Expert answer:“Protecting Endangered Species with Private Prop

Solved by verified expert:Read the case study on page 27 “Protecting Endangered Species with Private Property Rights.” Write an essay 1,000-1,250 words, answering the following questions:Economists argue that scarcity is different than poverty. To understand why many wild animals are scarce we need to look at scarcity in the context of private property. Explain how scarcity is affected by private property rights in the case study.Compare and contrast how incentives accompanying private property rights can both help protect and endanger the rhino, an endangered species.Be sure to cite at least three relevant scholarly sources in support of your content. These sources can include trade journals and think tank reports. Use only sources found at the GCU Library or those provided in Topic Materials.
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Resource Scarcity from an Applied Economic
Perspective
Jose Cuesta
Ta ble of C ontents
I.
In t r o d u c t i o n ……………….
II.
E c o n o m ic s o f S c a r c it y
III.
IV.
V.
101: B e y o n d P h y s ic a l S c a r c it y
…14
F r o m t h e E l u s iv e C o n c e p t u a l iz a t io n o f S c a r c it y t o
I d e n t if y in g P r o p e r t ie s o f S c a r c it y
F r o m C o n c e p t s t o P r a x is : F o o d S c a r c it y o r S c a r c it y o f
G o o d P o l ic ie s f o r F o o d ? ……………….
C o n c l u d in g R e m a r k s ………………..
Affiliated Professor, McCourt School of Public Policy, Georgetown University; Senior
Economist, Poverty Reduction and Equity Unit, World Bank.
11
12
G a . J. In t ’ l & C o m p . L.
[Vol. 42:11
I. I n t r o d u c t i o n
Fellow economists’ views on natural resource scarcity range from fear of
catastrophic consequences to an unsettling lack of apprehension, something
not uncommon in economics. Malthus hypothesized at the turn of the
eighteenth century on recurrent cataclysms caused by population growth
exceeding food growth.12 Two centuries later, theorists of new growth
economics consecrate knowledge as the solution to the quandary of
diminishing returns that natural resources pose as factors of production.”
Optimistic and pessimistic views over resource scarcity have alternated
throughout history, and interest has recently reignited as increasing and
volatile prices of food emerge as a new norm.3 This has certainly been the
case for economists across multiple disciplines, adding to previous
discussions of how natural resources affect economic growth—and, to a
lesser extent, how economic growth impacts natural resource availability—
found in Barnett and Morse45and revised in Simpson, Toman, and Ayres.’
The effects of natural resource abundance, dependence, and competition are
increasingly being studied by economists interested in conflict, poverty,
political stability, and governance.6 These new interests add to the
1 T homas Malthus, A n E ssay on the P rinciple of P opulation (1798).
2 Joseph Cortright, New Growth Theory, Technology, and Learning: A Practitioner’s
Guide, Rev . E con. Dev . L it . & P rac., N o. 4 (2001), at 4.
3 The World Bank, F ood P rice Watch (N ov. 2012), available at http://siteresources.world
bank.org/EXTPO VERTY/Resources/336991-1311966520397/Food-Price-W atch-November-20
12.htm.
4 Harold J. Barnett & Chandler Morse, Resources for the Future, Scarcity and Growth, in
T he E conomics of N atural Resource A vailability (1963).
5 R. David Simpson et al., Scarcity and Growth in the N ew M illennium: Summary
(Resources for the Future Discussion Paper 04-01, 2004), available at http://bscw-appl.ethz.
ch/pub/bscw.cgi/dl70325/Simpson_etal_2004.pdf (revisiting and revising Barnett and Morse
findings).
6 See generally The Int ’l Bank for R econstruction & D ev ., T he World B ank,
N atural R esources and V iolent Conflict: Opinions and A ctions (Ian Bannon & Paul
Collier eds., 2003); Richard M. Auty, Natural Resource Endowment, the State and
Development Strategy, 9 J. Int ’l D ev. 651 (1997); Markus Bruckner & Antonio Ciccone,
International Commodity Prices, Growth and the Outbreak o f Civil War in Sub-Saharan
Africa, 120 E con. J. 519 (2010); Paul Collier & Anke Hoeffler, On Economic Causes o f Civil
War, 50 Oxford E con. P apers 563 (1998); Philippe Le Billon, The Political Ecology o f War:
Natural Resources and Armed Conflicts, 20 P olitical Geography 561 (2001); Paivil Lujala
et al., A Diamond Curse? Civil War and a Lootable Resource, 49 J. Conflict Resol . 538
(2005); Michael L. Ross, What Do We Know About Natural Resources and Civil War?, 41 J.
P eace R esearch 337 (2004); J effrey Sachs & Andrew W arner, C enter for
International D evelopment & H arvard Institute for International Development,
2013] Resource Scarcity from an Applied Economic Perspective 13
mainstream focus of agricultural economics on agricultural production,
international development, resources and environment, and agribusiness.**7*
Part of the diversified attention has led to specific proposals beyond the
traditional and somewhat unsophisticated menu of regulation and taxation of
natural resource exploitation, formally developed a long time ago by
Hotelling.
These include an earnest intention to stop counting
“consumption of nature” as income, that is, as a free good.9 For example,
many national account specialists and public and growth economists call
now for measures of economic product and growth that better capture natural
capital availability and depreciation. 10
A practical example is the
“sustainable budget index” in Botswana (credited as the most successful
mineral-based economy in Africa), a policy rule that requires that all mineral
revenues be reinvested. 11
This recent renewed interest is perhaps a little surprising from a discipline
defined as the science of scarce resources and how to use them efficiently.
What is more surprising is the lack of a universally agreed upon definition
of what scarcity is within the discipline, not to mention an operational
classification of scarcity, similar to the geological classification of elements
Natural Resource Abundance and Economic Growth (Nov. 1997), http://www.cid.harvard.
edu/ciddataAvarner_files/natresf5.pdf.
C. Ford Runge, Agricultural Economics, in The N ew P algrave D ictionary of
E conomics (Steven N. Durlauf & Lawrence E. Blume eds., 2d ed. 2008).
Hotelling introduces his formal analysis by noting: “Contemplation of the world’s
disappearing supplies of minerals, forests and other exhaustible assets has led to demands for
regulation of their exploitation . . . . Taxation would be a more economic method than
publicly ordained inefficiency in the case of purely commercial activities such as mining and
fishing for profit. . . . ” Harold Hotelling, The Economics o f Exhaustible Resources, 39 J P ol
Econ. 137, 137(1931).
9 William K. Tabb, Resource Wars, 58 M onthly Rev . (2007), available at http://monthly
review.org/2007/01/01/resource-wars.
Natural capital is defined as encompassing land, forests, and subsoil resources. More
specifically, Hamilton and Ley argue that national wealth shrinks if the proceeds from
drawing down an asset are not invested. The picture that results from properly accounting for
shrinking natural resources large factor payments abroad and low investments in human
capital is a dismal trajectory of unsustainable macroeconomics and wealth dissipation in
many resource-rich countries. Kirk Hamilton & Eduardo Ley, Measuring National Income
and Growth in Resource-Rich, Income-Poor Countries, 28 ECON. P remise 1, 2 (2010); see
also Joseph Stiglitz et al., Report by the C ommission on M easuring E conomic
P erformance and Social P rogress 17 (2009).
” In addition, Botswana follows another policy rule whereby the total amount of capital
(including mineral assets and net foreign financial assets) should be maintained at the same
level. Glenn-M arie L ange & M atthew Wright, Sustainable D evelopment in M ineral
E conomies: T he Example of B otswana 15 (CEEPA 2002), available at http://www.ceepa.
co.za/dispapers/botswanasustain.pdf.
14
G a . J. In t ’l & C o m p . L.
[Vol. 42:11
as geochemically scarce or abundant. Geology considers elements that occur
in the Earth’s crust at average abundances below 0.1% as scarce.12 A similar
attempt to define land scarcity by an empirical threshold, that is when 70%
or more of the arable land is under production, has not rallied a wide
consensus.13 Estimates of the value of subsoil assets by the World Bank
simplistically assume a lifetime of only twenty years across a number of
resources ranging from oil and natural gas to gold, bauxite, or copper.14 In
the absence of a practical and meaningful definition of scarcity in economics,
Part II reviews different approaches that have been used to understand
scarcity, from the traditional idea of a physical phenomenon restricted to
natural resources to more complex concepts that include natural “amenities.”
Part III argues in favor of a pragmatic definition that avoids an elusive and
complex conceptualization. The proposed definition will instead focus on
the relevant features of resources. Part IV discusses the prospective trends of
one of the most important scarcities that has recently attracted critical
attention, namely food scarcity, despite the resource being renewable and
inexhaustible. Part V reflects on the policy aspects of resource scarcity and
provides concluding remarks.
n . E c o n o m ic s o f S c a r c it y 101: B e y o n d P h y s ic a l S c a r c it y
Economics is the science of scarce resources and how to use them
efficiently (or, in the jargon, how to optimally achieve an objective at the
lowest cost possible). As such, scarcity is a concept as old as economics—
perhaps older. Quintus Tertullianus wrote in A.D. 200 that pestilence,
hunger, war, and floods were all consequences of resources being “scarcely
adequate to us,” the human race. He enumerated deforestation, loss of
12 Based on this criterion, there are twelve abundant elements and ninety or so known
scarce elements, with aluminum, iron, magnesium, and manganese accounting for 99.23% of
the mass of the earth’s continental crust. Robert Ayres, Resources, Scarcity, Growth, and the
Environment 10 (Ctr. Mgmt. Env’t Resources, Working Paper No. 2000/31/EPS/CMER,
2001). See also James R. C raig et al ., R esources of the E arth: Origin, U se, and
Environmental Impact 279-333 (3d ed. 2001).
13 See T homas F. Homer-D ixon, Environment, Scarcity, and V iolence 63-64 (1999).
Bums points to the absence of tests or any systematic analysis to come up with the 70%
threshold, suggesting that it might be an educated guess. Thomas J. Bums, Environment,
Scarcity, and Violence by Thomas F. Homer-Dixon, 7 Human E col. R ev . 76, 76 (2000),
available at http://www.humanecologyreview.org/pastissues/her71/71bookreviews.pdf.
14 W orld Bank, W here is the W ealth of N ations? (2006) (the exact list of assets
includes oil, natural gas, hard coal, soft coal, bauxite, copper, gold, iron ore, lead, nickel,
phosphate rock, silver, tin and zinc. Some 127 countries are covered; estimates refer to 2000
values.).
2013] Resource Scarcity from an Applied Economic P erspective 15
biological diversity, farming unsuitable land, and urbanization as observed
effects of scarcity.15 Food shortages are believed to have contributed to the
demise of early civilizations like the Sumerians and the Mayans, whose food
systems were brought down by soil degradation.16 Scarcity was at the center
of the widely known arguments popularized by Malthus’s 1798 Essay on the
Principle o f Population. He argued that populations tend to grow
geometrically, while food production grows arithmetically, resulting in
increasing population pressures on resources, leading often to catastrophic
consequences.17 David Ricardo’s theory of rent rests on the very principle
that resources (he originally referred to land) are of different quality and in
short and unequal supply.18 Among the gloomy views on scarcity, another of
the fathers of modem economics, Alfred Marshall, wrote that “[t]he world is
really a very small place, and there is no room in it for the opening up of rich
new resources . . . . When new countries begin to need most of their own
food and other raw produce, improvements in transport will count for
little.”19
Doomsday views are also common in current times. It is fairly common
these days to read news such as the killings of dozens in Kenya as a result of
tribal fighting triggered by confrontation over scarce pasture for livestock.20
In the case of oil, Tabb argues that as China’s income levels get closer to
those in the United States, the ownership of cars will increase and may reach
one billion by 2031: if they all need to run on gasoline, Tabb argues, there
would not be enough oil to power them.21 Brown predicts that the depletion
of underground water is even more threatening than depletion of oil
resources.22 Some eighteen countries (including China, India, and the United
15 Simpson et al., supra note 5, at 5.
16 Lester R. Brown, Full P lanet, E mpty P lates: T he N ew G eopolitics
Scarcity 6 (2012).
17 M althus, supra note 1.
of
F ood
So lands endowed with plentiful resources benefit from higher prices as population and,
consequently, demand increases until marginal lands are tapped. Development, accompanied
by increasing demands on food, will increase prices and create rents for landlords, which
Ricardo considered a waste to society (ignoring the possibility of such rents being invested),
and increasingly so as land becomes more scarce. Simpson et al., supra note 5, at 5.
7 Id. at 6 (quoting M emorials of A lfred M arshall 326 (A.C. Pigou ed., 1925)).
Reuben Kyama, Clashes Kill Dozens in Kenya, N.Y. Times, Dec. 22, 2012, at A9.
Tabb,supra note 9. Tabb argues that oil reserves are largely exaggerated because OPEC
(Organization of the Petroleum Exporting Countries) quotas are based on proven reserves so
“members exaggerate their reserves to pump more.” Id. at 5. Tabb cites Sarkis’ estimates of
40% of true reserves being exaggerated. See N. Sarkis, Addicted to Crude, L e M onde
D iplomatique, May 4,2006.
“ B rown, supra note 16, at 57. Brown eloquently argues that increasing population (at 80
million per year), consumers moving up the food chain, and the use o f grains to fuel cars have
16
Ga . J. Int ’l & Comp. L.
[Vol. 42:11
States) currently produce food by what he describes as overpuraping their
aquifers.23 Partially related to this, the old practice of looking for land
abroad—formerly restricted only to empires—has gained momentum in
recent years alongside food price spikes. Citing Deininger and Byerlee’s
data, Brown reports 464 projects between October 2008 and August 2009
involving land acquisition of an area exceeding the land dedicated to
producing com and wheat combined in the United States.24
All of these views25 are rooted in the concept of scarcity of natural
resources as fundamentally a physical phenomenon. As physical resources
become scarce, additional human workforce and capital will produce
progressively lower outputs. This is the law of diminishing returns, which
explains the concept of “marginal value.” As eloquently explained in
Simpson, Toman and Ayres, marginal value is the reason why a gallon of
water, despite being fundamental for everyday life and exhaustible, is sold at
a price much lower than a diamond, which is not critical for life. For any
given period of time, there is plenty of water available or accessible, so an
additional liter does not bear much of the marginal value compared with the
very limited supply of diamonds.26 Unfortunately, this marginal value is
only part of a more complex story in which the prices of both water and
diamonds fail to truly take into account the destruction of irreplaceable
environmental capital.27
Ironically, it is also the concept of marginal value that explains the
optimistic views of many economists. John Stuart Mill argued that the law
led almost overnight to a doubling of the world’s annual consumption of grain—from 21
million tons per year between 1990 and 2005 to 45 million tons per year from 2005 to 2011.
This is taking place at a time when aquifers are being depleted in most populous countries;
grain yields are hitting a glass ceiling; and the temperature is rising, which ultimately will also
affect agriculture yields.
23 Id. at 61.
24 Id. at 103. Out of the 464 projects, in only 203 was the amount of land involved known.
Land grabs in those projects amounted to 140 million acres— more than the area of the U.S.A.
dedicated to producing com and wheat combined, and only 37% of the projects involved food
crops (of those for which information was available). Id.; see also K laus D eininger & D erek
Ryf.r i .ff., T he W orld B ank, Rising G lobal Interest in Farmland: C an it Y ield
Sustainable and Equitable B enefits? (2011).
25 Interestingly, for each pessimistic view, there seems to exist an optimistic one: see
Leonardo Maugeri, Two Cheers fo r Expensive Oil, F oreign Affairs, Mar./Apr. 2006 (on oil
reserves); Gordon Conway & Katy Wilson, One Billion Hungry: Can W e F eed the
W orld? (2012), available at https://workspace.imperial.ac.uk/africanagriculturaldevelopment/
Public/Policy%20Briefing%20paper%20-%20final.pdf (on food availability).
26 Simpson et al., supra note 5, at 6.
27 Ayres, supra note 12, at 9. This is a clear shortcoming in their pricing as it is equivalent
to deny that an investment in reproducible capital is an increase in the capital stock. Id.
2013] Resource Scarcity from an Applied Economic Perspective 17
of diminishing returns can be “suspended or temporarily controlled, by
whatever adds to the general power of mankind over nature and especially by
any extension of their knowledge.”28 In effect, many economists saw
knowledge as the solution to the Malthusian conundrum: Clark leaves no
room for doubt when he argues that “knowledge is the only instrument of
production not subject to diminishing returns.”29 Technological progress
(first unexplained,30 then the result of investments in research and
development31 and human capital formation in education32) would ensure
either constant or increasing returns, allowing capital accumulation to
infinity. Once the issue of diminishing returns is solved, physical scarcity of
a given factor of production is no longer the fundamental constraint on
growth and development.
In fact, Krautkraemer argues that evidence so far indicates a bias toward
repeatedly underestimating the capacity of technology to overcome natural
resource scarcity with “many predictions of impending doom” when it comes
to natural resources not coming through.33 He wrote this before the
international food price crisis started to spike in 2008, arguing that the
discovery of new reserves, substitution of capital, resource-saving
technological progress, and new methods for recovering resources “have [all]
led to generally downward sloping price trends for many natural resources
commodities.”34
Ayres provides compelling historical illustrations of this pattern.
Charcoal was scarce in England by the seventeenth century as land was
cleared for agriculture, shipbuilding, and grazing.35 Coal eventually emerged
as a substitute for charcoal.36 Sperm whales were the main source for lamp
oil, but their shortages gave way to kerosene (derived from petroleum, a low28 Simpson et al., supra note 5, at 7.
Id. at 9 (quoting John Maurice Clark, Overhead Costs in Modem Industry, 31 J. P ol.
Econ . 47 (1923)).
30 Robert M. Solow, A Contribution to the Theory o f Economic Growth, 70 Q. J. ECON. 65,
66 (1956) (treating technological change as a variable correlated to available labor and
capital).
1 Paul M. Romer, Increasing Returns and Long-Run Growth, 94 J. P ol. Econ. 1002
(1986).
32 Robert E. Lucas Jr., On the Mechanics o f Economic Development, 22 J. M onetary
E con. 3 (1988).
‘vi Jeffery A. Krautkraemer, Resources for the Future, Economics o f Natural Resource
Scarcity: The State o f the Debate 12 (Discussion Paper 05-14, Resources for the Future,
2005).
34 Id.
35 Ayres, supra note 12, at 5.
36 Id.
18
Ga . J. Int ’l & Comp. L.
[Vol. 42:11
value product in those days) as a substitute in the mid-nineteenth century.”
Guano, a natural fertilizer from South America, was almost exhausted by the
end of the nineteenth century but was later substituted by phosphate from
bones, mineral apatites, and, finally, from synthetic ammonia.3* Similarly,
synthetic rubber became available as natural rubber increasingly became
scarce for the western world following Japan’s control of key rubberproducing centers at the onset of World War II.39 Other modem examples of
fiber optics …
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