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Classic Papers in Natural Resource Economics brings together a choice selection of some of the most enduring academic writing published in this field in a single volume. The fourteen papers included in this book are grouped into five sections: the intertemporal problem; externalities and market failure; property rights; institutions and public choice; the economics of exhaustible resources; and the economics of renewable resources. Each section represents a major area in natural resource economics. Written by distinguished resource economists, the papers in this volume probe, analyze and illuminate the central issues of the discipline.

Inhaltsverzeichnis

Frontmatter

Classic Papers in Natural Resource Economics: An Overview

Classic Papers in Natural Resource Economics: An Overview

Natural resource economics has been the subject of serious academic inquiry for the past seven decades. Although it is difficult to trace its intellectual antecedents precisely, it is probably fair to say that it dates back to the early 1930s. The year 1931 has a special significance in the annals of natural resource economics; it was in that year that Harold Hotelling published his path-breaking paper on the economics of exhaustible resources in the Journal of Political Economy (Chapter 11 in this book), an event that has left a lasting imprint on the direction and development of the body of knowledge that is known today as the discipline of natural resource economics.

Chennat Gopalakrishnan

The Intertemporal Problem

Frontmatter

1. The Social Time Preference Discount Rate in Cost Benefit Analysis

Choosing between alternative time-streams of social benefits and costs is one of the most difficult and most important problems in the evaluation of public investment projects. As an example of the numerous choices of this kind that arise in both the design and final selection stages, we need only recall the common problem of choosing between a technique of production that requires large capital investment but has low operating costs and one with the opposite profile of expenditure: nuclear versus conventional power, electric versus diesel railroads, etc.

Martin S. Feldstein

2. On the Social Rate of Discount

Few topics in our discipline rival the social rate of discount as a subject exhibiting simultaneously a very considerable degree of knowledge and a very substantial level of ignorance. Economists understand thoroughly just what this variable should measure: the opportunity cost of postponement of receipt of any benefit yielded by a public investment. They agree also on the components that should be considered in making up this figure: primarily the welfare foregone by not having these benefits available for immediate consumption or reinvestment and (perhaps) a premium corresponding to the risk incurred in undertaking government projects. Above all, economists are quite generally in accord on the view that a very serious misallocation of resources can result from the use of an incorrect estimate of the value of this variable in a cost-benefit calculation. Yet, while they agree that exernalities can play a significant role in the matter, there is some considerable question even about the direction of these effects. There is substantial obscurity and divergence of views in discussions of the implications of differences (if indeed there are any) in the degree of risk that is incurred when a given project is undertaken by a private firm on the one side and by government on the other.

William F. Baumol

3. Uncertainty and the Evaluation of Public Investment Decisions

The implications of uncertainty for public investment decisions remain controversial. The essence of the controversy is as follows. It is widely accepted that individuals are not indifferent to uncertainty and will not, in general, value assets with uncertain returns at their expected values. Depending upon an individual’s initial asset holdings and utility function, he will value an asset at more or less than its expected value. Therefore, in private capital markets, investors do not choose investments to maximize the present value of expected returns, but to maximize the present value of returns properly adjusted for risk. The issue is whether it is appropriate to discount public investments in the same way as private investments.

Kenneth J. Arrow, Robert C. Lind

4. Environmental Preservation, Uncertainty, and Irreversibility

A number of recent contributions by economists have provided a clear insight into the causes of the varied forms of environmental deterioration, and have also suggested, implicitly or explicitly, policies for more efficient management of environmental as well as other resources.1 Yet, as Allen Kneese has pointed out in a review of empirical studies of pollution damages, “a general shortcoming of [these studies] has been that they have treated a stochastic or probabilistic phenomenon as being deterministic.”2 The purpose of this paper is to explore the implications of uncertainty surrounding estimates of the environmental costs of some economic activities. It is shown in particular that the existence of uncertainty will, in certain important cases, lead to a reduction in net benefits from an activity with environmental costs. In such cases the implication for an efficient control policy will generally involve some restriction of the activity.

Kenneth J. Arrow, Anthony C. Fisher

Externalities and Market Failure

Frontmatter

5. The Problem of Social Cost

This paper is concerned with those actions of business firms which have harmful effects on others. The standard example is that of a factory the smoke from which has harmful effects on those occupying neighbouring properties. The economic analysis of such a situation has usually proceeded in terms of a divergence between the private and social product of the factory, in which economists have largely followed the treatment of Pigou in The Economics of Welfare. The conclusions to which this kind of analysis seems to have led most economists is that it would be desirable to make the owner of the factory liable for the damage caused to those injured by the smoke, or alternatively, to place a tax on the factory owner varying with the amount of smoke produced and equivalent in money terms to the damage it would cause, or finally, to exclude the factory from residential districts (and presumably from other areas in which the emission of smoke would have harmful effects on others). It is my contention that the suggested courses of action are inappropriate, in that they lead to results which are not necessarily, or even usually, desirable.

Ronald H. Coase

6. Externality

Externality has been, and is, central to the neo-classical critique of market organisation. In its various forms – external economies and diseconomies, divergencies between marginal social and marginal private cost or product, spillover and neighbourhood effects, collective or public goods – externality dominates theoretical welfare economics, and, in one sense, the theory of economic policy generally. Despite this importance and emphasis, rigorous definitions of the concept itself are not readily available in the literature. As Scitovosky has noted, “definitions of external economies are few and unsatisfactory”.1 The following seems typical:

James M. Buchanan, William C. Stubblebine

7. On Divergences between Social Cost and Private Cost

The notion that the resource-allocation effects of divergences between marginal social and private costs can be dealt with by imposing a tax or granting a subsidy equal to the difference now seems too simple a notion. Three recent articles have shown us this. First came Professor Coase’s “The Problem of Social Cost”, then Davis and Whinston’s “Externalities, Welfare and the Theory of Games” appeared, and, finally, Buchanan and Stubblebine have published their paper “Externality”.1 These articles have an aggregate length of eighty pages and are by no means easy to read. The following attempt to synthesise and summarise the main ideas may therefore be useful. It is couched in terms of external diseconomies, i.e. an excess of social over private costs, and the reader is left to invert the analysis himself should he be interested in external economies.

Ralph Turvey

Property Rights, Institutions and Public Choice

Frontmatter

8. Toward a Theory of Property Rights

When a transaction is concluded in the marketplace, two bundles of property rights are exchanged. A bundle of rights often attaches to a physical commodity or service, but it is the value of the rights that determines the value of what is exchanged. Questions addressed to the emergence and mix of the components of the bundle of rights are prior to those commonly asked by economists. Economists usually take the bundle of property rights as a datum and ask for an explanation of the forces determining the price and the number of units of a good to which these rights attach.

Harold Demsetz

9. The Economic Theory of a Common-Property Resource: The Fishery

The chief aim of this paper is to examine the economic theory of natural resource utilization as it pertains to the fishing industry. It will appear, I hope, that most of the problems associated with the words “conservation” or “depletion” or “overexploitation” in the fishery are, in reality, manifestations of the fact that the natural resources of the sea yield no economic rent. Fishery resources are unusual in the fact of their common-property nature; but they are not unique, and similar problems are encountered in other cases of common-property resource industries, such as petroleum production, hunting and trapping, etc. Although the theory presented in the following pages is worked out in terms of the fishing industry, it is, I believe, applicable generally to all cases where natural resources are owned in common and exploited under conditions of individualistic competition.

H. Scott Gordon

10. Politics, Policy, and the Pigovian Margins

Since Sidgwick and Marshall, and notably since Pigou’s The Economics of Welfare, economists have accepted the presence or absence of external effects in production and consumption as a primary criterion of market efficiency. When private decisions exert effects that are external to the decision-maker, “ideal” output is not obtained through the competitive organisation of economic activity even if the remaining conditions necessary for efficiency are satisfied. The market “fails” to the extent that there exist divergencies between marginal private products and marginal social products and/or between marginal private costs and marginal social costs. This basic Pigovian theorem has been theoretically refined and elaborated in numerous works, but its conceptual validity has rarely been challenged.2 The purpose of this paper is to bring into question a fundamental implication of this aspect of theoretical welfare economics, namely, the implication that externalities are either reduced or eliminated by the shift of an activity from market to political organisation. I shall try to show that this implication will stand up to critical scrutiny only under certain highly restricted assumptions about human behaviour in modern political systems. When these restrictive assumptions are modified, the concept of divergence between marginal “social” product (cost) and marginal private product (cost) loses most of its usefulness.3

James M. Buchanan

The Economics of Exhaustible Resources

Frontmatter

11. The Economics of Exhaustible Resources

Contemplation of the world’s disappearing supplies of minerals, forests, and other exhaustible assets has led to demands for regulation of their exploitation. The feeling that these products are now too cheap for the good of future generations, that they are being selfishly exploited at too rapid a rate, and that in consequence of their excessive cheapness they are being produced and consumed wastefully has given rise to the conservation movement. The method ordinarily proposed to stop the wholesale devastation of irreplaceable natural resources, or of natural resources replaceable only with difficulty and long delay, is to forbid production at certain times and in certain regions or to hamper production by insisting that obsolete and inefficient methods be continued. The prohibitions against oil and mineral development and cutting timber on certain government lands have this justification, as have also closed seasons for fish and game and statutes forbidding certain highly efficient means of catching fish. Taxation would be a more economic method than publicly ordained inefficiency in the case of purely commercial activities such as mining and fishing for profit, if not also for sport fishing. However, the opposition of those who are making the profits, with the apathy of everyone else, is usually sufficient to prevent the diversion into the public treasury of any considerable part of the proceeds of the exploitation of natural resources.

Harold Hotelling

12. The Economics of Resources or the Resources of Economics

It is easy to choose a subject for a distinguished lecture like this, before a large and critical audience with a wide range of interests. You need a topic that is absolutely contemporary, but somehow perennial. It should survey a broad field, without being superficial or vague. It should probably bear some relation to economic policy, but of course it must have some serious analytical foundations. It is nice if the topic has an important literature in the past of our subject – a literature which you can summarize brilliantly in about eleven minutes – but it better be something in which economists are interested today, and it should appropriately be a subject you have worked on yourself. The lecture should have some technical interest, because you can’t waffle for a whole hour to a room full of professionals, but it is hardly the occasion to use a blackboard.

Robert M. Solow

The Economics of Renewable Resources

Frontmatter

13. Economics of Production from Natural Resources

This paper attempts to provide a unified theory of production from natural resources. A single model of an industry is used to describe a dynamic process of recovery from such technologically diverse resources as fish, timber, petroleum, and minerals. Recovery from each of these resources is seen as a special case of a general model, depending upon whether the resource is replenishable, and on whether production exhibits significant externalities. A model of centralized management, with particular reference to “common property” resources, such as fisheries, under stationary conditions, is also discussed and compared with competitive recovery in the stationary state.

Vernon L. Smith

14. Economics of Forestry in an Evolving Society

A debate that has raged for centuries is unlikely to be resolved by me in one lecture. However, I shall do my best to set forth the issues and indicate what ought to be the crucial factors that a jury should consider in rendering its verdict on the matter. The issue is one between forestry experts and the general public on the one side and professional economists and profit-conscious businessmen on the other. At first blush this would seem to suggest that economists are on the side of the interests and are not themselves members of the human race. But, as I hope to show, sound economic analysis is needed to do justice to the cases put forward by either of the adversary parties.

Paul A. Samuelson

Backmatter

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