Assignment reviewed in class on Wed. 9/3:
I. Define terms that make up the title of the course: Environmental Economics
II. Consider the following list of fundamental economic concepts and terms: review the meanings of these concepts and think about how you would answer the questions that follow:
- Cost-benefit analysis
- Economic efficiency/allocative efficiency
- Marginal change; marginal utility; marginal benefit
- Equilibrium analysis
- Opportunity cost
- Economic rationality/individuals as rational decision makers seeking to maximize own self-interest
- Externalities and market failure
- Scarcity
- Economic growth
- Allocative efficiency
1. Why is an understanding of these concepts important to the scholarly research you will conduct in the course? How is your understanding of these key concepts important to your success in the course?
2.  Discuss how an economist might apply one or more of these concepts to an understanding of the following issue: The environmental impact of Hurricane Sandy on New York’s economy; Applying any of these economic concepts, identify one question you would ask as to how to work toward a solution to some of the economic losses or environmental challenges in the wake of the storm. (Will discuss in class on 9/10)
III. Read pages 1 through 9 of the assigned article by Robert Atkinson and Darren Hackler, “Economic Doctrines and  Approaches to Climate Change Policy and post your answers to the following questions for Wed. Sept. 10. This article is in the course pack. We will continue with a full review and discussion on 9/10.
In pages 1 – 9, the authors discuss their views of how Neoclassical economists, Neo-Keynesian economists, and Innovation Economists would design economic policies to address the issue of climate change. Discuss your answers to the following questions:
1. What do neoclassical economists view as the central issues to resolve in addressing the challenges of climate change? Which of the concepts (in the list above) are central to the neoclassical view? Summarize the neoclassical argument.
2. What is your assessment of the neoclassical view? Are the assumptions about human economic behavior and about how to address environmental problems realistic? Explain.
3. Describe two or three ways in which the neo-Keynesian view differs from the neoclassical  perspective? What would neo-Keynesian economists view as important in addressing the challenges of climate change? Explain
4. What are the principal problems the authors have with both the neoclassical and neo-Keynesian approaches to addressing climate change issues? Clearly explain.
5. The authors finally discuss what they term the “Innovation Economics” perspective. What are the three arguments the authors cite as to why neither the neoclassical nor the neo-Keynesian views offer an suitable policy framework for addressing the economic realities of the 21st century?
6. What do you believe are the most important issues with respect to current environmental challenges and what if anything would you take from any of these three perspectives to explore those issues?
Neoclassical economists are with the view that government intervention is necessary to address the issues of climate change that is currently confronting us. For example, the use of taxation and other regulatory measures. Furthermore, economic growth is vital to neoclassical economist. In general, the neoclassical economist support price signal as an important mechanism in economic growth.
Macloed:
The neoclassical economists argued just the opposite – that there should be minimal if any intervention by government in addressing climate change issues. In its purest form, the neoclassical theory argues that the market system is ‘self-correcting,’ and that attempts by government to intervene would distort the market system. Your description here is more reflective of the Keynesian economic view.
Also – be sure to take a look at the Paulson, Krugman and IETA articles that suggest different solutions to carbon pollution. These are the most recent posts.
I. According to Merriam-Webster dictionary, environment is defined as a condition that surrounds something or someone and affects its health, wellbeing, progress, and growth in a way of chemical, physical, and biotical influences. For example, the environment surrounding one can be harmful, neutral, or beneficial depending on the quality of air or pollution that is the part of the environment.
According to the same source, economics is defined as a science that is concerned about processes of production, distribution, or buying of goods, services, and resources. In other words, economics is concerned about who buys/sells what. Also, economics is a part of everything that relates to money.
Therefore, the entire term of Environmental Economics we may define as a science that studies how processes of production, distribution, or buying goods, services, and resources affects the physical, chemical, and biotical conditions that surround living organisms.
II. 1. The listed concepts are very important in understanding and working on the class’ research because they are related to economical/financial decision making and every decision that we make in our lives leads to either positive or negative consequences. It is always tempting to make an economical decision that is the most favorable to us, but may lead to harmful and negative consequences for the environment. In this case, for example, we may apply the cost/benefit analysis that would examine the economical gain to the environmental harm because the environmental harm. The concept of scarcity may help us to understand that all the resources in the world are scarce and by constantly abusing environment we risk of getting not only economical but also environmental collapse. Overall, many of the concepts are antagonistic to environment, such as market efficiency where there is a need to maximize benefits and minimize efforts and costs of the production. In such case, one organization or even a country may put all its efforts on maximizing efficiency of the production without caring about containing of the pollution or depleting of resources. This situation is common not only for developing countries, but also for the Great Powers, among which is the US. Regardless what topic I chose for my project it will come in close contact with decision making within the structure or organization, since everything operates according to principles of economics and impacts environment in positive or negative way. The most important outcome from the class, in my opinion, is to learn how to balance the principals of successful economics and demands of the healthy environment.
2. I would suggest to an economist apply many of the listed concepts towards understanding of the storm impact and preventing the future potential negative outcomes. Among them is cost/benefit analysis that we may use in order to calculate or predict the benefit of fortifying the NY vulnerable coastal areas such as Downtown Manhattan and figure out if the benefit worth the costs. The concept of efficiency may allow us to work on the fortification with the maximization of productivity and minimizing the expenditures, labor, and resources. The opportunity cost may be used in order to identify if there are any other alternatives to the fortification such as evacuation of the dangerous areas and see if the alternatives would be more efficient than the proposed solution. The concept of externality is also very important. As an example, in what manner will the fortification of the coastal line affect lives of the residents? What if it will make the areas uninhabitable for extended period of time? This would be an example of a negative externality.
III.
1. Neoclassical economists would deal with the environmental issues by allowing the markets and its players to operate independently. Some of the followers of neoclassical economics would argue that government or any other central authority should never intervene into not only the market transactions, but also their impact on the environment. Others followers, the one who are more liberal, would say that the authority may have a limited or narrow influence on the issues. For example, if there is a factory exist, an economical entity, that by its wastes pollutes the environment, then it either pollutes the environment to the extent that is allowed by the market or it will stop the pollution as soon as the market will excrete its pressure upon the factory’s management. A concept of rational decision making is central to the neoclassical views because the individuals within the concept seek to maximize their self interests. The individuals may perceive the pollution as a threat to their health or productivity, what is not within their self interests, hence stopping the pollution or any other harmful environmental impact. Another central concept is equilibrium, where the markets are able to tolerate the pollution as long as it is of an appropriate level, where the benefits of the production equal to the harm of the pollution and cancel out their positive and negative effects.
2. In my opinion, the concept of neoclassical economics is not applicable to the modern world. The concept by itself may exist only in the world of utopia, where the human behavior is perfect and rational in regards to environment and economical decisions. But we do not live in the utopian world. People and the markets often do not make rational decisions. Our decisions, as of a human race, are often biased and pursue self interests, but not the self interests illustrated in the neoclassical concept. These self interests may not be limited to the exploit of resources. The more people get, the more they want. The higher productivity of one factory, the more production the management wants. Also, people have the common sense of “not me, but others”, meaning that one might like to enjoy the benefits of exploiting resources leaving taking care of the consequences to others or other generations. In my opinion, “the others” must be the central authority that would clean up the mess created by the market operations. The central authority would put the limit to the harm done to the environment through legislation and other regulations, since people often cannot act rationally pursuing their self interests.
3. In contrary to neoclassical economists, neo-Keynesians view government or any other central authority as a major force in policy making and economic growth. The economic growth is also well supported by the aggregate demand generated by the population. In regards to the issues of environment, neo-Keynesians would give the government a permission to create regulations that are oriented on protection of the environment. The government would put a limit on the level of the pollution generated by the factory, since, as it was mentioned above, people often behave irrationally and only the government can fill up the gap.
4. The problem with neoclassical approach was clearly explained above. In regards to neo-Keynesian model, I would say that it has a negative effect of the emphasis of the aggregate demand. The improvement in the demand and consumer power is a key for the approach, but, in my opinion, it would create a serious impact to the environment. The higher the demand will rise, the higher will the level of production and pollution become. The market will have a better deal exploiting and depleting natural resources and seriously affecting the climate.
5. The authors argue that both neoclassical and neo-Keynesian approaches are “Newtonian”, meaning that they are seriously outdated or primitive to be applied in the modern world. In addition, both of the models are depended on market equilibrium, and they focus on macroeconomics rather than innovations.
6. In my opinion, the most critical environmental issues today are the air pollution and wastes. I believe that the sources of the first issue are engine exhausts and factories’ debris. Regarding the second issue, the source of the wastes are results of human daily living. I would use the concept of the rational decision making from neoclassical model, in order to create awareness programs oriented on teaching the population about recycling and subsequent reduction of wastes. The programs would be implemented in schools or media that would teach or pass the information about how to become a rational citizen that cares about the environment. I would use the concept of the governmental intervention from neo-Keynesian model that would enforce the limitations in regards to the level of pollution generated by factories and other sources. I would use the idea of technologies from innovation economics, in order to use the technologies to reduce the wastes generated by factories or engines by installing the filtering systems or implementing the idea of recycling or biodegradable resources.
Daniel,
Great – You raise some good points here regarding the neoclassical and neo-Keynesian views of how environmental challenges should be addressed. The assumptions within each model are problematic. People and markets often do not make rational decisions, and even the emphasis on increasing aggregate demand to encourage economic growth (consistent with the neo-Keynesian theory) can imply unplanned growth that leads to further environmental damage. A central question here is how to reconcile the needs of an economy to grow with the fact that growth can also be harmful.
1. environmental economics is the branch of economics which is mostly deal with the relationships between enviroment and economics such as air pllution and global warming. Especially, enviromental economics focuse on the cost and benefit of environmental policies.
2. It’s very clear that environmental economics is the subfield of economics. To understand various phenomenons of this field, general terms and backgroud knowledges of economics are necessary to fully understand enviromental economy. Furthermore, those key concepts are essential part for me to success in the course, becasue I have to research and analyze various theories and phenomenons in the class. To do so, I have to fully understand general theories and terms of economics beforehand.
3. neoclassical economists claim that market can be self-controlled, and also market has to be maximize allocative efficiency. Furthermore, they belive that indivisuals seek own self interest. That is, they argue that govermenatl intervention has to be reduced and minimized to resolve in the challenges of climate change.
4. In my personal opinion, I don’t agree with the point of neoclasical economists, because govermantal intervetions has to be done in some cases, especially in the case of severe recession.
In this case, govermenatal aid and spending can be active role to inflate economical conditions.
5. 1. Govermental interventions : neoclassical view; disagree
neo keynesian view; agree
2. Economic policy : neoclassical view ; to achieve maximum allocative
efficiency
neo keynesian view; to achieve equitable social
welfare
From the perspecive of neo keynesian, equitable distribution of income and wealth can be active role to greater economic growth, becuase greater consumtion could be possible among low and middle income houuse-hold under the equitable distribution of wealth.
6. The authors finally discuss what they term the “Innovation Economics” perspective. What are the three arguments the authors cite as to why neither the neoclassical nor the neo-Keynesian views offer an suitable policy framework for addressing the economic realities of the 21st century?
1. underestimate the values of innovation
2. Both previous economical perspectives focuses on marcoeconomics rather on the technological
change factors in differenet ways, countries,and times.
3. point out that both previous perspectives overlook the complex process of technological
innovation and complicated net of economics such as gloablization.
1. In order addressing the challenges of climate change, the neoclassical economists thinks that putting a price on emission either through tax or trading regime will allow the market balance itself. Also, it will create space for entrepreneurs and innovative lower and zero-carbon alternatives.
2. In my opinion, I think this assumption is similar to Henry Paulson’ view in his article, “The Coming Climate Crash,” which means it’s not the best solution to address environmental problems. This solution of course will help the problem but not in the fast way, and to putting a price on emission needs a long process and the environmental problem need to solve immediately. Therefore, I’m disagreeing with the neoclassical economists.
3. The neo-Keynesian view is different from the neoclassical perspective. They are not going to believe or depend on the carbon market will fix the problem by itself; instead, they recommend to set a rule to command and control on the market. Also, to make the company to pay by the amount of carbon emission level that they produce. Neo-Keynesian’s view is the similar as the cap-and-trade system, which it is the fastest way to control the carbon emission to the lowest level and it also helps the economy.
4. I think the principal problem having with neoclassical and neo-Keynesian is very clear. Neoclassical may not solve the problem and it might make the problem become worse. If government putting a price on carbon emission, then some entrepreneurs might use this as a chance to make money, and supplier might produce more emission to supply the market’s demand.
5. The three arguments that the author cite as to why neither the neoclassical nor the neo-Keynesian views offer an suitable policy framework for addressing the economic realities of the 21st century are policy must address the market failures, uncertainty and risk for clean energy entrepreneurs, and the information asymmetries of today’s energy markets.
6. I think the most important thing with the current environmental challenges is how to stop the issues going further and how to benefit the economy at the same time. This is the reason why that I think neo-Keynesian or the cap-and-trade system is the best way to solve it. Especially cap and trade system, this system is not new and government had used this system to solve the acid rain problem before, which means this system is working! Like what Henry Paulson said, we have to do something for our generation instead of leaving them with different kinds of environmental issues such as disease, tornado, hurricane, etc.
Neoclassical solution to addressing climate change is fully taxing those emitters of greenhouse gases. They believe that the economy is self-sustaining. As the market predicts price based on decisions, it will eventually find a way to stabilize. I believe that Neoclassical approach do not get to the root of solving environmental problems. With little government involvement, organizations often capitalize on behalf of their own interest with less consideration for those who will be affected by their product. I believe that government should assemble an elite and un-bias team to test and carry out future solutions to environmental issues. Deploying green energy projects one state after another should be considered, then gradually limiting the pollutants to the environment which will help in prolonging our existence.
Neoclassical have a more sit back approach while Neo-Keynesian takes a stand in setting restrictions and introducing proposals to renewable energy. Neo-Keynesian focuses more on distributing economic wealth among its people. This will result in a domino-effect so that the economy will be sustained if all resources have the same value to everyone.
Neoclassical and Neo-Keynesian approach both do not fully address problems facing climate change. They both seek market stability in their own way rather than implementing strategies. Neither offer strategies to deal with current economic issues. Society is geared toward technological advancements and creating eco-friendly gadgets that will help secure our future. Neoclassical and Neo-Keynesian are looked at as using old ideas to try solving new problems.