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Resource and Environmental Economics

Fall 2019, ETH D-MTEC, Prof. Lucas Bretschger

Fall 2019, ETH D-MTEC, Prof. Lucas Bretschger

Set of flashcards Details

Flashcards 51
Language English
Category Micro-Economics
Level University
Created / Updated 10.01.2020 / 09.02.2020
Licencing No Copyright (CC0)
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Two ethical systems

  • Humanist moral philosophy: rights and duties are accorded exclusively to human beings
    human beings are the source of values
  • Naturalist moral philosophy: extends these moral rights to other creatures (animals, plants)
    values are defined in relation to a natural system, but in the end decisions are taken by humans


  • Focus on individual rights and freedom
  • Private property is legitimate if acquired under generally accepted rules
  • Role of economic policy: guarantee property rights and market access, provide public goods, correct market failure


  • Focus on individual utility, welfare and happiness
    narrow form - utility is individual
    extended form - utility includes utility of other individuals and value of nature
  • Social welfare is a function of individual utilities
  • Government should maximize social welfare
  • No concept of justice

Social and intertemporal welfare

  • Social welfare: aggregation of individual utilities
  • Intertemporal welfare: welfare over the future, discounted with the utiliy's discount rate
    \(\displaystyle{W}=\displaystyle\sum_{t=0}^\infty \frac{U_t}{(1+\rho)^t}\) or \(W=\displaystyle\int_0^\infty U_te^{-\rho t}dt\)
    \(U_t\): utility at time t
    \(\rho\): discount rate of utility

Markets lead to high allocative efficiency, but failures occur as markets do not consider...

  • individual benefits from natural resources
  • central ecological functions of natural resources
  • costs of utilization and exhaustion of natural resources

Rawls fairness

Fair distribution is reached by a concensus of free and rational individuals who decide under a veil of ignorance referring to generation, position, attitude etc. A unequal distribution will only occur if:

  • it improves everyone's position - e.g. people creating positive externalities will receive more
  • it is connected to specific positions - people with high responsibility

Economic and non-economic market failures

  • Economic: externalitites, public goods, monopolies
  • Non-economic: illegal trade with restricted goods, undermining of governmental or state controls, ethical concerns

Internalization of externalities (definition & examples)

Change incentives such that individuals take account for externalities

  • taxation of negative externalities
  • subsidization of positive externalities
  • Industrial policy (e.g. protection of patents)