The efficiency and equity effects of unit, yield, property, and windfall profits taxes upon nonrenewable resources are compared. The yield tax is the most efficient, and unit and property taxes are the least efficient of current taxes. If the base price of the windfall profits tax is set close to extraction cost, the windfall profits tax can be even more efficient than the yield tax. All the tax burdens fall primarily upon owners. In fact, with the property and windfall profits taxes, consumers can even be made better off.

We measure the economic impact of climate on land prices. Using cross-sectional data on climate, farmland prices, and other economic and geophysical data for almost 3,000 counties in the United States, we find that higher temperatures in all seasons except autumn reduce average farm values, while more precipitation outside of autumn increases farm values. Applying the model to a global-warming scenario shows a significantly lower estimated impact of global warming on U.S. agriculture than the traditional production-function approach and, in one case, suggests that, even without CO_2 fertilization, global warming may have economic benefits for agriculture.

The hedonic travel cost method is a technique which reveals how much users are willing to pay for the individual characteristics of outdoor recreation sites. The prices of recreation attributes are estimated by regressing travel costs on the bundles of characteristics associated with each of several potential destination sites. The demand for site characteristics on site quality is then revealed by comparing the site selection of users facing different attribute prices. The technique is applied to value steelhead fish density in Washington State streams.

Decision makers performing cost-benefit analysis must often deal with the problem of how to aggregate the benefits across states of nature accruing from an uncertain public investment project.' Option price and the expected value of consumer's surplus are two potential measures of these aggregate benefits.2 The expected value of surplus has been proposed because it is readily measured and because risk pooling (Paul Samuelson, William Vickrey; 1964) and risk spreading (Kenneth Arrow and Robert Lind, 1970) tend to encourage risk neutral behavior. Option price has been favored on the vague notion that people would be willing to pay something extra above expected surplus to preserve the opportunity to purchase a good (Burton Weisbrod, 1964). As Daniel Graham cogently argues in this Review (1981), however, option price is but one of an infinite number of contingent payment schemes. The literature has provided no justification for focusing upon it as an ideal measure of benefits under individual risk. Graham further argues that policymakers ought to adopt the compensating contingent payment plan which maximizes expected revenue. This maximum payment plan, by definition, is never less and will often exceed any other contingent payment scheme. Consequently, Graham argues that both the expected value of surplus and option price are underestimates of the true value of project benefits. Our purpose in this comment is twofold: first, we show the role of project and nonproject insurance in a model of individual risk; and, second, we argue that option price, not the maximum payment plan, is the optimal rule when no fair insurance is available. In Section II, we show that if fair insurance is available against all risks, all contingent payment plans yield identical revenue. A similar result holds if insurance is available for nonproject risks and the effect of the project to an individual is small (the Arrow-Lind model). In Section III, we explore the case where either the project has a large uninsurable effect on the individual, or there is no insurance against even nonproject risks. We argue that the very phenomena (moral hazard, adverse selection, and complexity) that eliminate the market for private insurance also prevent the government from making otherwise desirable contingent payments. If contingent payments are too costly, the government's only remaining choice is to collect payments that are constant across states, which makes option price the relevant measure of benefits.

The Impact of Global Warming on Agriculture: A Ricardian Analysis: Reply by Robert Mendelsohn and William D. Nordhaus. Published in volume 89, issue 4, pages 1046-1048 of American Economic Review, September 1999

The Impact of Global Warming on Agriculture: A Ricardian Analysis: Reply by Robert Mendelsohn and William D. Nordhaus. Published in volume 89, issue 4, pages 1053-1055 of American Economic Review, September 1999

This paper establishes a methodology for valuing the impact of large-scale ecological changes in a market. Given the large capital stocks inherent in most ecological systems, the dynamic nature of most ecological change, and the dynamic response of markets, it is critical to build dynamic models to capture the resulting effects. This paper demonstrates how to construct such a model using the impacts of climate change on U.S. timber markets as an example. Across a wide range of scenarios and models, warming is predicted to expand timber supplies and thus benefit U.S. timber markets.