EEP100 - Lecture 1

Uploaded by calcommunitycontent on 18.09.2009

Welcome to Environmental Economics and Policy 100. I'm your "professor". I'm
David Zetland; I'm not a professor. I'm a post-doc. So for anybody who knows the
pecking order in the academic world: there's professors, then there's students, and
then there's graduate students, and then there's post-docs. I'm the lowest form of
life. No job security. I have enough money to go to Berkeley Bowl
and buy any cheese I want. But we're usually considered to be a cheap form of labor.
I'm actually teaching this class for free (if you'll believe it) because they wanted
to pay me a bunch of money, but then my fellowship wouldn't let me.
People that are just coming in? Against the wall in the back. We'll shoot you later.
Oh, so if you didn't know already, this is a 90-person limit class.
Is this an open seat here? How many otherÉ open seats? Open seat raise your hand,
there's two open seats. Come in and sit down. I don't like people standing.
There's a 90-person enrollment, and there is a 25-person wait list right now. I
talked to Gail in Giannini, and she says don't promise anything.
I can't promise anything about enrolling you. All you can do is hope that somebody
drops. So your job is going to be to convince the person next to you that they should
not be taking this class. My job is to convince you that you should take it. Because I
love being popularÉand we'll get to the grading later.
So I'm teaching this class kind of for free. They're paying me a whole bunch of
money, and then they're taking it out of my salary as a post-doc. So I want you to
understand that I have a lot of desire to be here.
And why I'm here is because I like to teach. And teaching is a two-way thing. You
guys have heard of lecturing? This is called teaching. So I will be talking, and you will
be asking me questions and learning and saying, "I don't get it." Okay it's not
justÉ"write down stuff." So that means that there will be no PowerPoint.
There will be no slides. There will be no computers. Any computers open? Please
close them right now. No text messaging, although I can't monitor that.
You can use it on the test if you feel like it.
It won't help you in life. So this is kind of like a real-life participation
class. And the good news is that it's going to be very flexible. The bad news is
that there's not going to be as much structure as you are used to.
If anybody saw the syllabus there's no textbook for this class. You might be happy
because I just saved you about 140 bucks. I find that students don't even read
textbooks, so it's kind of a waste of money anyway.
So I put four books on the class. I'll get to that when I get to the syllabus. So that's
just kind of the general introduction about how I want to do this class, in terms of
teaching style or learning style if you want to call it that.
Now let me just tell you just briefly about meÉbecause I always like to know who
the hell it is that's talking to me. I was born and raised in California (San Francisco
and thereabouts). I went to UCLA for my undergrad. And I got into Berkeley, but I
turned it down. [Boos] Too close to home, too close to home. And then I went
around, and I tried to get rich, and that failed. And then I went traveling for five
years. The last real estate bust? That was me. I
was in the middle of that. So then I went traveling for five years, and
I saw a lot of the world and that was really cool. So I highly recommend traveling.
And I came back and then I didn't know what I was going to do and then I said,
"Oh, development economics, that sounds interesting."
So I actually went to UC Davis and I got a PhD in agricultural and resource
economics in that department. And I went there to study drug cultivation. Why
farmers in Peru decide to move their cocoa into the legal market (which is how they
make tea) or the illegal market (which is how they make cocaine).
And my advisors thought that was a little bit too dangerous. And not only that.
They thought there was no funding. And, as you'll find out, money does actually
matter in the academic world as well. So I switched my dissertation topic, and I
went into water. So I am a water or resource economist; I talk about water all
the time. I've got a blog called Aguanomics that I will ruthlessly refer to in this class,
and you guys are going to be very involved in that blog, as you'll find out when I hand
out the syllabus. So I come from a department that does natural
resource and environmental economics. My specialty is what is called
"political economy". Political economy was back in the days of Adam Smith. They were
combined as subjects. And then they got separated into political science and economic
science. And I am one of the people that likes to bring
it back together because politics and economics are very, very interrelated. And
because I came from a background of black markets and illicit drug trade I look
at things from a different perspective from a lot of other economists who are like, "Oo
I have a lot of math, let me do math". I'm looking at it from corruption and bribery
and you know that kind ofÉI think more interesting stuff. So that's the point
of view that you are going to get in this class and that's the bad news because it's
all my opinion, but the good news is that your grades, are based on my opinion.
So, all you need to do is say okay and do what he's asking me and as crazy as it might
be, I'll get a good grade if I do it. I'm not going to ask you to do stuff you don't
want to do. I'm asking you to do well at what you
want to do. And we'll get into that as I go over the "Big Picture" now.
And I'm also writing a book, or I will be writing a book concurrent with this class,
aimed essentially at your audienceÑpeople that are smart enough to understand
what I'm talking about, vaguely interested because they have 10 million other things
going on in their life, and they want to learn about water. The book is called the End
of Abundance. And if anybody noticed, there's a drought thing going on outside, so
that's what I'm in the middle ofÑthe big policy debate on the drought. That's what
I do as my day job, and you guys are my recreation.
So I looked at the syllabusÉWho here is enrolled in the EEP Major? Who's a major?
Okay, that's' a lot of people. Ok who's' not in the major? And are you undecided? Or
Physics? Or econ? Environmental policy, sociology, anthropology, I have to take this
'cause someone told me to? Development studies? Okay good. CRS? What's CRS
stand for? [Conservation and Resource Studies] Okay good.
If anybody's like, "Oh my god I don't want to take economics", this is the class for
you. Because you'll learn economics in this class, and you'll walk out and say, "Wow,
I like that economics stuff." Seniors? Fifth year seniors? Sixth year seniors?
No. Juniors? Sophomores? Freshmen? Come on? No die-hards. I guess the
freshmen are still out there wandering around.
Okay, so that's you guys. So everyday, I'm going to do a little bit
of math because this course is in betweenÉsorry more survey questions.
Who has never taken an economics class at Berkeley? Okay, so this is going to be a
significant audience here. Who has taken one class like Econ 1, Intro or something
like that? Who has taken two classes? Three? Okay, so that's what kind of what I figured
when I was preparing for this classÉis that you guys have heard of a thing called
utility or supply or demand, but you're like I don't quite get it. So this is going
to be about getting it. There's a whole bunch of stuff in this class that's about getting
what we mean by supply and demand, and then you'll walk and say oh that'sÉ
So you'll be able to link reality with the classroom. This is a very important concept
for me. So everyday I'm going to do a little bit of
math, and the reason is because for those of
you in the major, this class is a prerequisite for a lot of upper division classes and all
of the professors are very worried that you're not going to know enough math.
AndÉfor them that's important, so I have to deliver the goods on that. And I'm going
to try to deliver a little bit of math everyday, so you can say, "Okay math, economics
I could do that." This is not going to be calculus class. There's
this big debateÉshould there be calculus or not.
Okay so this is my first math equation Now you are familiar this right? This is what's
called math. Now this class, economics, is a thing called social sciences right? So I'm
just going to do it this way.
Now this, I think, believe or not, this is the biggest problem in economicsÉis a lot
of economists do this, but the world is like
this. If you have experienced this equation before, you know its not always happening
right? So that's what we mean by social sciences.
There are these humans in here. They don't do what you tell them to do; they are
very unreliable. They're not "rational"Éthey use the word rational all
the time So we're going to be talking about what's
rational, what's not rational. And I'm going to be saying, "OoÉbe careful what you
predict here, because you might be thinking this but you might be getting one
of these." And I encourage you to follow any debate (and
when we get to syllabus we'll talk about why you need to follow a debate) related
to the environment or politicsÉor not politics in general, but political sciences
with environment or resources. Because theoretically if it's your major you're
supposed to know about it right? And I want you to follow it because you're interest
or passionate about it and look for these kinds of problems. It's the same thing
asÉ"Oh let's just set up a tax code, and then people will declare their income and
send in some money." And for some reason that doesn't always work. People don't
declare their income, they over- declare on the number of dependents.
So the human element in all of these equations is the element what we're going to
concentrate onÉthat unpredictability. Because all that does after a while, you get a
little bit more cautious about these situations. Be very, very worried. If anybody
has been following the climate cap-and-trade billÉthe Wacky Marx man. The
MarkleyÉsay it? Help? Waxman Markey? Okay soÉthis cap-and-trade billÉa lot of
economists, like me, hated the idea of cap and trade compared to a carbon tax because
there's so much more politics involved in cap and trade. And I just put this up its
in my blog somewhereÉ about how the politicians completely turned this bill into
something completely different. So you see the headline: "cap and trade bill",
and you'll see the result "nothing happened". And that's what we're going to
do. We're going to figure out this part. What led to "nothing happens"? That's the
political economy of natural resources. And then this calls to mind, what I'm going
to call, a very simple theory. Utility maximization, or cost minimization (or any
of these expressions), and then the empirical reality.
So one example I thought that was interesting, when I wasÉby the way (lucky you
guys) this is my first entire instructor role. I've been a GSI five or six times. I've
been a student way longer than you guys. This is the first time I'm lecturing for 26
lectures. So anyway [Congratulations] Thank you. At the end of semester, we'll see
if its congratulations for you guys. So people are saying, "What's going to happen
when gas prices go up?" And economists were like, "OhÉpeople will drive
less because it's more expensive." That's the whole demand curve: price goes
up, demand goes down. And then one of my smart-ass students saysÉ
"People aren't going to drive less they have to drive. They have to drive!" And I was
like, "Actually, you know what, that's kind of a tough one."
So here's the question: when gas went to $4 a gallon, did people drive less? What
happened? [I feel like people drove the exact same amount.]
Same amount? ButÉanything? Was there a change in behavior from $4 gas?
[They complained more.] They what? [complained more] Complained, right?
[They started buying cars at higher miles per gallon.]
Higher miles per gallonÉthat is really critical. [They grouped their trips] Carpooling? Ok
that'sÉ Grouping trips? Ok, so that's driving fewer
miles, actually, but the same car, maybe? [Spend less on other things.]
Spend less on other things. That's cross price elasticity: they sacrificed their
children's food, yes. Any other ones? [They travel less]
Travel less? That's right. So they actually did drive less, or they moved where they
live, or their job. But the big shocker was the "change the car"
thing, right? It's likeÉ"Wow gas costs 50 cents more a gallon I'm going to go buy
a Prius. I'm going to go spend $30,000 on a car to save 50 cents a gallon."
Now that's one of those things. There's no economics going on there. Any
economists that looks at the cost/benefits of a Prius is like, "What are you talking
about?" And then like the deep ecologists were like,
"Do you know how much it takes to manufacture a car?"
So all the scientists were going crazy, but the behavioral response is what came
through. And that's what matters. We're going to figure what actually happens.
What does matter. Should we predict this, or should we be cautious
and say, "Something's going to happen, but we're not quite sure."
I never bet on things, it turns out. I'm just too cynical.
Simple theory vs. empirical complexity. And you'll hear this. You'll have
econometrics, or you have microtheory, but you know empirical complexityÉ
We don't know the magnitude of effects. We don't know how to measure things?
This whole GDP thing? If you've ever heard the debate: What does GDP measure? Do
we want to measure GDP? We'll get into all these things (well maybe that's macro).
Missing variables? Are we missing something that's really important? I don't even
know. So this empirical complexity is out there all the time.
You don't have to write this down necessarily. I mean, you'll see if you like itÉ
And I can't spell eitherÉ Stochastic dynamic computable general equilibrium.
That's almost as cool as heteroskadasticity.
It's likeÉwhat the hell does that mean? Or does anybody know? No?
It's not because I'm sitting there going, "Ooh I know more than you do"
But this is what we will call jargon. Jargon happens a lot in every academic field.
Usually it's to impress somebody else that you're trying to get a job from.
So what does it mean? Stochastic actually just means random.
Dynamic means that people respond to each other. Dynamics. I look at youÉyou
look at meÉ So stochastic dynamicÉthere's kind of random
interactions that we hope we can compute, because we've done the math, and
we assume people will act like robots. And general equilibrium means that we'll see
how the entire world interrelates and adjusts.
So what you do is you get yourÉstochastic dy..i don't even know. It's CGE. Stochastic
dynamic CGE model, and then you say okay I'm going to plug in $4 gasoline, and out
the other end I'm going to get something. But the fact is that since nobody saw
itÉnotice that there's this thing in Wall Street that nobody saw? Right?
People are paying millions and millions of dollars. Thousands of PhDs working on
Wall Street, and they have no idea what just happened.
Because their stochastic dynamic CGE model (which is what most of them are using)
didn't get it. And now we have like the whole political fiasco trying to adjust to that.
So this is the caution that I'm going to pound on over and over again in this class.
And I don't want you to walk out of the class and say, "Oh this is all useless." I want
you to walk out and have a little bit of respect for the difficult part of social science.
And difficult not likeÉdifficult cool, but difficult likeÉwe really don't know.
Humility is what this is about. Now the big picture on this class is thatÉ
I'm working on lecturing. I, if you haven't noticed already, I am kind
of a random person. I kind ofÉI say thingsÉit's a little bit...and you will notice
repeatedlyÉ I have lecture notes. So these are my lecture
notes, okay? Very well organized. There is no PowerPoint because I can't even
get that together, right? And the problem is if I had PowerPoint, I go oh this
slide should be out of orderÉ And I am going to try to make this disorganization
(if you want it) I'm going to make this into a virtue in a sense that if I make
a mistake, you guys learn from the mistake (and I don't mean spelling errors, because
that's just a problem) but if it doesn't make sense you, say "Hey!"
If it doesn't make sense you can raise your hand. There's a hundred people in the
class, there's nothing wrong here, because I want to make it more dynamic than the
typical; "I talk you listen", okay? So I'm giving you permission, and I know most
of you wont take that permission, but try and bring that out, if you're like "Uhhh
I have to ask a question", then please do. Whispering to your neighbor is not the best
way to answer that. And the reason I think this is actually appropriate for this
class is because most of you have got one class (I think the majority has one class
in economics). You have a clue, but it's a really big subject.
But economics is just about reality. You guys all understand economics, you just
don't have the jargon to relate it. So what economics really is: it's a way of looking
at the world. It's (you know) economics, economists,
sociologists, psychologists, anthropologistsÉall these social sciences.
They have big overlaps because they're just trying to understand how people are.
We bring a particular set of analytical tool (more statistics more math) but we're all
trying to understand how people are. And I want you to be able to walk out and say
"God, why is it that the bus is empty when it goes by?" Anybody see AC transit?
Those big empty busses going back and forth and back and forth. I always think, god
that is weird. This is just a side story: I used to be thinking
as a hardcore free market guyÉ "No subsidies. It's horrible. We should have no
public transport!" But then as a political economy guy, I'm like
wait a secondÉthey're going to run those busses no matter what because that's
really popular (to have public transport, even though nobody takes it).
It's like politicians who love public schools, but put their kids in the private school.
So it's likeÉoh we have to have public schools, but my kids go here.
And we have these busses running around empty, and I thought we shouldn't do
thatÉbut clearly we have to do that, because somebody thinks it's a good idea. It's
true. It's just ridiculous. And now the have those bigger bendy busses,
which are much more dangerous; notice that they are110% of the lane size.
I ride a bike. And I'm like, "I'm going to die one of these days" But I'm only 5 blocks
away, so I wont die this semester. So the political economy of the public transport
system is: it's going to happen anyway.
Now who's heard theÉ Who's got solution for the empty busses?
Mircroecon one. Econ one solution. You took the final, come on you're saying it.
What is it? [Make it free]
Make it free, right? Because if the price is a dollar, and it's not full, you lower
the pric. This is the demand curve. Until the
bus is full, and then you start charging, essentially, a congestion charge. So if the
busses are empty, make it free! Anybody from Portland?
Anybody gone to Portland? Ok what's in Portland? The mass trans. Anyone? The
loop? The inner loop, the outer loop? But in the inner zone the mass transit is
free. If you got out you have to pay. Because essentially you are commuter if you go out.
But in the city centerÉI was there for a convention and, believe it or not, you know
you go down, you get on the tram, and you go there, and you're like "Oh, I love
Portland it's a free tram!" and you feel good. You buy an extra cup of coffee, and
everybody's happy. Right? But it wasn't full, and they figured it out.
They have this light rail running, why not keep it full? So that's like a price discrimination
type of model. Who is your customer? If it's like a tourist
who's like, "Oh it's complicated to buy a ticket and I don't understand" and I'll just
walkÉcompared to "It's free!" right? That's why you have free shuttlesÉin certain
places you have free shuttles to take downtown to have lunch.
Who pays for the free shuttle to go downtown and have lunch?
[Residents] The president? [Residents] The residents?
No. [Restaurants]
The restaurants! Who are going to sell more lunch right? They want people to come
in. And they're like, "Hell we'll do it." And they might argue over who is selling more
lunches, but the whole idea is to have the shuttle. And if they're smart, they'll
get the residents to pay for it. That's political economy right?
Its like "Yea, yea we need this for our community!" And the sandwich guys are like, "Yeah, yeah
we need it for the community!" That's important; keep in mind that there's
multiple explanations. There's a difference between what they tell
you, and what they do And this isÉI have it down here somewhereÉ
It's basically: "follow the money", right?
If anybody's curious about political motivation: go to and check out
campaign contributions and find out who's contributing money to your local
politician. I love that. Okay, so here's another thing that I think
that's a useful analogy to keep in mind. If you take a textbookÉdid anybody actually
buy a textbook because they're paranoid? They have to have a textbook? Anybody
have one? Yes? Didn't bring it though.
But if you take a textbook, and you look at chapter 1 and chapter 2. And its likeÉits
all so organized so perfect. Chapter 1 is right before chapter 2, and all the stuff
in chapter 1, you need in chapter 2 and then
chapter 4, and thenÉ And so they have there's no mistakes and there's
no equationsÉ And its like if I looked at a building its
likeÉ like this buildingÉ "Wow this building that must be easy, you
know? You just drop them downÉ" But if you look at how its builtÉpiece by
piece, including the guy that put the beam in wrong, and they have to take it out, and
it cost 3 million dollars extraÉwhat we're doing here is we're going to build up the
superstructureÉthe infrastructure. And we're going to hang the skin of the building
on it, so you can walk out and sayÉI understand how these things fit together.
And the thing I don't like about people that walk in (like me) and I've had years
of economics I sayÉ "Oh its simple, you guys write this down."
And you're like I don't understand, because I haven't seen it. Right? So one of the
things I'm trying to do (by not having a text and by going at things multiple different
directions) is to give you an idea of how things fit together, seeing it in multiple
different ways, alright? So that might work it might not work but that's
what I'm going to try and do. And then you'll walk out with a much stronger
intuition about how things fit together. And at some point you'll say, "How
does that fit together." And that's when you raise your hand and say,
"I don't get how that fits to that", and then we're going to start having a useful
discussion. Because when you guys are learning how things fit together, that's when
stuff starts to click. And that's when you'll walk out of here and
say, "Wow, I learned something today", which, as far as I'm concerned, you don't
always have in the classroom. Especially in grad schoolÉanybody want to get a PhD in
economics? [Maybe]
Maybe? If I do a good job you will? But if IÉwe should talk. DangerÉ
So there will be words that'll come up all the time in this and
demandÉobviously. And it turns out if you understand like four concepts, you have
more knowledge than most PhDs. Supply and demand, and how they work: economists
mess this up all the time, and everybody elseÉforget it.
Cost benefit? What does cost benefit mean? [If it's worth your wealth to do something]
That's good. What's the cost part refer to? [Production cost]
Production cost? Not exactly. [Cost to yourself]
Cost to yourself, ok. What's the jargon for that?
[Opportunity cost] Almost, well kind of, there's another synonym
for opportunity cost. It's the thing you have to make an equation [for].
[Marginal cost] There we go. What over here?
[Marginal Revenue] No, not revenue. It's not a firm, it's a person.
[Marginal Benefit] Benefit right? Now do we want it to be like
this, or like this? [Left]
You want the marginal benefit greater or equal to the marginal cost, right?
That will make you a rational person ok? So when we talk about
rationalÉeconomists will say people are rational. That's what we mean. How people calculate
marginal benefitÉthat's where crazy comes in. It's likeÉwhy are you doing this?
Oh, it makes me feel good. It's like ohÉokay. But a couple days down the road,
they might not feel so good. But at the time, most people make decisions
doing what they consider to be the right thing.
That's where we become humanistic. We have respect for people, but then the
problem is that when its like, "Oh, I'm doing this." It's like "OhÉno, no, noÉyou're
not doing thatÉ" So the miscalculations can happen, and we
have to take that into account. Opportunity cost is super important in terms
of making life decisions, kinds of thing And in some ways, you can learn something
that you can use outside the classroom, as long as you don't lecture people in the
elevator. So this gets to this question: what goes into
costs and benefits? So we have this word utility is a function
of Éfor the geeks out there, this is a vector. So what's another word for utility? Satisfaction,
pleasure, happiness. There's disutility and there's utility. I
don't know why they came up with the word utility but they did. It's a weird word. There's
utility knife, utility shed, whatever. This is happiness, ok? Literally, the analogy
is "We are climbing the hill of happiness." No porno allusions here.
So utility is about happiness. It's what we want. And it includes everything we
want. Utility is a function of everything that we're doing.
And X, and that's were X becomes crazyÉbecause X can beÉ "I am happy as a
function of the number of hamburgers I've eaten." That's the consumption thing.
That's the whole idea of GDP. Or I'm happy as a function of the sunshine
outside. Or I'm happy as a function of the whales, right?
We're in environmental resources economics. So we're happyÉwe are either happy
or studying people who are happy about these things called environments and
resources. Stuff that is really hard to hold on ontoÉ
So that's what we're going to be talking about. And the reason I say utility is
because it means everything and anything to everyone.
This is why economists are called social science imperialists. Because they go off
and they say, "Ooh ok, the psychologists have something. Let's just steal that and
put it in our utility function." And we have behavioral economics, which is
called psychology, right? So we just re-label and make it our own and
publish more books. So that's what we're going to be talking aboutÉdifferent
kinds of stuffÉand the tricky part isÉwith environmental resourceÉ
So there's environment and resourcesÉand I want you to understand the main
difference between environment and resourcesÉ Who has an idea? What's an example of an environmental
good? Anyone? [Clean Air]
Air? Clean air. Ok. Good. What's an example of a resource?
[Water] Water, hey! Actually give me another one.
Water is a little more complicated than that.
[Bauxite] Bauxite? That's good! We got our mineral boys
in here. Bauxite turns into what? Aluminum. With the
addition of natural gas. Energy right? So here's just examples, but you can look
around and think about them. What's the difference between these two? Besides
that they're different goods? What's the main economic differenceÉ
[Rivalry is possible for resources.] RivalryÉokay. Is it a rival good? Air is
a non-rival environmental good, right? So I'm going to put that as a footnote as
"awesome". We're going to talk about that later, but that's not what we're talking about
now. So this isÉair is non-rival. What does non-rival
mean? [One person using it doesn't mean some else
can't use it] Right so it'sÉI'm breathing it, but it means
you still breathe, technically mother air right? If you get a phone booth with someone
then you can start a fighting after awhile.
You're on the right track I mean, but I want to get it to likeÉone single dimension.
But that's one of the dimensions that goes into this category.
[Is it because you can make money off of resources and you can't do that off of
environmental goods?] That's basically it. It's, essentially, that
you can have a market for a resource. You can exclude it. So, rival and excludable are
two different things, right? In terms of the different dimensions of goods.
We'll get into a discussion of the dimensions of goods, property and goods later on.
But essentially the difference between a resource good is that you can have a market
for itÉnatural gasÉbauxiteÉ [But the cant we just turn everything into
a resource?] That tends to be what someone like me would
say right? It's likeÉwell we have a problem? Let's just make it intoÉlet's make
a property right and make a market for it.
The whole idea of carbon markets, carbon taxes, cap and trade, is that you are
takingÉcarbon goes into carbon dioxide, which goes into the atmosphere, and eats
the earth, and we all die. If we were worried about carbon going into
the atmosphere because the air is a public good, it's a shared good, but we can
potentially affect that environmentÉenvironmental good by affecting
the flow of stuff in to it, which is carbon, right?
So we're going to turn carbon which is aÉnow I'm going crazy with jargonÉso we're
going to turn carbon, which is an externality. Carbon is pollution is the result of an
industrial process. We can turn that actually into a commodity, give us a
commodity. It's a resource, even if it's a bad resource,
then we can make it into a market, and then we can tax it or trade it, or do something
like that and therefore affect the environment.
We haven't necessarily gotten to the idea ofÉI have a market for air.
Buying and selling air. We're worried about carbon and carbon dioxide, but that's
essentially where it goes. Can we fix every environmental problem by
making it into a resource? We can fix a lot of them. That's the one thingÉ
But moving from, "this is a good idea", which is the simple theory, to the empirical
result is
the difficult part. Okay? Let me allude to fisheriesÉanybody fond of
the salmon around CA? The West coast of this country?
What happened to the salmon recently, in CA in particular?
[People stopped fishing] Stopped fishing? Because why?
[It was running out] They were running outÉOops WalMart ran out
of salmon. There was no more salmon going down the streams
for a lot of reasons, but more importantly there was no control on who was
harvesting those salmon. So it was essentially the tragedy of the commonsÉthat's
a paper that we will read in this classÉit was a tragedy of the commons
in a sense that all the fishermen were racing around and chewing up the salmon as
they came back. That was a problem because they didn't into
the stream; it was a bigger problem because they didn't get upstream to spawn
because the stream was screwed up for other reasons, and so the whole salmon fishery
collapse. And the salmon fishermen who for many, many
years said: "Don't bother us; don't mess with us." And now they're like, "Oh you
know what? We should have property rights of salmon."
Except they're almost all gone...its kind of one of those like, "Too late, but we'll
see what happens maybe in ten years they'll have
another salmon run." So that was trying to convert a resource that
had no market into a resource that did have a market. And when you have a market
(this is the key) you can have supply and demand.
And if you haveÉlet's go to supply and demand for a secondÉthis should be basic
stuffÉgot price, got the quantity, got our demandÉandÉwe've got supplyÉ
Now what's gonna be this here, what's this? [Equilibrium]
No not equilibrium. This particular hash mark marks what?
[Price] Which price? Market price or equilibrium price
right? P star, so that's q-star right?
So if there is no price and there is no market, what happens?
We have a supply, somewhere, we have a demand, but we don't have this.
Here's a way to look at it. Does anybody remember the theory behind supply curve?
What is a supply curve? Because with the fish (let's talk about the
fish for a second), there's a supply of fish But what's the market equilibrium for the
fish based on? Or in this catching analogy?
[The quantity that they're willing to supply?] Well they are willing to supply, not exactlyÉit's
a production function from a firm, in a way. The fishermen are firms, and taken
together they have a production function and they have aÉsupply curve is actually
based on the marginal cost of production. So if you think about the marginal cost of
fishing, catching the first fish is very cheap. Those are the Indians that sit at the mouth
of the river with these weirs or these nets that catch the fish as they go buy. That's
very cheap very efficient right? And then you get up here and you get nuclear
powered submarines that are out there catching fish. Those are very, very
expensive, right? So this is, in a sense, is the
supply curve for catching fish and there's going to be a demand called, "I want to eat
fish". Okay? So we can take that for granted and this would be a "market
equilibrium", but what if this is a supply of actual fish?
At that price, at this quantity, you have this much demand, people are willing to pay
that much. And it's very cheap to catch them, right? You're not in equilibrium. So
the problem is that you go beyond, (this is where you get into dynamic things).
You go beyond where the fish are happy, beyond the biological supply. So the
technological supply isÉ(I'm very ad-hoc here but I'm trying to illustrate a point
using economic tools) This is the technological supply curve given
an infinite number of fish. Let's say it that way.
There's fish out there, there's plenty of them. But then if there's a biological supply,
which is this vertical line, then you're in trouble. You just went way beyond the
number of fish that are there, and you can't catch them. You run out of fish. Ok?
SoÉand one reason why it might be is because there's no price for fish. You can just
go out and catch them if you want them. So the solution in terms of economics isÉlet's
put a price on these fish. And what we'll do is: we'll actually shift the cost
up. We'll put a tax on the whole (this is the
fancy math part. That's the theory, right?) We'll put a tax on all the fish, so we shift
that cost up, and we get an equilibrium at a "sustainable catch". I meanÉthat's not
meant to wipe it out, that's meant to be sustainable. Okay, so the idea of "Can we put a price on
it?" isÉ "Can we shift this environmental good" (And fish aren't really an environmental
good)Ébut can we shift something that is not in a market into a market.
Now, that's the theory right? Try and go do that. The salmon fisherman saw this
stuff. They saw this train wreck coming for years. The economists saw this coming
50 years before them, but nothing happened because this is all about, "Just one more
year, just one more year, got to pay off the LincolnÉthe navigator" So that's we had
the fisheries collapse: because they didn't make it one more year.
And that's the kind of stuff that we're talking about in terms of environmental goods
and resources. So the biggest difference is thatÉlet's just go toÉand we're going to
talk about all these, and water isÉsomeone said water earlierÉwater is very tricky
because water is an environmental goodÉyou've got the water in the bayÉor
outsideÉand the ocean right now is having a little bit of an issue becauseÉI know
there's the whole deal with the carbon in the atmosphereÉbut carbon is actually
getting absorbed in the water. It's called ocean acidification, and carbonic acid is
not good for beasties that live in the ocean.
Right? So reefs are having problems (all the plankton
and stuff like that). Diatoms are having problems. And I'm like, "oh my god,
apocalyptic stuff. LikeÉdead ocean." I'm freaking out thinking about that. So that's
waterÉocean as an environmental good, but what water in a bottle is a resource,
right? I can sell this, I can control it, it's excludable, its rival, okay? So water
comes and goes back and forth. That's why it's really fun, or confusing. Depending on
your perspective. Alright, soÉOh so the other thing is that,
in terms of timing in this class? So it's an
hour and twenty minutes. Do we take a breakÉor we don'tÉright? Start at 10 after
and you go all the way till 11:30Éor 12:30É? That's the normal thing? Or we stop
somewhere, and everybody walks around? No. go all the way through. Ah, see, you
guy just screwed yourselves. Okay, soÉbut that's okay because if I had to
reallyÉthat'll be fine. Because getting 100 people in and out of the room, it's a
bigÉit'll take five minutes to get everyone to sit downÉ
Okay, so, ummÉ We're gonna talk about another concept, we're
still on the big picture. And by the timeÉbecause I'm going to come back and revisit
this over and over and over againÉnot to bore you guys, but to give youÉ
SeeÉso you can see it in different angles over and over again and say, oh I heard
about the fishery, now I hear about the timber, now I hear about the oil, now I hear
about the corruption in Nicaragua, now I hear about the corruption in the United
States, and now I hear about the corruption in Iraq, and you're likeÉafter a while
you identify a pattern, called whatever. It's going to be called corruption or fisheries
or resources. So another big theme that's going to come
up is...back to the political economyÉisÉwhat's the difference between,
what isÉbreak political economy into politics and economics. Anyone? And tell me
what the organizing concept is in each of themÉor something. Just throw out some
words hereÉlet's just do it this way. Politics? Right? And economics. This is one
of those things where I want you to give me word pairs. One goes in each one. Anybody?
[Partisan] Partisan? Is that economic or politics?
Theory or reality. More? Oh what's the equivalent in economics?
[Empirical?] EmpiricalÉI'm not going with that. No, let's
not do that. I'm going to write that down after I've hadÉ
SomebodyÉpolitics and economics. It's like two dead simple words that I want.
That's likeÉgold prize. Gold star. [Policy?]
Policy? And? What's the economics? Help her out? Policy?
[Theory] Theory? No I'm not going with that eitherÉ
[Model?] Model? No.
[Laws] Laws? That's good, and what's the economics? [Statistics]
No, not statistics, although they use statistics on both sides.
[Results] Results? Political results?
[NoÉeconomics] Economic results. Political non-results?
[NoÉit's like policy and results] Policy and results.
[It would be like the counterpoint of the policy]
Okay, okay so that's in the right direction. So results in policy...and someone said
laws right? Laws, policiesÉand in some ways what you're
talking about is... This is nothing to do withÉwell kind ofÉthey
all relate togetherÉbut this is kind of an ideaÉ
We have an outcome, which is the result of things going on in a market. Let's just
broadly define a market, ok? And the market is controlled by the law, and
laws could be formal or informal. Those could be rules and norms. But those
are controlled, in turn, by a constitution, what you'reÉhow you even make a law. So this
is theÉif you want you can call it the different layers. I'm not going to push on
this analogy too much, but I will get at it when we talk about politics, in a sense politics
does have an impact on economics the way that change in the policies and laws
will impact a market. So in that sense, if that's what you guys
are getting at, yes definitely. I don't know how to make that into two words, but let's
do it right now and say Éwe'll say outcomes with that caveat, if that's what
we're talking about. I'm going to use a much more basic set of words. Let's give you
the easy one: efficiencyÉwhat's the one over here?
[inefficiency] No, but true. What'sÉso if economics is about
how big do you make the pieÉ [Distribution]
Distribution, right? This is equity. Fair. Fair means that I get what you have, okay?
And the pie analogy is used very much as an organizing principle. How big do you
make the pie, and how do we divide the pie up? So that's whyÉthe Marxists had the
most interesting idea. So the Marxists said, "We'll have this capitalist economy. It'll
be super efficient, it'll produce a whole bunch of wealth, and then we'll take it all
over, and then we'll pass it all out to the workers, and then we'll be fine."
And he missed thatÉhe didn't do the stochastic dynamic equilibrium, because he
forgot about the next stage. What happened next year? Right? That's where the
Marxists kind of fell apart as witnessed by the USSR, kind of when you guys were
born almostÉisn't it. 1991? Anyone? Élate 80s! Yeah, okay good.
So it's equity vs. efficiency, okay? So that's the kind of thing in political economy.
That's a good way to keep those things straight. It turns out, with waterÉnow this is
a very useful analogy with waterÉand I actually have bumper stickers that I didn't
bring. But it addresses this issue because people say, "Oh we have a water shortage
what do we do?" "Oh, we'll just price water". What's the objection
to if we have a price on water? [It's a basic commodity?]
It's a basic commodity? Kind of. It shouldn't be a commodity at all. What's the
objection? [Human Right]
[Right, not a privilege] It's a human right? It's a what?
[Right, not a privilege] Right not a privilege? Same rhetoric? Okay.
You need it to live? That kind of thing likeÉ
Unfortunately, the "need to live" thing, "it's a human right" thing.
Human right is different than "you need it to live" because you need what else to
live? Food. But we don't have likeÉso the human right is like "We should have
water for free". It's a right. But food? Do we have a right to food?
We don't. There's no constitutional amendment that says thou shalt have a Big Mac.
Right? But there's plenty of stuff that says though shalt have water.
[Well, is it because you have to produce food, and not really have to produce water?]
How did this get here? [Well you produce the bottle butÉ]
No not the bottle, what's in the bottle. How does this get here? Where does it come
from? I'm not trying to trick you but I'm saying
this comes from somewhere else, it's not raining outside. So the production of food
and the production of water are very similar. Right? It does cost money to produce
both. It might be handier to produce a chicken right? Compared to water.
Because the chicken will eat whatever's around, and the water's likeÉwhere do you
get the water? But the production is not exactly it, but there is this issue with water
in particular that it is a veryÉI meanÉthe South African constitution, the right to
water is in the constitutionÉyou cannot deny a citizen 50 liters per day per person.
Okay? So I'm sitting there, and I'm an economist,
and the hard-core free-market economist goes, "You should always charge for water,
all the time". We're not talking about bottled water. And then the hard-core non-economists
(whatever, the civil- libertarians)Éthey're like, "Water should
be free all the time". But there's an issue of
production. You have to get it to people, right? If it
costs nothing, we have a demand and supply problem. So my compromise between politics
and economics is thatÉyeah, everybody should have some for free, as a
human right, but then you should pay for more. Okay? So that's whereÉ
It's uniquely difficult to explain this to someone in the water business or someone
who is far-right economics (far-right by meaning...radical market) or far left in terms
of crazy, social engineering. They are not willing to compromise these things. This is
water, it's important, it's a life good. It's like no, we have to compromise. So what I'm
trying to do is blend politics and economics. Some for free, and then pay for more.
And we need to have these kinds of solutionsÉwe have to at least consider both
perspectives and try to get in the middle and talk to both of them.
Well, okay, so that was a whole bunch of overview stuff. Does anybody have any
questions just now? We'll get to the syllabus in a second. That's fine.
[We still pay for water, in this country, though, right? As far as tap water goes?]
We still what? [We still pay for waterÉ]
WeÉoh that's an interesting little factor is that weÉ
When you pay your water bill? You're not actually paying for the water. The water
is free. You're paying for the distributions. And, I think that the state water project
in California, which is the big oneÉone of the
big ones that moves water to Los Angeles for example?
It usesÉnow I forgotÉI think it uses about 10% of the electrical power in the state?
They've got the pumpÉanybody driven down the 5? Did you see the big pipes that
go to the Tehachapis? That is one of the biggest lifts in the world. And water is very
heavy. To push it over that thing takes a lot of energy, so that's what they're paying
the bill for. I have 125 copies of this syllabus, so everybody
should get one. Distribute, distributeÉ
[You said that there were four concepts likeÉthat we should knowÉ]
Four concepts that we should know? [Yeah like thatÉwhat is cost/benefit, what
is supply/demandÉ] Oh did I not say four? UhÉto be determined.
I don't knowÉthat sounds like a good place to start. It's good though. I told you
I'd be disorganized. Any other intermediate questions before we get to the
syllabus, which is a whole bunch of fun. Yes?
[question inaudible] Yes. Usually you're paying for water treatment.
When you get it from your tap? It's usually treated.
So this water comes from the Sierra Nevada from the snow melt. So it's pretty clean.
But sometimes, if you're in San Diego, and you're getting your water, and it came
from the Colorado RiverÉand it went through seven people's toilets before it got to
your tap. So you hope it's clean. That's the whole idea. Anybody from San Diego?
[I lived there for a few years? And the water tasted so horrible. It's fuzzy kind of and
it's flatÉand just the weirdest taste everÉ]
And it wouldn't kill you, but it doesn't taste good. I was in Davis. Davis? Does anybody
know Davis? It's got reallyÉground water? Not so hot. When I came out here, I was so
happy about drinking Berkeley water. Okay. Anybody else need a syllabus? Anyone?
Okay. You have a question? [Do we still pay for theÉnot to get it clean,
but when it goes down the drain, do we pay for
that? The waste waterÉcan it still beÉin the ideal case I guessÉ]
Well, this is an interesting situation. Usually you almost pay a flat fee for your wastewater
or you pay a fee in proportion to how much you take in, because they assume what goes
in comes out again, which is usually a good assumption.
But the other one isÉthe history of water in the United States is thatÉdischarge
it in the river, and the guys down the stream will take care of it. So that ends up being
horrible because you dump one gallon of crap in
the river, and you just destroyÉyou lower the quality of all the river water. Yeah?
[SoÉwhat are your thoughts about the whole likeÉLA county water policy thing? Like
watering your lawn?] That's an awesome topic for my blog, I'll
see you there. Okay so let's talk about the syllabus.
But I appreciate the questions, it'sÉthe whole water your lawn stuff. The mayorÉdid
you see the mayor got cited for watering his lawn
on the wrong days? And I'm like thinking, that's the dumbest thing I've ever heard.
Right? ThisÉregulating people on what they do
with their water is ridiculous. Okay so this PDF is on b-space. Everybody
knows how to get to there right? Okay and the syllabus will be updated as often
as I feel a need to, but this is a pretty reasonable framework. Notice it has the date
on it. So does anybody know why it's on one page?
[Save trees] Save the trees? What is the other reason?
Huh? [Budget cuts]
Budget cuts? You know what? How much does it cost me to make copies for you guys? Zero.
Anybody want a book done? I could do it, you know, I'll only chargeÉforget five cents
a page.
Okay, so it's not because of budget cuts. Why is it on one page? Another reason? Save
the trees, that's a good one. I don't care about
the trees though. [Heavy stack]
Heavy stack, that's good, personal load. [Save water]
Save waterÉthat's way too indirect. The finished forests. No. Anything else?
[Save ink?] Ink? Another resource, no.
[Time?] Time. My time. Right? I'm not interested in
stapling together 125 two-paged things of whatever.
So, you guys are all young, you can read small print.
And the PDF version has got some clickable links on it. So you can get that off of B-space.
Especially, I know for theÉ on the right hand side it says the Hayek paper. Use of
Knowledge in Society". The "October 22", you just click
on that PDF and get it for free. If any link breaks,
tell me, and I'll fix that and send the link to the class list. So let's go in order here.
B-space, everyone should see that. Just as a curiosity, when you look at the b-space,
at the calendar does it show like all these times
from all your classes? Does anybody know about the calendar on b-space? No. So that's completely
a waste of my time to put stuff on there? [No, I think if you pressed calendar, it only
shows it for the class that you're on.] Not all of them together? [No] That's stupid.
Alright, well, the calendar should reflect what's
on the syllabus, okay? And there's nothing on the calendar right now on your B-space
that is likeÉgo on the calendar and check it outÉbut
just so you know. Uh, no laptops and cell phones; I don't like
it. There's penalties. The videos, I'm not sure about when to post
them, I'm going to put up today's later this afternoon because none of you knew that I
had this tricky incentive scheme set up. Here's my information, I'm in Giannini Hall.
It's just up the hill. I've got office hours in,
essentially, a bullpen? Like I told you, post-docs have no rights. I'm there with about four
or five other people. But those are my office
hours right now. 12:30Éright after class on
Tuesday, walk up the hill with me, and 3:30 to 4:30 on Thursdays. Fei and Diana are your
GSIs. Diana, stand up and introduce yourself. [Hi, I'm Diana I am a second-year PhD student
in ARE.] [Hi everyone, my name is Fei. I am a third
year ARE grad student.] So these guys are my bosses, because remember
the post-docs are below the GSIs. They tell me what they can do. They can have office
hours at those times and those locations. I can't really deal with conflicts like, "Oh
my god, I have a class can you change your schedule?" But if you want to negotiate appointments
or something like that, just go ahead and send me an email.
Okay so here's the class time, we got our lecture, our first lecture, and we've got
our discussion sections.
Thanksgiving there's no discussions. But Thanksgiving week...whenever we can'tÉ
We lose one discussion, we lose all the discussions. So that's why there's no discussions this
week, and there's no discussions during Thanksgiving. And I think those are the only two.
The last lecture is on December 8th, it's not a lecture because our, RRÉreading, revising,
arithmetic week, or whatever they call it. So there's going to be no new material but
luckily I was going to give you prizes and stuff like
that on that day. So that wasÉbefore evaluations I give you candy, right? We'll do evaluations
before then. So grades. I am very, very anal about "on
time", okay? If it's not on time, it isn't there. So
when I say the homework is due, it's on time. And the pointsÉwe'll get to that in a second.
Your grades are based on total points, no duh. I'm trying to curveÉI'm trying to keep
the class somewhat near cutoff. So when you have
an 85 you're like oh, I'm in B-range. But I'll
move it around depending on what I see, okay? So, it's going to be objectively subjective.
Re-grades: If you want a re-grade, you type it, your reason, you hand it in within a week.
So you get it back on Tuesday, I want it back
the start of class the next Tuesday. Alright? I'm
just trying toÉ
Oh yeah, so the whole thing about grades, in terms of incentives and expectationsÉand
soÉincentives. Another key word here. Anybody know what intrinsic motivation means?
Go ahead. [Motivated by doing things for yourself]
CloseÉ [As opposed to being motivated by likeÉgetting
paid, or likeÉ] Right, okay. So, intrinsic motivation is the
motivation that comes from within you. You do it
because you like to. Okay? I likeÉ I have roommates, and I like cleaning windows.
And they are so happy. Because I just walk around cleaning windows. And they're likeÉwhy
is he cleaning windows? And I'm like, "I love cleaning windows." And they're like,
oh cool. So extrinsic motivation isÉyou do it because
someone pays you, or you do it because someoneÉwhatever. It'sÉyou're getting some
external source. So a lot of you are probably used to the ideasÉI do it because I'm going
to get a grade. Because my grade's important to
me, because my GPA is important to me, because youÉ
Actually that's where the logic breaks down. Why do I have a GPA?
But anyways, intrinsic motivation isÉyou do it because you want to, right? You choose
a major. You can choose a lot of different majors,
but you choose the one that you like, theoretically, because you want to learn that
thing. So when I talk about intrinsic versus extrinsic
motivationÉwhat I'm trying to say isÉwhat does this have to do with regradesÉoh we're
just talking about grades in general, right? So if you're really, really worried about
your grade, I want you to write it out (what's wrong) and give it back to me before class
starts. And that'sÉwe're essentially going over
the extrinsic schedule, right? The gradesÉwhat your payment schedule is going to be...if
you guys turn out stuff. Oh that's what I was
trying to get to. Because we're making an agreement about expectations.
I'm going to say, "This is what I want from you, and if you deliver it, this
is what you're going to get, in terms of your grades." So that's what'sÉthat's the illusion.
And it's an important illusion because we're talking aboutÉwhen we talk about things like
the environmentÉwe're talking likeÉwhy do people do things, like recycle.
Why do you recycle? The impact on you is essentially zero, right? Economists have the same
theory aboutÉwhy do you vote? There's a very strong economic tradition called,
"it's irrational if you vote, but people still love voting", right? Because there's no extrinsic
payoff. They don't go vote and then suddenly get a higher salary or a day off
of work or congressional applaud from your district. They go vote because they like it.
They like to feel like they're contributing to the
dialogue. They're involved. So this is whyÉI'm getting stuck back and forth on thisÉwhy
this has to do with gradesÉbut anywaysÉso blah
blah blah. So back to the grades. There's a grade for attendance. If you miss
one discussion section, that's free. If you miss
two or three discussion sections, you lose five points of your class grade.
We are keeping role, we are going to double check, so don't sign in for your friend. If
you miss more than three, you're going to lose
ten points. Is that clear enough? Okay. And if
you'reÉI have no idea about "I'm enrolled, I'm not enrolled". If you're not enrolled,
and you still want to go to discussion section, fine.
I talked to the admin, by the way, about enrollment, and she said wellÉI told you
guys in the start, but I'm repeating itÉjust, you
know, wait for people to drop out. I don't know what to say. Sorry.
[Diana: if you missÉyou have to come next week, if you don't come you're automatically
dropped.] Oh okay, way more important motivation.
[On Telebears it says is manual, so theÉyouÉ] A manual what?
[The waitlist. You get to pick whoÉ] Oh, I don't. I would have a lottery. It'd
be awesome. We'd be selling seats. [Doesn't whoeverÉjust in order, and how many
people drop it?] Something like that. I mean, you might know
about your position on the waitlist, there's nothing I can do about that. As I said, convince
the person next to you to drop. Okay, the two books are Robert Frank (this
is uselessÉit's a book!) The Economic NaturalistÉthis book here? So I said before,
there's no course book, I just saved you 140 bucks. I'm done spending your money. So you
guys, I want you to read this book. And I want you to read the other book, which
is Hazlitt, Economics in One Lesson. Hazlitt is a
free download, or you could buy it for $3ÉI don't know what the price "used" is on Amazon.
They're very easy books to read. I want you to read them. Okay?
Economic Naturalist is perfect. Every story in here is like one page. Put it on the back
of the toilet, right? Go to the bathroom a lot, because
you have to finish it by September 18, okay? Now, I want you to read this because there'sÉevery
page of this book, or every storyÉis very, very good economics. It's very simple,
there's no math. But you'll learn a lot about economics. And I want you to start thinking
in that way becauseÉblog post. Every person in
this class, who's enrolled, who wants a grade, is going to write a post for my blog, okay?
I give you my time, you give me your blog post.
That's worth 10 points of your grade, okay? It
is a binary operation. You hand it in you get ten. You don't hand it in you get zero.
No one is going to grade your blog post. But (intrinsic motivation) hopefully you care
about writing something good. If you write crap,
I'm going to make sure that everybody points out
you're writing crap. Okay? Every blog post will say: "So and so, e-mail, wrote this for
you." Enjoy it.
[On b-space? OrÉ] No, the blog is on the internet. It's called
Aguanomics. Did I say that? Aguanomics: my blog.
So it's going to be on a topic of your choosing in the large topic of environmental resource
economics. It's not going to be, "The other day, I drank some water, and I really liked
it." Okay? SomethingÉI want you to try and startÉand
the reason that you read this book first is because you're going to read like a hundred
stories by other students about economics and whatever.
So you'll be reading this book and going, "Wow, that's cool, that's cool, that's cool.
Hey, I can write something like that." And you will.
Alright? So it'll be for the blog. Homework one is probably going to be a lot
of math. That's because, as I mentioned, this is a
middle course. It's a prereq for your upper division courses. So you'll be doing some
constrained optimization and that math, and the GSIs are going to have a great time writing
that up for you. And we'll do a little bit of lecture on that.
Homework two will be something similar. I have no idea when we're going toÉwhat's going
to happenÉwe'll just see what happens. We'll write the homework and we'll hand it out to
you guys, and you can hand it in. Each of those homeworks is worth 5 points. The midterm
will be worth 15 points. There's one midterm. The midtermÉI don't know the composition
right nowÉit's probably going to be some math, some graphs, a little bit of an essay,
something like that. On October 22, the Hayek paper is due. I mean,
have it read by then. It's a very useful paper. And homework threeÉOctober 19. These
dates might slide; I'm just giving you a general idea.
Now the briefingsÉthere's two different briefingsÉit's going to be on the same topic.
Everybody in the class will write on the same topic. It's going to be a one-page briefing.
This is going to be calledÉgetting your point across, okay?
If you haven't noticed, the only people who read anything anymore are students in class
that are assigned to read it, and people that are
paid to read it. So what you need to do in this
briefing is you need to make your point in essentially one page. Not one of these pages,
but one 250-word page.
And then, on the topic that we're going to decideÉit's going to be something like convince
me that we should have a carbon tax. Or convince me that I should save the whales.
Something like that. It's the kind of thing that you would hand off to a politician or
a policy maker, and they would say, "Oo I'm convinced."
Okay? Those briefings are going to be graded by
you. It's going to be peer grading, okay? Every
person in this class is going to grade three other people's briefings, with written comments,
on what they liked and didn't like. And the grading of the briefing will be graded. And
you won't grade the grading of the grading, but
anyway, you get the idea. So I want you toÉyou're going to write for your peer group,
and your peer group is going to rank your briefings according to how well you did relative
to the other people. It's a first, second, and
third place, okay? So not everybody gets a gold medal, but we'll see what happens. That's
going to be fun, I hope, and that'll be later in the semester.
Olsom and Schelling are the two other books, these ones are slightly more narrow in topic,
a little more complicated, but nothing even
close to a textbook. The Logic of Collective Action
is a very big classic, it's 180 pages. It'sÉhow do people figure out how to work together,
okay? How do they cooperate? It's a very important book; I think he's actually a political
scientist. But it's a very important book about things like the environmental resource.
How do we get people to coordinate and work together?
Micromotives of MacrobehaviorÉThomas SchellingÉhas anybody heard of mutual assured
destruction? Anyone else? In the back, back, back, corner. What's it mean?
[It basically means that if things are removed, you destroy yourselve, so there's basically
an incentive not to do anything]
Right. And what did it apply to? [The Cold War]
The Cold War, right? So the USSR, the United StatesÉwe have like
thousands of missiles, and we can destroy the
world six times over, and mutual assured destruction is likeÉif you launch yours, I'll launch
mine and we'll both be dead. Okay? There's a video on that going up on my blog next week.
It's two minutes, it's very funny. So has anybody heard of "hokayÉwhat's thatÉThe
End of the WorldÉI love itÉso funnyÉokay so you'll
see the "hokay" video and you'll understand the cold war.
But the guy Thomas Schelling is the one that's credited with this theory of mutual assured
destruction. In a sense, we're not dead because of him. So he's important. You should read
him. He' a very, very out of the box economist. He talks about how people interact with
each other. That's the same theme as the logic of collective action.
And because, at the end of the course, we'll be getting into more of the more complicated
dynamics, the interaction of people. And both books will be due around that date.
November 24, which is the week of Thanksgiving. By due, I mean you finish them, okay? There's
no book report, there's no assignment. Anybody who wants to save even more money
can do a swapping deal with their friend. I'll
read this one, read book, A you read book B, and we'll swap halfway through, I don't
care. Do what you want.
Briefing 2, peer grading, there is some grading for peer grading, and there is a final exam
on December 15.
Now, that's the most of it. So any questions about that so far? It does add up to 100 points.
I double-checked. No? Straight forward? Okay
we'll see when we get there right? Experiments. In the discussion sessions we'll
be doing some experiments. I along with the hat of being a resource economist, environmental
economist, an institutional economist, I'm an experimental economist. And what that means
is that you're going to go to discussion, and you're going to play some games. So it's
not that hard. And then you'll learn something, which is why I'm doing that. And then we've
gone through the texts. I recommend all those things under the optional reading. The textbookÉthose
other ones are other textbooks. You can get them if you want to. Underneath lectures,
that's what we're supposed to be teachingÉ basic microeconomic tools blah,
blah, blah. Q&A, so at the start of lectures what I'm
happy to do is likeÉif you have a question, you're
like I don't get thisÉI read this in the newspaperÉI'm arguing with my parentsÉstart
the lecture with that. Because I love answering
questions. It's much more interesting than my
random notes. So bring Q&A. We'll do some math everyday to make sure that
you meet the requisites, then we'll do economics, then we might take a break, we
might not. And then we'll do more economics. Okay and then there's this massive provisional
detailed overview schedule. Oh, let me mention two other things.
MarketsÉwhat's the difference between a missing market, and not having a market at all?
What's an example that's in a missing market, or not in a missing market. Or a good that
needs a market, but it's missing? Current event, pretty simple. Anyone? They're trying
to make a market in itÉcarbon, right? The idea
is that we have this environmental problem, we can make a market in it, we can solveÉthat's
what I mean by "missing markets". That's what the jargon is, okay?
What is no market? There's no market? The Beatles had a song about it. No demand, no
supplyÉno there is a demand, there is a supply, but there's no market for it. CloseÉcome
onÉbuy you love, right? There's no market in love. And sometimes, remember, there's
notÉthe solution to every problem is not a market, okay? So I want you to discriminate
between those things, pr at least keep them straight. I know you, you know the difference,
but because there's an overlap between these things, okay?
And sometimes, someone says, hey we can do a market in it, but really it's over here.
Don't use the wrong tool to solve the problem. That's
all I wanted to say about that right now. And then there's the idea of bargaining vs.
efficiency. SoÉwho's ever tried to find a place to
live. A room. You want to rent a room. I need a roommate. Or the dating scene, which is
just as bad. Okay?
So what is it called? You see the place, you see the ad on Craigslist or whatever, so you
go see the placeÉoh I really like it. Then what
do they say? Fill in the application, show me
your parents' social security number. Anything else? What else do they say?
[Price?] Price? No they already do that. What else
do they say? Do they say yes immediately? Or do
they say, "Wait a second, I've got to see three more people today." Well, or they do
they say yes, and you say, "Wait a minute, I've got
to see three more people today", right? Okay, so
that's bargaining, what's going on there. And some people call that wasteful bargaining.
The way to get around wasteful bargaining is to go to the central office housing at
Berkeley, and they assign you a roommateÉbang! You're
done. You might hate that roommate. So there's such a thing as being efficient, because
you solve the problem, or having wasteful bargaining. And wasteful bargaining, is it
wasteful? [Not if it gives you marginal benefits]
What's that? [Not if it gives you marginal benefits]
Marginal benefits, that's right. Well this is actually very tricky because the marginal
cost/benefits to you might be different society or whatever. But that's the point. We don't
think it's wasteful to go around and negotiate roommates, or to negotiate dating, because
you may want to have a choice of who we end up with, right?
So thatÉyou can call that wasteful bargaining, or you can call that socially optimal or
whatever. So there's this tensionÉit's called a tension between bargaining and efficiency.
And that tension is often present. It's the same thing as going to the supermarket and
you want to buy some yogurt. Anybody try to buy
yogurt at the supermarket? Your roommate says, "Go get me some yogurt." And you're
like, "Wait. Which one do you want?" Oh, I want the nonfat, fruit, peach on the
bottom, the organicÉand you're like, "Woah, wait a
second, let me right this down." Now, when you go to the Soviet Union, they
figure that one out. Yogurt. That's it. There's just one type. In fact, there's Belarus. I
went to Belarus, and they had yogurt. And they
didn't have any choice, and I was a little happy. Not too happy. So that's the bargaining
vs. efficiency. So are there any other closing
questions on this stuff? I'm not going to read
through the syllabus because it's probably going toÉit's roughly going to follow that
order. Anything else? No? Okay great. See you guysÉoh
wait! Stop, stop, stop. I won't be here next week. But, you will have
guest lecturers from fabulous Claire and fabulous Damien. So obviously you should come
to class, and then I'm going to quiz you on what happened when I get back the week after.
Alright? See you guys later. [Oh by the way, the first section will be
next Monday.]