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Fundamentals of Environmental Economics

A PARTNERSHIP PROGRAM OFFERED BY

THE FOUNDATION FOR TEACHING ECONOMICS

IN PARTNERSHIP WITH THE FRASER INSTITUTE

Fundamentals of Environmental Economics A Collaboration of The Foundation for Teaching Economics & The Fraser Institute

10/26/2022

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Lesson 4

THE POWER OF MARGINAL ANALYSIS RELATED TO THE ENVIRONMENT

Fundamentals of Environmental Economics A Collaboration of The Foundation for Teaching Economics & The Fraser Institute

10/26/2022

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Discussion Objectives

Define the concept of ‘marginal’
Explain the importance of ‘expected’ related to marginal cost and benefit
Apply ‘expected marginal’ decision making to real world issues
Explain the importance of having accurate information in decision making
Apply expected marginal cost / expected marginal benefit to environmental issues

Fundamentals of Environmental Economics A Collaboration of The Foundation for Teaching Economics & The Fraser Institute

10/26/2022

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Key Questions to be Considered:

What is the basis/criteria for making decisions related to the environment?

Who are the key players in developing environmental policy decisions?

Fundamentals of Environmental Economics A Collaboration of The Foundation for Teaching Economics & The Fraser Institute

10/26/2022

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Key Players

Scientists
Economists
Politicians/Policy Makers per Nation
Interest Groups

Fundamentals of Environmental Economics

A Collaboration of The Foundation for Teaching Economics & The Fraser Institute

10/27/2022

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Basis for Decision Making

Scientists:
Scientific factual evidence over time.

Fundamentals of Environmental Economics

A Collaboration of The Foundation for Teaching Economics & The Fraser Institute

10/27/2022

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Basis for Decision Making

Economists:
Scientific factual evidence over time based on expected marginal cost/expected marginal benefit of a policy

Fundamentals of Environmental Economics

A Collaboration of The Foundation for Teaching Economics & The Fraser Institute

10/27/2022

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Basis for Decision Making

Politicians/Policy Makers:
Evidence along with political considerations

Fundamentals of Environmental Economics

A Collaboration of The Foundation for Teaching Economics & The Fraser Institute

10/27/2022

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Basis for Decision Making

Interest Groups:
Evidence as provided by their sources

Fundamentals of Environmental Economics

A Collaboration of The Foundation for Teaching Economics & The Fraser Institute

10/27/2022

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Once all these parties are in the room, what is the problem?

Fundamentals of Environmental Economics

A Collaboration of The Foundation for Teaching Economics & The Fraser Institute

10/27/2022

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The Problem

How to get agreement from all groups related to a specific policy.

Fundamentals of Environmental Economics

A Collaboration of The Foundation for Teaching Economics & The Fraser Institute

10/27/2022

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Applying expected marginal cost �vs. expected marginal benefit

…..a digression using questions many of us have to consider.

Fundamentals of Environmental Economics

A Collaboration of The Foundation for Teaching Economics & The Fraser Institute

10/27/2022

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Expected marginal cost vs. expected marginal benefit:

Nicer apartment (farther from work)
vs.
less nice apartment closer to work.

Fundamentals of Environmental Economics

A Collaboration of The Foundation for Teaching Economics & The Fraser Institute

10/27/2022

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Expected marginal cost vs. expected marginal benefit:

Full time job after high school
vs.
Going to college and working part time.

Fundamentals of Environmental Economics

A Collaboration of The Foundation for Teaching Economics & The Fraser Institute

10/27/2022

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Expected marginal cost vs. expected marginal benefit:

Getting married
vs.
Staying single

Fundamentals of Environmental Economics

A Collaboration of The Foundation for Teaching Economics & The Fraser Institute

10/27/2022

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Expected marginal cost vs. expected marginal benefit:

Having children
vs.
Not having children

Fundamentals of Environmental Economics

A Collaboration of The Foundation for Teaching Economics & The Fraser Institute

10/27/2022

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Expected marginal cost vs. expected marginal benefit:

Staying married
vs.
Getting a divorce

Fundamentals of Environmental Economics

A Collaboration of The Foundation for Teaching Economics & The Fraser Institute

10/27/2022

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Expected marginal cost vs. expected marginal benefit:

Staying in current job
vs.
Pursuing a new job/career

Fundamentals of Environmental Economics

A Collaboration of The Foundation for Teaching Economics & The Fraser Institute

10/27/2022

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Environmental, Social and Governance(ESG) Issues�

A GROUP ACTIVITY

Fundamentals of Environmental Economics

A Collaboration of The Foundation for Teaching Economics & The Fraser Institute

10/27/2022

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Fundamentals of Environmental Economics

A Collaboration of The Foundation for Teaching Economics & The Fraser Institute

10/27/2022

Rank from 1 (most preferred) to 17 (least preferred) how you would prioritize

spending of $50B to help solve environmental and social issues worldwide.

ISSUE DETAIL RANK

A. Disease Expand vaccination development / distribution _____

B. Trade Provide micro loans for developing nations _____

C. Environment Reduce greenhouse emissions in underdeveloped nations _____

D. Communication Expand broadband service globally _____

E. Health Distribute micro nutrients in developing nations _____

F. Health Provide access to potable water globally _____

G. Health Provide access to basic health care _____

H. Trade Develop trade liberalization procedures _____

I. Health Provide prenatal health care globally _____

J. Environment Enact a carbon tax to reduce emissions _____

K. Trade Expand guest worker programs for the unskilled _____

L. Environment Expand research/development for green energy initiatives _____

M. Environment Expand research related to sea level rise _____

N. Health Provide funding for agricultural research _____

O. Health Expand infant and child nutrition programs _____

P. Government Lower the cost / impediments to starting a new business _____

Q. Education Improve access to education in underdeveloped nations _____

Adapted from Copenhagen Consensus

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Criteria for decisions

Fundamentals of Environmental Economics

A Collaboration of The Foundation for Teaching Economics & The Fraser Institute

10/27/2022

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Debrief

What were your top 4 categories for spending? Why?
What were your bottom 4 categories for spending? Why?
What were your criteria? Did you employ marginal thinking in your decision-making?
Do you think the ranking would be the same in all nations?
Why did environmental issues rank where they did?

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True Story: �Copenhagen Consensus (2004)

Advance global welfare using cost-benefit analysis.
Started by Bjorn Lomborg, Director of Denmark’s Environmental Assessment Institute
Committee Members: 8 Economists
Researched 32 proposals in advanced
Ranked 17 of them
This is how they ranked the alternatives. Chose to spend all $50B where they would get greatest return (MB>MC)

2/3/2023

All $50B Spent

Why not do it all?

Scarcity

Choice

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Conclusion

Understanding the concept of ‘marginal decision making’ helps in making efficient choices. Based on background, profession or employment, people approach decision making and ranking of priorities differently. While a worldwide ranking of priorities may be developed, the individual rankings by nation may vary widely. When some issues have been addressed, the solving of those issues may help solve other issues.

2/3/2023

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Identifying and Addressing World Issues

Ted Talks: Bjorn Lomborg

Fundamentals of Environmental Economics

A Collaboration of The Foundation for Teaching Economics & The Fraser Institute

10/27/2022