Roger Perman, et al. Natural Resource and Environmental Economics, Pearson Addison Wesley,
0273655590, 3/e, 2003
Tom Tietenberg, Colby College Environmental and Natural Resource Economics, 6/E, ISBN: 0201-77027-X, Addison-Wesley, 2003,
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Supplement books:
Pearce D.W. and R. K. Turner, Economics of Natural Resources and the Environment, Harvester
Wheatsheaf, London
T. Tietenberg. Environmental Economics & Policy, Third edition. Pearson edition.
Danchev A. Environmental Economics, New Bulgarian University (Bulg).
The basic manuals you need to pass successfully the course.
Pearce D.W. and R. K. Turner,
Economics of Natural Resources
and the Environment,
Harvester Wheatsheaf, London.
T. Tietenberg.
Environmental Economics
& Policy, Third edition.
Pearson edition.
ECON373-Envir-11-Introduction
Danchev A., Pavlova V.,
Environmental Economics,
New Bulgarian University.
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References and Other Materials:
T. Tietenberg, Environmental and Natural Resource Economics, Scott Foresman & Co., Glenview, Illinois,
3rd Ed., 1992.
J. M. Hartwick and N. Olewiler, The Economics of Natural Resource Use, Harper and Row, New York,
1986.
Baumol William J. and Wallace E. Oates. The Theory of Environmental Policy, Second Edition, Cambridge
University Press, 1988, £ 17.95
M. Common. Environmental & Resource Economics. An Introduction. 2nd Edition. Longman, 1996, £19.99.
Goodstein E.S. Economics and the Environment, Prentice Hall, 1995.
Lesser A. Jonathan, Daniel E. Dodds, Richard O. Zerbe, Jr. Environmental Economics and Policy, AddisonWesley, 1997, £ 25.99 - advanced manual.
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Recommended readings
Ison S, S.Peake, S. Wall.
Environmental issues and
Policies, Pearson edition.
The Earth scan reader in
Environmental
Economics, Ed. By
Markandya A. and J.
Richrdson
ECON373-Envir-11-Introduction
Sustainable
Environmental
Economics and
Management, ed. By R.K.
Turner, Belhaven press.
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Recommended Readings:
Nick Hanley, Jason R. Shogren and Ben White. Environmental Economics in Theory and Practice.
Macmillam Press Ltd. 1997, £16.99 - advanced reading.
Jan Hodge. Envionmental Economics, Macmillan Press Ltd. 1995, £10.99.
Roger Perman, Yue Ma, James McGilvray, Natural Resource and Environmental Economics, Longman,
1996, £ 19.99
P.S. Dasgupta & G.M. Heal. Economic Theory and Exhaustible Resources, Cambridge University Press,
1979 £ 22.95
Valuing Nature. Economics, Ethics and Environment. Ed. By John Foster. Routledge, 1997, £15.99
M. L. Cropper and W. E. Oates, "Environmental Economics: A Survey", Journal of Economic Literature,
Vol. XXX, 1992.
A. Makandya and J. Richardson, The Earthscan Reader in Environmental Economics, Earthscan
Publications, London, 1992.
D W. Pearce (ed.), Blueprint 2: Greening the World Economy, Earthscan Publications, London, 1991.
D. Helm (ed.), Economic Policy Towards the Environment, Blackwell Publishers, London, 1991.
Discussion with one of the leading Environmental Economists Prof. David W. Pearce.
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