econ test 2 Flashcards
explain Hardin’s concept of the “tragedy of Commons” and its implications for resource management
when people behave selfishly, they overuse and deplete shared resources which has a negative impact on the sustainability of the resource. it means that communal resources are likely to run out in the absence of rules/collective management
what is the difference between use value and nonuse value?
use value is the benefit people derive from the environment while nonuse value is the benefit of simply knowing a resource exists
name the main steps in a risk assessment process
1- hazard identification
2- dose-response assessment
3- exposure assessment
4- risk characterization
describe what a risk identification is in a risk assessment process
the determination wether a substance, an activity, or a situation can be harmful to the environment/human health
describe what dose-response assessment is in a risk assessment process
understanding how different levels of exposure to a hazard might affect health and environment
describe what exposure assessment is is risk assessment process
measuring/estimating the extent of the exposure to the hazard among the population/ecosystem
describe what risk characterization is in a risk assessment process
combining all the info from the previous steps to estimate overall risk posed by the hazard
summarize the Coase Theorem
when parties can negotiate solutions to issues without the involvement of the gov. if there are no transaction costs
what is a key assumption to the coase theorem
no transaction costs
define “cost-benefit analysis”
CBA is used to evaluate the economic efficiency of policies by comparing the costs and the benefits
what is the its role of CBA in environment decision-making
it helps in decisions on regulatory actions that maximize societal welfare
what is “mutual coercion” in hardin’s argument?
societally agreed-upon restrictions to manage the commons efficiently
why does hardin see that “mutual coercion” is necessary?
because voluntary restraint often fails in community resource management
identify the 3 main categories of value in environmental economics
1- use value
2- nonuse value
3- option value
briefly explain the three main categories of value in environmental economics
use value is the benefit people derive from the environment, nonuse value is the benefit of simply knowing a resource exists and option value is the value of preserving the option to use a resource in the future
how does the Pigovian approach propose to address negative externalities?
taxes can be used to internalize external costs and balance private and public expenses in order to reduce pollution or overconsumption
explain how the coase theorem addresses the concept of “reciprocal harm” in resolving disputes over externalities
it acknowledges that both parties in an externality situation are affected. Coase argues that assigning property rights can lead to mutually beneficial agreements
describe an example of a market-based policy that aims to reduce pollution by aligning private costs with societal costs
a cap-and-trade system limits total emissions but allows firms to trade permits which align private incentives with social goals
give an example of a stakeholder category that might be considered in a distributional analysis
low-income communities may be considered to evaluate if a regulation disproportionately impacts them
how does conducting a distributional analysis in cost-benefit analysis differ from simply calculating overall costs and benefits
it goes beyond just the aggregate cost and benefits to assess equity impacts
how does Hardin critique the “invisible hand” theory in the context of common resource management
he believes uncontrolled personal interests result in excessive exploitation of the commons.
what is the purpose of conducting a distributional analysis in cost-benefit analysis
it examines how costs and benefits are distributed among different groups
explain the concept of “opportunity cost” and how it should be considered when estimating the costs in a cost-benefit analysis
determining the actual cost of regulatory actions depends on understanding the value of foregone alternatives, sometimes known as opportunity cost
define “willingness-to-pay” (wtp) and explain its significance in valuing non-market goods/services within cost-benefit analysis
the maximum amount an individual is willing to pay for a non-market good, used in CBA to value environmental services
explain why a discount rate is used in cost-benefit analysis and how it reflects the concept of time preference
by lowering the present value of future gains and expenses, the discount rate captures temporal preference and affects long-term dicisions
why might a regulatory agency choose to use a “social discount rate” instead of a standard discount rate, and what implications does this choice have for evaluating long-term regulatory impacts
to emphasize sustainability and give more importance to long-term advantages, regulatory agencies can use a lower social discount rate
if a regulatory proposal has a high up-front cost but long-term environmental benefits, why might policymakers consider using a lower social discount rate instead of the standard discount rate?
future environmental benefits are worth more in the present when the discount rate is lower, which justifies the initial investment
explain the concept of incremental impacts in cost-benefit analysis and how it relates to the baseline and regulatory scenarios. what factors should be considered
incremental impacts are the differences between what would happen without regulation (baseline scenario) and what is expected with the regulation in place (regulatory scenario). important factors are: costs, benefits, and the regulatory scenario
what are the main purposes of conducting a sensitivity analysis in cost-benefit analysis
sensitivity analysis helps policymakers deal with uncertainty by evaluating how results vary under different presumptions
