School of Social Sciences University of Texas at Dallas

Fall 2005

ECO 7351/ POEC 7329 Environmental Economics and Policy

http://www.utdallas.edu/~wenhua.di/eep.htm

Class time: Th 4-6:45pm Class room:CB 1.118

Instructor: Wenhua Di TA: Ozge Ozden
Office: GR 3.130 Office: GR 2.816
Office hours: Tu 2-4pm or by app Office hours: Wed 4:45-6:45pm or by app
Email: wenhua.di@utdallas.edu ozge.ozden@student.utdallas.edu

Overview:

This is a graduate course on selected topics in environmental economics and policy. The
first part of the course will be a review of basic theory of environmental economics, the
mechanism of policy instruments in dealing with environmental problems, and criteria for
comparing the instruments. The second part of the course will be more focused on
quantitative empirical analysis, and policy applications.

Prerequisites:

This course is intended primarily for graduate students in economics, public policy,
political economy, or related fields with interests in applications in the environmental and
natural resource area. The students are required to have taken a course in intermediate
microeconomic theory.

Course Requirements and Grading:

Students are required to do problem sets or write short essays (1-3 pages) assigned in
each class. Doing problem set questions helps review materials learned in class; writing
short essays prepares for future class discussions. Working in group of two to do the
assignments is encouraged. In some classes, student will be assigned in groups for
discussions. Assignment is due the next class; no late assignment will be accepted (will
receive 0 point). Assignments will be graded with a check, a check plus or a check minus,
which is equiva lent to 8 points, 10 points and 6 points respectively. Only the six highest
assignment grades will be accounted for the final grade.

Each student is also required to turn in a detailed research proposal OR a term paper by
November 21 as the final project. No collaboration is allowed for the research proposal;
for a full length research paper, collaboration of two is allowed with the permission of
instructor. Discussions among fellow students are always encouraged. Student will have
chance in a few sessions to present the proposal or a draft of their research toward the end
of the semester. Paper collaborators need to present your parts separately.
Students will be gr aded according to the problem sets and essays (60%), and a final
research proposal/paper (40%).

Textbooks and references:

Primary Textbook : Kolstad, Charles. Environmental Economics. (Oxford University

Press, New York, 2000) (Required)

A Collection of Primary Literature: Robert. N. Stavins, Economics of the Environment:

Selected Readings, 5th ed., (Norton, New York, London, 2005). (Cited as EE below. This
book serves like a convenient reading package. Students are required to find articles
discussed in this class. If you don’t have the book, you may search the library E-journals
for the original text. You will need to look for articles at the library anyway for some
articles. Articles won’t be posted on line due to copyright issues)

A Good Introductory Book: Tietenberg, Tom. Environmental and Natural Resource

Economics, Sixth Edition. (Addison Wesley, Inc., 2003) (Not required)

Summary of EPA policy: Portney, Paul R. and Robert N. Stavins, eds. Public Policies for
Environmental Protection, Second Edition. (Washington, D.C.: Resources for the Future
Press, 2000). (Not required)

Topics in Environmental Policy (with a list of readings, subject to change):

I. Basic Theory of Environmental Economics

Class 1: Introduction, Efficiency and Market Failure (8/18/05)

Kolstad, Chapter 1, Chapter 2, Chapter 3, Chapter 4
Solow, Robert M., Sustainability: An Economist’s Perspective (EE)

Class 2: Public Goods and Externality (8/25/05)

Kolstad, Chapter 4, Chapter 5

Class 3: Property Right and Pigovian Fees (9/1/05)

Kolstad, Chapter 6 and Chapter 7
Coase, Rona ld. “The Problem of Social Cost.” The Journal of Law and
Economics 3: 1-44. 1960. (EE)

II. Policy Instruments

Class 4: Standards, Liability and Negotiation (9/8/05)

Kolstad, Chapter 8
 Portney, Paul. R. “EPA and the Evolution of Federal Regulation.” in Portney,
Paul R. and Robert N. Stavins, eds. Public Policies for Environmental Protection,
Second Edition. (Washington, D.C.: Resources for the Future Press, 2000).

Class 5: Taxes and Tradable Permits (9/15/05)

Kolstad, Chapter 9
Stavins, “Market-Based Environmental Policies,” in Portney, Paul R. and Robert
N. Stavins, eds. Public Policies for Environmental Protection, Second Edition.
(Washington, D.C.: Resources for the Future Press, 2000).
http://ksghome.harvard.edu/~rstavins/Papers/Market-Based_Envir._Policies.pdf

III. Instrument Choice

Class 6: Unknown Control Cost and Uncertainty (9/22/05)

Kolstad, Chapter 10 and Chapter 12
Weitzman, Martin (1994) “Prices vs. Quantities,” Review of Economic Studies,
41(4): 477-91. (EE)

Class 7: Economy-Wide Effects (9/29/05)

Kolstad, Chapter 14
Goulder, Lawrence, Environmental Policy Making in a Second-Best Setting, 1998.
Journal of Applied Economics 1(2): 279-328. (EE)

Class 8: Political Econo my of Environmental Policy (10/6/05)

Kolstad, Chapter 11
Cropper, M.L., W.N. Evans, S.J. Berardi, M.M. Ducla-Soares and P.R. Portney
(1992), “The Determinants of Pesticide Regulation: A Statistical Analysis of EPA
Decision Making”, Journal of Political Economy 100(1): 175-197.
Stavins, (1998), “What Can We Learn from the Grand Policy Experiment?
Positive and Normative Lessons from SO2 Allowance Trading,” Journal of
Economic Perspectives, (EE)
Joskow, P.L. and R. Schmalensee (1998), “The Political Economy of Market-
Based Environmental Policy: The U.S. Acid Rain Program”, Journal of Law and
Economics 41:37-84.

IV. Evaluating Environmental Policy

Class 9: Cost of Environmental Regulation (10/13/05)

Jaffe et al., (1995) “Environmental Regulation and the Competitiveness of U.S.
Manufacturing: What Does the Evidence Tell Us?” Journal of Economic
Literature, 33:132-63. (EE)
Jeppessen, List and Folmer. 2002. Environmental Regulations and New Plant
Location Decisions: Evidence from a Meta-analysis. Journal of Regional Science.
42(1): 19–49.
Optional materials for evaluating environmental policy (time allowing)

Dynamic Efficiency and Strategic Behavior

Jung, Chulho, Kerry Krutilla, and Roy Boyd. 1996. “Incentives for advanced
pollution abatement technology at the industry level: An evaluation of policy
alternatives.” Journal of Environmental Economics and Management 30: 95-111.
Jaffe, Adam B. and Robert N. Stavins. 1995. “Dynamic incentives of
environmental regulations: The effects of alternative policy instruments on
technology diffusion.” Journal of Environmental Economics and Management 29
(Supplement): S43-S63.
Khanna, Madhu, Wilma Rose H. Quimio, and Dora Bojilova (1998) Toxics
Release Information: A Policy Tool for Environmental Protection, Journal of
Environmental Economics and Management, 36(3), 243-266.
Other Readings TBD.

Effectiveness of Environmental Programs

Becker, Randy and Henderson, Vernon. (2000) “Effects of Air Quality
Regulations on Polluting Industries.” Journal of Political Economy, 108: 379–421.
Greenstone, Michael. (2002) “The Impacts of Environmental Regulations on
Industrial Activity: Evidence from the 1970 and 1977 Clean Air Act Amendments
and the Census of Manufacturers.” Journal of Political Economy, 110: 1175–1219.
Anton, W.R.Q.Wilma Rose Q., George Deltas and Madhu Khanna (2004)
Incentives for environmental self- regulation and implications for environmental
performance. Journal of Environmental Economics and Management, 48(1), 632-
654.
Khanna, Madhu and Lisa A. Damon (1999). EPA’s Voluntary 33/50 Program:
Impact on Toxic Releases and Economic Performance of Firms. Journal of
Environmental Economics and Management, 37(1), 1-25.

V. Valuation of Benefits of Environment

Class 10: Revealed Preference Methods (10/20/05)

Kolstad, Chapter 15 and Chapter 16
Kolstad, Chapter 17

Class 11: Stated Preference Methods (10/27/05)

Kolstad, Chapter 18
Portney, Paul R. (1994). “The Contingent Valuation Debate: Why Economists Should
Care,” Journal of Economic Perspectives, 8(4): 3-17. (EE)
Hanemann, W. Michael. (1994). “Valuing the Environment Through Contingent
Valuation,” Journal of Economic Perspectives, 8(4): 19-43. (EE)
Diamond, Peter A. and Jerry A. Hausman. (1994). “Contingent Valuation: Is Some
Number Better than No Number?” Journal of Economic Perspectives, 8(4): 45-64.
(EE)
VI. Environment and Development, Global Environmental Problems

Class 11: International and Interregional Competition (11/3/05)

Kolstad: Chapter 13
Dasgupta et al. (2002), Confronting the Environmental Kuznets Curve. Journal of
Economic Perspectives, 16(1), 147-168. (EE)

Student Research Presentation I

Class 12: Climate Change—A Case of Global Environmental Policy (11/10/05)

Schelling, T. C., (1997). “The Cost of Combating Global Warming: Facing the
Tradeoffs”, Foreign Affairs, 76(6):8-14. (EE)
McKibbin and Wilcoxen (2002), “The Role of Economics in Climate Change
Policy”, Journal of Economic Perspectives, 16(2): 107-129. (EE)
Stavins, R. (1999), “The Costs of Carbon Sequestration: A Revealed Preference
Approach”, American Economic Review, 89 (4): 994-1009.
Kolstad and Toman, The Economics of Climate Policy. June 2001. Discussion
Paper 00–40REV. Resources for the Future.

Student Research Presentation II

Class 13: Student Research Presentation III (11/17/05)

************Final Project Due on 11/21/05************