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ECONOMICS OF THE ENVIRONMENT AND NATURAL RESOURCESTHEECONOMICS OF THE ENVIRONMENT AND NATURAL RESOURCESTHER. QUENTIN GRAFTONWIKTOR ADAMOWICZ, DIANE DUPONTHARRY NELSON, ROBERT J. HILLAND STEVEN RENZETTI© 2004 by R. Quentin Grafton, Wiktor Adamowicz, Diane Dupont, Harry Nelson,Robert J. Hill, and Steven Renzetti350 Main Street, Malden, MA 02148-5018, USA108 Cowley Road, Oxford OX4 1JF, UK550 Swanston Street, Carlton, Victoria 3053, AustraliaThe right of R. Quentin Grafton, Wiktor Adamowicz, Diane Dupont, Harry Nelson,Robert J. Hill, and Steven Renzetti to be identified as the Authors of this Work has beenasserted in accordance with the UK Copyright, Designs, and Patents Act 1988.All rights reserved. No part of this publication may be reproduced, stored in a retrievalsystem, or transmitted, in any form or by any means, electronic, mechanical,photocopying, recording or otherwise, except as permitted by the UK Copyright,Designs, and Patents Act 1988, without the prior permission of the publisher.First published 2004 by Blackwell Publishing LtdLibrary of Congress Cataloging-in-Publication DataThe economics of the environment and natural resources/by R. Quentin Grafton… [et al.].p. cm.Includes bibliographical references and index.ISBN 0-631-21563-8 (hardcover: alk. paper) – ISBN 0-631-21564-6(pbk.: alk. paper)1. Environmental economics. 2. Natural resources. 3. Environmentalpolicy. I. Grafton, R. Quentin, 1962-HC79.E5L42 2004333.7–dc212003007539A catalogue record for this title is available from the British Library.Set in 10/121/2; Book Antiqueby Newgen Imaging Systems (P) Ltd, Chennai, IndiaPrinted and bound in the United KingdomBy MPG Books, Bodmin, CornwallFor further information onBlackwell Publishing, visit our website:http://www.blackwellpublishing.comThis book is dedicated to the special people in our lives who share both our joys and sorrows (and everything in between!): Ariana, Brecon, and Carol-Anne; Sharon, Beth,and Kate; Allie and Nicholas; Alex and Joanne; Miriam.CONTENTSList of Figures ixList of Tables xiiList of Boxes xiiiPreface xvAcknowledgements xviIntroduction 1Part I Economics of the Environment 51 Models, Systems, and Dynamics 72 Property Rights 363 Economics of Pollution Control 61Part II Resource Economics 934 Bioeconomics of Fisheries 955 Forestry Economics 1296 Water Economics 1617 Economics of Non-renewable Resources 193Part III Environmental Valuation 2198 Environmental Valuation: Introduction and Theory 2219 Environmental Valuation: Stated Preference Methods 24910 Environmental Values Expressed Through Market Behavior 277Part IV Global Environment 31311 Growth and the Environment 31512 Environmental Accounting 344CONTENTSviii13 Trade and Environment 36814 The Global Commons 40115 Biodiversity 42816 Sustaining the Environment 456Glossary 470Index 491FIGURES1.1 The model-building process 101.2 Boundaries of a model of the grizzly bear population in Banff National Park 151.3 Negative feedback effects in Daisyworld 161.4 Examples of positive and negative feedbacks with climate change 171.5 Stocks, flows, and feedbacks 181.6 Trajectories to a fixed point 191.7 Resilience and threshold points 201.8 S-shaped growth 221.9 Bifurcation to chaos 231.10 Logistic growth curve 241.11 Exponential growth 251.12 Optimal paths in a “cake-eating” problem 322.1 Classification of goods by exclusivity and rivalry in use 372.2 Property rights and their characteristics 392.3 Efficient and inefficient water withdrawals 422.4 Firm output with and without marketable emission permits 473.1 An efficient level of pollution 633.2 Cost-effective pollution control with heterogeneous polluters 643.3 Potential error from an emissions charge under uncertainty 754.1 World fisheries catch and aquaculture production 974.2 Gross vessel tonnage of the world’s fishing fleet, by region 974.3 Hypothetical world fishing effort–catch relationship 984.4 Hypothetical stock–recruitment relationships in fisheries 1004.5 Typical weight-at-age relationship 1024.6 Hypothetical yield per recruit and fishing mortality 1034.7 Schaefer model of a fishery 1064.8 The Gordon–Schaefer model (sustained yield-biomass) 108FIGURESx4.9 The Gordon–Schaefer model (sustained yield-effort) 1104.10 Actual vs. optimal net revenue in Canada’s northern cod fishery 1194.11 Capital stuffing in a limited-entry fishery 1225.1 Relationship between timber stand volume and age 1355.2 Mean annual increment, current annual increment, and the CMAI 1365.3 Comparison of optimal rotation ages 1395.4 Whether or not to harvest in the presence of environmental amenities 1425.5 Timber harvests from public and private lands in the US for selected years (millions of cubic feet) 1497.1 Area under the inverse demand curve 1977.2 Optimal extraction paths of competitive industry and monopolist with a linear demand 2017.3 Resource and net price paths with linear inverse demand 2037.4 Hypothesized density function of a mineral in the earth’s crust 2097.5 Real price of oil per barrel 2107.6 “Malthusian” perspective of price trends and absolute scarcity 2137.7 Rents and non-renewable resources 2158.1 Illustrative impact of incident on the state of the environment 2258.2 Schematic of duality theory 2318.3 Welfare change associated with price change 2328.4 Welfare change associated with price and income changes 2338.5 Graphical representation of CV and EV associatedwith a quality change 2368.6 Welfare measures under uncertainty 2429.1 Stated preference methods 2509.2 Welfare measures in a discrete choice model 2579.3 Expected value of willingness to pay assuming no non-positive WTP 2579.4 Median willingness to pay 2589.5 Illustration of double bounded contingent valuation 2599.6 Illustration of the difference between willingness to pay andwillingness to accept 2629.7 Attribute based stated preference methods 26510.1 Illustration of weak complementarity 27910.2 Hedonic price function with bid and offer functions 29310.3 Marginal bid values and hedonic price function 29410.4 Impacts of environmental quality change on production systems 303FIGURESxi11.1 Trends in sulfur dioxide in selected cities in poor countries 31711.2 Trends in particulate matter in selected cities in poor countries 31711.3 Simplified stocks, material flows, and feedbacks in economy–environment 32011.4 National environmental quality and GDP per capita 32211.5 The environmental Kuznets curve 32611.6 Climate change predictions from the DICE-99 model 33211.7 World population in the Common Era 33311.8 World average life expectancy 33411.9 World population growth rate 33511.10 Overshoot and collapse in the Pezzey–Anderies model 33812.1 GDP and NDP for Indonesia 35114.1 Marginal abatement cost and marginal damage curves for country A and regional damage curves 41016.1 Systems or holistic thinking 45716.2 Flow diagram of adaptive management 45916.3 Benefits of risk diversification 46116.4 The “adaptive cycle” 466TABLES5.1 The world’s forest cover, 2000 1315.2 The world’s forests, by ecozone 1315.3 The five largest forested countries, 2000 1325.4 Representative rotation length and growth rates for different forest types around the world 1325.5 Annual harvest by ownership in the US in 2001 (million ft3) 1475.6 Forest ownership for selected countries (based on area) 1485.7 Forest areas and rates of deforestation, 1981–1990, 1990–1995, 1990–2000 1535.8 Annual change in forest area, 1990–2000 (106ha) 1547.1 World mineral reserves and production 2099.1 Forms of contingent valuation questions (based on Mitchell and Carson, 1989) 2529.2 NOAA panel recommendations: a selected shortlist 26310.1 Comparison of unit values used in several major health riskvaluation models (US$ 1990) 30114.1 Payoffs to countries A and B, under different actions 40714.2 Population, GDP, and CO2emissions, by country, 2000 41814.3 Kyoto Protocol targets, projected 2010 emissions, and emission gaps for selected industrialized countries 420[...]... 12, p 566) THE ENVIRONMENTAL CHALLENGE Our environment and its natural resources provide us with enormous benefits They sustain life on earth and give us the means to exist and to enjoy the amenities of nature Despite their importance, we often fail to consider the full costs and benefits of enjoying the environment We frequently neglect the underlying dynamics of nature, and our institutions and governance... control, and property rights and incentives The second part consists of chapters on particular natural resources of the environment including fisheries, forestry, water, and non-renewable resources The third part covers the theory and practice of environmental valuation and includes chapters on stated preference approaches and indirect methods of environmental valuation The fourth and final part focuses... posed Knowing what to leave in, and what to leave out of a model, requires a good understanding of both the processes being modeled and the purpose of the model For instance, if the purpose of the model of the population dynamics of bears is to understand the relationships between bears and their prey, then the model given above is useless If, however, MODELS, SYSTEMS, AND DYNAMICS 9 its purpose is to... will be able to use this book to gain greater insights into the environmental issues facing us today The concepts, tools and practices you will learn in the following chapters will help you understand the trade-offs and choices we face and the ways in which we might improve the world around us The Economics of the Environment and Natural Resources R Quentin Grafton, Wiktor Adamowicz, et al Copyright... anonymous, and our many students Quentin also thanks his colleagues at the Center for Resource and Environmental Studies and the Economics and Environment Network at the Australian National University for offering such a stimulating and supportive environment for research and the exploration of ideas Diane and Steven would like to thank Kerry Turner and the staff at CSERGE (Center for Social and Economic... example, if the research problem is to predict the future abundance of animal populations, the reference mode should include the history of the population and some measures of its births and deaths The reference modes, in turn, help shape our initial hypotheses of the relationships, feedbacks, and relative importance of the variables that are to be included in the model The third step in the process... appropriate set of economic models The second step in modeling is to review the accepted wisdom This may include a review of the existing theory and evaluation of the results of existing models This establishes the “reference modes” (Sterman, 2000) or a summary of the fundamentals of what is known The review should also include an evaluation and assessment of the existing data or observations about the problem... all the chapters in the book HOW THE BOOK IS ORGANIZED The book covers all of the major topics in environmental and resource economics and is subdivided into four main parts The first part contains several chapters that provide a more extensive discussion on general theoretical approaches to environmental and natural resources and includes chapters on economic modeling, methods of pollution control, and. .. not Empirical models also require tests of robustness to judge their value and should include an analysis of the influence of outliers and influential observations, the effect of the choice of explanatory variables, the selected data series used for the variables and the chosen time period Further, careful attention should be given to the economic significance of the statistical results (McCloskey, 1997)... for the intended audience If the intended readership is a group of well-trained and knowledgeable researchers then motivating the research problem, describing the model and explaining the results may be sufficient If, however, the likely audience lacks the training or background to understand the model, or the implications and caveats of the results, then considerable effort is required to explain the . ECONOMICS OF THE ENVIRONMENT AND NATURAL RESOURCES THE ECONOMICS OF THE ENVIRONMENT AND NATURAL RESOURCES THE R. QUENTIN GRAFTONWIKTOR. being mod-eled and the purpose of the model. For instance, if the purpose of the model of the population dynamics of bears is to understand the relationshipsbetween
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