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Flashcards by Alexander Rehn, updated more than 1 year ago
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Created by Alexander Rehn
almost 9 years ago
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| Question | Answer |
| Etymology: economics | oikos : the hous nomos: manage |
| Etymology: environment | french: environ, surrounding |
| Classical economists: who and what? | Smith, Malthus, Ricardo, Mill. Productive role of the earth |
| Neoclassical economics: who and what? | Jevons, Pareto, Pigou, Walras. Focus on mechanics of economics. |
| Early days of environmental economics: Who and what? | Solow (remember solow curve): finite pool of resources should be used optimally. You can use the pool of resources as long as they add to the stock of reproducible assets. |
| Main sources for market failures that are related to environmental economics | public goods and externalities |
| Definition of externality | Secondary effects of other parties than those implicated in a transaction that are not included in the market mechanisms. |
| Public goods: different types | rivarly vs non rivarly exclusion vs non-exlusion private good, common good (or impure public good), club goods, pure public goods. |
| Tragedy of the commons | Linked to common goods: if all agents follow their optimal strategy which is rational, this leads to the exhaustion of the resource which goes against the common interest. (ex: road congestion) |
| Prisonners dilemma | Nash equilibrium (RIP <3) |
| Free-riding link to environment | Linked to pure public goods and lack of property rights: lets all pay for pollution...except for me! |
| Holy triptych of environmental economics | Valuation, Internalisation, Intervention |
| Coase RIP and <3 again | Internalization of externalities through bilateral negotiation: Property rights leads to optimal solution. Optimal solution not dependent on who receives property rights. |
| Pigovian tax | From market equilibrium to social equilibrium through optimum taxation. |
| How to define value | Exchange value Utility value Importance (subjective) |
| Services provided by the environment | Provisioning services (food, minerals, wood) Regulating services (climate, water, disease) Supporting services (nutrient cycles, soil) Cultural services (parks) |
| From biology/ecology to valuation : 5 steps | 1) biophysical structure or process 2) Function 3) Service 4) Benefit(s) 5) Economic value |
| Total economic Value (TEV) | By David Pearce: TEV = Use value + non use value. |
| Different types of value from use to non-use. | Direct use value (water) Indirect use value (water purification) Option value (future possible use) Bequest value (future generations possible use) Existence value (intrinsic value) |
| Valuation methods ( | If there is a market: Exchange value If there is no market: Hedonic pricing Travel cost method Contingent valuation |
| Hedonic princing (what, + and -) | From Kelvin Lancaster: e.g. use property market to estimate costs of pollution or value of parks. Create hedonic price function --> isolate environmental effect. - Property market not perfectly competitive and liquid (influence of taxes, speculation) - Joint characteristics - Model specification has strong imapact on results - Valid only on simple, clear problems (otherwise stat noise) |
| Travel cost method | Use travel and time cost expenses to estimate the value of a certain site. |
| Contingent valuation | Create hypothetical market and ask agents WPT. --> only method able to approximate non-use values (but still shit) |
| Biases in CVM | Information bias Hypothetical bias Initial bias Initial bid bias order bias inclusion bias strategic bias free-rider bias Protestation bias Mode of payment bias Sampling bias --> biggest problem: humans cannot evaluate rationally their true WPT/WTA |
| Impact pathway method | Choose between option based on the valuation of the externalities. E.g: source of emission > dispersion of emission > impact of dispersion > monetary valuation |
| CBA | Cost-Benefit Analysis: Accept project if : benefits outweigh costs Optimal project if: Marginal benefit=Marginal Cost |
| Problem with CBA | Discounting: at what rate? Idiots: discount with s=0 because "life is invaluable, poney glitter, i hate to think rationally" Smart: discount with constant "s" or decreasing with t? if cst then tyranny of current generation. If decrease with t then in line with empirical data which shows hyperbolic discounting. |
| Stern review | Report commissioned by G.Brown in 2005. Coordinated by Nicholas Stern. Obj: CBA on climate change. Conclusion: better to mitigate climate change now. Ben>Costs Details: if no action: loss of 5%-20% of GDP per year. If action, can be limited to 1% (critics say this is too low, 2% better). |
| Stern vs Nordhaus | Different discount rates: Stern uses s=1.4 Nordhaus uses s=4.5 |
| Rebound effect | i.e. revenue effect. efficieny gain --> consume more. macroeconic, indirect and psychological rebound effect |
| Cartesian Dualism | Physical world and spiritual world. Spiritual not worthy of scientific inquiry. Individuals reduced to mechanical properties. |
| Newtono-cartesian model | Linearity Determinism Reversibility |
| Empirical evidence on Homo Oeconomicus | irrealistic assumption of rational and purely selfish individuals. -altruism -Group and culture impact -Emotional biases |
| Evolutionary economics | Reconcile economic theory with empirical findings. From exogenous factors to endogenous factors. |
| Meso-level | analysis which sits between macro and micro analysis = heart of evolutionary economics. use systemic inter-dependency, feedback, emergent properties and path-dependence |
| Lock-in concept | Barrier to adoption of new technologies due to structural and psychological factors. |
| Kenneth Boulding quote (hint: it's stupid!) | «Anyone who believes in indefinite growth in anything physical, on a physically finite planet, is either mad or an economist» quote from Alex: "Anyone who suggests definite truths based on thin air and platitudes, is either mad or Kenneth Boulding" In defense of Boulding: he did not extrapolate implications to economic policies or global growth, only our dear naive and simplistic teacher did! |
| Happy Planet Index equation | (Life satisfaction x Life expectancy) / Ecological footprint |
| Relationship between HPI et GDP | Low positive correlation between GDP and HPI |
| Threshold hypothesis | Max Neef: After the threshold point economic growth may lead to a decrease in quality-of-life. |
| Index of Sustainable Economic Welfare (ISEW) | ecological economists' answer to problems with GDP (focus on economy, no evaluation aspects of growth, incompatibility with biophysical limits) |
| Empirical ISEW values | US : gdp growth but no ISEW growth UK: same story + tipping point (threshold hypothesis? lol) |
| Decoupling | refers to the ability to sustain GDP growth without impacts on environment. |
| Comparison of costs per grid connection (electricity) | On-Grid : 1000 - 1500 Eur (can play ps4) Solar home system: 250 - 400 EUR (phone, lights, radio, fan) Pico-PV 20- 80 EUR (tasklights, mobile phone charging) |
| Steps for a survey/report | 1) Analyze existing data on energy needs and consumption, analyze prospects of the green energy generators as community social enterprises. 2) Construct baseline surveys: review relevant literature, define variables, question selection, reliability and validity testing, standardization, pilot testing. 3) The administration of the baseline survey: research site analysis, operational logistics, selection of interviewers, training of interviewers, sampling, surveying, cross-checking, data entry, data set building 4) Analysis and interpretation: data reviewing, data cleaning, preparation and analysis, variable selection and adaptation, model building, model testing, validity and reliability scoring, theory building 5) Reporting: extensive analysis of the baseline results with reference to the designed experiment (RCT) and relevant content (household wellbeing and energy needs) |
| What do niggas consume in africa? | 80% food 10% usual non-food 10% exceptional expenditures |
| Average # of energy sources in HH | 3 |
| top 5 energy sources | 1) Wood 2) Weed 3) Duracell 4) Candle 5) Kerosene |
| What are the energy needs of HH? | 85% say they don't have enough energy! |
| Use of energy? | 57% on boiling delicious insects. 41% to light the way of the black man 1.5% on heating (yeah, dis is afrikaaaaa, wakaa wakaa eee ee eeee! ) |
| Willingness to pay for electricity | Most are ready to pay more! |
| Mahogany, the full story | Everyone wants mahogany, but bad effect on environment! Gov forbids mahogany trade --> big mistake! As always: if you have a lucrative but illegal market, gangster enter! no way to enforce contracts (since illegal) --> murder violence etc. exactly like the war on drugs! --> better to keep it legal but regulate! |
| Importance of institutions in a well functioning market | Need for quality institutions to reduce transaction costs. if prod and markets are complex : even more need to have good institutions |
| Types of institutions | Formal: codified in writing. Political institutions + legal institutions Informal: not legally codified, based on social norms. (role of religion) |
| 5 Problems that institutions can solve | Informational problems Hold-up problems Commitment problems Cooperation problems Coordination problems |
| Informational problems | Assymetric information Adverse selection Moral hazard --> George akerlofs MARKET FOR LEMONS: only bad cars make it to the market due to assymetric information |
| Institutional solutions to informational problems | Disclosure rules Regulation of access or entry Warranties and return policies Signaling Rating agencies Informal institutions help solve informational problems: repeated interaction, reputation, relational contracting, etc. |
| Hold- Up problem | Situation in which a business partnership requires an initial investment for one party. When cost is sunk, second party can renegotiate original bargain. Without remediation --> under-investment. Formal solution: binding and legally enforceable contracts. Informal solution: vertical firm integration |
| Commitment problem | Party doesn't honor prior commitments to another party. Most often in sequential transactions. Results in time inconsistency. Formal contracts best solution, can be flexible to deal with time inconsistency. Informal: use witnesses and severed fingers :D |
| Cooperation problem | Self interested decisions result in suboptimal outcomes for all parties : prisoner's dilemma, Nash equilibrium. i.e. collective action problem, free riding. Formal: cooperation between individuals established by institutions. Informal: spontaneous strikes or riots. Ease of communication has reduced costs of spontaneous collaboration. |
| Coordination problem. | When individuals optimal decision depends on others' actions. e.g. tax avoidance, corruption. Difficult to reverse, requires BIG PUSH STRATEGIES Formal solution: laws and standards Informal: conventions informally enforced (virtues, gestures) |
| Why do inefficient institutions persist? | Reforming institutions requires collective-action: often difficult in developing countries. |
| The Functionalist Fallacy | The Functionalist Fallacy: Institutions do not necessarily arise to address a specific problem. Therefore, institutions can be inefficient yet persistent. Vested interest and uneven distribution of influence play a role. |
| What is a meta analysis? | Gather studies across disciplines on same topic. Control quality of data. Standardize and compare them. Get a detailed and robust conclusion. |
| Rain and civil war | Rain and rain shocks explain civil war. Micro-economic mechanisms driving this result : lower opportunity cost, increased tension over policies and injustice. |
| Land ownership distribution and GINI | lower concentration --> lower gini (more equality) |
| 5 forms of ownership and tenancy contracts | Farmer ownership Communal ownership Fixed land rental Sharecropping Hired labor contracts |
| Farmer ownership | Owner-farmer receives full residual returns of labor and investment so MC=MR and labor effort and investment is optimal. But owner-farmer also bears all risk: natural (drought) and economic (price volatility). With lower technology, lower crop diversity and undeveloped insurance markets, poor farmers tend to be risk averse, avoiding new opportunities that might enhance productivity. The amount of land a single owner-farmer can farm is limited (depends on infrastructure, technology and crops) might limit exploitation of economies of scale. Poverty trap! |
| Communal ownership | When land is owned by village or clan, quite common in Africa. Market provides optimal SHORT TERM incentives for labor input, but LONG TERM investment will be suboptimal since land could be transferred to another individual at any point. While this provides insurance within the community, disincentives to new innovations and technology means that it is a serious impediment for growth and development |
| Fixed Land Rental | Like communal ownership, tenants face similar efficient SHORT TERM market incentives for labor input. Common in latin America. Long Term investment is discouraged (but varies depending on the length of the contract. Landlord receives fixed rent, all risk borne by the tenant. Like farmer-owned schemes, farms are small. |
| Sharecropping | Tenant gives landlord a portion of the crop output. Tenant faces reduced risk because landlord shares some of the risk. Because tenant does not receive all fruit of labor, he will put less effort. |
| Labor contracts | Farmers work for a fixed wage and faces no output risk and has no incentives for increased effort, unless supervised. Provides adnvantages for large operations. Labor can be specialized and efficiently deployed In latin America, Spanish colonizers created the encomienda system, which forced local Indians to work for Spanish landlords. Legacy effects are a problem |
| Studies in Ghana about land ownership | 1. Besley: in cacao-growing Wassa, additional property rights to land (lower probability of expropriation) increased investment in planting new trees. 2. Goldstein and udry found that stronger property rights (enjoyed by those with more political power) encouraged investment in fallowing (leaving field idle to refertilize) to increase productivity for the next period 3. Pande and Udry showed that increases in population density meant that efficiency losses intensifiesd and pressure for more secure property rights grew. |
| Sharecropping compared to private farms | Shaban showed that in India, farmers were more productive by an average of 16.3%) on the farmland that they owned relatively to the fields in the same farmers tended as sharecroppers powerful evidence confirming the land tenure model. |
| Sharecropping compared to fixed rental contracts | In Tunisia, Laffont and Matoussi found that output was 50% higher under fixed rent contracts. 3 years sharecropping contracts were 38% more productive than 1 year contracts |
| Plantations and slave labor | Fogel and Engerman asserted that slave-labor farms in the American south were more productive than free farms in the north and south. This may be due to effective but brutal supervision. |
| Plantations and privately owned family farms | In general large plantations have been found less productive than large farms …. But smaller are also more exposed to risk. --> Inverse relation between farm size and productivity, In general individual ownership and family farming are most efficient regardless of land quality, climate, crops or technology. But alternative arrangements remain due to instutional history and tradition which retains substantial inertia: communal land in Africa, encomienda in latin America, caste system in India. |
| Historical results of land reform | - Russia and China : resulted in millions of death due to famine - African communal schemes also failed (but less disastrous) - Land reform after Mexican revolution: Haciendas (land estates of significant size) broken up and collective system, the ejido, was established. Small farms were unproductive but could not be sold, perpetuating rural poverty. - Legal reforms in Japan, south korea and Taiwan after WWII and to a lesser extent other east Asian countries were instrumental in subsequent development. |
| Factors affecting onset of civil war | - Prior war - Per capita income + population size + mountainous terrain + Oil exporter + New State + Ethnic, religious fractionalization |
| Greed Model | By Collier and Hoeffler Greed: importance of economic motives for wars over resources and drug markets (Nigeria, Congo). Factors: Share of natural resources, mountainous terrain, low capita income and education, low fractionalization, history of conflict |
| Grievance Model | Collier and Hoeffler: Aggrieved regions or groups rise up against entrenched groups (Sri Lanka, Cuba). Factors: - Inequality - Ethnic fracitionalization - Low level of political rights |
| Economic Effects of conflicts | Immediate effects negative due to destruction. Growth leads to lower conflict. LT effects can be positive (germany, japan after WWII) or no effect (hiroshima, nagasaki) |
| Resource curse | Countries with large endowments of natural resources do worse in terms of economic and human development than others |
| Impact of resource abundance on countries | Higher GNI, but not reduced poverty (or inequality) Lower spending on health and education (impact on literacy rates and life expectancy) |
| Why negative effects of natural resource abundance? | Extracted, not produced : can be de-linked from other sectors and the labor force. Operators (politicians, companies, individuals) have incentives to use political incentives to capture profit. Control of assets used to maintain power, unequal bargaining power between companies and governments. |
| Dutch disease | Resource abundance --> appreciation of exchange rate, exports less competitive and impact on "tradables sector": manufacturing (NL) or agriculture (developing). Resources flow to non-tradable sector and resource extraction sector. Within country inequality may rise |
| Impact of volatility in income | Income volatility due to variations in : rate of extraction, payments by companies, political instability, value of natural resource. Consequences: volatility in expenditures which results in "booms and busts". Lending can help, but costly. |
| Weak states and natural resource management | De-linkage between state and citizens. No need to exchange political power for the right to tax. Underdeveloped bureaucracy. Invest in coercion instead of education. |
| Natural resources and risk of civil war | Actors may want to capture state if all revenues goes to elite. |
| How to manage natural resource abundance | Get best possible deal with private sector. Manage adverse effects of large inflows of foreign exchange with need to invest in other sectors for LT growth. Transparency. |
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