ECONOMICS 1370
SUPPLEMENTARY READINGS QUESTIONS-PART II

01. In David Henderson’s article “Do We Need to Go to War for Oil?”:

a. Why does Henderson argue that the case for doing nothing in the Persian Gulf is a strong one?

b. Why is the long-run cost of doing nothing lower than the short-run cost?

02. In Morris Adelman’s article “The Real Oil Problem”:

a. Are we running out of oil? What is the “real oil crisis”? Explain.

b. Is it getting more expensive to find new deposits and develop them into reserves? Explain what your answer implies about the future use of oil in our economy.

c. Can a supplier wield the “oil weapon” against countries it does not like? Explain.

d. Why has there been so much volatility in oil prices since 1970?

e. Who ultimately has become “dependent on oil”?

03. In David Deming’s article “Are We Running Out of Oil?”:

a. Give some examples of predictions about oil shortages.

b. What actually happened in the 1990s?

c. How much oil is left?

d. What is the role of technology?

e. What are some problems with Hubbert’s model?

f. Is an oil economy sustainable? (Hint: What do we mean by sustainable?)

04. In John McCormack’s article “Market Protection Against Another Oil Shock”:

a. How can derivative contracts protect against increases in the price of oil?

b. Why do financial intermediaries need to reinsure themselves?

c. What role can private inventories play in a crisis?

d. What is “backwardation”?

e. Given that consumers can protect themselves from price increases fairly effectively with derivatives do we need to go to war to protect our economy from oil price shocks?

05. In Vaclav Smil’s article "Moore’s Curse and the Great Energy Delusion":

a. What does Smil mean by “energy transitions” and why do they take so long? Briefly describe the global transition spans for several energy sources discussed in the article.

b. Why is it unlikely that non-conventional fossil fuels or renewable energy sources will quickly provide significant sources of energy for the economy in the near future?

c. Can Al Gore’s challenge to repower America be met in an economical and timely way? Explain using Smil’s data. (Note: Towards the end of the article Smil describes Moore’s Law; what is it and how did Gore misapply it to the energy industry?)

d. Explain some of the factors involved in creating a gradual transition for a primary energy supplier such as the world oil industry and a prime mover such as a steam engine or gasoline-fueled engine.

e. What is the Great Energy Delusion?

06. In Jerry Taylor and Peter Van Doren’s article “Evaluating the Case for Renewable Energy”:

a. How much do corporations invest in renewable energy relative to total world energy investments? What is renewable energy’s US market share for electricity generation?

b. Why are the cost estimates for renewable energy too low?

c. Do electricity customers prefer green power? Explain.

d. How does estimated growth in renewable energy over the next two decades compare with the estimated growth in conventional energy sources? What role do state mandates have in this estimated growth of renewable energy?

e. Why are capital costs higher for renewable energy?

f. Explain why the authors conclude that “the economically efficient subsidy for alternative electricity sources is probably zero.” (p. 8) (Hint: They discuss whether the externalities associated with conventional electricity production has been priced correctly—i.e. taxed sufficiently to correct for the market failure. Explain their reasoning and conclusion.)

g. Are unsubsidized renewable energy sources a good investment? (What is your overall assessment?)

07. In Donald Leal's article "Saving Fisheries with Free Markets":

a. What is the tragedy of the commons in fisheries? Explain.

b. Can regulation remedy the problems arising from the tragedy of the commons? Explain.

c. What are individual fishing quotas and how do they solve the tragedy of the commons? What are some examples of their use?

d. Concerns about fishing quotas: (1) They may create a monopoly; (2) They may encourage high-grading; (3) They make it more difficult to deal with broader ecological issues concerning the health of the entire fishery (not just one part of it). Explain how Leal addresses each one of these concerns.

08. In Howard Baejter's "Conservation Texas Style":

a. Why have so many Texas ranches devoted their resources to raising exotic species?

b. Why might these ranches want to preserve the Pere David deer and the blackbuck? What does Baetjer mean when he says "it is a matter of good or bad systems"? Explain.

c. What danger does the spread of exotics pose to neighboring lands and domestic species when private ownership of the exotics exists? What danger do these animals pose when there is no ownership of the exotics?

09. In Richard Stroup’s article “The Endangered Species Act: Making Innocent Species the Enemy”:

a. What is the paradox that Stroup refers to?

b. What happened in the Riverside fires?

c. How do we change a species from an enemy to a friend?

d. What reasons does Stroup give for being optimistic about private protection of species? (Hint: What are some of the private groups discussed in the appendix doing to protect wildlife?)

10. In Eric Zuesse's article "Love Canal: The Truth Seeps Out":

a. Why did the School Board select the Love Canal site for construction of new schools? Why did Hooker Chemical sell the Canal for $1 instead of letting the School Board condemn the site? Explain.

b. Why did Hooker protest subsequent actions by the School Board, especially in November, 1957?

c. Why were the canal walls breached on at least three occasions? Who is to blame for these breaches? Who is to blame in general for the problems at Love Canal?

d. Was Hooker Chemical negligent in how it constructed its waste site at Love Canal?

e. Are more Love Canals possible? Explain.

11. In Richard Stroup’s article “Superfund vs Environmental Progress: Explaining a Disaster”:

a. Why did many critics of the common law claim that it could not deal with hazardous wastes?

b. How was “the polluter pays principle” violated by Superfund?

c. What is Stroup’s evaluation of Superfund?

d. Why is Superfund so inefficient?

e. How are rationally ignorant voters misled about the effects of cancer and the use of Superfund to protect against cancer?

f. Does Superfund yield better results than the common law?

12. In Aaron Wildavsky’s article “Love Canal: Was There Evidence of Harm?”:

a. What mistakes did Picciano make in his study of the chromosomes of 36 Love Canal residents?

b. What were Picciano’s findings? Can these results be attributed to chemical exposures?

c. What did the study by Clark Heath find?

d. What did the preliminary report by the NYSDOH (New York State Department of Health) find?

e. What did the LCHA-Paigen report find? Were its findings valid?

f. What did the EPA report written in May 1982 find? What did a second EPA report conclude about habitability?

g. “Why were so many so seriously misled to believe in probable damage from proximity to Love Canal, whereas a judgment of ‘highly improbable, though not quite impossible’ was in far better accord with the evidence?”(Wildavsky, p. 150)

13. In Jerry Taylor's article "Sustainable Development: A Dubious Solution in Search of a Problem":

a. Why does Taylor argue that the definition of sustainable development (meeting “the needs of the present without compromising the ability of future generations to meet their own needs”) is incoherent?

b. Why does Taylor argue that the strong sustainability concept is analytically unsound? (Hint: Use his first and third points in your explanation.)

c. The strongest argument supporting sustainable development is based on intergenerational equity (which is interpreted to mean that future generations have as much right to current resources as we do and we have no right to determine unilaterally what share they will inherit). Taylor argues that there are three flaws in this argument: (1) it is inconsistent; (2) future generations will be richer; and (3) the assumption that political processes will protect future generations better than market processes is dubious to say the least. Briefly explain these three points.

d. Taylor argues that resources are becoming more abundant over time and provides evidence for this statement in six different areas. Choose two of those areas and summarize his evidence.

e. Taylor argues that airshed, watershed, and urban pollution tend to eventually decline with economic growth. Summarize some of the evidence he provides for this statement. (Hint: Is this evidence for an EKC?)

f. Explain what Taylor means by “Leapfrogging the Industrial Revolution.”

14. In Richard Stroup's article "Political Control vs. Sustainable Development":

a. How does Stroup define sustainable development? Why is reduction of poverty important to this definition?

b. Is income growth and technological change sufficient to protect the environment? What else is needed? Explain by comparing the socialist economies to capitalists economies.

c. What is capitalization? How does a private property rights regime give a voice to potential future users of the resource via capitalization? Explain.

d. What does Cromwell's study of mass transit systems reveal about the importance of property rights? Why are public pension plans so routinely underfunded?

e. Does political control produce sustainable development? Explain.

15. In Bruce Yandle’s article “Environmental Turning Points, Institutions and the Race to the Top”:

a. Explain why the EKC is shaped like an upside down bowl and what Yandle means by the race to the top.

b. Why are EKCs lower when property rights are stronger? See Figure 2 and accompanying explanation.

c. Explain what Yandle means by “resource-conserving sustainable environmental protection”, using his points (2) and (3) as part of your explanation. Do property rights play any role here?

d. Summarize two of Yandle’s “Stories about Turning Points” and explain how they illustrate his overall point.

e. In Yandle’s “Final Thoughts” section he argues that turning points occur when a physical entity becomes a resource. Explain what he means by that observation.

16. In Andrei Illarionov’s article “A Few Notes on Climate Change”:

a. Point #6: What evidence on temperatures does he cite and what conclusions does he draw from that evidence?

b. Points #9, 10, and 11: Compare climate change in industrial and pre-industrial time periods. What do you find?

c. Points #12, 13, 14, and 15: Is carbon dioxide the main cause of climate change?

d. Points #18 and 20: What effect do warmer and cooler climates have on human societies? What does the uncertainty concerning the anthropogenic or human-caused impacts on climate (relative to natural impacts on climate) imply about how we should respond to climate change?

17. In Kenneth Green’s article “Climate Change: The Resilience Option”:

a. Green argues that “From a policy perspective, the important policy question is less about the cause of climate variability than about the best response to climate variability, whether manmade or natural.” Explain how he comes to this conclusion.

b. Is climate stasis a feasible goal? Explain Green’s argument.

c. Explain what Wildavsky’s “resilience paradigm” is and why it is more appropriate to use in response to climate variability.

d. Green argues that two important components of the resilience strategy are the elimination of risk subsidies and the privatization of infrastructure. Explain why these two items contribute to resilience and give some examples.

18. In Robert E. McCormick’s article ‘The Relation Between Net Carbon Emissions and Income”:

a. Explain what a carbon sink is and what a carbon source is. What is meant by the term “carbon sequestration”?

b. What determines the variability of atmospheric carbon?

c. What does an examination of the data on per capita carbon dioxide emissions reveal when plotted against income? Against GDP? What is the significance of these observations?

d. What does the data on carbon sequestration in forests reveal as income rises? What is the significance of this observation?

e. What other sources affect the relationship between carbon sequestration and income?

f. Which grows faster as incomes rise—carbon emissions or carbon sequestrations?

g. What are the potentially perverse effects of the Kyoto Protocol (which attempts to cap carbon emissions)?

h. What do the international comparisons reveal?