Problems in Managerial Economics: Environmental Economics

Dartmouth College
Hanover, New Hampshire

Instructor: Hansen, Robert G.
Subject area: Economics
Department: Economics
Year taught: 1994

Please note that the copyright for this syllabus is retained by the instructor.

"The resource that worries me the most is the declining capacity of our planet to buffer itself against human impacts... It's true that we've kept up food production -I underestimated how badly we'd keep on depleting our topsoil and ground water -but I have no doubt that sometime in the next century food will be scarce enough that prices are really going to be high even in the United States."

- Paul Ehrlich, ecologist

"Both the jayhawk and the man eat chickens, but the more jayhawks, the fewer chickens, while the more men, the more chickens."

- 19th century economist Henry George, quoted by 20th century economist Julian Simon

Introduction and Objectives
Concern over environmental degradation has probably existed ever since man discovered fire. Today, though, we are faced with an ever-growing human population that is undoubtedly more capable than ever before of seriously affection the natural environment. Senate Majority Leader George Mitchell describes four current dangers -- ozone depletion, global warming, acid rain, and tropical deforestation -- as "a figurative Four Horsemen of the Apocalypse riding over today's world environment."

There are, of course, conflicting arguments as to how severe any of the current environmental problems really are. This disagreement aside, it seems safe to say that another phenomenon is definitely well-established; citizens of most industrialized nations are more willing than ever before to make sacrifices in order to alleviate environmental damage. This "willingness to pay" opens the way for public policy initiatives and, important for students of business, for business policy initiatives.

This course examines the relationship between the natural environment and economic activity. Although much of our focus will be on environmental problems, I would like to immediately note an optimistic side to our analysis: environmental issues, and especially the above-noted willingness to pay on the part of individuals, represent tremendous opportunities for those willing and able to provide solutions.

The specific objectives of the course are therefore three-fold: (1) to give students an advanced understanding of the cause of environmental problems in a free market economy; (2) to conduct in-depth analysis of several current environmental problems and of alternative policy responses; and (3) to examine the business implications of what amounts to a "green revolution." At the end of the course students should have an excellent understanding of environmental economics and should also be prepared to deal with -- and take advantage of -- environmental issues as business managers.

Course Requirements:
Short Papers: 40%
Term Paper: 40%
Class Participation: 20%

The short papers (probably 4 in total) will involve relatively brief (~ 5 pages) written analyses of some question or topic that I pose. They will be individual efforts. The term paper will be a more in-depth (10-20 pages) analysis of some issue chosen by you. These can be done individually or in pairs. Potential topics will be discussed in the first days of the class.

Please let me know in advance if you know you must miss a class.

There is no text for the class as I can find no single book that adequately covers the topics. Most of our readings will be from the current environmental, economics and management literature; some books will be referenced and these will be on reserve in Feldberg. I will be sending you weekly memos that will spell out in more detail what you should focus on for upcoming class sessions.

Course Outline


Day 1: Introduction to the Issues, the Philosophical Extremes, and the Business Challenges and Opportunities

1. Tierney, "Betting the Planet," New York Times Sunday Magazine, December 2, 1990.

2. Willson and Greeno, "Business and the Environment: The Shape of Things to Come," Prism, 1993.

3. Report on Kodak, Corporate Environmental Data Clearinghouse, 1992.

Day 2: Germany's Solid Waste Initiative

1. "Getting Serious in Germany," EPA Journal, July/August 1992.
2. Deutsche Duales System Report
3. Den Hond and Groenewegen, "Solving the Automobile Shredder Waste Problem: Cooperation Among Firms in the Automotive Industry," in Environmental Strategies for Industry, Fisher and Schot editors, 1993.
4. Stern, "Is This The Ultimate in Recycling," Across the Board, May 1993.


Day 3: Externality Issues

1. Coase, "The Problem of Social Cost," Journal of Law and Economics, 1960.
2. Hardin, "Tragedy of the Commons," Science, 1968.
3. Demsetz, "Toward a Theory of Property Rights," American Economic Review, 1968.
4. Case: Fish or Cut Bait

Day 4: Sustainable Development Ideas

1. Daly, Steady State Economics, ch. 13 Sustainable Development: From Concept and Theory Toward Operational Principles, 1991.
2. Solow, "Sustainability: An Economist's Perspective," in Dorfman and Dorfman, Economics of the Environment, 1993.
3. Problem: When to Cut a Tree?

Day 5: Conservation Economics: Negawatts

1. Lovins and Lovins, "Least Cost Climatic Stabilization," Annual Review of Energy and Environment, 1991.
2. Joskow and Marron, "What Does a Negawatt Really Cost? Evidence from Utility Conservation Programs," Energy Journal, Vol. 13, 1993.
3. Jackson, "Renewable Energy: Summary Paper for the Renewable Series," Energy Policy, September 1992.
4. Flavin, "Designing a Sustainable Energy System," State of the World, 1992.
5. Hotelling, "The Economics of Exhaustible Resources," journal of Political Economy, April 1931.


Day 6: Acid Rain

1. Kulp, "Acid Rain: Causes, Effects and Control," Regulation, Winter 1990.
2. Hahn, "The Politics and Religion of Clean Air," Regulation. Winter 1990.
3. Helme and Neme, "Acid Rain: The Problem," EPA Journal, Jan/ Feb 1991

Day 7: Tradeable Emissions Permits

1. Various news clippings on Clean Air Act of 1990 and LA Basin initiative.
2. Noll, "Marketable Emissions Permits in Los Angeles," Stanford University Working Paper, 1991.
3. Case: Indiana United

Day 8: Global Warming

1. Lindzen, "Global Warming: The Origin and Nature of the Alleged Scientific Consensus," Regulation, Spring 1992.
2. Balling, The Heated Debate.
3. Pearce, "Bedtime Warming Baffles Climatologists," New Scientist, November 1993.
4. Meadows, "Scientists Won't Settle Climate Debate," Valley News, 1993.

Day 9: Global Warming, continued

1. Nordhaus, "An Optimal Transition Path for Controlling Greenhouse Gases," Science, November 1992.
2. Deun and Hoeller, "Costs of Reducing C02 Emissions: Evidence from Six Global Models," OECD Economic Studies, Winter 1992.

Day 10: Ozone Depletion

1. Case: DuPont Freon Division
2. News articles on ozone depletion

Day 11: CERCLA: Background

1. CERCLA statute
2. Elliott, "Superfund: EPA Success and National Debacle?"
Natural Resources and Environment, Winter 1992.
3. "Superfund: The South Carolina Experience," from Taking the Environment Seriously, Meiners and Yardle, eds, 1993.

Day 12: Rewriting CERCLA

1. News articles on CERCLA reform.
2. Polinsky and Shavell, "Optimal Cleanup and Liability After Environmentally Harmful Discharges," Stanford Law School Working Paper, 1992.


Day 13: The Eastern European Situation

1. Bell, "Capital Privatization and the Management of Environmental Liability Issues in Poland," The Business Lawyer, May 1993.
2. Boyd, "The Allocation of Environmental Liabilities in Central and Eastern Europe," Resources, Summer 1992.
3. Bochniarz, "Environmental Policies in Central Europe: Deficiencies and Challenges," 9th IGWT Symposium, Budapest University, 1993.

Day 14: Trade and the Environment

1. Kalt, "The Impact of Domestic Environmental Regulatory Policies in US International Competitiveness," in Domestic Environmental Regulatory Policies, Spence and Hazard, eds., 1988.
2. Meyer, "Environmentalism and Economic Prosperity: Testing the Environmental Impact Hypothesis," MIT Working Paper, 1993.


Day 15: One Success Story: Lead
(Guest Speaker)


Day 16: TQEM Ideas

1. Weaver and Vorhauer, "Kodak's Framework and Assessment Tool for Implementing TQEM," Total Quality Environmental Management. Autumn 1993.
2. Williams, Medhurst and Drew, "Corporate Strategies for a Sustainable Future," in Environmental Strategies for Industry, Fisher and Schot, eds., 1993.
3. Lowe, "Industrial Ecology - An Organizing Framework for Environmental Management," Total Quality Environmental Management, Autumn 1993.

Day 17: Application of TQEM

1. Case: Allied Signal

Day 18: Full Cost Accounting/Life Cycle Analysis

1. GE Materials
2. Popoff and Blazzelli, "Full Cost Accounting," Prism, 1993.
3. Case: Once a Tree