Environmental and Resource Economics: A Canadian Retrospective

B. Copeland and M. Scott Taylor

Canadian Journal of Economics, Forthcoming

This paper gives a brief overview of contributions to environmental and resource economics in Canada. We concentrate on work from the past 25 years, but we also highlight earlier pathbreaking work. Canadians have made fundamental contributions to many aspects of the field, especially in resource economics, non-market valuation, and international environmental economics. Our focus is on academic work by scholars in Canada,1 but we put this in the context of the development of the field internationally. Given space constraints, we cannot be comprehensive and so the review discusses big picture trends, along with a selective overview of leading contributions. We also had to limit the scope of the article and so do not cover energy economics and mainly consider fisheries when discussing renewable resource economics.

Important related work:

Arrow, K. and A. C. Fisher (1974) “Environmental preservation, uncertainty, and irreversibility,” Quarterly Journal of Economics 88:312-319.

Aufhammer, M. (2009) “The Field of Environmental and Resource Economics: A Google Scholar Perspective,” Review of Environmental Economics and Policy 3(2), 251-69.

Barrett, S. (1994) “Strategic environmental policy and international trade,” Journal of Public Economics 54(3), 325-38.

Broadway, R., and M. Keen (2010) “Theoretical perspectives on resource tax design,” The Taxation of Petroleum and Minerals: Principles, Problems, and Practice 24, 13-74.

Böhringer, Christoph, Jared C. Carbone and Thomas F. Rutherford (2016) “The Strategic Value of Carbon Tariffs,” American Economic Journal: Economic Policy, 8(1), 28-51.

Grossman, G.M., and A. B. Krueger (1993) “Environmental impacts of a North American free trade agreement,” The Mexico-U.S. free trade agreement, ed. Peter M. Garber. Cambridge, MA: MIT Press.

Hendricks, K., R. Porter and C. A. Wilson (1994) “Auctions for Oil and Gas Leases with an Informed Bidder and a Random Reservation Price,” Econometrica, 62(6) 1415-44.

Shapiro, J.S., and R. Walker (2015) “Why is pollution from U.S. manufacturing declining? The roles of trade, regulation, productivity, and preferences,” NBER Working Paper 20879.

Environmental crises are distinguished by rapid and largely unexpected changes in environmental quality that are difficult if not impossible to reverse. Examples would be major extinctions and significant degradations of an ecosystem. I argue there are three preconditions for crisis: failures in governance, an ecological system exhibiting a tipping point, and an economy/environment interaction with positive feedbacks. I develop a simple model to illustrate how a crisis may arise, and draw on our knowledge of past and present crises to highlight the mechanisms involved. I then speculate as to whether climate change is indeed a crisis in the making.

Important related work:

Davidson, Russell, and James G. MacKinnon (1993) Estimation and Inference in Econometrics (Oxford: Oxford University Press)

Diamond, Jared (2005) Collapse: How Societies Choose to Fail or Succeed (New York: Penguin)

Keith, David W (2000) 'Geoengineering the climate: history and prospect,' Annual Review of Energy and the Environment 25, 245-84

Roe, Gerard H., and Marcia B. Baker (2007a) ‘Why is climate sensitivity so unpredictable?’ Science 318, 629-32

Weitzman, Martin L. (2009a) 'On modeling and interpreting the economics of catastrophic climate change,' Review of Economics and Statistics 91, 1-19

Open Access Renewable Resources: Trade and Trade Policy in a Two-Country Model

J. Brander and M. Scott Taylor

Journal of International Economics, Vol. 44, No. 2, April 1998, 181-210.

This paper develops a two-good, two-country model with national open access renewable resources. We derive an appropriate analog of ‘‘factor proportions’’ for the renewable resource case and link it to trade patterns and to the likelihood of diversified production. The resource importer gains from trade. However, a diversified resource exporting country necessarily suffers a decline in steady state utility resulting from trade, and may lose along the entire transition path. Thus the basic ‘‘gains from trade’’ presumption is substantially undermined by open access resources. Tariffs imposed by the resource importing country always benefit the resource exporter, and may be pareto-improving.

Important related works:

Baldwin, R., 1992. Measurable dynamic gains from trade. Journal of Political Economy 100, 162–174.

Chichilnisky, G., 1991. Global environment and North–South trade. Asian Journal of Economics and Social Studies 10, 185–201.

Grossman, G.M., Helpman, E., 1991. Innovation and Growth in the Global Economy, MIT Press, Cambridge, Mass.

Rauscher, M., 1993. On ecological dumping. Oxford Economic Papers 46, 822–840.

We examine a small open economy with an open-access renewable resource. Using a two-sector general equilibrium model, we characterize the autarkic steady state, and then show that trade reduces steady-state utility for a diversified resource exporter. Instantaneous gains occur as trade opens, but they are eroded by ongoing resource depletion. The present value of utility falls for appropriate discount rates, and terms of trade `improvements' may be welfare reducing. We also show that autarky prices, the pattern of trade, and the structure of production all are linked to a simple ratio of the intrinsic resource growth rate to labour supply.

Important related works:

Gordon, H.S. (1954) ‘The economic theory of a common property resource: the fishery.’ Journal of Political Economy 62, 124-42.

Hartwick, J. (1977) ‘Intergenerational equity and the investing of rents from exhaustible resources.’ American Economic Review 67, 972-74.

Markusen, J.R. (1976) ‘Production and trade from international common property resources.’ This Journal 9, 309-19.

Mason, C.F., and S. Polasky (1994) ‘Entry deterrence in the commons.’ International Economic Review 35, 507-26.

International Trade and Open Access Renewable Resources: The Small Open Economy Case

J. Brander and M. Scott Taylor

Canadian Journal of Economics, Vol. 30, No. 3, August 1997, 526-552.