1st Edition

Production, Growth, and the Environment An Economic Approach

By William L. Weber Copyright 2015
    360 Pages 89 B/W Illustrations
    by CRC Press

    360 Pages 89 B/W Illustrations
    by CRC Press

    Written in a way that facilitates understanding of complex concepts, laws, and policy, Production, Growth, and the Environment: An Economic Approach explores how economic growth usually makes people better off, but also asks at what environmental cost? These costs are not often realized until after the fact, when their remediation is more expensive, and sometimes not reversible. Very few books on environmental economics model the joint production of desirable and undesirable outcomes in any depth. This book fills that void. It discusses the demographic transition and the escape from the Malthusian trap. It also covers the environmental Kuznets curve hypothesis that examines the relation between polluting outputs and economic welfare.

    The book integrates environmental valuation methods with the production possibility frontier (PPF) approach. It presents both types of outcomes in a PPF framework that accounts for scarcity and allows the concepts of technical and allocative efficiencies to be introduced and measured. The PPF can then measure technological progress/regress and can be used to measure whether resource use is sustainable over time. It can also be used to determine shadow prices for non-market desirable outputs such as ecological services and non-market undesirable by-products such as SO2, NOx, and CO2 that arise from fossil fuel combustion.

    The beauty of the PPF framework is that it can be depicted in simple two-dimensional diagrams that make the concepts easy to understand. The author uses this framework to introduce concepts such as technical efficiency, allocative efficiency, technological progress/regress, shadow pricing, externalities, public goods, pollution taxes, and permits. In addition, each chapter has numerous problems and discussion questions that provide examples and practice in using the introduced theories. The book also includes a chapter that shows how the solver routine in Excel can be used to measure technical and allocative efficiency. This gives you the tools to examine all outcomes and therefore make a decision that takes into account the environmental challenges along with any economic benefits.

    Introduction
    Economic Growth and the Environment
    Brief History of Environmental Economics
    Tragedy of the Commons
    Scarcity and the Laws of Thermodynamics
    Circular Flow of Income and Spending
    Evaluating Environmental Policy
    Efficiency, Equity, Growth, Stability, and Flexibility
    "Law" of Unintended Consequences
    Limits to the Economic Approach
    Questions to Ponder

    Review of Microeconomic Tools
    Markets and Prices
    Utility Theory
    Demand
    Supply
    Trade Creates Value
    Technical Note on Consumer’s Surplus
    Changes in Demand and Supply
    Returns to Scale
    Equal Marginal Cost Principle
    Pareto Efficiency and Equity
    Problems

    Indicators of Environmental and Economic Well-Being
    Policies and Instruments
    Cancer
    Life Expectancy
    Grain Yields
    Solid Waste
    Oil Spills and Water Quality
    Air Pollution
    Carbon and Chlorofluorocarbon Emissions
    Questions to Ponder

    Economic Growth and the Environment
    Malthusian Trap
    Escape from the Malthusian Equilibrium
    Demographic Transition
    Stages of Economic Development
    Environmental Kuznets Curve Hypothesis
    Dynamic EKC Models
    Environmental Justice
    Race to the Bottom?
    Problems

    Joint Production of Desirable and Undesirable Outputs
    Production Possibilities with Two Desirable Outputs
    Production with Desirable and Undesirable Outputs
    Theory
    View of the Two Koreas at Night
    Technical Efficiency
    Technical Efficiency with Two Desirable Outputs
    Technical Efficiency with Desirable and Undesirable Outputs
    Allocative Efficiency
    Two Desirable Outputs
    Allocative Efficiency with a Desirable and Undesirable Output
    Input Allocative Efficiency
    Productivity Change
    Productivity Change with Desirable Outputs
    Productivity Change with Desirable and Undesirable Outputs
    Aggregate Production Possibilities Frontier
    Regulated Production Possibilities
    Sustainability
    Problems

    Estimating Environmental Performance
    Data Envelopment Analysis
    DEA Reference Technology
    DEA with Desirable Outputs and Inputs
    DEA with Undesirable Outputs
    Measuring Efficiency Using DEA
    Output Distance Function
    Technical Efficiency with Undesirable Outputs
    Using Excel to Estimate Technical Efficiency
    Revenue Efficiency
    Limits of the DEA Approach
    Problems

    Public Goods and Bads
    Characteristics of Public Goods and Bads
    Efficiency Conditions for Public Goods and Bads
    Political Process and Lindahl Equilibrium
    Fiscal Federalism
    Dominant Assurance Contracts
    Climate as a Public Good
    Questions and Problems

    Externalities and Common Property Resources
    Is the Price Right?
    Trade with Spillover Costs and Benefits
    Efficiency in the Presence of Externalities
    Common Property Resources
    Internalizing Externalities through Taxes and Subsidies
    Using Property Rights to Internalize External Costs and Benefits
    Uncertainty and the Choice between Taxes and Permits
    Negotiation and Bargaining
    Social Contract
    Pigouvian Tax to Reduce Global Warming
    Regional Differences in the Damages of Pollution
    Problems

    Valuing Environmental Resources
    Introduction
    Travel Cost Approach
    Hedonic Price Approach
    Compensating Wage Differentials and Hedonic Wages
    Weak Complementarity Approach
    Contingent Valuation Method
    Shadow Pricing
    Valuing Nonmarket Outputs
    Valuing Un-priced Inputs
    Problems

    Endangered Species
    Introduction
    Unintended Consequences of the ESA
    Economics and Endangered Species
    Noah’s Ark Problem
    Habitat Protection
    CITES
    Choosing Distinctive Sites
    Problems and Questions to Ponder

    Interest Rates, Cost–Benefit Analysis, and Nonrenewable Resources
    Rate of Time Preference
    Time Value of Money
    Social Rate of Discount
    Do Biofuels Pass the Cost–Benefit Test?
    Hyperbolic Discounting
    Resource Extraction
    Trends in Nonrenewable Resource Prices
    Problems

    Renewable Resources
    Not Enough Fish in the Sea
    Bioeconomic Fishery Model
    Biological Growth Functions
    Static Bioeconomic Equilibrium
    Aspects of Dynamic Bioeconomic Equilibrium
    Policies to Reduce Overfishing
    Two Examples of Overexploitation: Whales and Buffalo
    Whales
    Buffalo
    Forest Resources
    Problems

    Transaction Costs and Institutional Choice
    Introduction
    Transaction Costs
    Transaction Costs of Using the Market
    Transaction Costs of Using Government
    Private Market Failure
    Nonmarket Failure
    Private Property Rights
    Water Rights
    Institutional Choice
    Summing Up
    Questions

    Retrospect and Future Prospects
    Retrospect
    Future Prospects
    Conclusion
    Bibliography
    Answers to Selected End of Chapter Questions


    Biography

    William L. Weber

    "I strongly recommend Production, Growth, and the Environment: An Economic Approach as a useful textbook for professors who teach the courses such as environmental economics and ecological economics. This textbook introduces a production possibility frontier framework, which accounts for undesirable (bad) outputs as joint by-products of desirable (good) outputs. This framework allows one to gauge technical efficiency, allocative efficiency, technological change, and shadow prices of bad outputs. Students can learn how the measures of technical and allocative efficiency can be calculated by using the solver routine in EXCEL. Furthermore, numerous examples and questions help students learn how to apply the theory to environmental and ecological issues and problems. Therefore, this is an excellent textbook for junior/senior college students and graduate students who would like to learn environmental economics and environmental science."
    —Hirofumi Fukuyama, Faculty of Commerce, Fukuoka University, Japan

    "The topics covered in Production, Growth, and the Environment: An Economic Approach reflect Professor Weber’s expertise and interests in public economics, production theory, performance in general and especially in the presence of externalities and always as a highly skilled applied economist. This volume is distinguished from the many textbooks in environmental economics by explicitly including state of the art frontier methods of performance measurement when production results in undesirable byproducts—an area in which he has published extensively. This book makes this new material accessible—including real world data and easy to use spreadsheet code and problems, which should prove useful for instructor and students alike."
    —Shawna Grosskopf, Professor Emerita, Oregon State University, Corvallis, USA

    "This book manages to ground a series of timely and compelling environmental problems in rigorous economic theory, in a way that is fresh and engaging. It also provides a much needed production-oriented perspective. This would be an ideal text to use in an advanced undergraduate or master’s level course. The numerous well-developed numerical examples and exercise problems also make this an excellent teaching resource."
    —Moriah Bostian, Lewis & Clark College