That figure, said Rep. Rosa DeLauro of Connecticut, the top Democrat on the House Appropriations subcommittee in charge of education issues, is how much the National Institutes of Health generates in economic growth for every taxpayer dollar it receives.
"That is an over-100-percent return on the investment," Ms. DeLauro assured her legislative colleagues. Others, including the NIH’s director, Francis S. Collins, the hearing’s lead witness, have been citing the $2.21 figure for years.
Yet researchers studying the question remain in profound disagreement. They’ve been working on the assumption that the true economic value of the nation’s scientific investment, through the NIH and other agencies, is almost surely a lot higher than $2.21 per dollar. Putting real precision on that number, however, has proved a highly elusive goal.
But this week, after five years of trying, a team of analysts announced progress toward solving the puzzle. The group, led by Julia I. Lane, a former National Science Foundation official, published an article on Thursday in Science magazine offering a series of seemingly random findings on the economics of federal spending on science. They include the fact that faculty researchers account for fewer than one in five workers supported by federal science spending, and that universities given federal research money spend about 70 percent of it outside their home states.
The most important value of such information, Ms. Lane said in an interview, still remains several years away. That’s because this week’s data only capture the first step in the life of a federal research dollar, she said. Much more now needs to be done to keep tracing those dollars in a scientifically rigorous manner throughout the economy, she said, to get a firm idea of what benefit the money ultimately brings. ...
The calculation will be far different from the estimates that produced the $2.21 figure, which merely use a standard economic multiplier to measure the immediate stimulative effect of NIH spending on a local economy—in activities such as workers buying lunch at a nearby restaurant—that would apply to any kind of government spending, whether for medical research or road construction.
A major barrier to getting a better number for science has been that the full effects on society of research discoveries often can take decades to be realized. For too long, Ms. Lane said, the scientific community has taken that complexity as an excuse not to try.
The current attempt to establish economic value stems from the federal stimulus measure of 2009, which led to a project known as Star Metrics. Through it, more than 100 universities agreed to electronically collate data related to their federal grant spending, so that researchers can now automatically collect details such as new jobs, journal publications, and patents associated with each grant.
"It’s going beyond this mechanical magic-multiplier stuff," said Ms. Lane, currently a senior economist at the American Institutes for Research.
The logic behind the $2.21 number is sound, but misapplied. There should be no multiplier attached to federal spending because local and regional economic impacts are mostly beggar-thy-neighbor policies. A government spending policy that improves the well-being of a region tends to lower the well-being of competing regions. With federal policies the additional spending is completely offset by the lost spending elsewhere.
The real benefit of research is very difficult to measure with market data since these are mostly spillover benefits. The funding agency and the researcher are not able to capture the results of their efforts. This infuriates politicians who don't like scientists who do research, which leads to nonsensical economic impact studies.
The company’s “comprehensive ash basin plan” takes up all of one single-spaced page.
In that summary, Duke said it plans to remove ash from three sites – Dan River, Riverbend and Asheville – and place the waste into modern, lined landfills where it will be stored in dry form. Riverbend will take the longest to complete, up to 4-1/2 years.
The company has not decided what to do with its other 11 sites, whether the ash will be dug out and moved to lined landfills or whether it will be dried, capped and stored in existing ash pits.
Duke also said it would use a “risk-informed” analysis, which means that the 14 ash storage sites will be scored on their potential environmental risk, and those with lower scores will be subject to less costly measures.
This is a sort of benefit-cost analysis where, instead of comparing projects with similar benefits and choosing the least costly alternative as in cost-effectiveness, the projects are ranked in terms of non-monetized benefits (i.e., risks avoided) and more effective remedies are pursued for those at the top. But this seems clunky since the thresholds for less effective remedies doesn't seem clear. Monetizing the benefits would provide a clear threshold, negative net benefits, for moving to less costly remedies.
I can see a number of reasons why Duke Energy doesn't want to monetize the benefits (other than it is costly to monetize benefits ... yet, I can imagine having a reasonable first approximation benefit estimate at each of the 14 sites in less than a week). Foremost might be that the benefits of cleanup at all 14 coal ash pits might justify the most costly remedy.
The hand-wringing over what to do to help Ukraine has had a very positive impact on the U.S. oil and gas industry. Politicians like Sen. Lisa Murkowski (R-AK) are seizing on the crisis to call for a lifting of the ban on U.S. oil exports — the better to counterbalance Russia’s petro-influence. While the Wall Street Journal this morning wrote that western politicians are working on a variety of options to help “loosen Russia’s energy stranglehold on Ukraine” including “larger exports of U.S.-made natural gas.”
Nevermind that the U.S. currently exports no natural gas in the form of LNG because new liquefaction plants won’t be completed until late 2015. The bigger point was made by economist Ed Yardeni in his morning note today: “By invading Crimea, Russian President Vladimir Putin may have succeeded in resolving the debate in the U.S. about whether or not we should export natural gas and crude oil.”
From an efficiency perspective, any ban on exports is a bad thing. While domestic consumers of natural gas benefit from lower domestic prices, those lower prices come at a costs--the hiogher prices domestic producers could receive on the world market. A basic result in the economics of markets is that any restriction on price or quantity will come at a net cost to society. I am not saying that we should remove the export restriction just becaues it benefits domestic producers, but rather, the export restriction causes a loss to domestic producers (and world consumers) that outweighs the benefit to domestic consumers. In other words, the net benefits from natural gas production are lower with the export restriction than without--regardless of who gains and who loses.
If we (in the collective) are happy with accepting a smaller pie because we like the way the pie is divided, then by all means, keep the export restriction. But we need to recognize that it comes at a cost. And by leaving the export restriction in place, we are making a subjective judgement. Personally, I don't like making that judgement for others.
Another in our WWWTF (What in the World Will I ever use This For?) series:
Math Concept: Integration
Having spent multiple hours over the past week helping official oldest daughter of Env-Econ (OODEE) work through calculus problem after calculus problem in preparation for the pending AP exam, I thought it might be helpful to see how she might eventually move past solving math problems to applying the concepts. Right now I'm going to focus on integration, and hopefully later I will come back and talk about differentiation (seems backwards, but integration is fresh in my mind right now). In what follows, I assume a working knowledge of basic integral calculus--otherwise why would you care what you use this for?
As a reminder, a definite integral is defined as:
where f'(x) is the derivative of the function f(x) with respect to the variable x.
Graphically, the integral represents the area under the function y=f'(x) over the closed domain [a,b].
An example might help. Consider the simple linear function f'(x)=6-2X. What is the definite integral of f'(x) over the closed domain [1,3]?
What does this look like graphically?
Notice that for this case of a linear function (a line), the area under the function makes a triangle. A simple way to check your integration is to just find the area of the triangle on the graph.
The area of the triangle is .5(Base x Height) = .5(2 x 4) = 4. This is the same result we got for the intergral. For more complicated functions (non-linear), the area under the function isn't a nice neat geometric shape.
I know what you're thinking: Nice pictures and it's great fun to think about math, but WWWTF? (What in the World Will I ever use This For?). Keep reading for an application to environmental economics.
I've never chosen to write to a Senator, or Congressperson...until this morning. Here is my letter (highly paraphrasing John's letter--of course, my letter is wordier) to the Senate Environment and Public Works Committee.
I have recently read Senator Vitter's letter to the National Park Service dismissive of the use of survey methods (the contingent valuation method in particular) in benefit-cost analysis. In dismissing the method, Senator Vitter cites an article by economics Professor Jerry Hausman published in the Journal of Economic Perspectives in 2012. In choosing to selectively use Professor Hausman's critique of the contingent valuation method, Senator Vitter fails to mention that Professor Hausman's critique is one of three articles in a symposium in that issue of the journal, of which the other two articles provide much more positive assessments of the method.
The symposium in the Journal of Economic Perspectives from which Professor Hausman's critique was cherry-picked by Senator Vitter was commissioned as a twenty-year retrospective on the development of the contingent valuation method. In 1992, in the aftermath of the Exxon-Valdez oil spill, the National Oceanic and Atmospheric Administration commissioned a blue-ribbon panel of economists, including two Nobel prize winning economists, to assess the potential of the contingent valuation method to provide meaningful values for environmental goods and services. Beyond being generally supportive of the method, the NOAA panel outlined a set of best practices for the method to address many of the concerns Professor Hausman raised at the time and has raised again twenty years later.
In a published 2012 'Comprehensive Bibliography and History of the Contingent Valuation Method,' Professor Richard Carson of UC San Diego documents over 7500 academic papers and applied case studies from over 130 countries that use or discuss the contingent valuation, the vast majority of which have been published in the last 20 years. Professor Hausman's critique ignores most of this literature.
In a recent paper, published in the journal Applied Economics Policy and Perspectives (2013), Professors John Whitehead, Matt Interis, Dan Petrolia and myself conclude, "Hausman “selectively” reviewed the contingent valuation method (CVM) literature in 2012 and failed to find progress in the method during the 18 years since Diamond and Hausman argued that unquantified benefits and costs are preferred to those quantified by CVM. In this manuscript, we provide counter-arguments to Hausman's claims, not with the intent to convince the reader that the debate over CVM is settled in favor of the method, but rather to argue that the intellectual debate over CVM is ongoing, that dismissing CVM is unwarranted, and that plenty of work remains to be done for the truly curious researcher." I would be glad to provide a copy of this paper to any truly curious elected officials.
The selective use of a single publication from a vast peer-reviewed literature to defend a stance critical of the use of a method flies in the face of responsible use of academic research and will ultimately lead to bad public policy.
Tim Haab Professor and Chair Department of Agricultural, Environmental and Development Economics The Ohio State University
PS: For what its worth, I am a registered Republican.
I also sent a version of my letter to the House Committee on Science, Space and Technology (Subcommittee on Environment) which has jurisdiction over "all matters relating to environmental research..."
BenMAP is a Windows-based computer program that uses a Geographic Information System (GIS)-based to estimate the health impacts and economic benefits occurring when populations experience changes in air quality. BenMAP is powerful enough to perform a comprehensive benefits analysis but simple enough for non-technical users to estimate benefits after a short tutorial. Analysts have relied upon BenMAP to estimate the health impacts from air quality changes at the city and regional scale, both within and beyond the U.S. BenMAP includes nearly all of the information users would need to start performing a benefits analysis; advanced and non-U.S. analyses can customize the program to address their policy question. Because BenMAP is based on a GIS, the results can be mapped for ease of presentation.
Some of the purposes for which BenMAP is used include the following:
Generation of population/community level ambient pollution exposure maps;
Comparison of benefits across multiple regulatory programs;
Estimation of health impacts associated with exposure to existing air pollution concentrations;
Estimation of health benefits of alternative ambient air quality standards;
Performance of sensitivity analyses of health or valuation functions, or of other inputs; and
This one isn't covered in the benefit-cost analysis textbook:
We shelved the article for reasons I no longer remember, but recently, local stories have appeared on the funding, salaries and even compensation to board members of the Southern Environmental Law Center and their clients.
The figures are public record because non-profits file a federal tax form 990, which lists salaries of key employees as well as income and expense sources.
I focused on the Southern Environmental Law Center (SELC) because they are engaged in four issues locally: the closure of federal beaches along the Cape Hatteras National Seashore, the Bonner Bridge replacement over Oregon Inlet, the Mid-Currituck Bridge and most recently, a sweeping redefinition of “critical habitat” for loggerhead sea turtles that may extend the federal regulatory reach to beaches currently managed at the state, county or municipal level.
SELC is a law firm, thus its primary salaries are paid to staff attorneys and administrative personnel.
The general public usually overestimates salaries earned by attorneys, especially in small towns and rural environments. In reality, it is not unusual to see many attorneys, similar to “family doctors,” earning incomes that barely breach six figures in this region.
While many may think the salaries described in the accompanying charts are not excessive, I believe the story here is a comparison to the gap between what people are earning from litigating for so-called environmental causes and the incomes of the residents whose livelihoods, already fragile in places such as Hatteras Island, can be affected by the litigation. ...
People’s opinions on the salaries earned by these environmental crusaders may vary as to whether they are excessive or not.
But the incomes and lifestyles of the people on Hatteras Island, who are directly affected by the actions of the three organizations, are well below the compensation one can earn by challenging beach access and new bridges.
Comparing incomes of those working for those who want to legally challenge threats against "so-called environmental causes" is not something that I've encountered in print. Apparently, if the lawyers make $150,000 and the tackle shop and restaurant workers make less, then the SELC has no right to try to work the legal system to get their preferred bridge project in place.
And, actually, the salaries paid to the SELC are some evidence that this "so-called environmental cause" has large passive use values since the salaries are paid by voluntary contributions.
I would argue, if I had a platform to make such an argument (e.g., a blog), that policy decisions guided by benefit-cost analysis would be a much less costly way of moving forward. The environmental benefits of a more environmentally friendly bridge (i.e., one that bypasses the dynamic Oregon Inlet) or a high speed ferry (including passive use values) should be compared to the increased transportation and construction costs.
The accidents kept coming, and so did the calls for a plan to improve West Virginia’s chemical safety regulations.
Last week’s massive chemical spill into West Virginia’s Elk River was the region’s third major chemical accident in five years. It came after two investigations by the federal Chemical Safety Board in the Kanawha Valley, also known dryly as Chemical Valley. And it came on the heels of repeated recommendations from federal regulators and a local environmental advocacy group that the state adopt rules embraced in other communities to safeguard chemicals.
All of those recommendations died a quiet death with barely any consideration by state and local lawmakers, federal regulators and local environmental groups said. ...
“People always beat the drum about too much government regulation,” [Jeffrey V. Kessler, the president of the West Virginia Senate] said. “My goodness, there are 300,000 people I guarantee wish they had a little more regulation.”
So, if the costs of some sort of regulation is below $5.4 million (300,000 x 6 x $3), weighted by the probability that it might happen again plus the expected costs of other episodes avoided by the regulation (pause for breath), then the regulation is efficient.
"This blog aims to look at more of the microeconomic ideas that can be used toward environmental ends. Bringing to bear a large quantity of external sources and articles, this blog presents a clear vision of what economic environmentalism can be."
... the Environmental Economics blog ... is now the default homepage on my browser (but then again, I guess I am a wonk -- a word I learned on the E.E. blog). That is a very nice service to the profession. -- Anonymous
"... I try and read the blog everyday and have pointed it out to other faculty who have their students read it for class. It is truly one of the best things in the blogosphere." -- Anonymous