Finishing Chapter 7, starting on Chapter 10

*GEOG 352: Day 8

*Housekeeping Items*I looked into Canada’s water consumption. As of 2000:68% went to industry (of which 80% went to power

production, and 19% to industry);Domestic and institutional use accounted for 20%, and12% for agriculture (85% for irrigation and the remainder for

livestock).Most irrigation occurs in arid area like Alberta.However, with agriculture, only 30% of water is returned to

the environment, thus making agriculture indirectly the largest water consumer.

*Canada ranks 15 out of 16 of its peers, and earns a “D” grade. The average Canadian consumes 300 litres a day in his or her home. Why? According to the Conference Board of Canada, “Excessive water consumption in Canada can be attributed to the lack of widespread water conservation practices, as well as water pricing that does not promote efficiency. In many cases, Canadians pay less for water than the actual cost of processing and delivery.”

.Here’s a somewhat different breakdown by sector. Source: Natural Resources Canada

*Chapter 10 of Daly and Farley p. 165- “markets utilize individual self-interest to

efficiently allocate resources (means) among alternative ends via the pricing mechanism.” They go on to say that “none of the goods and services provided by natural capital has all of the characteristics required for efficient allocation by the market.” This is where market failure comes in.

pp. 165-166- “An excludable good is one for which exclusive ownership is possible…. If a good or service is not exclusively owned by someone, it will not be efficiently allocated or produced by market forces.”

If a fisherperson throws back an immature fish so it can mature and reproduce, he or she will likely not be the one to benefit. Someone else will catch it. People will only ‘invest in the future’ if they are the ones to reap the rewards. This is rarely the case in the natural resource sector.

Can you think of exceptions?

*Chapter 10 of Daly and Farley*Excludability does not stand on its own; it needs to

be enforced by institutions [think of those ads at the beginning of videos about 5 years in jail and $500,000 fines].*This is often difficult with video and audio files and

software.*Who in this room has not used a pirated version of a

CD, DVD, or software program? Is it right to do this? How do we justify it?*With natural capital, some goods can be excludable –

for instance, a forest – but one cannot exclude others from the benefits of the ecological services that a forest provides, unless one cuts it down entirely.*The authors claim that a good must be rival to be

efficiently allocated by the market, that there can be no efficient allocation of non-rival goods. Can you think of examples?

*Chapter 10 of Daly and Farley

*Chapter 10 of Daly and Farley*Non-excludable rival resources run into problems. The issue was first publicized in the modern era by Garrett Hardin in his influential essay, “The Tragedy of the Commons,” using the supposed example of the English common lands. Can anyone explain the concept?*The authors claim the term is a misnomer – that it actually refers to “the tragedy of open access systems.” They say there are numerous examples of common property systems that have been successfully managed over long periods of time on a sustainable basis. See, for instance, http://en.wikipedia.org/wiki/Common-pool_resource and http://www.fao.org/docrep/v3960e/v3960e03.htm.*As McKean and Ostrom note, common property has been forcibly transferred either individuals (the “enclosures” in Great Britain), to the state, or to a combination of both (Japan and India).

*Chapter 10 of Daly and Farley*For common property regimes to work, they have to:a) be clearly specified;b) be exclusive; c) be secure, and d) have an intact bundle of rights, so that the holder of use rights can decide to change the way the resource is used, even to destroy it (though hopefully not), and to transfer it (McKean and Ostrom, n.d.).

*Thus, there are four kinds of property systems: public, private, common property, and open access (free-for-all). What would be an example of each in Canada?

*Chapter 10 of Daly and Farley A common argument for allowing patents

(excludability) is that, without them, there would be no incentive for R & D – for instance, in the software and pharmaceutical sectors. They agree that that has some truth to it, but they also cite some contrary examples such as the Linux operating system.

They mention the “copyleft” concept whereby open source software programs can be improved and developed but, by agreement, must remain open source.

Regarding drugs and medical technologies, they argue that leaving everything to the profit motive has the effect of causing research to focus on the maladies of the wealthy 1-5% (liposuction, heart transplants, etc.), while giving insufficient attention to the problems of the poor – communicable diseases, epidemics. In this capacity, they mention the issue of the availability of retroviral drugs to combat HIV/ AIDS in developing countries. Also: the lack of progress on microbicides.

*Chapter 10 of Daly and Farley p. 177- “making non-rival resources excludable

may create the tragedy of the non-commons.” How to promote non-market goods and make sure they are adequately taken care of?

Are we in an era of what John Kenneth Galbraith called “private goods and public squalor”? What did he mean by that?

The issue of public goods – everyone benefits, but who pays for and how?

With public goods, you get into the issue of the “free rider effect,” an example being tax cheats – people who benefit from tax-supported public services, but who shelter their wealth in Grand Cayman Island tax havens.

The pleasant landscapes offered by farmland are another example of a partial public good, but the farmers don’t get anything in return for providing pleasure to the viewing public.

*Chapter of Daly and Farley*Another example of a public good are the mangrove forests that fringe/ fringed much of the coastline of Southeast Asia and elsewhere. They provide buffering against storms, important ecological services, habitat for fish and wildlife, and more.*In many cases, they were cut down to accommodate resorts and shrimp farms, with devastating results.

*Chapter 10 of Daly and Farley*p. 184- “An externality occurs when an activity or transaction by some party causes an unintended loss or gain in welfare to another party, and no compensation for the change in welfare occurs.”*In a perfect world governed by the “Coase theorem,” every externality would be compensated, where the cost compensated for is equal to the benefit resulting from the offending activity to the offending party (e.g. a polluting utility vs. a laundry).*However, in the real world, transaction costs get in the way. As a small laundry, I may not be able to afford to take the utility to court.*A final point relates to intertemporal discounting, which is “systematically weighting future costs and benefits as less valuable than present ones” (p. 190).

*Chapter 10 of Daly and Farley

As an exercise to make these concepts more concrete, I will like to divide up the class into four groups to talk about the issue of fresh water:*What concepts in this chapter are relevant to the issue?*What policy and pricing strategies (if any) flow from that?*Related to that, how would you go about making progress in terms of allocating water between competing uses and ensuring conservation and efficient use?