Course 603 : Environmental Economics
COURSE 603: ENVIRONMENTAL ECONOMICS
Summer semester 2016
Professor Shreekant Gupta
Class Timings: Wed, Th: 11:40-12:50 pm
In this course we study environmental problems (esp. air and water pollution) from an economic perspective. This course is not about environmental policy, per se, but about the theory underlying environmental policy. It should, however, give you a more logical, coherent and sensible understanding of the reasons for (and solutions) to environmental problems.
The main analytical tools we will use are microeconomics and (to a lesser extent) econometrics. We model environmental problems (negative) externalities and public bads. Corrective mechanisms are examined esp. Pigouvian taxes, emission/effluent charges, tradable permits and property rights (Coase). We also look at extensions such as monitoring and enforcement of environmental regulations with adverse selection, moral hazard and dynamics (esp. stock pollutants). Finally, we study valuation of non-market, i.e., environmental goods and services.
Texts (available at RTL)
- Baumol and Oates (B&O) 1988. The Theory of Environmental Policy, 2nd ed., Cambridge Unversity Press (pdf available) – dated but still useful.
- Freeman, Herrige and Kling 2014. The Measurement of Environmental & Resource Values: Theory & Methods. 3rd ed. RFF Press/Routledge. (pdf available)
- Champ, Boyle and Brown 2003. A Primer on Nonmarket Valuation. Springer. (pdf available)
In addition you can consult the undergraduate text below for an overview of topics covered:
- Kolstad 2011. Intermediate Environmental Economics, International 2nd ed. Oxford University Press.
These texts will be supplemented by other readings. Electronic copies where available will be uploaded in the course folder. The course will entail a lot of self-reading of journal articles.
Internal Assessment: 3 class tests accounting for 30% of the grade.
Appointments: immediately after class or make an appointment via email.
Topics and readings (these are indicative for now but give an idea about course content)
OVERVIEW (a quick read is recommended as a roadmap and review basic concepts).
Kolstad, Ch. 1-3.
1. THE THEORY OF EXTERNALITIES AND PUBLIC GOODS
- Mas-Colell, Whinston and Green (MWG), Ch 11; Kolstad, Ch. 4-5; B&O, Chs. 2-4.
2. PIGOUVIAN TAXES AS A CORRECTIVE MECHANISM FOR EXTERNALITIES
- Kolstad, Ch. 11.
3. PROPERTY RIGHTS AND TRANSACTION COSTS
- Kolstad, Ch. 13.
- Coase, R.H. 1960. “The Problem of Social Cost,” Journal of Law and Economics 3:1-44.
- Takayama, A. 1993. Analytical Methods in Economics, U. of Michigan Press. Chapter 4.
- Farrell, J. 1987. “Information and the Coase Theorem,” Journal of Economic Perspectives 1(2):113-129.
- Usher, D. 1998. “The Coase Theorem is Tautological, Incoherent or Wrong,” Economics Letters 61:3-11.
- Allen, D.W. 2015. “The Coase Theorem: Coherent, Logical and not Disproved,” Journal of Institutional Economics 11:2(379-390).
4. EMISSION CHARGES AS A REGULATORY INSTRUMENT
- Kolstad, Ch. 12; B&O, Ch. 11.
- Baumol and Oates. 1971. “The Use of Standards & Prices for Protection of the Environment,” SJE.
5. TRADABLE PERMITS (QUOTAS) AS A REGULATORY INSTRUMENT
- Kolstad, Ch. 13; B&O, Ch. 12.
6. REGULATORY CHOICE UNDER UNCERTAINTY: TAXES VS. PERMITS
- Kolstad, Ch. 16; B&O, Ch. 5.
- McKibbin and Wilcoxen. 2002. “The Role of Economics in Climate Change Policy,” JEP.
- Adar and Griffin. 1976. “Uncertainty & Choice of Pollution Control Instruments,” JEEM.
- Roberts and Spence.1976. “Effluent Charges & Licenses Under Uncertainty,” JPubE.
7. THE EFFECT OF MARKET STRUCTURE ON PIGOUVIAN TAXES
- Kolstad, Ch. 12 Section IV; B&O, Ch. 6.
8. REGULATION WITH ADVERSE SELECTION, MORAL HAZARD AND DYNAMICS
- Kolstad, Ch. 16, 17.
9. VALUATION OF NON-MARKET GOODS AND SERVICES
A. Overview and Basic Theory
Kolstad, Ch. 7; Freeman, Chs. 1-4.
B. Revealed Preference (Indirect Market Methods) -- Hedonic Market Methods
Kolstad, Ch. 8, Freeman, Ch. 4, 11
C. Constructed Markets (Direct Market Methods)
Kolstad, Ch. 10; Freeman, Chs. 4 and 6.