Introduction to Natural Resource Economics (Summary)

Introduction to Natural Resource Economics (Summary)Economics is a study of decision making by consumers, firms, government agencies, and other entities (e.g., non-profit conservation organizations). The goals of economics are to understand what motivates particular decisions, to predict how agents will behave in particular situations, to judge the social value of economic outcomes, and to design public policies when we think it is appropriate. Natural Resource Economics is the study of agents’ decisions concerning natural resources. We are mainly concerned with whether these choices are ‘optimal’, and if they aren’t, how we can design public policies to achieve better outcomes. 3 2. Do we use resources optimally? What do we mean by “optimal”? Economic efficiency—maximum difference between social benefits and social costs (net benefits) Sustainability— “Development that meets the needs of the present without compromising the ability of future generations to meet their own needs” [1987 World Commission on Environment and Development (the Brundtland Commission)] Other criteria? Precautionary principle—avoid irreversible actions that may cut off important future opportunities Fairness 4 Is this efficient? Is it sustainable? In Indonesian rainforests are rapidly being cut down and burned. Often this is done to make way for oil palm plantations. Palm oil is used for cooking, cleaning and even as a biofuel. But the fires farmers set to clear their land have helped to make Indonesia a significant emitter of carbon dioxide. 5 3. If not optimal, what can be done? In market economies like ours, natural resource mismanagement can arise because (1) private markets do not function efficiently, or (2) bad public policies and public regulations. Bad policies: Boat restrictions in the Bristol Bay, Alaska Salmon Fishery. No motor boats until 1951. 32’ length restriction after that.