Energy costs also matter. Could five? When the property right is assigned to the resort, the cost is borne by the steel company (it now must compensate for all damage). 141 EXAMPLE 7.1 142 Chapter 7 Energy: The Transition from Depletable to Renewable Resources its allocation of depletable, nonrecyclable resources? As long as the supply level can be anticipated, the equal marginal net benefit rule still applies, but different supply levels may imply very different allocations among users. For example, losses to agriculture above Albuquerque are approximately $114,000 per year and below Albuquerque $35,000 per year. Beverage container deposits also reduce illegal disposal (littering) because an incentive is created to bring the bottle or can to a recycling center. 3. Two discussion lists that involve material covered by this book are ResEcon and EcolEcon. Parts of the formation extend into the Canadian Provinces of Saskatchewan and Manitoba. According to scholars, the short answer is that a rising population, coupled with a heavy reliance on wood for housing, canoe building, and statue transportation, decimated the forest (Brander and Taylor, 1998). High oil and natural gas prices, coupled with the rapidly increasing cost of both nuclear and coalfired generating stations, have reduced electrical demand significantly. study reports that after A.D. 400 the population growth began to bump into environmental constraints, specifically the agricultural carrying capacity of the land. The notion that it is costless to convert a forest to a new use is obviously wrong if valuable ecological or human services are lost in the process. A Critical Appraisal We have seen that it is sometimes, but not always, difficult to estimate benefits and costs. Do the responses intensify or ameliorate any initial scarcities? Static economics studies only a particular point of equilibrium. Table 9.1 summarizes their findings with respect to both the types and properties of pricing systems they discovered. Yet by itself, the sustainability criterion is insufficient because it fails to provide any guidance on which of the infinite number of sustainable allocations should be chosen. Particularly careful users who, at their own expense, find ways to use less water would find their allocations reduced accordingly. Saving Water in a Desert City (Washington, DC: Resources for the Future, 1984). Each bundle has a set of attributes and the levels of each attribute vary across bundles. Crafting Institutions for Self-Governing Irrigation Systems (San Francisco: ICS Press, 1992). Renewable resources are differentiated from depletable resources primarily by the fact that natural replenishment augments the flow of renewable resources at a nonnegligible rate. Assume that in the second version the constant marginal extraction cost is lower in the second period than the first (perhaps due to the anticipated arrival of a new, superior extraction technology). Solar energy, water, cereal grains, fish, forests, and animals are all examples of renewable resources. Would you have an incentive to extract the water efficiently over time? We can illustrate the significance of input substitution on output using Figure 8.2. The effect of either system on domestic producer surplus should also be noticed. It is possible to examine and compare the theoretical conditions that characterize various allocations (including market allocations and efficient allocations) to the necessary conditions for an allocation to be sustainable under these definitions. Bonus bids involve a single, up-front payment, while royalties are paid as long as minerals are being extracted. The damage might be experienced at the mine, such as the erosion and aesthetic costs of strip mining, or at the point of processing, where the ore is processed into a usable resource. Another possible strategy employs the subsidization of domestic supply. Tucson, which averages about 11 inches of rain per year, was (until the completion of the Central Arizona Project, which diverts water from the Colorado River) the largest city in the United States to rely entirely on groundwater. Usage Source: Four examples of consumption charge models from WATER RATE STRUCTURES IN COLORADO: HOW COLORADO CITIES COMPARE IN USING THIS IMPORTANT WATER USE EFFICIENCY TOOL, September 2004, p. 8 by Colorado Environmental Coalition, Western Colorado Congress, and Western Resource Advocates. With respect to abundance, technology plays an important part. In an efficient market, the marginal user cost for each period is the difference between the price and the marginal cost of extraction. Twenty years earlier, only one curbside program was in place. Raw materials—Government policy. Instream uses of water are actively discouraged in many western states. They further indicated that families with young children were more likely to take averting actions and, among those families who took averting actions, to spend more on those actions than childless families. Certainly the marginal cost to society is not zero, and, therefore, the balance between these alternatives as seen by the individual homeowner is biased in favor of throwing things out.4 Littering is an extreme example of what we have been talking about. What conclusions does this model yield? The efficient path for this situation is given in Figures 6.3a and 6.3b. What would be the marginal user cost in each period? Initially, a complicated but effective rotating system of fishing rights was devised by villagers to assure equitable access to the best spots and best times while protecting the fish stocks. All costs should be measured as opportunity costs. 4 November 1999, pp. That seems consistent with common sense. An overestimate of the costs can trigger less stringent regulation; therefore, it is financially advantageous to provide overinflated estimates. Take wetlands, for example. Was he just lucky to have picked the 1980s? Perhaps the best-known planetary-scale example of a negative feedback loop is provided in a theory advanced by the English scientist James Lovelock. 2. Approximately 1.5 billion people in the world depend on groundwater for their drinking supplies (UNEP, 2002). The environment provides the economy with raw materials, which are transformed into consumer products by the production process, and energy, which fuels this transformation. Natural Gas: Price Controls In the United States, during the winter of 1974 and early 1975, serious shortages of natural gas developed. Why was that pricing system chosen? Agriculture flourished. In contrast, the challenge for managing renewable resources involves the maintenance of an efficient, sustainable flow. Second, this analysis suggests the specific degree of sharing that would be necessary to produce a sustainable outcome, namely, all scarcity rent must be invested. Once these equations were estimated, the model was calibrated to ensure that it was capable of re-creating the actual situation in Chicago. Once the competitive fringe has depleted its reserves, the cartel would raise the price and thereafter prices would increase much more slowly. The structure and topical coverage of this book facilitate its use in a variety of contexts. Unfortunately, that has not been the case, as can be seen by examining in more detail the specific nature of these restrictions. In the less industrialized nations? The first is the electricity itself, which can be sold to the grid, while the second is the renewable energy credit that turns the environmental attributes (such as the fact that it was created by a qualifying renewable source) into a legally recognized form of property that can be sold separately. For example, Hascic and Wu (2006) use GIS to help examine the impacts of land use changes in the United States on watershed health, while Lewis, Bohlen, and Wilson (2008) use GIS to analyze the impacts of dams and rivers on property values in Maine. The demand for steel is shown by the demand curve D, and the private marginal cost of producing the steel (exclusive of pollution control and damage) is depicted as MCp. . The cost to all utilities, whether they have accidents or not, is the premium paid both before and after any accident. How can these difficulties be overcome? Economists start by thinking about how one would define the optimal amount of waste. 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