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AGERE-E01 Environmental Economics I: Theory, 5 cr 
Code AGERE-E01  Validity 01.01.2017 -
Name Environmental Economics I: Theory  Abbreviation Environmental E 
Scope5 cr   
TypeAdvanced studies
  GradingGeneral scale 
    Can be taken more than onceno
Unit Master's Programme in Agricultural, Environmental and Resource Economics 

Lassi Ahlvik 

Target group 

The course is compulsory for students of Agricultural, Environmental and Resource Economics Master's Programme (AGERE)

The course is available to students from other degree programmes.



Period II, 2019. First year of Master's


Learning outcomes 

After completing the course, students are able to derive rigorously the key results of static externality and the optimal use of all instruments. They have ability to choose instruments under uncertainty or under imperfect competition. They have the skills use numerical analysis to apply theories in various types of empirical environmental problems


AGERE-001 Introduction to the Master program in Agricultural, Environmental and Resource economics

Recommended optional studies 

AGERE-E02 Environmental economics II: Mechanisms

AGERE-E03 Climate and Energy

AGERE-E04 Natural Resource Economics



The course provides a rigorous survey on the classical theory of static externality. The course starts with the case of certainty and perfect competition. The goal of environmental quality is derived and the optimal use of all relevant instruments are solved. The restrictive assumptions of certainty and perfect markets are then relaxed. First, the course focuses on how imperfect competition changes the use of instruments. Then, uncertainty on costs and benefits of abatement is introduced and the implications to choice of instruments is examined. Throughout the discussion the production-abatement model employed in two versions: the specification in terms of production function and cost function. An integral part of the course is application of the theories in numerical models.

Study materials and literature 

Textbook: Baumol & Oates (1988) The theory of environmental policy. Second edition, and classical article per students’ choice.

Activities and teaching methods in support of learning 

Full set of exercises, numerical analysis of given task and research report on the work, final exam


Assessment practices and criteria 

Performance in exercises and the quality of the research report is taken in account when the grade is given primarily based on the final exam.

Relations to other study units 

Replaces the course 863052 Advanced Environmental Economics 10 cr.

Responsible person 

professor Markku Ollikainen


Suitable for exchange students


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