Ch 5-1 It has argued that any government policy aimed at nonrenewable resource c
ID: 1188920 • Letter: C
Question
Ch 5-1
It has argued that any government policy aimed at nonrenewable resource conservation is an unwarranted interference with the free market. According to this point of view, if a resource is likely to become scarce, the people most likely to realize this are the private investors and traders who deal in the resource. If they anticipate scarcity, they will hold stocks of the resource for future profit, driving up its price and leading to conservation. Any action by government bureaucrats is likely to be less well informed than those of profit-motivated private firms. Evaluate this argument. Do you think that there are cases in which government should step in to conserve specific resources? If so, which policy tools should they use?
Ch 6-1
Suppose that you are asked to conduct a cost-benefit study of a proposed coal-fired power plant. The plant will be built on the outskirts of a residential area and will emit a certain volume of pollutants. It will require a substantial amount of water for its cooling system. Industries in the region argue that the additional power is urgently needed, but local residents oppose construction. How would you evaluate social and environmental costs and weigh them against economic benefits?
Ch 6-2
As mentioned in the text, under U.S. law federal agencies must use cost-benefit analysis to evaluate major policy proposals. Do you agree with this requirement, in particular for environmental policies? How much weight do you believe should be given to the results of cost-benefit analyses when making policy decisions? Discuss how economic, health, and environmental criteria should be balanced in formulating regulations.
Ch 6-3
Suppose that the government of a developing country is considering the establishment of a national park in a scenic forested area. Local opposition arises from those who which to use the forest land for timbering and agriculture. But the national park would draw both local and foreign visitors as tourists. Could cost-benefit analysis aid the decision on whether to establish the park? What factors would you consider, and how would you measure their economic value?
Explanation / Answer
It is true that if a resource is likely to become scarce then this fact would most likely to be realized by private investors and traders who deal in the resource.
This anticipation of scarcity will induce them to hold the stocks of resource so that profits can be earned in future. This will drive up the price of resource and, as stated, will lead to conservation of resource.
However, this sort of conservation is not a sustainable conservation. It is a for-profit conservation whose sole aim is to earn higher and higher profit by driving prices higher and higher. This conservation is not for sustainable use of resources.
This type of conservation (for-profit) will only create artificial scarcity of resource and hardship giving way to black-marketing and illegal deals.
In this scenario, actual task of conserving a non-renewable resource, alternatives to be identified and promoted, and reducing dependability will take a backseat.
Thus, to say that, free market will conserve a scarce resourceautomatically is just like mirage of oasis in desert.
There are cases in which government should step in to conserve specific resource. For example, in case of common resource, government should step in for conservation as free-market based on properly defined individual property rights would be a failure in such case as individual property rights are difficult to define with respect to common resource and thus government have to step in for conservation purpose.
In conserving such resources, government can go for per unit tax with respect to resource extracted. Apart from this, government can fix community wide resource extraction quota with individual quotas being assigned by community itself.
In this way, government can conserve specific resources.