Reading List and Course Outline

Reading List and Course Outline

Robert T. Deacon Economics 260A Winter 2013

Natural Resource Economics

Time/place: MW 2:00-3:15, NH 1109

Office hours: W 10:00-12:00 and by appointment

Course requirements:

1.  One term paper (40%) with class presentation: Papers (~15 pages) should be literature reviews that identify the economic contributions in the received literature. As part of your paper present a proposal for future research based on what you have learned. A set of suggested topics is posted on GS. A one paragraph description of your paper topic is due on February 4 and finished papers are due on February 27. Presentations will be scheduled for the last 2 weeks of class. Please make an appointment with me to discuss your paper sometime during the quarter.

2.  Each student will present 2-3 papers in class and will provide a 2-3 page referee report (25%) for each. Referee reports must be emailed to the entire class 2 days before the presentation. The (strictly observed) time available for each presentation is 20 min., plus 5-10 min. Q&A. A list of papers suggested for presentation follows.

3.  Take-home exam (20%). 4. Class participation (15%).

Papers approved for presentation (first come-first served):

** Bulte, E. H., R. Damania and R. Lopez, “On the gains of committing to inefficiency: Corruption, deforestation and low land productivity in Latin America”, JEEM, 2007..

** Barbier, E., R. Damania and D. Leonard, 2005. “Corruption, Trade and Resource Conversion” JEEM 50 (2005) 276-299.

** Stavins, R. N., 1999. “The Costs of Carbon Sequestration: A Revealed-Preference Approach”, AER, 89(4) (September) 994-1009.

** Costello, Christopher J., and Daniel Kaffine, “Natural resource use with limited-tenure property rights,”, JEEM 2008.

** McWhinnie, S., “The Tragedy of the Commons in International Fisheries: An Empirical Examination,” JEEM 57: 321-333.

** Fehr, Ernst, and Andreas Leibbrandt, 2010. “A field study on cooperativeness and impatience in the tragedy of the commons”. Unpublished manuscript: Department of Economics, University of Chicago. (This paper and the next one are considered as a pair.)

** Leibbrandt, Andreas, Uri Gneezy and John List, 2011. Ode to the sea; The socio-ecological underpinnings of social norms. Unpublished manuscript: University of Chicago.

** Grafton, R. Quentin, Dale Squires and Kevin J. Fox, 2000. “Private Property and Economic Efficiency: A Study of a Common-Pool Resource”, Journal of Law and Economics Vol. XLIII: 679-713.

** Smith, Martin D., and James E. Wilen, “Economic impacts of marine reserves: the importance of spatial behavior,” JEEM 46(2) (September 2003) 183-206.

** Johnson, R. N., and Gary D. Libecap, 1985. “Contracting Problems and Regulation: The Case of the Fishery”, AER 72(5) 1005-22.

** Pindyck, R.S., "The Optimal Exploration and Production of Nonrenewable Resources," JPE, 1978.

** Black, G., and J. LaFrance, "Is Hotelling's Rule Relevant to Domestic Oil Production?" JEEM, 36(2) September 1998, 149-69.

** Wiggins, S., and Gary Libecap, 1985. “Oil Field Unitization: Contractual Failure in the Presence of Imperfect Information,” AER 75: 368-85.

** Griffin, James M., and W. Xiong, "The Incentive to Cheat: An Empirical Analysis of OPEC," JLE XL (October 1997) 289-316.

** Boyce, John R., 2013. “Prediction and Inference in the Hubbert-Deffeyes Peak Oil Model” EJ (forthcoming).

** Mehlum, H., K. Moene and R. Torvik, 2006. “Institutions and the Resource Curse” Economic Journal, 116 (January) 1-20.

Format

At the beginning of the course I will ask students their areas of potential interest and will tailor coverage of material accordingly. Early in the quarter I will lecture on basic concepts and methods and on a few specialized and applied topics. I will announce in class the material to read for the next meeting. Occasionally I will assign a homework problem for the next class and rely on class participation to help solve it. Homework problems are on GS. (Class participation in solving homework problems and discussion comprise 15 percent of the grade.)

Topics

This course examines the operation of markets for natural resources including minerals, fossil fuels, forest resources, fish, water, and natural environments. Physical processes determine natural resource abundance and at least a rudimentary representation of these processes is necessary for economic analysis. Consequently, readings often present simple biological models for studying fisheries and forests, incorporate geological concepts in examining minerals and hydrological concepts in examining groundwater. This connection with natural process is what sets natural resource economics apart from other fields. Ownership rights to natural resources often are not clearly defined, in which case the interests of some segments of society will not be reflected in market outcomes and the scramble to acquire these assets will be wasteful. These themes appear at various points in the course.

Textbook

Jon M. Conrad and Colin W. Clark, Natural Resource Economics: Notes and Problems, Cambridge University Press, 1987.

This is a book on modeling methods and spends little time with applications, policy and institutions. Other textbooks are listed below. The first two are classic texts on natural resource economics theory; they treat some individual topics in more detail than Conrad and Clark. Selected chapters from both are included on the reading list. Conrad’s Resource Economics is similar to Conrad and Clark, but is less rigorous and spends more time discussing resource industries and policies and emphasizes simulations. Hanley et al and Hartwick and Olewiler are undergraduate texts.

A.C. Fisher, Resource and Environment Economics, Cambridge University Press, 1981.

P.S. Dasgupta and G.M. Heal, Economic Theory and Exhaustible Resources, Cambridge University Press, 1979.

Jon M. Conrad, Resource Economics, Cambridge University Press, 2010.

Nick Hanley, Jason F. Shogren, and Ben White, Environmental Economics in Theory and Practice, Oxford University Press, 1997.

John M. Hartwick and Nancy D. Olewiler, The Economics of Natural Resource Use, 2nd Ed., Addison Wesley 1998.

Journal title abbreviations

AER American Economic Review / AJAE American Journal of Agric. Econ.
CJE Canadian Journal of Economics / EJ Economic Journal
EI Economic Inquiry / ERE Environ and Resource Econ
JET Journal of Economic Theo / JFRBC Jour. Fish. Res. Bd. Canada
JEL Journal of Economic Literature / JLE Journal of Law and Economics
JDE Journal of Development Economics / JPE Journal of Political Economy
JLEO Jour. of Law, Econ. and Organiz / JEP J of Econ Perspectives
JPubE J of Public Economics / JUE J of Urban Economics
JEEM Jour. of Environ. Econ. and Mgt / LE Land Economics
MRE Marine Resource Economics / NRM Natural Resource Modeling
QJE Quarterly Journal of Economic
REEP Rev. Env. Econ. & Policy / REE Resource and Energy Economics
RJE Rand J of Economics
REStat. Review of Econ and Statist. / REStud. Review of Economic Studies
SJE Scandinavian J of Economics / SEJ Southern Economic Journal
WRR Water Resources Research / YJR Yale Journal on Regulation

Readings marked * are emphasized.

I. INTRODUCTION

A. Policy Issues and Scope of the Natural Resources Field

Introd. Slides

* Hartwick and Olewiler, Chap. 1.

Deacon. R. T., et al, “Research Trends and Opportunities in Environmental and Natural Resource Economics,” ERE, 11(3-4) 1998, 383-97.

Dasgupta and Heal, Chap. 1.

B. Natural Resource Scarcity

* Fisher, Chapter 4.

* Krautkraemer, Jeffrey A., “Natural Resource Scarcity,” JEL, 36(4) December 1998, 2065-2107, Sec. 5.

Hartwick and Olewiler, Chap. 2.

Halvorsen, R., and T. Smith, “On Measuring Natural Resource Scarcity,” JPE 92(5) (1984) 954-963.

Barnett, H., and C. Morse, Scarcity and Growth: The Economics of Natural Resource Availability, Johns Hopkins University Press, 1962 (esp. Chaps. 1, 3, 8, 9, 12). Segments of this are in Fisher, Chap. 4.

Devarajan, S., and A.C. Fisher, "Exploration and Scarcity", JPE, Vol. 90, no.2 (1982) 1279-1280.

G.M. Brown Jr. and B.C. Field, "Implications of Alternative Measures of Natural Resource Scarcity", JPE, 86 (2), April 1978.

Nordhaus, W.D., "Resources as a Constraint on Economic Growth", AER, May 1974.

II. GENERAL CONCEPTS AND METHODS

A. Welfare Economics, Property Rights, and Externalities

(Review material)

Dasgupta and Heal, Chapter 2, Chapter 3.

Arrow, K.J., "The Organization of Economic Activity: Issues Pertinent to the Choice of Market Versus Non Market Allocation", in Haveman and Margolis, eds., Public Expenditures and Policy Analysis. Chicago: Markham, 1970, pp. 59-73.

Brooks, R., M. Murray, S. Salant, and J. Weise, “When is the Standard Analysis of Common Property Extraction Under Free Access Correct? A Game Theoretic Justification for Non-Game-Theoretic Analyses.” JPE Vol. 107 no. 4 (August 1999) 843-858.

B. Analytical Methods

* Conrad and Clark, pp. 13-40, 176-197, 209-214.

* Boileau, Martin, “A Child’s Guide to Optimal Control Theory,” mimeo, University of Colorado.

Dasgupta and Heal, Chapter 4.

C.W. Clark, Mathematical Bioeconomics, Wiley and Sons, 1976, Chapter 4.

C. Applications

* Zivin, J., Brent M. Hueth, and D. Zilberman, “Managing a Multiple-Use Resource: The Case of Feral Pig Management in California Rangeland,” JEEM Vol 35 (2000) 189-204.

Taylor, M. Scott, “Environmental Crises: Past, Present and Future”, NBER Working Paper, 2009.

Deacon, R. T., "Incomplete Ownership, Rent Dissipation, and the Return to Related Investments", EI, January 1995.

III. NONRENEWABLE RESOURCES

A. Basic Hotelling Model: Competition

* Conrad and Clark, pp. 117-145.

* Krautkraemer, Jeffrey A., “Natural Resource Scarcity,” JEL, 36(4) December 1998, 2065-2107, Sec. 1-2.

Dasgupta and Heal, Chap. 6.

Hartwick and Olewiler, Chap. 8.

Fisher, Chapter 2, pp. 10-37.

* Pindyck, R.S., "The Optimal Exploration and Production of Nonrenewable Resources," JPE, 1978.

Farzin, Y.,"The Effect of the Discount Rate on Depletion of Exhaustible Resources," JPE 92, 5 (1984) 941-51.

Livernois, J.R., and R.S. Uhler, "Extraction Costs-and the Economics of Nonrenewable Resources", JPE, Vol. 95, no. 1, (1987) 195-203.

B. Basic Hotelling Model: Imperfect Competition, Risk and Green Paradox

Hartwick and Olewiler, Chap. 9.

* Krautkraemer, Jeffrey A., “Natural Resource Scarcity,” JEL, 36(4) December 1998, 2065-2107, Sec. 3.

* Dasgupta and Heal, Ch. 11.

Crabbe, P.J., "Sources and Types of Uncertainty, Information and Control in Economic Models of Non-Renewable Resources", Optimal Control Theory and Economic Analysis, 1983.

* Bohn, H., and R. T. Deacon, "Ownership Risk, Investment, and the Use of Natural Resources," AER Vol 90 no. 3 (June 2000) 526-549.

Guriev, Sergei, Anton Kolotilin and Konstantin Sonin, 2009. “Determinants of Nationalization of the Oil Sector: A Theory and Evidence from Panel Data”, JLEO, 2009.

* van der Ploeg, F., and Cees Withagen, "Is There Really a Green Paradox?" JEEM Vol 64 (2013) 342-363.

Grafton, R.Q., T. Kompas and N.V. Long, "Substitution between Biofuels and Fossil Fuels: Is There a Green Paradox?" JEEM Vol 64 (2013) 328-341.

C. Empirical Studies

* Boyce, John R., 2013. “Prediction and Inference in the Hubbert-Deffeyes Peak Oil Model” EJ (forthcoming).

Pindyck, R.S., "Gains to Producers from the Cartelization of Exhaustible Resources," REStat., 1978, pp. 238-251.

Salant, Steven W., "Exhaustible Resources and Industrial Structure: A Nash-Cournot Approach to the World Oil Market," JPE Oct. 1976.

D. Taxation of Nonrenewable Resources

Dasgupta and Heal, Ch. 12.

* Deacon, R.T., "Taxation, Depletion, and Welfare: A Simulation Model of the U.S. Petroleum Resource", JEEM, 1993.

Heaps, T., "The Taxation of Nonreplenishable Natural Resources Revisited", JEEM, 1985.

Krautkraemer, J. A., "Taxation, Ore Quality Selection, and the Depletion of a Heterogeneous Deposit of a Nonrenewable Resource", JEEM, 18 (1990) 120-135.

Kolstad, C. D., and F. A. Wolak, Jr. "Competition in Interregional Taxation: The Case of Western Coal," JPE, 19 (3) 1983.

E. Empirical Tests of the Hotelling Model

* Miller, M.H., and C.W. Upton, "A Test of the Hotelling Valuation Principle," JPE, 93(1) Feb. 1985.

* Krautkraemer, Jeffrey A., “Natural Resource Scarcity,” JEL, 36(4) December 1998, 2065-2107, Sec. 4.

Farrow, S., "Testing the Efficiency of Extraction from a Stock Resource," JPE, 1985.

* Black, G., and J. LaFrance, "Is Hotelling's Rule Relevant to Domestic Oil Production?" JEEM, 36(2) September 1998, 149-69.

F. What Motivates OPEC Behavior?

* Griffin, James M., “OPEC Behavior: A Test of Alternative Hypotheses,” AER 75(December 1985) 954-963.

* Griffin, James M., and W. Xiong, "The Incentive to Cheat: An Empirical Analysis of OPEC," JLE XL (October 1997) 289-316.

Hnyilicza, Esteban and Robert S. Pindyck, "Pricing Policies for a Two-Part Exhaustible Resource Cartel: The Case of OPEC," EER 8 (1976) 139-154.

IV. FOREST RESOURCES

A. Basic Models and Results

* Conrad and Clark, pp. 96-97.

* Amacher , G. S., M. Ollikainen and E. Koskela, 2009. Economics of Forest Resources, Cambridge: MIT Press; Chapter 2 “The Faustmann Rotation Model”.

Johansson , P. O., and K. G. Lofgren, The Economics of Forestry and Natural Resources, Chap. 4, Basil Blackwell, 1997. (Chapters 5 and 7 are also suggested.)

Deacon, R.T., "The Simple Analytics of Forest Economics" in R.T. Deacon and M.B. Johnson (eds.), Forestlands, Public and Private, Ballinger Publishing Co., 1984. (Non-technical treatment of the optimal rotation and forest supply problems.)

B. Externalities, Ecological Considerations, Taxation and Forest Management

Hartman, R., "The Harvesting Decision When a Standing Forest Has Value." EI, March 1976.

* Amacher , G. S., M. Ollikainen and E. Koskela, 2009. Economics of Forest Resources, Cambridge: MIT Press; Chapter 3 “Hartman Models of Timber and Amenity Production”.

* Songhen, B., and R. Mendelsohn, “Valuing the Impact of Large-Scale Ecological Change in a Market: The Effect of Climate Change on U.S. Timber,” AER 88(4) (September 1998) 686-710.

Nalle, D. J., et al, “Modeling joint production of wildlife and timber.” JEEM 48 (2004) 997-1017.

Erickson, Jon D., D. Chapman, T.J. Fahey, and M.J. Christ, “Nonrenewability in Forest Rotations: Implications for Economic and Ecological Sustainability,” EE 31(1) 91-106 (1999).

* Stavins , R.N,. and A.B. Jaffe, "Unintended Impacts of Public Investments on Private Decisions: The Depletion of Forested Wetlands", AER, June 1990.

C. Management of Publicly Owned Forests

Repetto, R., "8. Subsidized Timber Sales from National Forest Lands in the United States", in R. Repetto and M. Gillis, eds., Public Policies and the Misuse of Forest Resources, Cambridge Univ. Press, 1988.

D. Sequestering Carbon in Forests

* Stavins, R. N., 1999. “The Costs of Carbon Sequestration: A Revealed-Preference Approach”, AER, 89(4) (September) 994-1009.

van’t Veld, K., and A. Plantinga, 2005. “Carbon Sequestration or Abatement? The Effect of Rising Carbon Prices on ...”, JEEM, 50 59-81.

Newell, R. G., and R. N. Stavins, 2000. “Climate Change and Forest Sinks: Factors Affecting the Costs of Sequestration”, JEEM, 211-235.