Syllabus of Lectures on

JEM 115 „Environmental Economics“

Summer Semester 2019/2020, tbd (usually THURSDAYS 9:30-10:50, #105)

1 People

Lecturer:

Dr. Milan Ščasný, milan.scasny@czp.cuni.cz; Charles University, Environment Center (José Martího 2/407, Prague 6) & Institute of Economic Studies, Fac Soc Sci

Teaching Assistants:

Vědunka Kopečná, PhD candidate[lectures 1-2, partly 6.i], Vedunka.Kopecna@fsv.cuni.cz

2 Structure of the course

1. Ex post Modelling of Economic-Envi Relationship [Kopečná]

Environmental Kuznets Curve - EKC hypothesis, theoretical underpinings, key shortcomings and econometric issues. Decomposition analysis – index base decomposition, Divisia index, interpretation

2. Ex ante E3-Impact Modelling [Kopečná]

Family of the models to analyse impacts of enviro/energy regulation: IOA, partial equilibrium and energy system modelling, GE models, macro-econometric models

3. Introduction. Environmental damage, environmental externality and health benefits

A. Why do we need to care about the environment (envi functions)? Introduction to Resource economics.

B. External cost associated with air quality pollution

4. Valuation of health risk [Ščasný]

(i) Valuation of morbidity: household production function, 3 welfare components; (ii) Valuation of premature mortality: life expectancy and VOLY, Value of a Statistical Life

5. Correcting externality & Policy-mix [Ščasný]

(i) We define (true) externality, making a clear distinction between technological externality, pecuniary external effect, and other impacts. (ii) Is there an optimal level of externality?

(iii) How to correct for the externality: Coase vs. regulation; Direct regulation vs. Market-based instruments; Tax vs. Transferable rights

(iv) Optimal tax (weak and strong double dividend)

6. Economics of Climate Change & Social Cost of Carbon [Ščasný]

Carbon flows and Stock; Social Cost of Carbon; Integrated Assessment Models; Sources of uncertainties, intra- and inter-generational equity

7. Welfare measurement> Theory I [Ščasný]

(i) Proper Welfare Measures for marketed goods; Marshallian vs. vs Hicksian demand (Consumer Surplus, Equivalent/Compensating Variation); Computing variations

(ii) Welfare measures for Discrete Goods

8. Dean’s holiday [no lecture]

9. Stated preferences: Theory, Validity, Elicitation [Ščasný]

Welfare under quantity constraints, WTA vs. WTP

SP technique in brief; History of SP valuation; theoretical validity; Incentive compatibility, IIA; elicitation formats; Random Utility Model; Non-parametric and parametric estimation of discrete choice data

10. Discrete choice experiments [Ščasný]

(i) Designing experiment: choice task, alternatives, attributes, their levels; experimental designs

(ii) Econometric modelling and preference heterogeneity (CL, MXL, Latent Class, Hybrid Choice models)

11. Revealed preferences: Hedonic pricing Models [Ščasný]

Historical background of the method and its application. The economic model, hedonic price function and implicit price, econometric issues; Hedonic wage function, housing market, attributes of durables

12. Revealed preferences: Recreation Demand [Ščasný]

History of the method, the typology of travel cost models, zonal vs. individual travel cost method, random utility models. Data availability and econometric issues in modelling.

13. Energy Efficiency [Ščasný]

Modelling consumer energy demand; energy efficiency and rebound effect, energy efficiency gap.

3 Requirements

(1) Final test (65 points)

(2) Assignments (2x10=20 points):

[1] Welfare measures (EV/CV)

[2] Stated Preferences (dichotomous choice analysis)

(3) Group-reading and presenting a paper (15 points): a group of 2-3 students will read one paper that will be provided to you at least 10 days before the lecture. One of you will have to summarize the key message of the paper within max 10 minutes at the lecture (a presenter will be selected by the lecturer at the lecture (not before).

Maximum points: 100

Grading:

87 and more A

78 to 86 B

66 to 77 C

58 to 65 D

57 to 50 E

49 and less Failed

ECTS: 5

4 Materials

Visit Moodle at http://dl1.cuni.cz/enrol/index.php?id=1434.

5 Readings

Freeman III, AM, Herriges, JA, Kling, CL (2014), The Measurement of Environmental and Resource Values. Theory and Methods. Third Edition, Resource For Future & Taylor & Francis.

– Read Chapter 3: Welfare Measures (pp. 40-80)

Parsons, G. R. (2003): The Travel Cost Method. In Champ, P. A., Boyle, K. J., Brown, T. C., (eds.) A Primer on Nonmarket Valuation. London: Kluwer Academic Publishers. ISBN 0-7923-6498-8.

Haab, T., McConnell, K. E. (2002), Valuing Environmental and Natural Resources: the econometrics of non-market valuation. Edward Elgar: Cheltenham. ISBN: 1-84376-388-5.

– Chapter 2.2.1 Parametric Models for Dichotomous Choice Questions – The RUM (pp. 24-49)

– Chapter 3 Distribution-Free Models for Contingent Valuation, Chapters 3.2, 3.4, 3.6 (pp. 59-83)

OECD (2001), Environmentally Related Taxes in OECD Countries: Issue and Strategies, Paris, pp. 21-31.

– Chapter 1 A Brief Theory of Envi Related Taxation, pp. 21-31.

OECD (2001), Domestic Transferable Permits for Environmental Management. Design and Implementation.Paris,

– Chapter 1 Origins, Aims and Approaches, pp. 11-21.

6 Articles to read and present by students (in couples)

Climate Change Economics

Nordhaus W (2017 PNAS) Revisiting the social cost of carbon, PNAS 114/7: 1518–1523.

Pindyck RS (2017) The Use and Misuse of Models for Climate Policy, Review of Environmental Economics and Policy, volume 11, issue 1, Winter 2017, pp. 100–114 doi:10.1093/reep/rew012

Tol RS (2018) The Economic Impacts of Climate Change, Review of Environmental Economics and Policy, volume 12, issue 1, Winter 2018, pp. 4–25 doi: 10.1093/reep/rex027

DCE

Hess, S., Train, K. (2017), Correlation and scale in mixed logit models, Journal of Choice Modelling 23:1–8.

Hole, AR, Kolstad, JR (2012), Mixed logit estimation of willingness to pay distributions: a comparison of models in preference and WTP space using data from a health-related choice experiment, Empir Econ 42:445–469.

Torres, C., Hanley, N., Riera, A. (2011), How wrong can you be? Implications of incorrect utility function specification for welfare measurement in choice experiments, Journal of Environmental Economics and Management 62(1): 111-121.