Environmental Economics Essay: Navigating Policies, Perspectives, and Solutions

Regulation Theory and Environmental Economics

Queston 1:

1.1 Explain why in environmental economics the “regulation theory” is typically applied. (10%)

1.2 List the categories of alternative instruments available to policymakers to address a case with environmental negative externalities affecting the environment. (20%)

1.3 In particular, consider the case with a company releasing wastewater in a river and propose two alternative solutions consistent with regulation theory aimed at addressing the negative externalities produced. Make sure to highlight the advantages and disadvantages of each solution for the policymaker, the company and the public. (40%)

1.4 Voluntary actions are an alternative way to address environmental externalities that has become popular in the business community. Provide an economic explanation of the theory of voluntary actions by making a comparison between a voluntary action and a “command and control” measure by using the concept of economic surplus. You can use a graph to support your view. (20%)

1.5 Make a consistent example of a voluntary measure or program, highlight the economic benefit it brings about to the society (10%)

Queston 2 

2.1 The theory has recognized different stages of sustainable finance over the last few decades. Define sustainable finance and briefly recall the distinctive characteristics of each stage with consistent examples in support to your answer. Consider the formal definitions provided in institutional contexts and for policy uses (e.g. in literature, the EU, or UN frameworks). (40%) 

2.2 Explain the meaning of the term “short-termism” in the context of financial decisions. (15%) 

2.3 Critically discuss how could the yet large use of short-term investment by financial institutions be reduced and the players in national and international finance that could support a shift in the next few years (25%). 

2.4 Provide and discuss at least one consistent case of financial instrument shifting from short to longer-term investment decisions. (20%)

Queston 3 

The conflict between economic growth and environmental quality lies at the basis of environmental economics since the birth of the discipline. Alternative views of the relationship between growth and a healthy environment have been put forward over time. 

3.1 Describe the catastrophic theories of growth and the authors that have been supporting those views. Mention the main variables that shape those theories and how they describe their evolution over time. Describe the relationship between the variables at play and present the general policy conclusions that can be drawn from the catastrophic growth models (e.g. Meadows & Meadows). (50% points) 

3.2 Consider the neoclassical theories of growth. Describe the relationship between economic development and environmental degradation/damage according to the neoclassical theories of growth. Based on your knowledge of the subject, provide a sound theoretical background and critical commentary on the following statement and figure. (50%) 

Sustainable Finance Concepts and Stages

“Sustainability does not require material consumption restrictions. Sustainability is achievable not only through fundamental changes of our economic system. The utilization of the environment can be brought to a level that is sustainable in the long run by setting the ‘right’ prices. International specialization leads to more long-lasting wealth worldwide.” (Illge & Schwarze, 2006)

Queston 4 

4.1 Based on your knowledge of common pool resources and the Coase Theorem, define property rights and list the main benefits of assigning property rights on environmental resources or rights to pollute in terms of economic efficiency, and on setting rules for the common management of this type of goods.(40%)

4.2 Discuss the intrinsic difficulties in attaining a satisfactory assignment of property rights in practice. Define the concept of transaction costs. Explain why and how a dramatic reduction of transaction costs would contribute to attain a more efficient result through inter-party bargaining. You can refer to the Coase Theorem in your answer. (40%)

4.3 Based on the case reported below, explain why the assignment of property rights over a formerly common pool resource can create environmental externalities and suggest a solution to the problem, based on your knowledge of the theory. (20%)

“Mukhopadhyay (2008) is a historical study of the transformation of agrarian land in Goa, India, that was earlier owned and regulated by a communitarian institution called the communidades. When Goa became a part of India, the government introduced land reforms that gave tenants the right to purchase the land they had worked. Mukhopadhyay does not question the underlying motivation behind land reforms, but notes one unfortunate consequence, which is the breakdown of cooperation among households in maintaining the embankments that had earlier prevented the land from flooding by tidal waters. Over the years, deterioration of the embankments has led to an increase in soil salinity” (Dasgupta Rewview, 2021)

 Queston 5

5.1 Environmental goods and services can be found across different categories of private and public goods. Aiming at presenting sound examples of them and defining their distinctive categories, define excludable/non-excludable and rival/non-rival goods and provide sound examples for each of the categories resulting from the crossing of the two couples of categories of goods. (40%) 

5.2 Provide sound examples of environmental goods/services and tell under which category, as defined under 5.1, they should be included. Be sure to provide appropriate commentaries on each example as a basis for your choice. (20%) 

5.3 Define the concept of “natural capital” and explain how it has been used in shaping the notions of “strong sustainable development” and “green economy”.(20%) 

Property Rights and Environmental Economics

5.4 Explain why vaccination can be held as a positive externality and why public health can be considered as a public good. Use the concepts of non-rivalry and non-excludability to support your answer (20%)

Queston 6

Environmental economics is a social science and a branch of economics that addresses a specific type of problems. Based on your knowledge of the topic, provide the following definitions and comments.

A. Describe the distinctive characteristics of environmental economics and ecological economics and highlight the differences between them (10 Points)

B. Describe and explain how the economy and the wider environmental system in which economic activities take place can be related. If you wish, you can provide a graphical representation of the relevant relationships among the elements at play. (5 points)

C. Explain why economics can be considered to be either a positive or a normative discipline. Make an example related to environmental decision making of a positive and a normative outcomes of an application of economic thinking (10 points)

Queston 7

Environmental assets participate in shaping human and societal wellbeing but estimating the value they deliver to individuals and the economy is a complex and delicate task. Against this background, consider the following aspects and provide a well-grounded response to each of them.

A. Which are the principal methods that can be used for providing a direct valuation of environmental goods and services? (5 points)

B. Describe in brief the “travel cost method” for estimating the value of a natural and tourist site and recall the reasons why the resulting estimate may be inaccurate (10 points)

C. Explain why the outcome of an economic valuation of an environmental good is essential for constructing a credible Benefit-Cost Analysis (BCA) and how the result of a BCA can be affected by an undervaluation of of an environmental good (10 points)

Queston 8

Economic growth can be said to be dependent on the availability of natural resources and a good functioning of ecosystems. Including natural capital among the components of the concepts of economic growth / economic development has shown its critical importance in explaining sustained
growth processes.

A. Describe neoclassical growth theories and explain in particular why they assume that natural capital can (to some extent) be substituted with manufactured capital (10 points)

B. Explain why a possible interpretation of the Kuznets environmental curve is that the only way to attain a good quality of the environment is to introduce policies supporting businesses and a steady growth of GDP within an economy. (10 points)

Public Goods and Environmental Economics

C. Explain the meaning of the term “critical natural capital” (5 points)

Queston 9

Regulation theory addresses the way in which different categories of actors within an economy interact and the resulting outcomes.

A. Describe the interest group theory and make at least two examples of interest groups that can influence a government’s decisions on pollution control (10 points)

B. Describe the role of the legislature and its link to public awareness on environmental problems in a context where a state is supposed to maximize its citizens’ prevailing interests in a democratic fashion (15 points)

Queston 10

Economic instruments provide a consistent approach to addressing environmental problems seeking for economic efficiency or costeffectiveness. Based on your knowledge of different types of economic instruments, critically answer the following questions.

A. Describe a “cap and trade scheme” and explain the benefits it provides the companies entering such a scheme in terms of efficiency. You can use graphs and schemes to support your answer (10 points)

B. Describe an “environmental subsidy” and explain why and how it affects the cost structure of the firm that receives this type of public support. Briefly discuss the effects that this instrument can have on the final consumer (15 points) Queston 11

Sometimes companies and individuals undertake voluntary actions that increase environmental quality or reduce environmental harm. This types of actions appear to be particularly appealing in a context of scarce availability of public funding for environmental protection.

A. Define a voluntary agreement and a voluntary program and make a consistent example for each of them (5 points)

B. List the motives that can drive a company to engage in environmental voluntary actions and the return it may expect from such a behavior. (10 points)

C. Explain why a voluntary action can turn out to be preferable to a mandatory regulation by using the concept of economic surplus. You can use graphs and figures to support your statemen

 Queston 12

a) Define the concept of Environmental Fee and critically explain which effect an Environmental Fee is expected to have on the quantity of emissions that are produced in a market and by an individual firm.

b) Explain what relationship can be established between the value of environmental fees and Marginal Social Cost (MSC) in a simplified economy where two firms operate with different cost structures. You can use graphs in support to your answer.

Queston 13

Critically discuss the problem of Environmental Valuation of goods not traded on markets at large. Explain how Environmental Valuation relates to the aim of performing a credible Benefit Cost Analysis (BCA) for projects that may have perverse environmental effects. Make an example
of Environmental Valuation made by using methods based on “hedonic prices”.

Queston 14

Define “Club Goods” and make a consistent example of them. Explain the differences between pricing a Club Good and a Pure Public Good. Which is the ideal price for a Pure Public Good? If such a price is applied how could the cost of supply of that good be covered? Make a consistent example and comment the case with public provision of a public good.

Queston 15

Define the expression “Voluntary Measure” in the field of Environmental Economics. Explain how “Voluntary Actions” delivering Environmental Goods in bundle with Private Goods can result beneficial to a firm: 1) when induced by a regulator, 2) when driven by market forces.

Queston 16

Provide definitions of the terms: “Green Economy”, “Resource-Efficiency” and “Circular
Economy”. Based on the definitions provided, discuss the role that increased resource-efficiency could play to solve the problem recalled in the following text (from UN SDGs): 

“Each year, an estimated one third of all food produced – equivalent to 1.3 billion tonnes worth around $1 trillion – ends up rotting in the bins of consumers and retailers, or spoiling due to poor transportation and harvesting practices”