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PPA 730-
The Economics of Environmental Policy
Spring 2002
David Popp Office Hours:
400B Eggers Hall Tuesday 10:30-noon
office ph: 443-2482 Wednesday 3:30-5:
Course Description: This course provides an introduction into the principles of environmental
economics, with a focus on policy applications. The principal problem in any economics course is how to
best allocate scarce resources. This holds true for environmental economics as well. However,
environmental resources differ from other goods that economists study in that there is usually no market
for them. Thus, government policies are needed to maintain and improve environmental quality.
The course begins by examining how economic incentives lead to environmental problems, and
discussing various options for dealing with these problems. Because economic analysis requires
information on both costs and benefits, we next discuss methods for valuing the benefits of environmental
amenities. The course continues with applications to various policy issues, including local environmental
issues, the environment in developing countries, and international issues. We conclude with a discussion of
the political economy of environmental issues.
Goals of the course: The main objective of this course is for you to learn how to think critically about
issues relating to environmental economics. Upon completion of this course, you should be able to explain
the economic rationale for government involvement in environmental issues, and be able to discuss what
the impact of such involvement will be. In particular, it is hoped that the class will provide you with a better
understanding of current issues relating to the environment.
Accomplishing these goals requires not only a mastery of the theory of environmental economics,
but also an ability to apply these theories to real world issues. As such, much of the content of the course
will apply the basic tools of environmental economics to current event issues.
Learning to apply economics to the real world takes practice. The assignments for this class are
designed to get you thinking and writing using economic analysis. In addition, classroom discussion plays
an important role in developing the skills to apply economic theory to the real world. Active participation in
discussions, both in class and via e-mail (discussed below) is vital to success in this course. For this reason,
class participation will count towards ten percent of your course grade. Don’t be afraid to participate
because you feel what you have to say isn’t important or may not be correct. Many of the things we will
discuss in this class have no right answers. Your opinions matter! The class participation grade will
consist of two components: participation in general class discussions and participation in discussions on the
class e-mail discussion list. I will occasionally use the list to post follow-up questions to topics discussed in
class.
Prerequisites: The prerequisite for this course is PPA 723, Managerial Economics for Public
Administrators, or an equivalent course in microeconomics. If you have any questions about whether or
not you have taken an appropriate course, please see me as soon as possible.
Class Home Page: The home page for this class is:
http:// classes.maxwell.syr.edu/ppa730-10/index.html
You can also connect to the home page through my personal home page, which can be found at:
http://faculty.maxwell.syr.edu/dcpopp/index.html
The web site includes information about assignments and links to other useful economic sites. These links
may be particularly useful as you work on your research paper.
E-mail: All students in the class are required to have an e-mail account and to check e-mail regularly. An
e-mail discussion list will be set up for the class, to which you should subscribe. Information on how to
subscribe is included below. Participation in a class e-mail discussion list makes up part of your class
participation grade. In addition, I will occasionally make announcements about assignments and class
material via the discussion list. Not subscribing is not an appropriate excuse for missing these
announcements.
E-mail discussion group: I have set up an e-mail discussion group for the class. All students are
expected to subscribe to the mailing list. You may use this list for any class related activities, such as
asking questions, continuing discussions from class, and instigating new discussions. I will use the list to
keep you informed about assignments, answer questions, and instigate discussion. When messages are
sent to the list, all students subscribed to the list will get the message.
To subscribe to the list, send an e-mail to [email protected] with the following message:
SUB EnviEcon Jan Smith
Note that this is all that need be in the body of the message, and that it must be typed in exactly as
written, except, of course, that you should replace your name for Jan Smith. When you sign up, you will
receive a message with detailed instructions for participating in the mailing list. This message will ask
that you reply, so as to confirm that you intended to join the list. It is important that you remember
to reply, or else you will not be added to the list!
A couple of technical notes: E-mails sent to the list are sent to EVERYONE who subscribes to
the list. If you want to send a personal e-mail to a specific class member (or to me), use their e-mail
address, not the list's address. The list is a good place to ask questions about class materials, because
everyone can see the answer. It is not the way to let me know that you are going to miss class on
Wednesday. For that you should send an e-mail to me personally. Also, I am considered the owner of
this list. If you experience any problems, please e-mail me directly. My e-mail address is
Research Paper: The major assignment for this class is a semester-long research paper on a topic of
your choosing. The research paper will be due on the last day of class. It should be between 10 and 15
pages, double-spaced. I will hand out more details on the paper, including suggestions for topics, further
into the course. The paper should apply the materials of the course to a public policy question. It should
include a summary of the relevant theory that applies to your topic, and apply the theory to the problem to
reach a conclusion. To make sure that you are on the right track, a one-page statement of your proposed
research topic is due Tuesday, March 5. In it, you should state the question that you wish to address,
briefly describe why it is important, and propose the means by which you will analyze your proposed topic.
The final paper will be due at the beginning of our last class meeting on Tuesday, April 30.
Policy Simulation: The Climate Policy Simulation, held on April 18 , will give you a chance to make use
of many of the things we have discussed in class in an actual policy setting. Students will be assigned to
groups representing various players in the climate change debate – such as the US, Europe, developing
countries, and environmental NGOs. Each group will be responsible for preparing a 2-3 page policy brief
that outlines your goals. The simulation will begin with a five-minute presentation from each group
outlining these goals. The remainder of the class will be left for negotiations among the groups. Please
note that there will be no formal class meeting on April 16. You should make use of this time to meet as
a group and prepare your presentations. Attendance at the simulation is important, and makes up 10% of
your grade for the course. If you will be unable to attend, please let me know in advance. Unexcused
absences will receive a zero for that portion of your grade.
In compliance with section 504 and the Americans with Disabilities Act (ADA), Syracuse University
is committed to ensure that “no otherwise qualified individual with a disability…shall, solely by
reason of disability, be excluded from participation in, be denied the benefits of, or be subjected to
discrimination under any program or activity…” If you feel that you are a student who may need
academic accommodations due to a disability, then you should immediately register with the Office
of Disability Services (ODS) at 804 University Ave., Room 309 3rd^ Floor, 315-443-4498 or 315-
443-1371 (TDD only). ODS is the Syracuse University office that authorizes special
accommodations for students with disabilities.
Course Outline
I. Introduction January 15 – What is Environmental Economics? Reading: Field, Chapter 1 “The ethics gap,” The Economist , December 2, 2000, p. 78. Fullerton, Don and Robert N. Stavins, “How Economists See the Environment,” Nature , vol. 395, 1998, reprinted in Readings. January 17 – Scarcity: The Key Problem in Economics Reading: Field, Chapter 2 Lomborg, Bjorn, “The truth about the environment,” The Economist , August 4, 2001, pp. 63-65. “Plenty of Gloom,” The Economist , December 20, 1997, pp 19-22.
II. Tools of Economic Analysis January 22 & 24 – Market Failures Reading: Field, Chapter 3 (review: optional) Field, Chapter 4 Hardin, Garrett, “The Tragedy of The Commons,” Science , vol. 162, 1968, pp. 1243-1248, reprinted in Readings. January 29 – Modeling Pollution Reading: Field, Chapter 5
III. Government Intervention in Environmental Policy January 31 – Should the Government Intervene? Reading: Field, Chapters 9 & 10 Coase, Ronald, “The Problem of Social Cost,” The Journal of Law and Economics , vol. 3., October 1960, pp. 1-44, reprinted in Readings. February 5 – Command and Control Policies for the Environment: The Case of Water Reading: Field, Chapters 11 & February 7 – Emissions Fees and Subsidies Reading: Field, Chapter 12 Barthold, Thomas A., “Issues in the Design of Environmental Excise Taxes,” Journal of Economic Perspectives , vol. 8, Winter 1994, pp. 133-151. Hanley, Robert, “Taxes for Open Space Catch On in Jersey,” The New York Times , May 20, 1998, p. A19. “Big Oil and its subsidies,” The Economist , March 10, 2001, p. 80. February 12 – Tradable Permits: theory Reading: Field, Chapter 13 February 14 – Permit Trading Policy in Practice – Acid Rain and SO 2 Permits Reading: Hahn, Chapter 15 Schmalensee, Richard et al ., “An Interim Evaluation of Sulfur Dioxide Emissions Trading,” Journal of Economic Perspectives , vol. 12, Summer 1998, pp. 53-68, reprinted in Readings. Stavins, Robert N., “What Can We Learn From the Grand Policy Experiment? Lessons From SO 2 Allowance Trading,” Journal of Economic Perspectives , vol. 12, Summer 1998, pp. 69-88, reprinted in Readings. Sandel, Michael J., “It’s Immoral to Buy the Right to Pollute,” The New York Times , December 15, 1997, reprinted in Readings. February 19 – Dealing with Risk: Toxins in the Ecosystem Reading : Field, Chapter 16 Wilson, Richard and Crouch, E.A.C., “Risk Assessment and Comparisons: An Introduction,” Science , vol. 236, pp. 267-270.
VI. Macroeconomic Issues March 21 – The Porter Hypothesis Reading: Porter, Michael E. and Claas van der Linde, “Toward a New Conception of the Environment-Competitiveness Relationship,” Journal of Economic Perspectives , vol. 9, Fall 1995, pp. 97-118, in Readings. Palmer, Karen, Wallace E. Oates, and Paul R. Portney, “Tightening Environmental Standards: The Benefit-Cost or the No-Cost Paradigm?” Journal of Economic Perspectives , vol. 9, Fall 1995, pp. 119-132, in Readings.
Take home quiz 2 handed out in class on Thursday, March 21. Due in Class Tuesday, March 26.
March 26 & 28 – Growth and the Environment Reading: Field, Chapter 19 Harashima, Yohei, “Effects of Economic Growth on Environmental Policies in Northeast Asia,” Environment , vol. 42, July/August 2000, pp. 28-
“Unshapely world, too old or too young,” The Economist , September 25, 1999, p. 56. “Survey: Development and the Environment,” The Economist , March 21, 1998, pp. S1-S16. “Farming the garden of Eden,” The Economist , March 25, 2000, pp. S10-S13. April 2 – Sustainable Development Reading: “An invaluable environment,” The Economist , April 18, 1998, p. 75. Daly, Herman E., “Operationalizing Sustainable Development by Investing in Natural Capital,” chapter 4 in Beyond Growth , Beacon Press, Boston, MA, 1996. Esty, Daniel C. and Michael E. Porter, “Measuring National Environmental Performance and Its Determinants,” The Global Competitiveness Report 2000 , World Economic Forum, Geneva, Switzerland, 2000, pp. 60-75. Solow, Robert M., “Sustainability: An Economist’s Perspective,” in Readings.
VII. International Issues April 4 – Biodiversity Reading: Field, Chapter 20, pp. 448- Brown, Gardner M. and Jason F. Shogren, “Economics of the Endangered Species Act,” Journal of Economic Perspectives , vol. 12, Summer 1998, pp. 3-20. Cushman, John C., “The Endangered Species Act Gets a Makeover,” The New York Times , June 2, 1998, D2. Revkin, Andrew C., “Why Care? While Scientists Grope for Practical Answers…,” The New York Times , June 2, 1998, D4. Passell, Peter, “…Economists Point to Values Beyond Price,” The New York Times , June 2, 1998, D5. “An elephantine problem,” The Economist , April 15, 2000, p. 17. “Excitement at CITES,” The Economist , April 15, 2000, pp. 87-88.
April 9 – International Agreements Reading: Field, Chapter 21 Bhagwati, Jagdish, “The Case for Free Trade,” Scientific American , November 1993, pp. 42-49. Daly, Herman E., “The Perils of Free Trade,” Scientific American , November 1993, pp. 50-57. Esty, Daniel C., “Bridging the Trade-Environment Divide,” Journal of Economic Perspectives , vol. 15, Summer 2001, pp. 113-130. “The standard question,” The Economist , January 15, 2000, p. 79. “Why greens should love trade,” The Economist , October 9, 1999, pp. 17-18. “Embracing greenery,” The Economist , October 9, 1999, pp. 89-90. “Clean up or clear out,” The Economist , December 11, 1999, p. 47. April 11 – Global Warming Reading: Field, Chapter 20, pp. 434- Nordhaus, William D., “Reflections on the Economics of Climate Change,” Journal of Economic Perspectives , vol. 7, Fall 1993, pp. 11-25, reprinted in Readings. Shelling, Thomas C., “The Cost of Global Warming: Facing the Tradeoffs,” Foreign Affairs , vol. 76, Nov./Dec. 1997, reprinted in Readings. Tierney, John, “Warming Up to the Notion of Warming,” The New York Times , December 7, 2001, p. D1. “Hotting up in The Hague,” The Economist , November 18, 2000, pp. 81-83. “Rubbing Sleep From Their Eyes: Global Warming,” The Economist , December 13, 1997, p. 38-39. “Seeing green,” The Economist , October 30, 1999, p. 73.
April 16 – NO CLASS – meet to prepare climate change presentations
April 18 – Climate Policy Simulation
VII. Energy and the Environment April 23 – Energy and the Environment Reading: Perloff, Jeffrey M., “Exhaustible Resources,” Microeconomics: Second Edition , pp. 559-566. Oppel Jr., Richard A., “Circumventing An Oil Crisis,” The New York Times , October 4, 2000, pp. C1, C8. “Alaska: More oil, anyone?” The Economist , May 9, 1998, pp. 29-31. “Oil’s taxing times,” The Economist , September 16, 2000, pp. 67- “Will the oil run out?” The Economist , February 10, 2001, pp. S13-S17. “Beyond carbon,” The Economist , February 10, 2001, pp. S24.
