When research in 2011 showed that workers in the fields of science, technology, engineering, and mathematics earned a premium of 25 percent over other workers and have just a 5.5-percent unemployment rate, it reinforced strong economic incentives to get more people into those STEM fields.
But research like that might soon become more difficult to conduct. That’s because the U.S. Census Bureau wants to stop asking people in a key national survey about their field of study.
Since 2009 the bureau has collected data on people’s undergraduate fields of study as part of its American Community Survey, at the urging of the National Academy of Sciences and the National Science Foundation. The survey, which is based on responses from more than three million households, is used to collect demographic information and keep track of trends between the decennial censuses.
The division chief of the American Community Survey Office, Jim Treat, says a cost-benefit analysis was used to make the recommendation that the question be dropped. In an email to The Chronicle, Mr. Treat wrote that his office had looked at the perceived burden of including each question and had surveyed federal agencies to see which data were used.
If the Census Bureau were to drop the question, Mr. Gawalt said, it would not be impossible for the NSF to run its own survey again, but doing so wouldn’t be cheap. Before the Census added the field-of-degree question, he said, the NSF spent an estimated $17-million to compile the information, and the data had less detail than the American Community Survey provides. The NSF’s elimination of its survey resulted in savings of $4-million every other year.
This is a good example of a benefit-cost analysis that assigns standing to only a limited group. Since taxpayers are funding the ACS it seems like standing should be assigned to all users of the data and not just federal agencies.
Here is a (very) recent paper (that I've just printed out and hope to read over the break) that finds an "economics major" wage premium:
Carroll, Thomas, Djeto Assane, and Jared Busker. "Why it Pays to Major in Economics." The Journal of Economic Education 45, no. 3 (2014): 251-261.
Abstract: In this article, the authors use a large, recent, and accessible data set to examine the effect of economics major on individual earnings. They find a significant positive earnings gain for economics majors relative to other majors, and this advantage increases with the level of education. Their findings are consistent with Black, Sanders, and Taylor (2003), documenting that about two-thirds of the bachelor's degree premium for economics majors can be attributed to the type of job economics majors perform, and about one-third is a premium that economics majors earn over other workers within the same job.
I've been a fan of Mike Rowe since his early days on the Discovery Channel's 'Dirty Jobs.' I don't always agree with his political views, but he's entertaining. He has a new show on CNN called 'Somebody's Gotta Do it,' where he highlights what seem to many like odd jobs. Apparently in a recent show, he spotlighted efforts to save the Whooping Crane. A viewer took exception. In his response, Mr. Rowe sounds a bit like an environmental economist...at least he's asking economic-like questions:
"You did a disservice to Operation Migration and the whooping crane project on "Somebody's Gotta Do It." You came across as bored and disdainful. You say you work for the people who watch you and not the people who pay you -- OK. You're on probation."
Fair enough. I've been on probation my whole career, and I'll be grateful to remain there as long as you can tolerate me. But for what it's worth, you're mistaken. I was neither bored nor disdainful of anything I saw at the whooping crane facility. In fact, I was genuinely impressed with Dr. French and his team, and glad to give their program some national exposure. Now it's true - I didn't swoon in their presence, or behave as though I agreed with every single thing I heard. Dr. French was very clear about why he does what he does - he believes the whooping crane has as much right to exist as we do. I doubt that everyone shares that view. Should they?
I'm probably coming in late on this one (since the paper first came out in 2009!), but I recently read this paper from Phil Graves. I got the chance to ask a few questions about it online and was intrigued by the consequences. I'm curious to see what other people who are regularly estimating WTP/WTA think about these consequences - namely that you're estimating at the wrong income level for some of your survey respondents (likely a greater number of your respondents than representative given response rates for "those who care"). Has anyone tried the idea that Graves mentions in the LinkedIn questions where you scale your response to the private goods-equivalent gap?
H.R. 5069 would allow the Department of the Interior (DOI) to raise the price charged for Federal Migratory Bird Hunting and Conservation Stamps (referred to as federal duck stamps). Federal duck stamps are annual permits sold by the federal government to hunt migratory waterfowl. The stamps also allow entry to National Wildlife Refuges that charge entrance fees. Sales proceeds are used to acquire wetlands for inclusion in the National Wildlife Refuge System.
CBO estimates that enacting H.R. 5069 would reduce the deficit by $5 million over the 2015-2024 period. Collections from the sale of duck stamps are recorded in the budget as revenues, deposited in the Migratory Bird Conservation Fund (MBCF), and later spent. Because the bill would affect direct spending and revenues, pay-as-you-go procedures apply. In addition, we estimate that implementing the bill would have no significant effect on discretionary spending.
H.R. 5069 contains no intergovernmental mandates as defined in the Unfunded Mandates Reform Act (UMRA) and would impose no costs on state, local, or tribal governments.
By increasing the annual fee for duck stamps, H.R. 5069 would impose a private-sector mandate, as defined in UMRA, on individuals required to obtain the stamp as a federal permit to hunt migratory waterfowl. Based on information from gaming officials at DOI, CBO estimates that the incremental cost of complying with the mandate would fall well below the annual threshold for private sector mandates ($152 million in 2014, adjusted annually for inflation).
If the federal government does manage to raise revenue it is only because almost all of the revenue will be used to buy wetland habitat, effectively scaling the no-new-taxes-no-matter-the-need constraint that we find ourselves in.
This part of the cost estimate got me to thinking [pdf]:
H.R. 5069 would increase the price of federal duck stamps from $15 to $25 for an annual permit. Based on information provided by DOI, CBO estimates that federal revenues would increase by $119 million over the 2015-2024 period. That estimate includes a reduction in the number of stamps sold compared with the number that would be sold at a price of $15, reflecting CBO’s assessment of the effects of prior stamp price increases.
I'm not sure about the "CBO's assessment of the effects of prior stamp price increases" since the two most recent duck stamp price increases, $10 to $12.50 in 1989-90 and $12.50 to $15 in 1991-92, have been followed by increases in sales (the 1987-88 increase from $7.50 to $10 led a 7.3% decrease in sales, an elasticity of -0.22; you can get the data here).
It would be interesting to know how price sensitive the CBO thinks waterfowl hunters are. In a sport that requires thousands of dollars of equipment, I wonder how much a $10 increase would have on the participation decision. The FWS says that 1,517,647 duck stamps were sold in 2011-12 (pdf). If revenues increase by $13 million annual, my back of the envelope calculation suggests that they think they'll sell 1.42 million stamps.*
Most (I say most because I don't read them all, I don't even read a few, but all that I've read have done this) of the CBO's "cost analyses" are actually benefit-cost analyses where market prices are assumed constant. Under this assumption the benefits of a government program is the government revenue and the cost is the government expenditures. This reason I find this one interesting is that the policy is a price increase so that the one thing that is missing is the lost consumer surplus, which I estimate is about $400,000.*
The Senate bill (S. 1865) would raise the price to $30 after five years of $25 and revenues are estimated to increase by $8 million. I'll leave these calculations as an exercise (i.e., I can't figure out why sales do up, unless we are adding a population trend).
*Here is my logic (invoking ceteris paribus at the outset): Let's say that 1.5 million duck stamps are sold. At a price of $15 that is revenue of $22.5 million (which is the correct order of magnitude). Given a downward sloping linear demand revenue will rise by area a and fall by area e. The CBO estimates that the revenue increase (a - e) will equal $13 million suggesting, logically, inelastic demand (the picture is not to scale!). Based on this it looks like 1.42 million duck stamps are expected to be sold (i.e., 1.42 = [25.5+13]/25). These numbers suggest an elasticity of -0.08 which is more inelastic than the 1987-88 experience.
The only cost that is not included in this calculation is the lost consumer surplus from area b. Area b is equal to $400,000. However, all is not lost because the waterfowl hunters that remain in the market will likely take more visits to wildlife refuges with more habitat, increasing consumer surplus [what am I missing?].
The course is for senior economics majors, MBAs and graduate students from other programs. My reading list includes BCA examples, overviews, technical stuff (in mostly non-technical language) and other stuff.
Am I missing anything?
Allen, Bryon P., and John B. Loomis. "The Decision to use Benefit Transfer or Conduct Original Valuation Research for Benefit-Cost and Policy Analysis," Contemporary Economic Policy 26, no. 1 (2008): 1-12.
Atkinson, Giles, and Susana Mourato. "Environmental cost-benefit analysis."Annual Review of Environment and Resources 33 (2008): 317-344.
Banzhaf, Spencer H. "Consumer surplus with apology: a historical perspective on nonmarket valuation and recreation demand." Annual Review of Resource Economics 2, no. 1 (2010): 183-207.
Barget, Eric, and Jean-Jacques Gouguet. "The total economic value of sporting events theory and practice." Journal of Sports Economics 8, no. 2 (2007): 165-182.
Blomquist, Glenn C. "Self-protection and averting behavior, values of statistical lives, and benefit cost analysis of environmental policy." Review of Economics of the Household 2, no. 1 (2004): 89-110.
Blomquist, Glenn C., Paul A. Coomes, Christopher Jepsen, Brandon C. Koford, and Kenneth R. Troske. "Estimating the social value of higher education: willingness to pay for community and technical colleges." Journal of Benefit-Cost Analysis 5, no. 1 (2014): 3-41.
Cohen, Mark A., Roland T. Rust, Sara Steen, and Simon T. Tidd. "Willingness-to-pay for Crime Control Programs,” Criminology 42, no. 1 (2004): 89-110.
Farrow, Scott. "How (Not) to Lie with Benefit-Cost Analysis." The Economists’ Voice 10, no. 1 (2013): 45-50.
Graves, Philip E. "Benefit-Cost Analysis of Environmental Projects: A Plethora of Biases Understating Net Benefits." Journal of Benefit-Cost Analysis 3, no. 3 (2012).
Griffiths, Charles, Heather Klemick, Matt Massey, Chris Moore, Steve Newbold, David Simpson, Patrick Walsh, and William Wheeler. "US Environmental Protection Agency valuation of surface water quality improvements." Review of Environmental Economics and Policy (2012): rer025.
Loomis, John B. "Incorporating distributional issues into benefit cost analysis: why, how, and two empirical examples using non-market valuation." Journal of Benefit-Cost Analysis 2, no. 1 (2011).
Rhodes, Raymond J., John C. Whitehead, and T.I.J. Smith, A Benefit-Cost Analysis of a Red Drum Stocking Program, unpublished paper presented at the 2006 Southern Economic Association Meetings, Charleston, SC, November.
Richardson, Leslie, Tatjana Rosen, Kerry Gunther, and Chuck Schwartz. "The economics of roadside bear viewing." Journal of environmental management140 (2014): 102-110.
Robinson, Lisa A. "How US Government Agencies Value Mortality Risk Reductions." Review of Environmental Economics and Policy 1, no. 2 (2007): 283-299.
Rose, Adam, Keith Porter, Nicole Dash, Jawhar Bouabid, Charles Huyck, John Whitehead, Douglass Shaw et al. "Benefit-cost analysis of FEMA hazard mitigation grants." Natural Hazards Review 8, no. 4 (2007): 97-111. [see also: Congressional Budget Office, Potential Cost Savings from the Pre-Disaster Mitigation Program, September 28, 2007]
Sunstein, Cass R. "The Real World of Cost-Benefit Analysis: Thirty-Six Questions (and Almost as Many Answers)." Columbia Law Review (2014): 167-211.
Van Houtven, George, and Maureen L. Cropper. "When is a Life Too Costly to Save? The Evidence from US Environmental Regulations." Journal of Environmental Economics and Management 30, no. 3 (1996): 348-368.
Vitaliano, Donald F., “Repeal of Prohibition: A Benefit-Cost Analysis,” Contemporary Economic Policy (2014).
As you’ve probably heard, the City of Toledo recently warned its residents not to drink the water. Why? Contamination from toxic algae blooms in Lake Erie, largely caused by the runoff of phosphorus from farms.
When I read about that, it rang a bell. Last week many Republican heavy hitters spoke at a conference sponsored by the blog Red State — and I remembered an antigovernment rant a few years back from Erick Erickson, the blog’s founder. Mr. Erickson suggested that oppressive government regulation had reached the point where citizens might want to “march down to their state legislator’s house, pull him outside, and beat him to a bloody pulp.” And the source of his rage? A ban on phosphates in dishwasher detergent. After all, why would government officials want to do such a thing?
An aside: The states bordering Lake Erie banned or sharply limited phosphates in detergent long ago, temporarily bringing the lake back from the brink. But farming has so far evaded effective controls, so the lake is dying again, and it will take more government intervention to save it.
The point is that before you rage against unwarranted government interference in your life, you might want to ask why the government is interfering. Often — not always, of course, but far more often than the free-market faithful would have you believe — there is, in fact, a good reason for the government to get involved. Pollution controls are the simplest example, but not unique.
Externalities exist so there is a role for the government in the market economy. I try to explain to students that it is not a 0,1 proposition (libertarian vs totalitarian), the better debate is how much pollution should there be and what is the best way to control it. That puts us somewhere in between 0 and 1.
Mr. Erickson's quote is quite shocking, really. Grown-ups shouldn't get so upset about laundry detergent.
It is always exciting when consumer surplus makes the headlines:
Rarely has the concept of happiness caused so much consternation in public health circles.
Buried deep in the federal government’s voluminous new tobacco regulations is a little-known cost-benefit calculation that public health experts see as potentially poisonous: the happiness quotient. It assumes that the benefits from reducing smoking — fewer early deaths and diseases of the lungs and heart — have to be discounted by 70 percent to offset the loss in pleasure that smokers suffer when they give up their habit.
Experts say that calculation wipes out most of the economic benefits from the regulations and could make them far more vulnerable to legal challenges from the tobacco industry. And it could have a perverse effect, experts said. The more successful regulators are at reducing smoking, the more it hurts them in the final economic accounting.
“This threatens the F.D.A.’s ability to take strong actions against tobacco,” Frank J. Chaloupka, an economist at the University of Illinois at Chicago, said of the Food and Drug Administration. “If they can’t demonstrate that there is a significant economic benefit to doing it, then it makes their job much harder.”
On Wednesday, Professor Chaloupka and other prominent economists, including a Nobel Prize winner, publicly took issue with the analysis. In a paper submitted to the F.D.A. as the period for public comment on the regulations neared its end on Friday, the group said the happiness quotient was way too high and should be changed before the regulations take effect.
“There’s reason to believe that number is much too big,” said Jonathan Gruber, an economist at the Massachusetts Institute of Technology who was an author of the paper. In his view, the agency’s analysis cited his past work erroneously.
The idea of lost happiness is new for health regulation. But it has surfaced as part of a longstanding requirement — first codified under President Bill Clinton — that every set of federal regulations with more than a $100 million effect on the economy needs an analysis to prevent the adoption of regulations with high costs and low benefits.
The cost-benefit analysis is embedded in a proposal from April that would extend the F.D.A.’s authority, for the first time, to electronic cigarettes and other tobacco products such as cigars and pipe tobacco, with potentially large consequences for the multibillion-dollar tobacco industry.
Here is the issue from the executive summary of the report at tobacconomics.org (tobacconomics.org?):
The most critical concern about FDA’s cost estimation is the agency’s reliance on lost consumer surplus as a cost of smokers’ quitting in response to the GWLs. We describe in detail why the notion of consumer surplus, predicated on well‐informed rational behavior, does not apply in this instance in which the vast majority of smokers begin smoking, and become addicted, before the age of majority. These smokers have imperfect information and, in particular, insufficiently understand the power of the addiction to nicotine when they start smoking. Almost uniformly they believe that they will not be smoking five years later, when in fact the vast majority are. We discuss the applicability of such notions as the principle of insufficient reason, present bias, and projection bias, and consider the relevance of self‐control problems documented in the literature. For reasons we give, most smokers induced to quit by the GWLs will conclude that they have achieved a large net benefit.
My benefit-cost analysis class starts in about two weeks. I'll have this one loaded up for day 1!
A UN-backed conference on climate change ended with a call to end capitalism. The conference, organised by the Venezuelan government, saw 130 green activist groups meet to discuss their demands.
Green website Respond to Climate Change says that at the end of the conference, the groups issued what is being called the 'Margarita Declaration', which says: "The structural causes of climate change are linked to the current capitalist hegemonic system. To combat climate change it is necessary to change the system."
This declaration will be handed to environment ministers when they meet in the UN’s talks in Lima later this year.
Participants at the meeting included the World Wildlife Fund (WWF), Climate Action Network International, Third World Network and Christian Aid.
The declaration also condemned the idea of having a so-called "Green Economy", saying this was nowhere near radical enough, and only the end of the capitalist system would solve the problem of climate change.
Look, I get the point. Markets set prices. Prices ration goods. Because environmental goods and services are severely underpriced by markets (in many cases that price is zero), environmental goods and services are overconsumed, underproduced, overexploited, crapped on, however you want to say it. Environmentalists are rightly concerned.
Because environmental goods and services are mispriced in a market based system, market based systems must be to blame for environmental degradation and (here's where the logic breaks down) therefore, we must abandon market based systems for allocating goods and services.
But to paraphrase Winston Churchill, capitalism is the worst system for allocating environmental goods and services, except for the rest. I'm always stunned by the misunderstanding and misrepresentation of market systems by environmentalists. Markets ration scarce goods. They do so through prices. The problem with environmental degradation is not that markets lead to overexploitation of environmental goods and services, but rather market conditions fail to allow markets to establish the proper price for environmental goods and services. If the price is right, people will (usually) make rational decisions.
So, the solution to environmental issues is not to abandon markets and dictate to people the choices they should make, but rather the solution is to establish the correct set of prices that capture the full scarcity value of all goods and services, including environmental goods and services. In some cases this might happen through the establishment of markets for environmental goods and services (for example, cap and trade) or it might happen through direct pricing of environmental goods and services (for example, emissions taxes), or it might happen through restrictions on use (for example, endangered species laws).
Abandoning markets will not solve environmental problems, because the environment will still be viewed as free. Prices, or some other representation of value, are still needed, and there is simply no better way to establish prices than through markets.
Poorly functioning markets might lead to environmental problems, but well-functioning markets are the best solution.
Climate scientists, and natural scientists more generally, believe that climate change is a major, perhaps the most important, problem facing humankind this century, and that it is increasingly linked to extreme weather events. However, the impression one gets from much of the economic literature, particularly simulations from integrated assessment models used in policy analysis, is that the potential impacts of climate change are not large enough to warrant aggressive mitigation efforts in the near term. Although these models represent an important step in the needed interdisciplinary analysis of climate change by elucidating the links between climate and economy, we argue that they grossly underestimate potential impacts and associated damages because they (and the related policy analyses) fail to adequately capture extreme conditions, catastrophic events, and tipping points that trigger irreversible changes in the climate system, as well as impacts on the natural environment that cannot be monetized. Because the most severe impacts are expected in the later years of this century and beyond, discounting is crucial, and we argue that the appropriate rate is well below market rates. Moreover, we show that in the uniquely long period relevant to climate policy, the irreversibility of climate changes and impacts is more serious than the irreversibility of proposed mitigation measures. We conclude that an aggressive mitigation policy is warranted, one that holds further increases in global mean temperature to the scientific consensus on what is required to avoid the worst impacts, and that such a policy can be achieved at a cost that is well below potential damages.
"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."
Don't believe what they're saying
And allow me a quick moment to gush: ... The env-econ.net blog was more or less a lifeline in that period of my life, as it was one of the few ways I stayed plugged into the env. econ scene. -- Anonymous
... 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