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Natural Resource Economics. Wednesday, January 11. Natural Resources. Land Minerals – iron, quartz, potash Energy – petroleum, coal Water Forests Fisheries Biodiversity. Natural Resource Economics is about:. Resource Adequacy Resource Scarcity

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Natural Resource Economics

Wednesday, January 11


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Natural Resources

  • Land

  • Minerals – iron, quartz, potash

  • Energy – petroleum, coal

  • Water

  • Forests

  • Fisheries

  • Biodiversity


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Natural Resource Economics is about:

  • Resource Adequacy

  • Resource Scarcity

    • Distinction between physical and economic scarcity


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Economic Scarcity

  • A resource is scarce if there is less available than would be demanded if its price were zero

  • Scarcity is a function of demand as well as supply

    • e.g. gasoline


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Natural Resource Economics is about:

  • The allocation of scarce resources across uses and users

    • Space

      • Criterion for allocation – static efficiency

    • Time

      • Criterion for allocation – dynamic efficiency


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Natural resource economics is concerned with externalities

  • Externalities shift costs

    • Across space

    • Across time

  • When goods are non-exclusive or have high exclusion cost

  • When goods are indivisible in consumption or non-rival

  • When goods are congestible

  • Externalities are ubiquitous


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Natural resource economists focus on institutions

  • Social devices that define the rights and obligations of participants in a decision process

  • Produce incentives and disincentives that cause or resolve natural resource problems

  • Assume they are endogenous to the analysis


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Natural Resource Economics

  • Recognizes that natural resources have extractive uses

    • as inputs to production processes

  • Recognizes that natural resources provide services in non-extractive uses

    • e.g. recreation, scenic value, preservation of biodiversity


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Natural Resource economists work with resource valuation

  • Efficient allocation of a scarce resource between two competing uses requires that we know its value in each use

  • Allocation issue may be between use and non-use -- allocation between time periods

  • Using product and service markets to judge natural resource values is limiting


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Natural Resource economists work with resource valuation

  • Resources matter (have value)

    • In extractive uses

    • In non-extractive uses

  • Assumption is that resources matter (have value) because people think they do


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Natural Resources in Sustainable Development

  • To what extent should natural resources be used to spur economic development?

  • Will current resource use patterns seriously undermine other important aspects of the development process?


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Natural Resource Use and Economic Development

  • Economic well-being is measured by things like GDP, value of final goods and services.

  • Growth of GDP implies economic growth and progress (development)

  • If more cars are purchased, GDP increases

GDP Gross Domestic Product


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Limitations of Economic Accounting

  • Increased production of cars to meet demand – stocks of ore, petroleum decline

  • Increased consumption of cars – petroleum stocks decline

  • Reductions in natural resource stocks are not reflected in GDP

  • Understanding value of natural resources is key to refining accounting measures


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What are the implications of mining for oil in a remote wilderness area?

Should Great Lakes water be sold to Texas or California?

How many fishers should be allowed access to a particular fishery and should their catches be limited?

What difference does clean water make to the economic climate of a state or region?

Should land be set aside as open space or for agriculture or for recreational uses?


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Assignment for Wednesday, Jan. 19 wilderness area?

Read “The Return of Malthus’ Ghost”

(On ANGEL)


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