88-352 Environmental Economics and Policy
9 units, Carnegie Mellon University
The course will introduce students to the economic analysis of problems associated with private and collective use of environmental resources and to the analysis of public policy options to environmental problems. Policy relevant examples will be used throughout the course. When thinking about protecting nature environmental economics has traditionally focused on the idea that market failure externalities, non rival goods, asymmetric information is the critical source of economic inefficiency. Based on this idea economists have designed policies for environmental protection, which include Pigouvian taxes, marketable permits, liability rules and mechanisms design. We will start from the theories of externalities, market failure and mechanism design, and we shall explore the causes of these problems and some of the potential remedies using the competingcomplementary lenses of traditional and behavioral economics. To organise and evaluate alternative environmental policy options environmental economics has traditionally used rational choice theory. According to rational choice theory, people respond to policy instruments in their own selfinterests and take all possible consequences into account. Behavioral economics has emerged to challenge this traditional view by documenting how people make choices and state values that deviate from the conventional rationality model. We will try to understand the behavioral economics underpinnings of environmental policy and how understanding the success and failure of conventional economic theory can help make good environmental policy better.
Prerequisites: 88-220 or 73-150
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