环境与自然资源经济学教师手册M05_TIET1380_08_IM_C.pdf

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1、Chapter 5 Dynamic Efficiency and Sustainable Development Chapter 5 deals with the treatment of future generations.The concern of fairness in the allocation of a resource over time is addressed.The compatibility of equity and efficiency is touched on.The analytics of allocating a resource over time a

2、re presented and followed by a discussion of“fair”allocations.One characterization of the obligations that current generations owe to future generations(or the concept of sustainability)is also addressed.Sustainable development is based on the notion that current generations should be free to pursue

3、 their own well-being as long as they do not harm future generations in the process.1.Distinguish between renewable and depletable resources.2.Define the temporal allocation of a depletable resource over time.3.Using a two-period model,illustrate the maximization of net benefits over time.Show how t

4、his is done mathematically and graphically.4.Show how scarcity requires the balancing of present and future uses.Show how the solution requires marginal net benefits in Period 1 to equal the present value of marginal net benefits in Period 2.5.Define marginal user cost.6.Illustrate the effect of cha

5、nges in the discount rate on the optimal allocations.7.Define intertemporal fairness and the sustainability criterion.8.Discuss the relationship between dynamic efficiency and sustainability.9.Define the“Hartwick Rule.”10.Present alternative definitions of sustainability:weak sustainability,strong s

6、ustainability,and environmental sustainability.Chapter 5 Dynamic Efficiency and Sustainable Development 25 I.A Two-Period Model This section presents a simple two-period model of dynamic efficiency.The goal is to illustrate how to allocate a depletable resource over two time periods for which total

7、demand is greater than the amount available.The presentation is graphical,but the mathematics could also be presented.The optimal solutions(from calculations)are presented in the text and derived in the appendix.More advanced students will likely want to and should see how to solve the problem mathe

8、matically.The effect of the discount rate on optimal allocations over time is illustrated nicely in this example.A.If supply is sufficient to meet demand,then a static efficient solution will provide the optimal allocations over time,regardless of the discount rate.B.If supply is not sufficient,we m

9、ust determine the optimal allocation using the dynamic efficiency criterion:maximize the present value of net benefits.C.The present value for a two-period model is the sum of the present values in each of the two years.D.The present value in each period is the portion of the area under the demand c

10、urve and above the supply curve or the area under the marginal net benefit curve(which is the demand curve minus the marginal cost).The vertical intercept is the marginal net benefit at zero divided by(1 r).E.The dynamically efficient allocation will satisfy the condition that the present value of t

11、he marginal benefit from the last unit in Period 1 equals the present value of the marginal net benefit in Period 2.F.A two period model can be illustrated graphically by flipping the graph of Period 2 such that the zero axis for the Period 2 net benefits is on the right side,rather than the left.Th

12、e size of the box then represents the resource constraint.Any point on the horizontal axis sums to the amount of the resource constraint.G.The optimal allocation will be the intersection of the Period 1 marginal net benefits curve with the curve representing the present value of marginal net benefit

13、s in Period 2.1.Remind students that you are now drawing marginal net benefits and not the demand curve and show them how to derive the curve.2.Show students how to calculate the vertical intercept for Period 2 and why it is different from Period 1.3.Show students how the marginal net benefit in Per

14、iod 2 will rotate around the horizontal axis as the discount rate changes.H.Prices are calculated by inserting the efficient quantities into the willingness to pay function and solving for price.I.The opportunity cost caused by intertemporal scarcity is called the marginal user cost.Since current us

15、e diminishes future use,the marginal user cost is the present value of the foregone future uses.In the absence of scarcity,the marginal user cost is zero.J.The present value of the marginal user cost can be calculated mathematically and illustrated graphically as the vertical distance between the ho

16、rizontal axis and the intersection of the two present value curves.It is equal to the present value of the marginal net benefit in each of the periods.K.The marginal user cost for each period in an efficient market is the difference between the price and the marginal extraction cost.26 Tietenberg/Le

17、wis Environmental and Natural Resource Economics,Eighth Edition L.Marginal user cost rises over time at the rate of discount,causing efficient prices to rise over time thus reflecting scarcity.M.A higher discount rate will favor the present and harm future generations.The amount allocated to the sec

18、ond period falls as the discount rate rises.II.Defining Intertemporal Fairness A.The concept of intergenerational equity provides ample room to illustrate the nature of normative decision making.How much should we leave for future generations?What is the appropriate rate of discount?How do we make d

19、ecisions for a group of people that are not around to negotiate for themselves?B.This section introduces the sustainability criterion which holds that future generations should be left no worse off than current generations and should perhaps be left better off.Whether or not efficient allocations sa

20、tisfy this criterion will be explored in the next sections.Rawls Model introduces the concept of the veil of ignorance which helps to explain how fairness can be considered in decisions that affect future generations.III.Are Efficient Allocations Fair?A dynamic efficient allocation will not automati

21、cally satisfy the sustainability criterion,but can be consistent with sustainability.A.With a discount rate greater than zero,an economically efficient allocation will allocate more of a resource to the first period than the second.Net benefits will be greater in the first period than the second.B.T

22、he sustainability criterion can still be met if the first period sets aside sufficient net benefits for the second period.C.These concepts can be illustrated mathematically using the two-period example.IV.Applying the Sustainability Criterion The sustainability criterion is difficult to implement as

23、 it requires knowing something about the preferences of the future generation.A more operational criterion is called“Hartwicks Rule.”The usefulness of Hartwicks Rule depends on how substitutable physical capital and natural capital are.A.Hartwicks Rule suggests that if all scarcity rent is invested

24、in capital,then a constant level of consumption could be maintained in perpetuity.B.If all scarcity rent is invested in capital,the value of the total capital stock will not decline.C.If the principal or the value of total capital is declining,the allocation is not sustainable.D.Total capital is def

25、ined as physical capital plus natural capital.These are assumed to be substitutable under Hartwicks Rule.E.Physical capital consists of buildings,equipment,and infrastructure.F.Natural capital refers to environmental and natural resources.G.Complete substitutability between physical and natural capi

26、tal is an extremely strong assumption.H.The maintenance of total capital is termed“weak sustainability.”Weak sustainability suggests that resource use by previous generations should not exceed a level that prevents future generations from achieving at least the same level of well-being.Chapter 5 Dyn

27、amic Efficiency and Sustainable Development 27 I.An alternative definition of a sustainable allocation is called“strong sustainability.”J.Strong sustainability implies that the value of the stock of natural capital is maintained.K.Strong sustainability assumes that there is little or no substitution

28、 between physical and natural capital and emphasizes preserving natural capital as opposed to total capital.Again,the focus is on preserving value and on preserving an aggregate of natural capital.L.Another alternative,environmental sustainability,requires that certain physical flows of certain indi

29、vidual resources(such as a fishery or a mineral)be maintained.Thus maintaining the value of an aggregate like natural capital or physical capital is not sufficient.V.Implications for environmental policy A.Not all efficient allocations are sustainable.B.Not all sustainable allocations are efficient.

30、C.Market allocations may be either efficient or inefficient and either sustainable or unsustainable.D.Given a number of sustainable allocation possibilities,choose the one that maximizes either static or dynamic efficiency(net benefits or the present value of net benefits),e.g.,maximize wealth,subje

31、ct to a sustainability criterion.E.Policy changes that correct inefficiencies can produce win-win situations because by correcting an inefficiency,net benefits are increased.All of these items will be explored further in later chapters but are a nice introduction for your students.Two-period problem

32、 graphs and the corresponding mathematics will confuse many students.Particularly the use of two y-axes,implying increasing quantities from right to left for Period 2,will be confusing.Taking time to explain this thoroughly will help.I usually draw two graphs and then literally flip one over(or tell

33、 them that I am flipping it over to the other side).The horizontal axis then becomes the constraint.Reminding them that the curve measures net marginal benefits will be important also.I have found that the concept of marginal user cost is not an intuitive concept to most students.This concept is goi

34、ng to come up again in Chapters 7 and 8,so a good coverage of intuition behind this concept is crucial.Giving them practical examples of intertemporal opportunity costs will help.The topics of intergenerational equity and sustainability will likely spark strong reactions and lively discussion.Studen

35、ts may have trouble with the concepts of discounting the future and deciding how resources should be allocated across time.Remind them that we make these sorts of decisions every day and they do also.Student loans allow them to borrow from their future income.Does this make them worse off in the fut

36、ure?If they do not invest in their own human capital,then yes.However,they likely assume they will be better off by borrowing now.Examples using nonrenewable resources such as oil and gas will also be useful to illustrate these concepts.Examples of national income accounting provide interesting pres

37、entations of the calculations countries make in measuring income.Physical and natural capital may be assumed to be perfectly substitutable,yet there are many examples of countries with positive growth measured by GDP,but the growth comes from selling off a resource base which implies lower future in

38、comes.Income measurement and sustainability may not be compatible.28 Tietenberg/Lewis Environmental and Natural Resource Economics,Eighth Edition A simple exercise I have found to be useful is to let students try the two-period example using a different demand curve and/or different constraint.For e

39、xample,a simple change would be to have the demand curve be P 9 0.3q and the constraint could be 30.You can also vary the discount rate.This could be done as an in-class exercise as suggested in the previous chapter or could be assigned at the end of class for brief discussion at the beginning of th

40、e next class.I have found that students tend to ask why demand would be the same in both periods.While obviously this is a simplifying assumption used to illustrate a concept,this question provides a great opportunity to suggest a slightly different exercise.You can say,“Ok.What if,due to population

41、 growth for example,demand is higher in the second period?”With two different demand curves,the mathematical and graphical analysis is identical,but with different results.Additionally,you can also ask them to do this same exercise with a marginal extraction cost that is higher in the second period

42、than in the first.This could be combined with the two different demand curves,e.g.,both demand and MEC are different.I have found this to be a very useful exercise,especially for the more advanced students.As a most challenging problem,you can set it up so that the resource constraint is so tight th

43、at the present value of net marginal benefit functions do not intersect the horizontal axis inside of the box,but instead intersect outside of the box.This can be done by reducing the resource constraint or by increasing demand.For example,suppose the inverse demand function for the resource is the same in both periods and takes the form P 10 0.2Q.Assume marginal cost is constant at$2/unit,there are only 20 units of the resource available and the discount rate is 8%.This example should provide an interesting and difficult challenge for most students.