Chapter 10: Natural Resources and Ecosystem Services

Question 1

What are renewable, nonrenewable, and ecosystem services?

Answer 1

1. Nonrenewable Resources: Resources fixed supply (oil, coal, minerals)
2. Renewable Resources Biological resources which there is a natural growth function
3. Ecosystem Services: Benefits people obtain from nature

Question 2

What are the type of ecosystem services?

Answer 2

1. Provisioning Services: Products obtained ecosystems ((non)renewable)
2. Regulating Services: Benefits derived from ecological processes controlling flows of water, carbon, nutrients, energy
3. Supporting Services: Underlying support system or “natural infrastructure” allows everything to continue function
4. Cultural Services: Nonmaterial benefits from natural (tourism, recreation, spiritual)

Question 3

What is the Hotelling Model?

For Nonrenewable Resources

Answer 3

(1931) Model on nonrenewable resource development

PROFIT-BASED CONSERVATION

Predicts over time price would rise as quantity declines

• • If firms sells resource and puts money in bank - interest earn
• A resource in ground doesnt earn interest (unless) price is likely to rise over time

Question 4

What is the Hotelling Rule?

Answer 4

Percentage increase in the resource price will equal interest rate

Question 5

Conclusion of the Hotelling Model?

Answer 5

1. Those own resources will earn positive resource rent
2. Positive interest rate the price of nonrenewable resources will increase through time
3. If demand constant across periods - rising price means falling consumption through time

Question 6

How is the model “dynamically eficient?”

Answer 6

Model dynamically efficient: Allocated over time in a way that maximizes present value of use

• Generally, increase in cost / fall in demand = cause resource rent decline
• Lower resource rents tend lead toward more equal distribution of production over time

Question 7

Do nonrenewable resource prices tend to rise in quantities tend to fall?

Answer 7

From ‘67 to 01: Downwards trend in prices

Explanations:

1. Even though scarcity of resources some time in the fuuture, still far off for it to factor into either consumer/firm behavior
2. Technology steadily advances - lower grade ores mined cost-effictively, shifting supply curve down

Ex: Peak Oil?

Hubbert predicted oil production peak in the late 1960s/70s - did peak in 1970s.

Rebound in 2008 due to introduction of “fracking” technology

Question 8

Define “sustainable harvest:”

Answer 8

Sustainable Harvest - one does not exceed natural growth so stock increases/constant

Question 9

How can renewable resource consumption be expressed as a “growth function?”

Answer 9

Sustainable Harvest - one does not exceed natural growth so stock increases/constant

Grow with a growth function

expresses growth in new units per period as a function of size of existing resource stock

Growth function, maximum sustainable yield, and optimal harvest

• At S_{MSY} - harvest set at maximum sustainability yield (H_{MSY})
  
  • Profit-maximizing firms sometimes reduce stocks below S_{MSY}

Golden Rule:

• Resource manager keep incresing harvest until growth rate stock driven down r (discount rate)
• If discount rate = zero: Golden rule maximum sustainable yield result in same harvest

Question 10

What is the Golden Rule?

Answer 10

Golden Rule:

• Resource manager keep incresing harvest until growth rate stock driven down r (discount rate)
• If discount rate = zero ⇒ Golden rule maximum sustainable yield result in same harvest

Golden Rule: MG=r

MG = marginal growth as the change in growth increases in stock (slope)

If:

1. MG < r: cut back hargest to allow stock to increase
2. MG = r: Dynamic Efficiency → Returns to investment in resource = rate of return elsewhere in the economyTherefore, harvest at S*

Question 11

How does concusmption relate to species extinction?

How can this be prevented?

Answer 11

Driving Species Extinction?

If discount rate really high or resources very slow growing? $⇒$ Stocks extinction

Factors Prevent This:

1. as species gets rarer and harvests decline - price tends rise
2. species often have value independent of harvest (existence value)

Question 12

What is renrewable resource policy?

Answer 12

♻️ Solution for “tragedy of the commons” set some type of limit on harvest

1. INDIVIDUAL TRANFERABLE QUOTA (ITQ)Cap-and-trade system from fisheries
   • Set total allowable catch (TAC) below maximum sustainabed yield
   • Permits issued
   Issue: hard determine TAC

Some argue for the SAFE MINIMUM STANDAD (SMS) - another versio of the precautionary principle