EC371 – Environmental Economics

Boston University, Fall 2011 [ARCHIVED; see main page]
Instructor: Jeremy B. Smith, PhD

Course Outline (PDF)


Solutions to the final exam are available here (PDF).

The exam grades by student ID are available here (PDF).

Here are two practice final exams with solutions, from Fall 2010 and Spring 2010 (PDF).

Here is a practice problem with solutions (PDF) on renewable resources.

Solutions to the second mid-term (PDF).

Here are two practice exams with solutions, from Fall 2010 and Spring 2010 (PDF). These correspond (roughly) to the material that will be covered on the second mid-term this semester (with the exceptions noted in my e-mail to the class). They will remain posted here all semester.

Here are some supplementary notes for the end of the cost-benefit analysis unit (PDF). This is not required material, but is rather being provided in case you are interested. The vocabulary may be useful if you ever have a job where you are taking part in cost-benefit analyses.

Solutions to the first mid-term (PDF).

Here are two practice exams with solutions, from Fall 2010 and Spring 2010 (PDF). These correspond to the material that will be covered on the first mid-term this semester. They will remain posted here all semester.

Practice Problems:

Problem Set I / Solutions (PDF)

Problem Set II / Solutions (PDF)

Problem Set III / Solutions (PDF)

Problem Set IV / Solutions (PDF)

Suggested Readings (optional but, I hope, interesting):

There is a nice article in the Winter 2002 volume of the Journal of Economic Perspectives on the first major wave of environmental regulation in this country. It is called “Environmental Policy Since Earth Day I: What Have We Gained?” by A. Myrick Freeman III. You will gain more from the discussion of costs and benefits later in the semester, but for now the descriptions of the legislation may be of interest. (Access to the article requires you to be connecting from the BU network or another system that has access to JSTOR.)

Coase’s classic “The Problem of Social Cost” was published in 1960 in the Journal of Law and Economics. It is long, but contains much on issues of market failure that is still interesting, relevant and even sometimes amusing. (Access to the article requires you to be connecting from the BU network or another system that has access to JSTOR.)

Cosean bargaining in the extreme: this article from the New York Times discusses how a polluting factory purchased an entire town in order to continue operation. On the other hand, this article (PDF; sorry for the poor quality) describes the opposite situation: a town buying out a polluting cattle feedlot. Interestingly for this latter case, taxation was used as a coordinating mechanism amongst the large group of affected residents.

HP found significant evidence of free-riding on a file-sharing network.

Here is an essay by Garrett Hardin called “The Tragedy of the Commons” that was quite influential in its time. His motivation (the “population problem”) is a bit dated and his position on it could be seen as odd or extreme, but the article is still a classic exposition of concepts related to free-riding and open-access resources. One criticism of this essay is that it confuses open-access resources with common-property resources, where the latter are characterized by rules of use mutually set and enforced by a community. Elinor Ostrom, a recent recipient of the Nobel Prize in Economics, has written about community ownership of resources and how this concept might be extended to other open-access resources.

Slate Magazine published a cheeky article on corn and ethanol subsidies by Robert Bryce in July 2005. A more recent article making some similar and additional points was the cover story for the Fall, 2007 issue of the Cato Institute’s Regulation magazine. Science published an editorial on the topic; it and the letters written in response raise some further points (these last two require a BU network connection or subscription).

Journalist Michael Harris wrote a book called Lament for an Ocean: The Collapse of the Atlantic Cod Fishery: A True Crime Story that provides comprehensive information on failures of Canadian fisheries policies. For example, it documents how policy encouraged (both directly and indirectly) investment in factory trawlers and other forms of capacity building; government researchers suggested quotas based on stock estimates that have since been shown to be systematically upwardly biased; and conservation goals were often set aside due to political concerns. A good review of the book is available here.

The Christian Science Monitor ran a series of articles called Empty Oceans, which includes one on the progression of fishing technology. The rest of the series may be of more interest when we are covering fisheries specifically towards the end of the semester.

Here is an article from the Economist on the success of Individual Transferable Quotas in managing fisheries. (When you click on this link, you will be taken to a BU login page before you can access the corresponding article.)

Xavier Sala-i-Martin, an economics professor at Columbia University, shows with some supremely hilarious visual aids why we should perhaps not disregard the potential for government failure. I encourage you to explore his website more thoroughly for much enjoyment in your spare time!

A report published by the British government, popularly referred to as the Stern Review, found a strong case, based partially on cost-benefit analysis, for taking sharp and immediate action to address global warming. William Nordhaus and Martin Weitzman published responses in the Journal of Economic Literature shortly thereafter that, in part, showed that this conclusion is weakened when alternative discount rates are used. Rebuttals and further critiques followed, many of which are summarized here (PDF). This working paper provides a synthesis and extension of the main arguments from the debate following the Stern Review. It can also be noted that William Cline came to similar conclusions as the Stern Review based on cost-benefit analysis in 1992. Shortly thereafter, Nordhaus made another of the early forays by economists into the field, which included a criticism of Cline’s discount rate. He should also be given credit for getting the whole “economics of climate change” ball rolling way back in 1977 (PDF). (You must be connecting from a BU computer to access the JEL and NBER papers. This is all very comprehensive and heavy stuff, but a glance won’t hurt if you’re interested. We will be addressing some of the other issues raised in these reports when we talk about climate change at the end of the semester.)

You can read a directive from the Office of Management and Budget and guidelines from the Congressional Budget Office (Box 2 and the surrounding discussion) recommending discount rates of 7% and as low as 2% respectively.

Here is an excellent website on environmental valuation. There is a book called A Primer on Nonmarket Valuation that covers the same topics in more depth and is a primary (though more advanced) reference on the topic.

Here is a (not very well written) report on biases in contingent valuation estimates of willingness to pay (PDF) that I wrote for my own senior undergraduate class in environmental economics.

A great paper on the Exxon Valdez oil spill and the following contingent valuation study upon which litigation was partially based, as well as the ensuing debate on contingent valuation (PDF) was published in the 2003 volume of Environmental and Resource Economics.

On the potential for regulation to induce innovation, here is an extended discussion of the more traditional view that is a reply to a much more optimistic hypothesis from an article in the same journal. On a related note, there is some evidence that innovation broadly defined may not shift the marginal abatement cost curve in such a simple way as is assumed by the more traditional view. (You must be connecting via the BU network to access these articles.)

Here is a short excerpt from another textbook on fees versus permits when abatement costs are uncertain (PDF) that makes the point in more detail than I did in class recently. This is based on the original work by Martin Weitzman (who has been mentioned elsewhere on this page) published in 1974 in The Review of Economic Studies. (You must be connecting via the BU network to access the article.)

A more advanced article jointly investigates instrument choice under uncertainty with incentives to innovate, and finds that quantity-based regulations can be preferred on the basis of the types of technology investments that they induce. (Access to the article requires you to be connecting from the BU network.)

Comparing quantity-based regulations (i.e. permits) and price-based regulations (i.e. fees) along several dimensions in the context of potential policies to address global warming, William Nordhaus (who has also been mentioned elsewhere on this page) has come out in favor of price-based policies. On the other hand, Nathaniel Keohane presents some reasons to be optimistic about permits (and, to be fair, Weitzman himself also did). Yet another article in an earlier volume of the same journal compares a broader range of policy instruments along several dimensions. (Note that a carbon tax – which we will probably talk about in class towards the end of the semester – is not equivalent to the emissions fees we have been talking about so far. You should be able to read the abstracts for these articles from any network, but the full texts are not available through the BU library system.)

Two early descriptions and evaluations of the sulfur dioxide trading system were published in the Journal of Economic Perspectives in 1998 and can be accessed here and here (through the BU network or another system that has access to JSTOR).

On what policymakers have learned from experience with the EU-ETS concerning the design and maintenance of permit markets, there were a brief leader and an earlier short article in the Economist that have some basic information. (When you click on either of these links, you will be taken to a BU login page before you can access the corresponding article.) A symposium in the inaugural issue of the Review of Environmental Economics and Policy provides detailed analyses. (You should be able to read the abstracts for the symposium articles from any network, but the full texts are not available through the BU library system.)

An article evaluating Mexico City’s license-plate-based command-and-control policy designed to address traffic congestion and pollution can be accessed here. This is an example of a policy towards non-industrial sources of air pollution that did not turn out well. (You should be able to read the abstract from any network, but to download the full text you will have to search for the article through the BU library system.)

Here is a direct link (PDF) to the AR4 Synthesis Report from the IPCC.

There is a report by McKinsey & Company called “Pathways to a Low-Carbon Economy” that we might get a chance to discuss before the end of the semester. It estimates a global marginal abatement cost curve for carbon dioxide equivalent gases by examining the costs and feasibility of many mitigation options. Here is the summary report (PDF).

This page was last updated on Thursday, December 22, 2011, 2:00pm EST.