On financial conflicts of interest

Don Fullerton, in the context of the movie Inside Job:

I would hope to think that most professors do routinely reveal financial conflicts of interest, and that we can use their resulting research to learn something useful – as I said above:  “let others pick it apart or use their own models and data to find competing results.  Then we’ll discuss it!”

As long as it is revealed, we can USE inherent conflict of interest to help students learn about how to interpret such results. Consider the following two published articles in refereed academic journals about the costs of the oil spill from the Exxon Valdez in 1989:

Hausman, Jerry A., Gregory K. Leonard, and Daniel McFadden (1995), “A Utility-Consistent, Combined Discrete Choice and Count Data Model: Assessing Recreational Use Losses Due to Natural Resource Damage,” Journal of Public Economics 56: 1-30. 

Carson, Richard T., Robert C. Mitchell, Michael Hanemann, Raymond J. Kopp, Stanley Presser, and Paul A. Ruud (2003), “Contingent Valuation and Lost Passive Use: Damages from the Exxon Valdez Oil Spill,” Environmental and Resource Economics 25: 257-86

Hausman et al find that the cost is about $3 million.  That’s a lot of money, if it arrived in my own personal bank account.  But that’s million, with an “m”.  Carson et al find that the cost is about $3 billion.  That’s billion with a “b”.  Is somebody joking here?  No, and in fact, they both are correct!  They are just measuring different things.  Hausman et al measure the lost “use” values of the few thousand Alaskans who will not be able to use that area for recreational hunting, fishing, hiking, and boating.  In contrast, Carson et al measure the lost “NON-use” values of 300,000,000 Americans who likely never visit Alaska but who nonetheless feel badly for the damaged ecosystem and wildlife, and who would be willing to help pay for protection of that natural environment.

The example is an opportunity to teach students about how properly to interpret academic research and to understand the different perspectives of different researchers.  And although it shouldn’t really surprise anybody, here are the quotes from those two papers’ acknowledgement footnotes, with proper revelation of financial interests:

Hausman et al, finding that the cost is $3 million: “This paper reports on research funded by Exxon Company, USA. It should not be interpreted as representing the views of any parties other than the authors.”

Carson et al, finding that the cost is $3 billion:  “The State of Alaska provided funding for this study. … All opinions expressed in this paper are those of the authors and should not be attributed to the State of Alaska, the Alfred P. Sloan Foundation, or the authors’ home institutions. The authors bear sole responsibility for any errors or omissions.”

via businesspublicpolicy.com