Environmental Economics | Master | 3 KP

This course addresses topics from current research in environmental economics. The focus is on designing environmental policy with most applications stemming from climate and energy policy.

The course will cover three important elements of designing environmental policy:
1) The ability to cope with complications in the short run, such as missing information about costs and benefits, market power or imperfect compliance;
2) The influence of policy on technological change in the long run;
3) The evaluation of policy targets: How to set policy targets under uncertainty about costs and benefits.

The course will commence with simple problems, as they are discussed in a typical BA course on environmental economics, and will progress to more complex settings found in many applications. We will discuss a range of policy instruments used in climate and energy policy and investigate how they need to be adjusted for being able to cope with real-world complexities. Most parts of the course will be based on environmental economic theory, that is, we will capture the essence of an environmental problem in a model and investigate potential solutions in this context. In addition, we will discuss several current Swiss and European issues of environmental policy.

In this course, active participation is essential. Students are expected to read one paper before each lecture and we will discuss the main argument made in the paper as well as applications and extensions in class.

The course is complemented by an online course (MOOC), where we discuss environmental and energy economic modeling and where students build and analyze their own model. It is recommended to enrol in both courses.

 The course will provide
- an overview over central topics in environmental economics and environmental policy;
- training in how to set up, analyze and interpret environmental economic models;
- the necessary concepts and tools to read and understand current research papers in environmental economics;
- competences for assessing current environmental policy and appreciating the problems raised by complications, such as missing cost/benefit information or strategic firm behavior. Please click here for further details.

Literature, preparation and required knowledge

The course is based on a selection of papers. For each lecture, you will be asked to read one specific paper. Each lecture will begin with a short presentation of this paper by students and move on to a detailed discussion of the problem addressed in the paper, its methods, and results. Without reading the paper in advance, you will not be able to follow the discussion. In addition, more references to important papers or applications will be given. These papers will not be part of the exam, but are meant to provide a broader
understanding of the scientific discussion.

This is an MSc-level course. For being able to read the assigned research papers and follow the discussion, students should have some prior knowledge in microeconomics (on the level of intermediate micro or better) and should be able to follow simple mathematical arguments. It is not necessary to have much prior knowledge in environmental economics (as, e.g., from a BA-level course). However, students who have not studied environmental economics before might profit from reading some chapters of one of the many good textbooks on this topic, as, e.g., “Natural Resource and Environmental Economics” by R. Perman, Y. Ma, J. McGilvray und M. Common (Pearson Education, 2012), which is available at the library. Mainly you make yourself familiar with basic concepts and terms (such as externalities), which are usually covered within the first chapters of textbooks.

As a complement to this course, a joint online course with Prof. Weigt offers the option to analyze an environmental or energy economic problem on your own in small groups. It is highly recommended to do both courses simultaneously, as the best way to understand environmental economics is to conduct an analysis by


Required reading (bold):

Climate change: R. S. Pindyck (2017). The Use and Misuse of Models for Climate Policy. Review of Environmental Economics and Policy 11(1), 100–114. (https://doi.org/10.1093/reep/rew012)

You might also have a look at the book A question of balance by William Nordhaus (he supplies a free version online). Also, consider looking at N. Stern (2008). The Economics of Climate Change. American Economic Review Papers & Proceedings 98(2), 1–37. (https://pubs.aeaweb.org/doi/pdf/10.1257/aer.98.2.1)

Environmental policy: Overview L. H. Goulder and I. W. H. Parry (2008). Instrument Choice in Environmental Policy. Review of Environmental Economics and Policy 2(2), 152–174. (https://doi.org/10.1093/reep/ren005)

Environmental policy: First- and second-best policies A. H. Barnett (1980).The Pigouvian tax rule under monopoly. American Economic Review 70, 1037–1041.

Environmental policy: Handling Uncertainty M. Weitzman (1974). Prices vs. Quantities, Review of Economic Studies 41, 477–49.

Long-term effects: Innovation T. Requate andW. Unold (2003). Environmental policy incentives to adopt advanced abatement technology: Will the true ranking please stand up? European Economic Review 47(1), 125–146.

Long-term effects: Technology choice F. C. Krysiak (2008). Prices vs. Quantities: The Effects on Technology Choice, Journal of Public Economics 92, 1275–1287.

Long-term effects: Technology lock-in F. C. Krysiak (2011). Environmental regulation, technological diversity, and the dynamics of technological change, Journal of Economic Dynamics and Control 35 (4), 528-544.

Discounting climate change P. Dasgupta (2008). Discounting climate change. Journal of Risk and Uncertainty 37(2–3), 141–169.

Evaluation in the presence of uncertainty K. J. Arrow and A.C. Fisher (1974). Environmental Preservation, Uncertainty, and Irreversibility, Quarterly Journal of Economics 88, 312–319.

Biodiversity M. Weitzman (1998). The Noahs Ark Problem, Econometrica 66, pp. 1279–1298.