Decision Making & the Environmen

Decision Making & the Environment

ECN-379

August 2009

Norwegian University of Life Sciences, Ås, Norway

J Shogren, University of Wyoming

Brief course description: This course explores how economists model how people--individually and collectively--make decisions about environmental protection.

We will focus on the behavioral economic underpinnings of environmental policy in theory and practice.

The course will focus on better understanding on how understanding the success and failures of economic theory and empirical applications can help make   good environmental policy better, and prevent bad environmental policy from getting worse.

The material we will explore includes alternative theories of decision-making under risk and uncertainty, game theory, incentive design, valuation methods, and development ideas and empirical tools with special emphasis on experimental applications.

      Course readings are listed below. Our focus is on papers in the published literature on microeconomics, environmental economics and behavioral economics.

Book (required)

Hanley, N., J. Shogren, and B. White (2007). Environmental Economics in Theory and Practice, Second Edition. Palgrave, London.

[Purchase at your favorite Bookstore, on-line or brick]

COURSE OUTLINE/TOPICS

What is the problem?                             Economies are inefficient when markets fail to provide environmental goods.   Why and what are the problems?

What is at risk?                                     Market failure creates risks for both human and environmental health--how to we assess and manage these risks

Is there a conflict?                                 Risks can be eliminated by making them someone else's problem--this leads to conflict and strategic behavior

Can we cooperate?                                 Conflicts are resolved through cooperation and coordination.

How can we control?                              If cooperation fails, governments intervene with orders and incentives to control behavior

How to measure value?                          Determining the correct level of control requires information on the benefits and costs of each policy option

How best to promote real prosperity?      Can these lessons be applied to promote prosperity without causing new problems?

READING LIST

The reading list is in 3 parts: relevant economic classics, environmental economics, and my papers with colleagues (reflecting our perspective on all this).

1. What is the problem?

Classic paper #1: Arrow, K. (1969).   The Organization of Economic Activity: Issues Pertinent to the Choice of Market Versus Nonmarket Allocation.   The Analysis and Evaluation of Public Expenditures: The PPB System. Washington, D.C.: Joint Economic Committee, 91st Congress, 47-64.

Classic paper #2:   Samuelson, P. (1954). The Pure Theory of Public Expenditure. Review of Economics and Statistics 36: 387-389.

Classic paper #3:   Akerlof, G. (1970). The Market for "Lemons": Quality Uncertainty and the Market Mechanism. Quarterly Journal of Economics 84: 488-500

EE paper #1:   Cropper and Oates (1992) A Survey of Environmental Economics. Journal of Economic Literature

EE paper #2:    Crocker, T. and J. Tschirhart (1992).   Ecosystems, Externalities, and Economies. Environmental and Resource Economics 2: 551-568.

EE paper #3:    Heal, G. (2007). A Celebration of Environmental and Resource Economics. Review of Environmental Economics and Policy 1: 7-25.

JS paper #1: Shogren, J. and T. Crocker (1999) Risk and its consequences. Journal of Environmental Economics and Management

JS paper #2:   Brown, G. and J. Shogren (1998). Economics of the Endangered Species Act. Journal of Economic Perspectives

JS paper #3:   Shogren, J. and L. Taylor (2008). On Behavioral-Environmental Economics. Review of Environmental Economics and Policy

2.   What is at risk?

HSW Chapter 12.

Classic paper #1:     Machina, M. (1987). Choice under Uncertainty: Problems Solved and Unsolved. Journal of Economic Perspectives 1:121-154.

Classic paper #2a:   Kahneman, D., and A. Tversky (1979). Prospect theory: An analysis of decisions under risk. Econometrica 47: 313-327.

Classic paper #2b:     Rabin, M. (1998). Psychology and economics. Journal of Economic Literature 36: 11-46.

Classic paper #3:     Ehrlich, I. and G. Becker (1972). Market Insurance, Self-Insurance, and Self-Protection. Journal of Political Economy 80: 623-648.

EE paper #1:   GOLLIER, C. and N. TREICH (2003). Decision-Making under Scientific Uncertainty: The Economics of the Precautionary Principle. Journal of Risk and Uncertainty 27: 77-103.

EE paper #2:   Fisher, A. and U. Narain (2003). Global Warming, Endogenous Risk, and Irreversibility. Environmental and Resource Economics, Vol. 25(4), pp. 395-416.

EE paper #3:    Weitzman M. (2009). On Modeling and Interpreting the Economics of Catastrophic Climate Change.   Review of Economics and Statistics 91: 1-19.

JS paper #1:   Crocker, T. D. and J. F. Shogren (2003). Choosing Environmental Risk. The International Yearbook of Environmental and Resource Economics, H. Folmer and T. Tietenberg, eds. Cheltenham, UK: Edgar Elgar.

JS paper #2:     Chen, S.-N., J. Shogren, P. Orazem, and T. Crocker (2002). Prices and Health: Identifying the Effects of Nutrition, Exercise, and Medication Choices on Blood Pressure. American Journal of Agricultural Economics.

JS paper #3:     Cherry, T., T. Crocker and J. Shogren (2003). Rationality Spillovers. Journal of Environmental Economics and Management 45: 63-84

3.   Is there a conflict?

HSW Chapter 6.

Classic paper #1:   Dixit, A. (1987). Strategic Behavior in Contests. American Economic Review 77: 891-898.

Classic paper #2: Goeree, J. and C. Holt (2001). Ten Little Treasures of Game Theory and Ten Intuitive Contradictions. American Economic Review 91: 1402-1422.

Classic paper #3:    Camerer, C. (1997). Progress in behavioral game theory. Journal of Economic Perspectives,

EE paper #1: Hoel, M. (1991). Global Environmental Problems: The Effects of Unilateral Action Taken by One Country. Journal of Environmental Economics and Management 20: 55-70.

EE paper #2:   Murdoch, J. and T. Sandler (1997).   The voluntary provision of a pure public good: The case of reduced CFC emissions and the Montreal Protocol. Journal of Public Economics 63: 331-349

EE paper #3:   Barrett, S. (1994). Self-Enforcing International Environmental Agreements. Oxford Economic Papers 46: 804-878.

JS paper #1: Baik, K. and J. Shogren (1994). Environmental Conflicts and Reimbursement for Citizen Suits. Journal of Environmental Economics and Management 27: 1-20.

JS paper #2:    Hurley, T. and J. Shogren. (1997). Environmental Conflicts and the SLAPP. Journal of Environmental Economics and Management .

JS paper #3:    Kroll, S., T. Cherry and J. Shogren (2007). Voting, Punishment and Public Goods. Economic Inquiry 45

4. Can we cooperate?

HSW Chapter 6.

Classic paper #1: Coase, R. (1960). The Problem of Social Cost. Journal of Law and Economics 3: 1-40.

Classic paper #2: Ostrom, E. (2000). Collective Action and the Evolution of Social Norms. Journal of Economic Perspectives 14: 137-158.

Classic paper #3: Crawford, V. and H. Haller (1990). Learning How to Cooperate: Optimal Play in Repeated Coordination Game. Econometrica 58: 571-595.

EE paper #1: Porter, R. (1988). Environmental Negotiation. Journal of Environmental Economics and Management 15: 129-142.

EE paper #2: Kahneman, D. J. Knetsch and R. Thaler (1990). Experimental Tests of the Endowment Effect and the Coase Theorem. Journal of Political Economy 98: 1325-1348.

EE paper #3:    Carpenter, J., A. Daniere, and L. Takahashi (2004). Cooperation, trust, and social capital in Southeast Asian urban slums. Journal of Economic Behavior and Organization 55: 533–551.

JS paper #1:   Cherry, T., P. Frykblom, and J. Shogren. 2002. Hardnose the Dictator. American Economic Review 92, 1218-1221.

JS paper #2:     Rhoads, T. and J. Shogren (2004). Regulation through Collaboration. Journal of Regulatory Economics

JS paper #3:     Parkhurst G., J. Shogren, C. Bastian, P. Kivi, J. Donner and R. Smith (2002). Agglomeration bonus: an incentive mechanism to reunite fragmented habitat for biodiversity conservation . Ecological Economics 41: 305-328.

5. How can we control?

HSW Chapter 4 & 5. [also read Goulder, L. and I. Parry (2008). Instrument choice in environmental policy. Review of Environmental Economics and Policy 2: 152–174.]

Classic paper #1:   Lewis, T. (1994). Instruments of Choice for Environmental Protection. RAND Journal of Economics

Classic paper #2:   Weitzman, M. (1974). Prices vs. quantities. Review of Economic Studies 41: 477–491

Classic paper #3:   Varian, H. (1994). A Solution to the Problem of Externalities When Agents Are Well-Informed. American Economic Review 84: 1278-1293.

EE paper #1:    Horan, R., J. Shortle, and D. Abler (1998). Ambient Taxes when Polluters Have Multiple Choices. Journal of Environmental Economics and Management 36: 186-199.

EE paper #2:    Xepapadeas, A. (1991). Environmental Policy Under Imperfect Information: Incentives and Moral Hazard. Journal of Environmental Economics and Management 20:113-126.

EE paper #3:     Laffont, J-J. (1995). Regulation, moral hazard and insurance of environmental risks. Journal of Public Economics 58: 319-336

JS paper #1:   Archer, D. and J. Shogren (2001). Risk-indexed herbicide taxes to reduce ground and surface water pollution: an integrated ecological economics evaluation. Ecological Economics 38: 227-250

JS paper #2:    Smith, R. and J. Shogren (2002). Voluntary Incentive Design for Endangered Species Protection. Journal of Environmental Economics and Management 43: 169-187

JS paper #3:     Kunce, M. and J. Shogren (2005). On interjurisdictional competition and environmental federalism. Journal of Environmental Economics and Management 50: 212-224.

6. How to measure value?

                    HSW Chapter 11.

Classic paper #1:   Hanemann, W. M. (1991). Willingness to Pay and Willingness to Accept: How Much Can They Differ? American Economic Review 81: 635-647.

Classic paper #2:    Vickrey, W. (1961). Counterspeculation, Auctions and Competitive Sealed Tenders. Journal of Finance 16: 8-37.

Classic paper #3:   Rosen, S. (1974). Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition. Journal of Political Economy 82: 34-55.

EE paper #1:   Smith, V., and W. Desvousges (1987). An Empirical Analysis of the Economic Value of Risk Changes. Journal of Political Economy 95: 89-114.

EE paper #2: Viscusi, W. Kip, and Joseph E. Aldy, (2003). The Value of a Statistical Life: A Critical Review of Market Estimates throughout the World,” Journal of Risk and Uncertainty 5 5-76.

EE paper #3:    Kahneman, D. and J. Knetsch (1992). Valuing public goods: The purchase of moral satisfaction. Journal of environmental economics and management,

JS paper #1: Shogren, J. S. Shin, D. Hayes and J. Kliebenstein (1994). Resolving Differences in Willingness to Pay and Willingness to Accept. American Economic Review 84: 255-270

JS paper #2:    Shogren, J. and T. Crocker (1991). Risk, Self-Protection, and Ex Ante Valuation. Journal of Environmental Economics and Management 20: 1-15.

JS paper #3:    Shogren, J. and T. Stamland (2002).   Skill and the Value of Life. Journal of Political Economy

7. How best to promote real prosperity?

HSW Chapter 2 & 13.

Classic paper #1:   Grossman, G. and A. Krueger (1995). Economic growth and the environment. Quarterly Journal of Economics 112: 353–377.

Classic paper #2:   Jaffe, A., S. Peterson, P. Portney, and R. Stavins (1995). Environmental-Regulation and the Competitiveness of United-States Manufacturing - What Does the Evidence Tell Us. Journal of Economic Literature 33: 132-163.

Classic paper #3:   Copeland, B. and S. Taylor (2004). Trade, Growth, and the Environment. Journal of Economic Literature

EE paper #1:      Fredriksson, Per. 1997. The Political Economy of Pollution Taxes in a Small Open Economy. Journal of Environmental Economics and Management 33: 44–58.

EE paper #2:    Greenstone, M. (2002). The Impacts of Environmental Regulations on Industrial Activity: Evidence from the 1970 and 1977 Clean Air Acts and the Census of Manufactures. Journal of Political Economy 110: 1175-219.

EE paper #3:      Bartz, S. and D. Kelly (2008). Economic growth and the environment: Theory and facts. Resource and Energy Economics 30: 115-149

JS paper #1:   Margolis, M., J. Shogren, and C. Fischer (2005). How trade politics affect invasive species control. Ecological Economics 52: 305-313.

JS paper #2:     Barbier, E. and J. Shogren (2004). Growth with Endogenous Risk of Biological Invasion. Economic Inquiry 42: 587-601.

JS paper #3:      EHMKE, M. and J. SHOGREN (2008). Experimental methods for environment and development economics. Environment and Development Economics