The Faculty

Minnesota	Wisconsin
Jay Coggins 227B C.O.B. (612)625-6232 jcoggins@dept.agecon.umn.edu Office Hours: By Appointment	Rich Bishop 429 Taylor Hall (608)262-8966 bishop@aae.wisc.edu Office Hours: By Appointment

How the Class Will Work

Most courses in environmental economics cover market failure and pollution regulation plus an introduction to valuation of environmental amenities. To this we propose to add material on sustainability and biological diversity. But covering such a range of material presents any one instructor with a problem: Graduate courses should be taught close to the frontiers, but that is difficult even within a relatively narrow subdiscipline like environmental economics. Few individual instructors are able to venture deeply enough into such a broad range of topics to serve as guide. We intend to address this problem using new technology and a van. We will also depend on conventional technologies. Here is how it will work (or should we say we hope it will work?).

Course Web Site: The course will be organized around a web site maintained by the Department of Agricultural and Applied Economics at UW˜Madison. Look on "Courses" at http://aae.wisc.edu/. If you have questions or problems with the web site, contact either the instructor or the webmaster (webmaster@aae.wisc.edu; (608)262-6884). All students taking the course for credit will be expected to complete individual web pages for themselves by February 4. A template is provided as part of the course web page.

Conventional Technologies: Each week there will be assigned readings. Prior to class each Monday, students will be expected to read all assigned material carefully for the week. All required readings will be accessible from the course web site. Also there will be two exams. The exams will be weighted equally and the second exam will cover only material presented since the first exam. The instructors reserve the right to give either take-home or in-class exams. There will be four homework assignments as well. Students should feel free to collaborate on the homework assignments, but each student should personally prepare and hand in answers. And there will be a major term paper to prepare and present to the class as described below.

Audio Lectures: Each week one of the instructors (either Coggins or Bishop) will be designated as the primary lecturer. He will prepare an audio lecture on the material for the week to come including a voice recording and visual material (e.g. Power Point slides). These will be accessible from the course web site. Primary lectures will normally be available by the Friday morning of the week preceding the week when the material will be addressed in class. The other or "secondary lecturer" will prepare a companion audio lecture, which will be available from the web site the Monday morning of the week when the material will be addressed.

Study Questions: Both the primary and secondary lectures will include study questions covering the assigned readings and the audio lectures themselves.

Monday Classes: On Monday each week, Minnesota and Wisconsin students will meet separately with their respective faculty members in a normal classroom setting. Monday classes will center on material presented in the audio lectures for the week. Part of each Monday may be devoted to an in-person lecture as needed to supplement the audio lectures, but primary emphasis will be on discussing the material and answering the study questions. Thus, prior to Monday‚s class, students will be expected to have thoroughly read all the assigned readings and be thoroughly familiar with material presented in both the primary and secondary audio lectures for the week. Students should be prepared to answer the study questions when called upon to do so.

Wednesday Classes: Here‚s where the technology will really take over. We will meet as a group including both faculty members and students through a television link. The professors will have discussed issues that came up during Monday classes and will present material, some in lecture format, to address issues and concerns and to add material as needed. Further class discussions will be encouraged. If time permits, additional material will be introduced in a lecture format.

Term Paper Presentations: Here is where the van comes in. We will get together in the Twin Cities or Madison or some intermediate location on the weekend of April 29-30 for term paper presentations. All students registered for credit will be expected to attend this session and should begin right now to arrange their schedules to do so. The van or vans will depart late in the day on Friday, April 28, and return to their origins some time on Sunday, April 30. With this much warning, we will grant exceptions only grudgingly. For example, needing to stay home and study for some other course will not be accepted as a reason not to come. Any student who wants permission not to come should contact one of the professors and make a request at least a month ahead of time. If permission is granted, the student will be assigned a time before April 28 when she or he can present the term paper to the full class via the television link.

Why the hard line? Your professional success will depend in no small measure on your ability to communicate your ideas and results effectively to an audience.

Thirty minutes will be allocated for each term paper, twenty minutes for presentation and ten minutes for discussion. A total of 30 out of the 100 points for the term paper will be based on the quality of the presentation and points will be deducted if the presentation takes longer than 20 minutes. Students are encouraged to plan careful, entertaining presentations supported by slides and/or handouts. The quality of the discussion that follows the presentation will also influence the score. An engaged, enthusiastic audience will substantially increase the points received.

Your commitment and willingness to take risks will be critical to the success of the class: It will not be easy to make this work. The television connection will make the contacts seem less human. We will have to work harder than usual to create a sense of community and personal contact. There will also undoubtedly be glitches in the technology. More importantly, we will have to learn as we go along how to use the technology effectively and overcome the natural human reticence engendered by unfamiliar environments. Bulletin boards on the web site can either remain empty or become avenues for communications between students, faculty, and technical support personnel, depending on the willingness of students to use them. Class discussions will either be stiff and unproductive or vibrant exchanges of ideas and information depending on faculty and student willingness to step up and try to communicate through the technology. If we succeed together in making this work, then students will: 1) Benefit from faculty resources beyond what either of the campuses can offer individually. 2) Benefit from interactions with a broader array of students than would have been feasible in a conventional, one-campus course. 3) Be exposed firsthand to the new distance-learning technologies that many believe will revolutionize higher education.

Grading

The instructors will share equally in the grading of all students regardless of university.

Term Paper

The research paper required for this course is to be a reasonably well-developed study of an environmental question that can be analyzed using the tools and concepts that will be a part of the course. We will require that two tasks be fulfilled before February 11. The first is a short e-mail message addressed to both professors describing your problem. We will reply, either giving you the go-ahead along with our comments or suggestions or asking for a brief personal or telephone consultation. The second is a two-page summary of the paper. This summary, to be typed double-spaced, will be due at class time on February 11. The paper itself is due on April 21.

Your paper must meet three requirements. The first is a fairly modest literature review. This review does not need to be long. It should, however, include a discussion of a few key pieces of literature that your paper can be traced to. In your early library work, we suggest that you try to locate three or four very recent papers that will convey the current state of the art, and will also point you to the classic works. Given the time constraint, this is likely to be more effective than setting out to locate every work on the subject, and then deciding for yourself which three or four are most important and relevant.

The second requirement is that the paper deal with material that we will cover in the class this quarter. It should be about environmental economics. In most other respects, you are free to choose any topic that you wish.

The third requirement is that the paper should contain some sort of analysis. This term may be interpreted broadly. You might emphasize theory. A nice mathematical result would be great. You might collect data of some kind and estimate something. You might build a toy model and perform some simulations.

A few more mundane facts should also be kept in mind. First, the paper will not be accepted if it is late. This is to prevent the paper project from dragging on into the summer, when we all have other things to do. The consequences if it is late will be as laid out in the syllabus. Though we would prefer not to place either a minimum or a maximum page requirement, we will provide rough guidance. Your paper should be at least 10 pages long, and it should not be more than 15 pages. You might think of it as the sort of paper one submits to the selected paper competition for the AAEA summer meetings. These papers cannot exceed 12 pages, excluding references. By judiciously selecting margins and fonts, we know that you can effectively get around any page limit. Thus, the important limit is that the paper should be long enough to contain a coherent presentation of your arguments, but with little or no fat. The highest scores will go to the papers with the best thinking and analysis that are clearly written, mechanically correct, and well presented to the class.

We will refrain from composing a list of potential topics or topic categories. The best paper will be one that is based on your own idea. We invite you to send us e-mail soon to discuss your project.

Please keep in mind that the paper is worth only 22% of your grade. We do not expect a terribly sophisticated product. If you already have an idea for your thesis work, we encourage you to use this opportunity to develop a preliminary model or to carry out some of the early econometric work. If you think you will need a survey for your thesis, this might be the time to schedule focus groups or to create a pilot survey.

Homework Assignments

Assignment 1: Problem set on the economics of pollution regulation. Students will be given a data set consisting of firm-level data on abatement costs. Using these data and a function describing abatement benefits, a number of methods of pollution regulation will be explored. Among them will be tax and quantity controls and a comparison between them. Due March 1.

Assignment 2: Problem set on the theory of environmental values. Due April 5.

Assignment 3: Students will receive a data set involving values of undeveloped shoreline lots on some lakes in northern Wisconsin and related variables. They will estimate a hedonic price function as defined by Freeman (1995, p. 674). Results will be presented and interpreted in a two-page paper. Due April 19.

Assignment 4: The Third Quarter issue of Choices contains three articles relating to proposed reauthorization of the Endangered Species Act (Shogren and Tschirhart; Innes; and Solow and Polasky). All three are part of the readings accessible through the course web site. Students will choose one of the three and write a two-page critique of it. They will need to summarize briefly the issue or issues addressed in their chosen article and the major arguments proffered and then evaluate critically the economics of the article. The relationships between the article chosen and the safe minimum standard concept presented in class should be explored. Due May 12.

Required Texts

Oates, Wallace E., "The Economics of the Environment," (Brookfield, VT: Edward Elgar Publishing Co., 1992) ISBN 1-85898-002-X.

Hanley, Nick, Jason F. Shogren, and Ben White, "Environmental Economics In Theory and Practice," (Oxford, UK: Oxford University Press, 1997) ISBN 0-19-521255 (Paperback).

Course Schedule

Week of:	Topic	Readings (* indicates required readings)	Primary Lecturer
Jan 24	Introduction; Welfare Theory	*Hanley Text, Chapter 1; *Cropper and Oates; Portney, 1990; Boadway and Bruce, Chapter 7; Just et al. *Chapters 5 and 6; Willig; *Morey.	Jay
Jan 28-30	Get acquainted session in Wisconsin.
Jan 31	Welfare Theory and Benefit-Cost Analysis	*Freeman 1993, Chapters 1-3; Arrow et al.; Maler (in Oates text); *Dorfman.	Jay
Feb 7	Market failures	*Hanley Text, Chapter 2; *Randall; Ayres and Kneese (in Oates text); Coase; *Laffont; *Baumol and Oates, Chapters 2-4 & 8; *Baumol and Bradford (in Oates Text); Hurwicz; Samuelson.	Jay
	Term Paper Proposal Due on Feb 11 at 4:30.
Feb 14	Intro. to pollution control; Taxes.	*Hanley Text, Chapters 3 and 4; *Weitzman; Roberts and Spence (Reprinted in Oates); *Baumol and Oates, Chapter 5.	Jay
Feb 21	Tradeable Permits	*Hanley Text, Chapter 5; Dales (in Oates text); *Montgomery; Burtraw et al.; *Montero.	Jay
Feb 28	Miscellaneous Topics in pollution control	*Hanley Text, Chapter 6; *Segerson; Cabe and Herriges; Hagem and Westkog; *Rubin and Kling.	Jay
	First Homework Due on March 1 at 4:00.
Mar 6	Catchup and Review;
	First Exam on March 8 at 4:00.
Mar 13	Wisconsin Spring Break; Minnesota will work on additional topics in environmental economics.	We will see how the semester is going. We can use this time to catch up on stuff already assigned or we will add a reading or two.
Mar 20	Uncertainty; Use and Nonuse values.	*Hanley Text, Chapter 12; *Freeman, 1993, Chapters 4 and 5; Chavas and Mullarkey; Coggins and Ramazani.	Rich
Mar 27	Minnesota Spring Break; Wisconsin will work on additional topics in environmental economics.		Rich
Apr 3	Contingent Valuation.	*Hanley Text, Chapter 13; *Freeman, Chapter 6; *Diamond and Hausman; *Hanemann; Bishop and Welsh.	Rich
	Second Homework Due at 4:00 on April 5
Apr 10	Travel-Cost and Hedonics	*Hanley Text, Chapter 13; *Bockstael; *Freeman 1995, *Bartik; Provencher and Bishop.	Rich
Apr 17	Introduction of Sustainability;	*Hanley Text, Chapter 14; *Toman et al. 1995; Nordhaus; *Woodward and Bishop.	Rich
	Term Paper Due at 4:30 on April 21.
Apr 24	Endangered species	*Bishop and Scott; *Simpson and Craft; *Polasky and Solow; Farmer and Randall; Davis; Ando et al.	Rich
	Third Homework Due at 4:00 on April 26
April 28-30	Meet in Twin Cities for Term Paper Presentations
May 1	Catch-up and review
	Second Exam on May 3 at 4:00.
	Fourth Homework Due at 4:30 on May 12

Readings

Ando, Amy, Jeffrey Camm, Stephen Polasky, and Andrew Solow, "Species Distributions, Land Values, and Efficient Conservation," Science 279:2126--2128 (27 March 1998).

Arrow, Kenneth J. et al. "Is There a Role for Benefit-Cost Analysis in Environmental, Health, and Safety Regulation?" Science 272:221-222 (1996).

Ayres, Robert U., and Allen V. Kneese. "Production, Consumption, and Externalities,"American Economic Review 59:282-297 (1969).

Bartik, Timothy J. "Measuring the Benefits of Amenity Improvements in Hedonic Price Models," Land Economics 64(2): 172-183 (May 1988).

Baumol, William J., and David F. Bradford. "Detrimental Externalities and Non-Convexity of the Production Set," Economica 39:160-176 (1972).

Baumol, William J., and Wallace E. Oates, The Theory of Environmental Policy. Cambridge, UK: Cambridge University Press 1988.

Bishop, Richard C., and Antony Scott, "The Safe Minimum Standard of Conservation and Environmental Economics," Aestimum 37(1) (forthcoming).

Bishop, Richard C., and Michael P. Welsh. "Contingent Valuation: Incorporating Nonmarket Values." Better Environmental Decisions: Strategies for Governments, Businesses, and Communities. Ken Sexton, Alfred A. Marcus, K. William Easter, and Timothy D. Burkhardt, eds. Washington, D.C.: Island Press, 1999, pp. 177-194.

Boadway, Robin W., and Neil Bruce. Welfare Economics. Oxford: Basil Blackwell, Ltd., 1984, ch.7.

Bockstael, Nancy E. "Travel Cost Models." Handbook of Environmental Economics. Daniel W. Bromley, ed., Oxford: Blackwell Publishers, 1995, pp. 655-671.

Burtraw, Dallas, Alan Krupnick, Erin Mansur, David Austin, and Deirdre Farrell. "The Costs and Benefits of Reducing Acid Rain," Resources for the Future Discussion Paper 97-31-REV, September 1997.

Cabe, R., and Joseph Herriges. "The Regulation of Non-point-Source Pollution Under Imperfect and Asymmetric Information,'' Journal of Environmental Economics and Management 22:134-146 (1992).

Chavas. Jean-Paul, and Daniel Mullarkey. "On the Valuation of Uncertainty in Welfare Analysis." Department of Agricultural & Applied Economics, University of Wisconsin ˆ Madison, 2000. (Unpublished paper.)

Coase, Ronald. "The Problem of Social Cost," Journal of Law and Economics 3:1-44 (1960). (Reprinted in Dorfman and Dorfman).

Coggins, Jay S. and Cyrus A. Ramezani. "An Arbitrage-Free Approach to Quasi-Option Value," Journal of Environmental Economics and Management 35 (1998) 103--125.

Cropper, Maureen L., and Wallace E. Oates, "Environmental Economics: A Survey,"Journal of Economic Literature 30: 675-740 (1992).

Dales, J.H. "Land, Water, and Ownership,'' Canadian Journal of Economics 1:791-804 (1968)

Davis, Robert K. "Lessons in Politics and Economics From the Snail Darter."Environmental Resources and Applied Welfare Economics: Essays in Honor of John V. Krutilla. V. Kerry Smith, Editor. Washington, DC: Resources for the Future, 1988. pp 211-236.

Diamond, Peter A., and Jerry A. Hausman. "Contingent Valuation: Is Some Number Better than No Number?" Journal of Economic Perspectives 8(4): 45-64 (Fall 1994).

Dorfman, Robert. "An Introduction to Benefit-Cost Analysis." (Reprinted in Dorfman and Dorfman).

Dorfman, Robert, and Nancy S. Dorfman, eds., Economics of the Environment: Selected Readings, 3rd edition. New York: Norton, 1993.

Farmer, Michael C., and Alan Randall. "The Rationality of a Safe Minimum Standard."Land Economics 74(3):287-302 (August 1998).

Freeman, A. Myrick, III. The Measurement of Environmental and Resource Values. Washington DC: Resources for the Future, 1993, Chapters 1-6

Freeman, A. Myrick, III. "Hedonic Price Methods." Handbook of Environmental Economics. Daniel W. Bromley, ed., Oxford: Blackwell Publishers, 1995, pp. 672-686.

Hagem, Cathrine, and Hege Westkog. "The Design of a Dynamic Tradeable Quota System under Market Imperfections," Journal of Environmental Economics and Management 36:89-107 (1998)

Hanemann, W. Michael. "Valuing the Environment Through Contingent Valuation," Journal of Economic Perspectives 8(4): 19-43 (Fall 1994).

Hurwicz, Leonid. "Revisiting Externalities," Journal of Public Economic Theory 2:225-245 (1999).

Innes, Robert. "Takings and Endangered Species Protection." Choices, Third Quarter 1999:10-16.

Just, Richard E., Darrel L. Hueth, and Andrew Schmitz. Applied Welfare Economics and Public Policy. Englewood Cliffs, NJ: Prentice-Hall, Inc., (1982). Chapters 5-6.

Laffont, Jean-Jacques. Fundamentals of Public Economics. Cambridge, MA: MIT Press, 1988). Chapter 2.

Maler, Karl-Goran. "A Method of Estimating Social Benefits from Pollution Control."Swedish Journal of Economics 73:121-133 (1971).

Montero, Juan-Pablo. "Voluntary Compliance with Market-Based Environmental Policy: Evidence from the U.S. Acid Rain Program," Journal of Political Economy. 107:998-133 (1999).

Montgomery, W. David. "Markets in Licenses and Efficient Pollution Control Programs," Journal of Economic Theory 5:395-418 (1972).

Morey, Edward. "Confuser Surplus," American Economic Review 47:163-173 (1984).

Nordhaus, William D. "Reflections on the Economics of Climate Change." Journal of Economic Perspectives 7(4):11-25 (Fall 1993).

Polasky, Stephen and Andrew R. Solow, "Conserving Biological Diversity with Scarce Resources," in J. Klopatek and R. Gardner eds. Landscape Ecological Analysis: Issues and Applications. New York: Springer-Verlag, 1999, pp. 154-174.

Portney, Paul R. "EPA and the Evolution of Federal Regulation," in P.R. Portney, ed., Public Policies for Environmental Protection, 1990 (Reprinted in Dorfman and Dorfman).

Provencher, R. William, Richard C. Bishop, and Kenneth A. Baerenklau. "A Finite-Mixture, Markov-Logit Model of Recreational Angling with Serially-Correlated Random Utility," Department of Agricultural & Applied Economics, University of Wisconsin ˆ Madison, 2000. (Unpublished paper.)

Randall, Alan. "The Problem of Market Failure." Natural Resources Journal 23:131-148 (1973). (Reprinted in Dorfman and Dorfman).

Roberts, Marc J., and Michael Spence. "Effluent Charges and Licenses under Uncertainty," Journal of Public Economics 5 (1976), 193--208. (Reprinted in Oates text.)

Rubin, Jonathan D., and Catherine Kling. "Bankable Permits for the Control of Environmental Pollution," Journal of Public Economics 64:101-115 (1997).

Samuelson, Paul A. "The Pure Theory of Public Expenditure," Review of Economics and Statistics 36:387-389 (1954).

Segerson, Kathleen. "Uncertainty and Incentives for Nonpoint Pollution Control," Journal of Environmental Economics and Management 15:87-98 (1988).

Shogren, Jason F., and John Tschirhart. "The Endangered Species Act at Twenty-five."Choices, Third Quarter 1999:4-9.

Simpson, R. David, and Amy B. Craft. "The Social Value of Using Biodiversity in New Pharmaceutical Product Research," Resources for the Future, Discussion Paper 96-33, 1996.

Solow, Andrew R. and Stephen Polasky. "The Endangered Species Act as a Tool to Conserve Biological Diversity," Choices Third Quarter 1999:17-21.

Toman, Michael A., John Pezzey and Jeffrey Krautkraemer. "Neoclassical Economic Growth Theory and ŒSustainability‚," The Handbook of Environmental Economics, Daniel W. Bromley, ed., Oxford: Blackwell Publishers, 1995, 139-165.

Weitzman, Martin. "Prices vs. Quantities," Review of Economic Studies 41:477-491 (1974).

Willig, Robert. "Consumer's Surplus Without Apology," American Economic Review 66:589-597 (1976).

Woodward, Richard T. and Richard C. Bishop. "Uncertainty-Based Choice Rules in the Environmental Policy." Land Economics 73(4):492-507 (November 1997).