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Preface ix
Chapter 1: Introduction 1
Economics and the Environment 1
Global Climate Change 2
Organization and Content of This Book 6
What We Hope Readers Will Take Away from This Book 9
Chapter 2: Economic Efficiency and Environmental Protection 11
Economic Efficiency 12
Efficiency and Environmental Policy 19
Equating Benefits and Costs on the Margin 21
Dynamic Efficiency and Environmental Policy 27
Conclusion 30
Chapter 3: The Benefits and Costs of Environmental Protection 31
Measuring Costs 31
Evaluating Benefits 33
Benefit-Cost Analysis 43
Conclusion 52
Chapter 4: The Efficiency of Markets 54
Competitive Market Equilibrium 55
The Efficiency of Competitive Markets 59
Conclusion 63
Chapter 5: Market Failures in the Environmental Realm 65
Externalities 66
Public Goods 70
The Tragedy of the Commons 76
Conclusion 81
Chapter 6: Managing Stocks: Natural Resources as Capital Assets 84
Economic Scarcity 85
Efficient Extraction in Two Periods 87
A Closer Look at the Efficient Extraction Path 90
The Critical Role of Property Rights 94
Conclusion 97
Chapter 7: Stocks that Grow:The Economics of Renewable
Resource Management 98
Economics of Forest Resources 98
Fisheries 111
Conclusion 121
Appendix 122
Chapter 8: Principles of Market-Based Environmental Policy 125
The Coase Theorem 126
The Array of Policy Instruments 129
How Market-Based Policies Can Overcome Market Failure 133
Is It Preferable to Set Prices or Quantities? 143
Conclusion 151
Chapter 9: The Case for Market-Based Instruments in the Real World 153
Reducing Costs 154
Promoting Technological Change 164
Market-Based Instruments for Managing Natural Resources 168
Other Considerations 173
Conclusion 180
Chapter 10: Market-Based Instruments in Practice 182
The U.S. Sulfur Dioxide Market 183
Individual Tradable Quotas for Fishing in New Zealand 190
Municipal Water Pricing 195
Water Quality Trading 198
Waste Management:“Pay As You Throw” 199
Habitat and Land Management 201
Conclusion 205
Chapter 11: Sustainability and Economic Growth 207
Limits to Growth? 208
Sustainability, in Economic Terms 214
Keeping Track: Green Accounting 221
Are Economic Growth and Sustainability Compatible? 227
Conclusions 227
Chapter 12: Conclusion 230
What Does Economics Imply for Environmental Policy? 230
The Roles of Firms, Consumers, and Governments 231
Some Final Thoughts 232
Discussion Questions 235
References 243
Further Reading 259
Index 267
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