Environmental Economics Winter 2024
ECON 657

Important notes:

• Readings marked with a star (*) must be done in advance of the class.
• Some topics may require more or less emphasis than planned initially. To reflect that need, this schedule may be updated as we move through the term.

1. Introduction: the Environment and Economics  

Week 1 (Jan 8-12) and Week 2 (Jan 15-19)

Readings

• *Perman et al. (Chapter 1)
• Baumol and Oates (Chapter 1)
• *Kolstad (Chapters 1 & 2)
• *Copeland, B. and M.S. Taylor (2015), “Environmental and Resource Economics: A Canadian Retrospective”, Canadian Journal of Economics, 50(5): 1382-1413.
• Deacon, R. et al (1998), “Research Trends and Opportunities in Environmental and Natural Resource Economics”, Environmental and Resource Economics, 11: 383-97.
• Portney, P. (2000), “Environmental Problems and Policy”, Journal of Economic Perspectives, 14: 199-206.
• *Rapson, D. and E. Muehlegger (2023), “Global Transportation Decarbonization”, Journal of Economic Perspectives, 37(3): 163-188.

2. Intergenerational Equity and Sustainability  

Week 3 (Jan 22-26)  

Readings

• *Perman et al. (Chapters 2, & 3)
• *Brander, J.A. (2007), “Viewpoint: Sustainability: Malthus Revisited?” Canadian Journal of Economics, 40(1): 1-38.
• Copeland, B.R., and M.S. Taylor (2009), "Trade, Tragedy, and the Commons", American Economic Review, 99 (3): 725-749.
• *Espinosa, R., and Treich, N. (2024), "Animal Welfare as a Public Good", Ecological Economics, 216: 108025.
• Kneese, A.V. and W.D. Schulze (1985), “Ethics and Environmental Economics”, Chapter 5 in A.V. Kneese and J. L. Sweeney (eds), Handbook of Natural Resource and Energy Economics, vol I, North-Holland, Amsterdam.
• Pommeret, A. and  K. Schubert (2018), “Intertemporal Emission Permits Trading Under Uncertainty and Irreversibility”, Environmental and Resource Economics, 71:73–97.

3. Efficiency, Optimality, and Market Failure

Week 4 (Jan 29-Feb 2) and Week 5 (Feb 5-9) 

Readings 

• *Perman et al. (Chapter 4)
• Baumol and Oates (Chapters 1, 2 & 3)
• Kolstad (4, 5, 6)
• Coase, R.H. (1960), “The problem of Social Cost”, Journal of Law and Economics, 3: 1-44.
• Dasgupta, P. (1990), “The Environment as a Commodity”, Oxford Review of Economic Policy, 6(1): 51-67.
• *Medema, S.G. (2020), "The Coase Theorem at Sixty", Journal of Economic Literature, 58(4), 1045-1128.

4. Design of Environmental Policy: Goals, Principles, and Constraints

Week 6 (Feb 12-16)  

Readings

• *Perman et al. (Chapter 5)
• Baumol and Oates (Chapters 11 & 17)
• Kolstad, C.D. (1987), “Uniformity vs. Differentiation in Regulating Externalities”, Journal of Environmental Economics and Management, 14(4): 386-99.
• Rose-Ackerman, S. (1973), “Effluent Charges: a Critique”, Canadian Journal of Economics, 6(4): 512-28.
• *Segerson, K. and J. Wu (2006). “Nonpoint Pollution Control: Inducing First-Best Outcomes Through the Use of Threats”, Journal of Environmental Economics and Management, 51, 165–184.
• Segerson, K. (1988). “Uncertainty and Incentives for Nonpoint Pollution Control”, Journal of Environmental Economics and Management, 15, 87-98.

Reading Week (Feb 19-23) 

5.  Instrument Choice and Environmental Policy Implementation  

Week 7 (Feb 26-March 1) and Week 8 (March 4-8)  

Readings

• *Perman et al. (Chapters 6 and 7)
• Baumol and Oates (Chapters 5, 12 & 14)
• Kolstad (Chapters 4, 5, 7, 8, 9, & 10)
• Blackman, A., Li, Z., and A.A. Liu (2018), “Efficacy of Command-and-Control and Market-Based Environmental Regulation in Developing Countries”, Annual Review of Resource Economics, 10: 381-404.
• *David, M. and B. Sinclair-Desgagné (2010), “Pollution Abatement Subsidies and the Eco-Industry”, Environmental and Resource Economics, 45: 271-82.
• Duggan, J. and J. Roberts (2002), “Implementing the Efficient Allocation of Pollution”, American Economic Review, 92(4): 1070-8.
• Fischer, C., Parry, I. and W. Pizer (2003), “Instrument Choice for Environmental Protection when Technological Innovation is Endogenous”, Journal of Environmental Economics and Management, 45: 523-45.
• MacKenzie, I.A. and M. Ohndorf (2012), “Cap-and-Trade, Taxes, and Distributional Conflict”, Journal of Environmental Economics and Management, 63(1): 51-65.
• Miyamoto, T. (2014), “Taxes versus Quotas in Lobbying by a Polluting Industry with Private Information on Abatement Costs”, Resource and Energy Economics, 38: 141–167.
• Ranocchia, C. and L. Lambertini (2021), “Porter Hypothesis vs Pollution Haven Hypothesis: Can There Be Environmental Policies Getting Two Eggs in One Basket?”, Environmental and Resource Econonomics, 78: 177–199.
• Stocking, A. (2012), “Unintended Consequences of Price Controls: An Application to Allowance Markets”, Journal of Environmental Economics and Management, 63(1): 120-36.
• *Timilsina, G.R. (2022), “Carbon Taxes”, Journal of Economic Literature, 60(4): 456–1502.
• Weitzman, M.L. (1974), “Prices versus Quantities”, Review of Economic Studies, 41(4): 477-91.
• Wirl, F. (2012), “Global Warming: Prices versus Quantities from a Strategic Point of View, Journal of Environmental Economics and Management, 64(2): 217-29.

6. Economic Valuation of the Environment

Week 9 (March 11-15)  

Readings

• *Perman et al. (Chapter 12)
• Kolstad (Chapters 15, 16, 17)
• Bajari, P., Fruehwirth, J. C., Kim, K. and C. Timmins (2012), “A Rational Expectations Approach to Hedonic Price Regressions with Time-Varying Unobserved Product Attributes: The Price of Pollution”, American Economic Review, 102(5): 1898–1926.
• Dickie, M. and S. Gerking (1991), “Willingness to Pay for Ozone Control: Inferences from the Demand for Medical Care”, Journal of Environmental Economics and Management, 21(1): 1-16.
• Hanneman, M. (1991), “Willingness to Pay versus Willingness to Accept: How Much Can They Differ?”, American Economic Review, 81(3): 635-47.
• Kolstad, C.D. and R.M. Guzman (1999), “Information and the Divergence Between Willingness to Accept and Willingness to Pay”, Journal of Environmental Economics and Management, 38(1): 66-80.

7. Selected Topics  

Weeks 10 (March 18-22), 11 (March 25-29), and 12 (April 1-5)

7.1. Environmental Policy and the Porter Hypothesis

Readings

• Mohr, R.D. and S. Saha (2008), “Distribution of Environmental Costs and Benefits, Additional Distortions, and the Porter Hypothesis”, Land Economics, 84(4): 689–700.
• Palmer, K., Wallace, E.O., and P.R. Portney (1995), “Tightening Environmental Standards: The Benefit-Cost or the No-Cost Paradigm?”, Journal of Economic Perspectives, 9(4): 119-32.
• Popp, D. (2005), “Uncertain R&D and the Porter Hypothesis”, Contributions to Economic Analysis & Policy, 4(1): 1–16.
• Porter, M. C., and C. van der Linde (1995), “Toward a New Conception of Environment-Competitiveness Relationship”, Journal of Economic Perspectives, 9(4): 97–118.

7.2. Environmental Policy, Imperfect Market Competition, and the Eco-industry

Readings

• Canton, J., Soubeyran, A. and H. Stahn (2008), “Optimal Environmental Policy, Vertical Structure and Imperfect Competition”, Environmental and Resource Economics, 40(3): 369-382
• David, M. and B. Sinclair-Desgagné (2005), “Environmental Regulation and the Eco-Industry”, Journal of Regulatory Economics, 28(2): 141-155.
• David, M., A-D. Nimubona, and B. Sinclair-Desgagné (2011), “Emission Taxes and the Market for Abatement Goods and Services”, Resource and Energy Economics, 33(1): 179-191.
• Nimubona, A-D. and B. Sinclair-Desgagné (2011), “Polluters and Abaters”, Annals of Economics and Statistics, 103-104: 9-24.
• Perino, G. (2010), “Technology Diffusion with Market Power in the Upstream Industry”, Environmental and Resource Economics, 46(4) : 403-428.

7.3. Pollution Policy and Environmental Technological Change

Readings

• Acemoglu, D., Aghion, P., Bursztyn, L. and D. Hemous (2012), “The Environment and Directed Technical Change”, American Economic Review, 102(1): 131-166.
• Chiou, J.R. and J.L. Hu (2001), “Environmental Research Joint Ventures under Emission Taxes”, Environmental and Resource Economics, 21: 129-146.
• Heyes, A. and S. Kapur (2011), “Regulatory Attitudes and Environmental Innovation in a Model Combining Internal and External R&D”, Journal of Environmental Economics and Management, 61: 327-340.
• Laffont, J.J. and J. Tirole (1996), “Pollution Permits and Environmental Innovation”, Journal of Public Economics, 62 (1—2): 127-140.
• Poyago-Theotoky, J.A. (2007), “The Organization of R&D and Environmental Policy”, Journal of Economic Behavior and Organization, 62(1): 63-75.

7.4. Emissions Trading Schemes

Readings

• Tietenberg (Chapters 1, 2 & 3)
• Böhringer, C. and A. Lange (2005), “Economic Implications of Alternative Allocation Schemes for Emission Allowances”, Scandinavian Journal of Economics, 107(3): 563-581.
• Cason, T. N. (1995), “An Experimental Investigation of Seller Incentives in the EPA’s Emissions Trading Auction”, American Economic Review, 85(4): 905-922.
• ________ and C.R. Plott (1996), “EPA's New Emissions Trading Mechanism: A Laboratory Evaluation”, Journal of Environmental Economics and Management, 30(2): 133-160.

7.5. Voluntary Environmental Control

Readings

• Croci (Chapters 1, 5 & 6)
• Alberini, A. and K. Segerson (2002), “Assessing Voluntary Programs to Improve Environmental Quality”, Environmental and Resource Economics, 22: 157- 184.
• Arora, S. and T.N. Cason (1995), “An Experiment in Voluntary Environmental Regulation: Participation in EPA’s 33/50 Program”, Journal of Environmental Economics and Management, 28(3): 271- 286.
• Kim, E-H. and T.P. Lyon (2011), “Strategic Environmental Disclosure: Evidence from the DOE's Voluntary Greenhouse Gas Registry, Journal of Environmental Economics and Management, 61(3):  311-326
• Lyon, T.P. and J.W. Maxwell (2003), “Self-Regulation, Taxation and Public Voluntary Environmental Agreements”, Journal of Public Economics, 87: 1453- 1486.
• Segerson, K. and T.J. Miceli (1998), “Voluntary Environmental Agreements: Good or Bad News for Environmental Protection?”, Journal of Environmental Economics and Management, 36(2): 109- 130.

7.6. Uncertainty, Irreversibility, and the Precautionary Principle

Readings

• Barrieu, P. and B. Sinclair-Desgagné (2006), “On Precautionary Policies”, Management Science, 52(8): 1145-1154.
• Fisher, A.C. (2000), “Investment under Uncertainty and Option Value in Environmental Economics”, Resource and Energy Economics, 22:197-204.
• Insley, M. (2003), “On the Option to Invest in Pollution Control under a Regime of Tradable Emissions Allowances”, Canadian Journal of Economics, 35(4): 860-883.
• Viscusi, K. (1988), “Irreversible Environmental Investments with Uncertain Benefit Levels,” Journal of Environmental Economics and Management, 15(2): 147-157.

7.7. Transboundary Pollution and International Environmental Agreements

Readings

• Barrett, S. (1994), “Self-Enforcing International Environmental Agreements," Oxford Economic Papers, 46: 878-894.
• ________ (2006), “Kyoto and Beyond: Alternative Approaches to Global Warming”, American Economic Review, 96(2): 22-25.
• Candel-Sanchez, F. (2006), “The Externalities Problem of Transboundary and Persistent Pollution”, Journal of Environmental Economics and Management, 52(1): 517–526.
• Nordhaus, W. (2006), “After Kyoto: Alternative Mechanisms to Control Global Warming”, American Economic Review, Papers and Proceedings, 96(2): 31-4.

7.8. Trade, Growth, and the Environment

Readings

• Copeland and Taylor (Chapters 1, 2, 3, 4, 5 & 7)
• Antweiler, W., Copeland, B., and S. Taylor (2001) “Is Free Trade Good for the Environment”, American Economic Review, 91, 877–907.
• Chichilnisky, G. (1994), “North-South Trade and the Global Environment”, American Economic Review, 84(4): 851-874.
• Copeland, B. (2000), “Trade and Environment: Policy Linkages”, Environment and Development Economics, 5: 405-432.
• ________ and M.S. Taylor (1999), “Trade, Spatial Separation, and the Environment”, Journal of International Economics, 47: 137-168.
• Lopez, R. and S. Mitra (2000), “Corruption, Pollution and the Kuznets Environment Curve”, Journal of Environmental Economics and Management, 40(2): 137-150.

7.9. Tied Foreign Aid and Pollution Abatement

Readings

• Chao, C-C. and E. S.H. Yu (1999), “Foreign Aid, the Environment, and Welfare”, Journal of Development Economics, 59: 553–564.
• Hatzipanayotou, P., Lahiri, S. and M. S. Michael (2002), “Can Cross-Border Pollution Reduce Pollution?”, Canadian Journal of Economics, 4: 805-818.
• Nimubona, A-D. and H. Rus (2011), “Green Technology Transfers and Border Tax Adjustments”, Environmental and Resource Economics, 62(1): 189-206.
• Schweinberger, A.G. and A.D. Woodland (2008), “The Short and Long Run Effects of Tied Foreign Aid on Pollution Abatement, Pollution and Employment: A Pilot Model”, Journal of Environmental Economics and Management, 55(3): 310-325.

7.10. Economic Growth and the Environment

Readings

• Grepperud, S. and I. Rasmussen (2004), “A General Equilibrium Assessment of Rebound Effects”, Energy Economics, 26: 261-282.
• Jorgenson, D.W. and P.J. Wilcoxen (1990), “Environmental Regulation and the U.S. Economic Growth”, Rand Journal of Economics, 21: 314-340.
• Müller-Fürstenberger, G. and M. Wagner (2007), “Exploring the Environmental Kuznets Hypothesis: Theoretical and Econometric Problems”, Ecological Economics, 62: 648-660.
• Stern, D. and M. Common (2001), “Is There an Environmental Kuznets Curve for Sulfur?”, Journal of Environmental Economics and Management, 41: 162-178.
• Paudel, K.P. and M.J. Schafer (2009), “The Environmental Kuznets Curve Under a New Framework: The Role of Social Capital in Water Pollution”, Environmental and Resource Economics, 42: 265-278.

7.11. Climate Change and its Effects on Violence and Conflict

Readings

• Almer, C., Laurent-Lucchetti, J., and M. Oechslin (2017), “Water Scarcity and Rioting: Disaggregated Evidence from Sub-Saharan Africa”, Journal of Environmental Economics and Management, 86: 193–209.
• Couttenier, M. and R. Soubeyran (2014), “Drought and Civil War in Sub-Saharan Africa”, Economic Journal, 124: 201–244.
• Harari, M.F. and E. La Ferrara  (2018), “Conflict, Climate and Cells: A Disaggregated Analysis”, Review of Economics and Statistics, 100(4): 594-608.

• There is an e-text version of the required textbook available for purchase through the UW Vitalsource e-store – please follow the link below: https://uwaterloo-store.vitalsource.com/products/natural-resource-and-environmental-economics-roger-perman-yue-ma-michael-v9780273760375?term=9780321417534
• Students who opt to use earlier versions of the required textbook are responsible to make sure that they read the appropriate chapters. 

Term Paper Proposal

For the term paper proposal, your task is to find a topic on any environmental issue that you are interested in, and submit:

• a description of the specific question(s) you intend to explore (2 pages maximum);
• a bibliography list of at least 10 academic papers that are relevant to your topic.

Literature Review and Term Paper Outline

• Your literature review should include more than a summary of the main points of each of the papers listed in your proposal; it should also include some discussion of the linkages between all the papers, and their value or relevance to your research topic (10 pages maximum).
• Your term paper outline should summarize the structure of your term paper in different sections and subsections (1 page maximum).

Midterm

• The midterm will be held in-person during class time; more details will be shared in class closer to the midterm date.
• A student who misses the midterm should contact me within two calendar days after the missed midterm to make arrangements to write a make-up midterm.
• Students with a concern about the marking of a midterm must consult with me within two weeks of the date that it is returned to the class.  After two weeks, I will not make any adjustments to a midterm mark.

Term Paper

• For the term paper, you may choose to do a case study, develop a theoretical model, or conduct an econometric analysis.  
• Your submission should be of reasonable length, depending on the methodological approach used.

Paper Discussion

• Each student will be required to conduct an in-class discussion (maximum 10 minutes) of one academic paper to be assigned individually by the instructor from the list of papers in the course outline.
• In addition to the 10-minute discussion, you will submit a one-page written review report (summary of the paper, and your comments in terms of the appropriateness of the methodology and the significance of the results) for your assigned paper.

Paper Presentation 

• Presentation of one academic paper to be held during weeks 10 to 12.
• Papers will be assigned to students individually by the instructor from the list of papers in the course outline.
• Dates and times for the presentations will be determined once the term has begun.

Participation

• Paper discussions and presentations will be followed by an open discussion period in which everyone is expected to be an active participant.
• Your participation in class discussions will contribute to your grade.

Intellectual Property

Students should be aware that this course contains the intellectual property of their instructor, TA, and/or the University of Waterloo. 

Intellectual property includes items such as:

• Lecture content, spoken and written (and any audio/video recording thereof);
• Lecture handouts, presentations, and other materials prepared for the course (e.g., PowerPoint slides);
• Questions or solution sets from various types of assessments (e.g., assignments, quizzes, tests, final exams); and
• Work protected by copyright (e.g., any work authored by the instructor or TA or used by the instructor or TA with permission of the copyright owner).

Course materials and the intellectual property contained therein, are used to enhance a student’s educational experience. However, sharing this intellectual property without the intellectual property owner’s permission is a violation of intellectual property rights.  For this reason, it is necessary to ask the instructor, TA and/or the University of Waterloo for permission before uploading and sharing the intellectual property of others online (e.g., to an online repository).

Permission from an instructor, TA or the University is also necessary before sharing the intellectual property of others from completed courses with students taking the same/similar courses in subsequent terms/years.  In many cases, instructors might be happy to allow distribution of certain materials. However, doing so without expressed permission is considered a violation of intellectual property rights.

Please alert the instructor if you become aware of intellectual property belonging to others (past or present) circulating, either through the student body or online. The intellectual property rights owner deserves to know (and may have already given their consent).

Chosen/Preferred First Name

Do you want professors and interviewers to call you by a different first name? Take a minute now to verify or tell us your chosen/preferred first name by logging into WatIAM.

Why? Starting in winter 2020, your chosen/preferred first name listed in WatIAM will be used broadly across campus (e.g., LEARN, Quest, WaterlooWorks, WatCard, etc). Note: Your legal first name will always be used on certain official documents. For more details, visit Updating Personal Information.

Important notes

• If you included a preferred name on your OUAC application, it will be used as your chosen/preferred name unless you make a change now.
• If you don’t provide a chosen/preferred name, your legal first name will continue to be used.

Academic freedom at the University of Waterloo

Policy 33, Ethical Behaviour states, as one of its general principles (Section 1), “The University supports academic freedom for all members of the University community. Academic freedom carries with it the duty to use that freedom in a manner consistent with the scholarly obligation to base teaching and research on an honest and ethical quest for knowledge. In the context of this policy, 'academic freedom' refers to academic activities, including teaching and scholarship, as is articulated in the principles set out in the Memorandum of Agreement between the FAUW and the University of Waterloo, 1998 (Article 6). The academic environment which fosters free debate may from time to time include the presentation or discussion of unpopular opinions or controversial material. Such material shall be dealt with as openly, respectfully and sensitively as possible.” This definition is repeated in Policies 70 and 71, and in the Memorandum of Agreement, Section 6.

Mental Health Support

All of us need a support system. The faculty and staff in Arts encourage students to seek out mental health support if they are needed.

On Campus 

• Counselling Services 519-888-4096
• MATES:  one-to-one peer support program offered by the Waterloo Undergraduate Student Association (WUSA) and Counselling Services

Off campus, 24/7

• Good2Talk:  Free confidential help line for post-secondary students. Phone: 1-866-925-5454
• Grand River Hospital: Emergency care for mental health crisis. Phone: 519-749-4300 ext. 6880
• Here 24/7: Mental Health and Crisis Service Team. Phone: 1-844-437-3247
• OK2BME: set of support services for lesbian, gay, bisexual, transgender or questioning teens in Waterloo.  Phone: 519-884-0000 extension 213

Full details can be found online in on the Faculty of Arts Student Support page. 

Download the WatSafe app to your phone to quickly access mental health support information.

Territorial Acknowledgement

We acknowledge that we are living and working on the traditional territory of the Attawandaron (also known as Neutral), Anishinaabe and Haudenosaunee peoples. The University of Waterloo is situated on the Haldimand Tract, the land promised to the Six Nations that includes ten kilometres on each side of the Grand River.

For more information about the purpose of territorial acknowledgements, please see the CAUT Guide to Acknowledging Traditional Territory.

Academic integrity: In order to maintain a culture of academic integrity, members of the University of Waterloo community are expected to promote honesty, trust, fairness, respect and responsibility. [Check the Office of Academic Integrity for more information.]

Grievance: A student who believes that a decision affecting some aspect of their university life has been unfair or unreasonable may have grounds for initiating a grievance. Read Policy 70, Student Petitions and Grievances, Section 4. When in doubt, please be certain to contact the department’s administrative assistant who will provide further assistance.

Discipline: A student is expected to know what constitutes academic integrity to avoid committing an academic offence, and to take responsibility for their actions. [Check the Office of Academic Integrity for more information.] A student who is unsure whether an action constitutes an offence, or who needs help in learning how to avoid offences (e.g., plagiarism, cheating) or about “rules” for group work/collaboration should seek guidance from the course instructor, academic advisor, or the undergraduate associate dean. For information on categories of offences and types of penalties, students should refer to Policy 71, Student Discipline. For typical penalties, check Guidelines for the Assessment of Penalties.

Appeals: A decision made or penalty imposed under Policy 70, Student Petitions and Grievances (other than a petition) or Policy 71, Student Discipline may be appealed if there is a ground. A student who believes they have a ground for an appeal should refer to Policy 72, Student Appeals.

Note for students with disabilities: AccessAbility Services, located in Needles Hall, Room 1401, collaborates with all academic departments to arrange appropriate accommodations for students with disabilities without compromising the academic integrity of the curriculum. If you require academic accommodations to lessen the impact of your disability, please register with AccessAbility Services at the beginning of each academic term.

Turnitin.com: Text matching software (Turnitin®) may be used to screen assignments in this course. Turnitin® is used to verify that all materials and sources in assignments are documented. Students' submissions are stored on a U.S. server, therefore students must be given an alternative (e.g., scaffolded assignment or annotated bibliography), if they are concerned about their privacy and/or security. Students will be given due notice, in the first week of the term and/or at the time assignment details are provided, about arrangements and alternatives for the use of Turnitin in this course.

It is the responsibility of the student to notify the instructor if they, in the first week of term or at the time assignment details are provided, wish to submit alternate assignment.