In the first part of the course, we will review material usually taught in an introductory course on environmental economics. However, compared to a typical environmental economics course, this part will put a higher emphasis on principal concepts rather than formal economics, with a somewhat broader view on practical implications. We will first discuss the ethical foundations of the economic approach and review fundamental implications such as the efficiency of markets. We will then turn to the basic concepts why environmental problems arise, namely externalities and public goods, and review the array of environmental policy instruments available to solve a typical pollution problem, namely Coasian bargaining, environmental liability, command-and-control instruments, and importantly, market-based instruments, such as emissions taxes or permit trading. We will conclude this part by looking at the practical side of these instruments by discussing their mutual merits and disadvantages and by reviewing two major implementations of market-based instruments in the real world.
In the second part of the course we will look at more advanced material that goes beyond a standard introductory course. We will address the question of how environmental damage and environmental assets can be valued in monetary terms and thus made comparable to the costs of pollution control in cost-benefit-analysis. In this respect, we will look at different environmental valuation techniques, discuss their advantages and disadvantages, and touch on the controversial debate about some of them. Also, we will discuss the important role of discounting in cost-benefit-analysis when it comes to environmental issues. Further, we will look at the important difference between flow pollution and stock pollution and how the economic analysis changes in the more realistic case of stock pollution, partially negating the advantageousness of market-based instruments. Finally, we will challenge the common assumption that consumers make consumption decisions based solely on their respective costs and benefits and address the role of social norms in environmental behavior. As in many other areas, the consumption of environmentally friendly and environmentally harmful goods is often dependent on how people in the immediate circle of acquaintances or neighborhood behave. We will look at why social norms play such an important role in our behavior, in which areas norms are particularly important, and what implications this has for environmental policy. Our treatment of social norms will be mainly based on empirical studies of environmental behavior and field experiments.
The third part of the course deals with international or global environmental problems and why they are more difficult to solve than local or domestic environmental problems. We will see that these problems often arise because countries do not have sufficient incentives to provide global public goods. However, there are different types of global public goods that critically affect the provision incentives and international cooperation. In this part, we will mainly use game theory, economic experiments, and case studies to discuss why international cooperation sometimes works and sometimes does not.