Economics for Natural Resources and the Environment

University of Southern California
Los Angeles, California

Instructor: Pendleton, Linwood
Subject area: Economics
Department: Economics
Course number: 387x
Year taught: 1998
Level: Undergraduate

Instructor's email:
Instructor's homepage:
Please note that the copyright for this syllabus is retained by the instructor.

Comments: Sample quiz questions are given at the bottom of this course. See professor's website for lecture notes/graphs.

Overview: The course introduces non-economics majors to economic issues that affect the use and management of the environment. Effective environmental and natural resource management problems often are complicated by economic, social, political, and cultural factors. This course examines how economic forces affect the way natural resources are managed. The course begins with an introduction to basic economics principles and the concept of economic welfare. The construction of economic welfare is then applied to the management of natural resources, issues of environmental quality, and sustainable development. As students grow in their economic sophistication, the course introduces students to ethical and non-economic issues that confound the economic management of natural resources and the environment.

1) Environmental Economics and Policy. Tom Tietenberg. 1994 (referred to as Teitenberg I)
2) Economics of the Environment (1993) edited by Dorfman and Dorfman
and Reserve Readings and Handouts:

-Quizzes - There will be 5 in-class quizzes, each worth 2% of your final grade.
-Class Presentations: Students will be required to present afternoon discussions. (15%)
-Problem Sets/Labs = 5 Problem Sets (2% each)
-Exams- There will be two 1 1/2 hour exams: a mid-term (20% of final grade) and a final (45%)

-1 (Monday) TT1, Roots of Resource Econ., Basic Economics and Calculus Refresher,
-2 Dynamic Efficiency TT Chap 2, PS1 in Lab
-3 Property Rights DD 5 and 9 Quiz1: Basic Principles
-4 Depletable Resources TT6, DD Chap 10 and 12
-5 (Friday) Efficient Allocationover time Quiz2: Price Paths
-6 (Monday) Land PS 2, Computer simulated price paths
-7 Timber and TreePlantations TT 10 Non-timber Forest Products, PS 3 in lab
-8 Water TT 8, A Few Econ. Examples Quiz3: Forest Management
-9 Open Access Resources TT11, DD 1 Fisheries, Fisheries Management
-10 (Friday) Mid-term exam
-11(Monday) Tropical Forests and Biological Conservation Repetto (on reserve) Problem Set 4
-12 field trip to Island Company
-13 Sustainability and Sustainable Development TT19 and 20, DD 11 Quiz4: Tropical Forestry
-14 Non-market resources TT4, Problem Set 5
-15 (Friday) Environmental Economics: Optimal Levels of Pollution TT12, DD ??
-16 (Monday)
-17 Air Pollution, Water Pollution TT13, TT 16 Quiz5: Principles of Environmental Econ
-18 Coastal Economics Module: Coastal Zone Processes Coastal Resource Example: Coral Reefs
-19 Workshop: Modeling Catalina's coastal resources
-20 Exam

Sample Midterm Exam Questions:
Remember: For the exam you must: a) have a (non-programmable) calculator, b) state all your assumptions, c) show all work (neat and clear), and d) not collaborate.

1) Why do economists criticize the water regime know as "preferential use"? (Didn't get to this.)

2) What is Pareto optimality and what is it's role in determining how natural resources should be used?

3) Why do economists claim that setting Marginal Cost = Marginal Benefit achieves economic efficiency?

4) How does exploration affect the optimal price path for the extraction of a depletable resource?

5) In the last 30 years, farm land surrounding many metropolitan areas has been converted to homes and industry. Provide an economic explanation for this change in land use. You should use graphs and equations to aid your explanation.

6) You must determine the socially optimal rate of extraction of a depletable resource over two periods, t1 and t2. Please assume the simplest case in which there are no externalities or other complicating factors. The inverse demand function for the resource is P=20-q
Marginal extraction costs are constant at MEC=4.0
Using carefully drawn graphs or math please answer the following questions:
a) Ignoring scarcity, what would a period-by-period static efficiency criterion suggest as the optimal rates of extraction in the two periods? Please call these extraction rates q1 and q2.
b) Now, assume that the stock is limited with the total stock equal to 18 units. In the absence of any discounting, what would be the socially efficient allocation of the stock across the two periods? Again, call these extraction rates q1 and q2.
c) Now repeat b but assume a discount rate of .10 (i.e. 10%)

7) What is the value of a plot of land that annually produces $1000 (per year) of corn at a total cost of $100/year? The continuous discount rate is 0.10.

8) What is the value of a plot of land that produces $2000 worth of Christmas trees every 20 years? The continuous discount rate is 0.10.