As John pointed out, today's announcement of the Prize in Economics named after Alfred Nobel, but not really a Nobel Prize (or whatever it's called) being awarded to Elinor Ostrom could be interpreted as an award for a pseudo-environmental economist. As CNN.com puts it:
Ostrom, a professor of political science at Indiana University, was praised "for her analysis of economic governance, especially the commons."
Even though she is in a political science department, Ostrom's work has had significant influence on the field of environmental economics, particularly the recognition that common pool resources don't always collapse under the 'tragedy of the commons' as is predicted by traditional models. To whit, consider the following quote from the introduction to a highly influential paper:
Economists have tended to view the presence of externalities and other market failures as leading to a private equilibrium that would not be Pareto optimal. In the exploitation of common-pool resources, especially biological resources, this would lead to the much-discussed `tragedy of the commons'. A challenge to this traditional view has emerged from study of the theory and practice of the exploitation of common-pool resources. A considerable body of research shows that, for many common pool resources, a private equilibrium embedded in an endogenous institutional structure has resulted in sustainable harvests and biomass. Evidence for these findings appears in numerous places, including Feeney et al., Ostrom (1990), McCay and Acheson, and Sethi and Somanathan.
In general, collective action can result in amelioration of externalities when a social norm influences individual decision-making. Policies aimed at increasing the level of compliance can result in dynamic as well as static adjustment to the level of compliance if individuals react to social norms. Traditional models of management of the commons with regard to pollution treat individual decisions to pollute as independent of social influences. The proposed framework suggests that management decisions that incorporate social interaction into the decision framework can lead to lower cost policy solutions that evolve over time rather than immediately reach the desired steady state equilibrium.
And yes, I use big words when I write academic articles. That tends to hide the stupidity of the underlying ideas. An no, the paper isn't really highly infuential.
*Journal of Environmental Management (2002) 66:67-76.
High school friend of Env-Econ (Chuck) asks: what are your thoughts on the farm part of this? First an excerpt:
On agriculture, wealthy farmers would get less money from the
federal government -- and none, three years down the line -- under
proposals in Obama's first budget.
Obama's proposed fiscal year
2010 budget "phases out direct payments over three years to farmers
with sales revenue of more than $500,000 annually," according to the
At present, "direct payments are made to even large
producers regardless of crop prices, losses or whether the land is
still under production."
But according to the list, "Large
farmers are well-positioned to replace those payments with alternative
sources of income from emerging markets for environmental services,
such as carbon sequestration, renewable energy production, and
providing clean air, clean water, and wildlife habitat."
proposed budget cuts the Market Access Program which provides "funding
for overseas brand promotion." It cuts cotton subsidies and "proposes
to eliminate the requirement for the government to pay the storage
costs of cotton that is put under loan by the USDA. Cotton is the only
commodity for which this assistance is provided."
My thoughts? Jublilation. Joyous vindication. Disciplinary pride.
Reducing or removing inefficient farm income policies is long overdue...with the added bonus of cheaper food. Sounds like a win-win to me.
GDP godfather Simon Kuznets was the first to warn about its limitations: "The welfare of a nation can...scarcely be inferred from a measurement of national income as defined above." He wrote that during the last depression. What's really depressing is that we still haven't found something better, and notforalackofwant.
Today's Financial Times analysis leads with one of the worst reasons why GDP shouldn't be used as a measure of how well we are doing as a nation:
Across the world, standard measures of economic performance are suddenly producing terrible results. Maybe it is time to change them.
Fortunately, it gets a lot better from there. The article surveys one of Nicolas Sarkozy's lesser known initiatives:
a 24-member commission of prominent economists led by Joseph Stiglitz and Amartya Sen, both Nobel prize winners, is due to report in April on ways of improving our economic bookkeeping. The aim is to render economic data more comprehensive, more intelligible to the public and more relevant for policymakers by taking into account such factors as environmental degradation and quality of life.
I wouldn't hold my breath for the April report to have all the answers, but who knows, perhaps it takes another depression recession to come up with a better GDP measure.
That is why economics is known as the dismal science. We strange economists are most adept at recognizing the opportunity costs of various decisions. No one else really seems to care if opportunity costs offset some, or all, of the benefits of a good idea.
Opportunity cost is a strange notion to some (especially intro micro students) ... it is the value of the next best alternative whenever a choice is made. For example, if I purchase a $1000 flat panel LCD TV, the true cost of the TV is not $1000, but what I could purchase instead (such as $500 in each kid's college education 529 plan [sorry kids]).
In the case of green energy subsidies, if you are an economist then you must at least wonder if this is the best way to spend the money. There are benefits of pushing down the costs of green energy (e.g., improved air quality), and there are opportunity costs. Ignoring the opportunity costs is likely to lead to wasteful spending. Considering the opportunity costs is likely to lead to better social decision making -- regardless of whether the benefits of the subsidies exceed the costs.
The notion of opportunity cost, its recognition and the inevitable result that not all great sounding ideas are really great ideas, is the most important thing that economists bring to many policy discussions. Pointing out the unpleasantantries of opportunity cost is one of the purposes of this blog. The dismal part of the dismal science can not be avoided.
We are used to paying for oil, coal, fish and other things "out there" in Nature -- either because someone owns the rights to those resources or its costs money to get them from "the commons."
Contrast our attitudes towards resources with our attitudes to the environment, which we are accustomed to "consume" for free.
As the environment is threatened and becomes more scarce, perhaps we have to think of it as a resource -- and one that is worth paying for.
Exactly. Prices ration goods. As long as the price determining mechanism (markets in most cases) fully capture all of the costs and benefits associated with production and consumption, the resulting price will result in an efficient--and in most cases fair (yep, I said it--markets produce fair outcomes in many cases, depending of course on how you define fair)--allocation of resources.
In our never ending attempt here at Env-Econ to make the jobs of lazy principles of micro teachers easier, here's a story you can use to illustrate: 1) Elasticities, 2) Substitutes, 3) Incidence of taxations, 4) Direct versus indirect externalities and life cycle impacts, 5) Paper or Plastic? Enjoy.
Mayor Bloomberg wants to nickel and dime you at the grocery store - taxing you an extra 5 cents for every plastic bag you take home.
The controversial charge could raise at least $16 million for the cash-strapped city while keeping tons of plastic out of landfills, city officials said Thursday - but some outraged shoppers aren't buying it.
At this moment, we are faced with the convergence of three interrelated crises: economic recession, energy insecurity and the overarching climate crisis. Solving any one of these challenges requires addressing all three.
The op-ed concludes that:
Today, the sustainability challenges the planet faces are extraordinary and completely unprecedented. Business and the capital markets are best positioned to address these issues.
...as long as the incentives are correct:
We...need to internalize externalities -- starting with a price on carbon. The longer we delay the internalization of this obviously material cost, the greater risk the economy faces from investing in high carbon content, "sub-prime" assets. Such investments ignore the reality of the climate crisis and its consequences for business.
I'm emailing you to ask whether you would be willing to post a link on your blog regarding a new Certificate in Ecological Economics being offered online by Dr. Robert Costanza through the Gund Institute for Ecological Economics.
We are currently offering two full courses, Introduction to Ecological Economics and Introduction to Simulation Modeling, completely online. Unlike other online courses, all the content associated with these courses is freely available under the creative commons license. Besides the content being used within this course directly, additional content is also available which may be useful to others teaching Ecological Economics courses.
... 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