Dr. Deidre McCloskey,a Distinguished Professor of Economics, History, English, and Communication, University of Illinois at Chicago, will give a talk titled "Use and Misuse of Statistical Methods" on Thursday, April 9 at 3 pm in room 118 in Anne Belk Hall. This is a talk that is accessible to all, without background in statistics.
The Department of Economics was one of the sponsors.
The talk was on statistical vs. economic significance. The former is misuse and the latter is use. I totally agree with the thesis if all the researcher does is consider t-values and p-values. I still referee the occasional paper that ignores effect sizes. I also still referee the occasional paper that discusses a coefficient estimate that has a standard error such that the p-value is greater than .10. I routinely scold the author about how this coefficient is not statistically significant and shouldn't be discussed. As McCloskey said yesterday this is nonsense because p = .10 is an arbitrary cutoff. A large effect at p = .11 might still be economically important (also, a one-tailed test might be more appropriate for things such as price [and scope] effects, but economists seem to disdain one-tailed tests). I'll try to to better with this in the future.
Afterwards I introduced myself and thanked her for coming to Boone. She asked me what was my field, I said something like "environmental, we don't have much of a problem with ignoring effect sizes since it is mostly policy driven." She nodded in agreement and said something like "policy makers don't care about your p-values."
I mentioned that I always read the "Other Things Equal" articles in the Eastern Economic Journal way back in the 1990s. These were short pieces that appeared at the end of each issue. The ones I still remember and recommend to others are:
Economical Writing: An Executive Summary [pdf] - This is one I ask seniors to read before they commence writing their papers in the seminar course. It is short enough that undergraduates won't begrudge you for assigning it and heavy enough that, if taken seriously, can help readers of their papers.
To Burn Always with a Hard, Gemlike Flame, Eh Professor? [pdf] - To avoid burnout (and I began this profession at the age of 26, so I've always worried about burnout) you need to work on the things that most interest you (e.g., don't read the AER just to try to figure out how to publish in the AER).
How to Host a Seminar Visitor [pdf] - It is about promoting your department just as much as it is about learning something from the speaker.
These, and almost all of the others, are worth a re-read.
“Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.”
- Albert Einstein
Yesterday, in my Principles of Food and Resource Economics class (135 students--mostly freshmanpeople and sophomores), I was talking about cost-benefit analysis. In particular, I was talking about comparing benefits and costs across time, which of course leads to a discussion of discounting. Rather than drone on about discount rates and present and future values, I decided to show the class the power of compound interest--if nothing else to provide them with something useful they might use outside of class (it's not like they will remember any actual material from class).
So here is the example I used: Suppose, starting at age 25, you invest $1,000 per year at 10% return per year (the rough long-term average of the S&P 500) until age 65. Alternatively, suppose you waited until age 45, but invested $2,000 per year for 20 years. In both cases you are investing $40,000. Which savings plan would you choose?
Most of the class chose the delay option (probably because we had already spent a good amount of time talking about the time value of money). I then showed them how to calculate the future value of an annuity (FV=$X(((1+r)^n)-1)/r).
In the first case, the future value of $1,000 ($X=$1000) invested at 10% annual interest (r=0.10) for 40 years (n=40) is $442,593. This seemed to shock most of the students. Investing $40,000 could multiply by over a factor of 10. I explained that is the power of compound interest.
To emphasize the point I then showed them that the future value of the second savings stream ($2,000 per year at 10% for 20 years) is 'only' $114,550. Again, this seemed to surprise many of the students.
So I asked the class, "What is the most sure way for you to become a millionaire by age 65?"
Willingness to pay for a national renewable energy portfolio standard
This research focuses on the relationship between outside variables and a positive vote by North Carolinians for a new national Renewable Energy Portfolio Standard. Under this new law, electric utilities in North Carolina will be required to meet up to 12.5% of their energy needs through renewable energy resources such as wind, solar and geothermal sources. The Renewable Energy Portfolio Standard would likely increase electric bills for North Carolina electricity consumers. The data for this research is from a 2010 survey of North Carolina residents. The survey had two parts. The first part of the survey was done by telephone and then the same respondents were asked to complete an internet survey. I will conduct a bivariate linear probability model regression and look at the effect of the rise in consumer’s electricity costs on positive votes for the policy. Willingness to pay for the policy will be estimated. The determinants of the votes are variables such as concern for climate change, income, and years to live, etc.
I'll post more on this as we get closer to April 23. But, the department bought a student copy of Limdep and we covered how to estimate the panel model today (after some background reading). On the fly I decided I wanted to do one of those cool video screen shots with a voice over so that it would be relatively easy to work through some new software. I used the Google and found Screencast-o-matic. After less than 10 minutes, including my botched first attempt (which I called a rehearsal), I uploaded my video to YouTube. I used the free version but will probably pay the $15 for teaching my biz stats II class in the fall. I didn't do any consumer research, are there other good products out there?
I organized a "research experience for undergraduates" session at the SEA meetings this year. I was inspired to include some sort of research activity in any and all classes I teach. No problem, right? Problem: my sophomore level introduction to environmental and resource economics course has 88 students. I had to figure out how to implement a research project in a large classroom. I presented the following assignment in class today (Download ECO 2620 Research Project). It involves data collection (n=5), some analysis (comparison of means and linear interpolation) and writing (a 200 word abstract). I think it is do-able in classes larger than 88 with some GA help for grading. Comments and suggestions are appreciated!
I have accepted a faculty position ... and will be teaching an environmental economics course for the first time. I wanted to see if you had any recommendations for a textbook to be used in an environmental course without an intermediate microeconomics prerequisite. This class was designed to appeal to economics and non-economics majors and students are only required to take introduction to economics ... prior to this course. ... Do you have any recommendations for other intro texts, or would you use a standard text and stress intuition over math?
I'm using Tietenberg and Lewis, Environmental Economics and Policy, this semester in a course with no prerequisites. The book is full of stuff so I go really slow. So far I've only covered chapters 1 - 4, 14. The four part outline is 1. benefit-cost analysis, 2. environmental economics, 3. natural resource economics and 4. sustainability. There is an exam on Friday and then I'll start section 3 next week.
SUMMARY: With gasoline prices down 33% from a year ago and buyers cooling toward electric vehicles, Nissan dealers worry that weak demand for used electric Leaf cars will put a flood of used models on the market.
CLASSROOM APPLICATION: Students can use supply and demand to examine the effect of lower gasoline prices and federal incentives to purchase new electric vehicles on the demand for new and used plug-in electric vehicles. Instructors can highlight that new and used versions of a vehicle are economic substitutes and that a decrease in the price of one reduces the demand for the other. Another interesting point noted in the article is about the effect of decreased used-car prices on the profits of auto leasing companies. Students can evaluate the relationship between used-car prices and equilibrium lease rates.
QUESTIONS: 1. (Introductory) What factors are driving the decreased demand for used plug-in electric vehicles?
2. (Advanced) How does the sale price of an automobile coming off a lease affect the profit of the company that leased the car? In turn, how do these resale prices affect lease rates?
3. (Advanced) How does the demand for used plug-in vehicles affect the equilibrium prices of new plug-in vehicles?
A Natural Resource Damage Assessment case study for the classroom and beyond:
A long-fought legal battle to recover $8.9 billion in damages from Exxon Mobil Corporation for the contamination and loss of use of more than 1,500 acres of wetlands, marshes, meadows and waters in New Jersey has been quietly settled by the state for around $250 million.
The lawsuits, filed in 2004, had been litigated by the administrations of four New Jersey governors, finally advancing last year to trial. By then, Exxon's liability was no longer in dispute; the only issue was how much it would pay in damages.
The stakes were high, given the enormous cost the state's experts had placed on restoring and replacing the resources damaged by decades of oil refining and other petrochemical operations, as well as of the public's loss of use of the land. ...
But a month ago, with a State Superior Court judge believed to be close to a decision on damages, the Christie administration twice petitioned the court to hold off on a ruling because settlement talks were underway. Then, last Friday, the state informed the judge that the case had been resolved. ...
The attorney general's office said in its brief in November that the sites had been "adversely affected by or buried under the discharge of hazardous substances," including over 600 identified chemicals.
On the Bayway site, a 2007 court opinion noted, marshland adjacent to a creek was "now mostly covered with a tar of petroleum products or filled with other hazardous constituents and debris." Another 45 acres comprised "sludge lagoons," one-time tidal marshes that had been used as hazardous waste disposal facilities.
The state had set the cost of primary restoration of the sites at $2.6 billion; the state also sought $6.3 billion for what it described as compensatory or "loss of use" damages, intended "to make the public whole." ...
Exxon had vigorously contested the lawsuit, and in its brief after the trial said that it had long ago taken responsibility for cleaning up the contamination; that there were "fully functioning" marshes, forests and wildlife on the sites; and that, because they had been closed to the public for years, the state was seeking a windfall "for something the public never lost."
Exxon argued that the state's arguments "ignore the evidence, science and the law" and that no damages should be awarded.
The NRDA economics are fascinating. From the Superior Court of New Jersey, Appellate Division, Docket No. A-0316-09T2, 2011 (HTML, PDF):
The fourth [New Jersey Department of Environmental Protection] expert was Stratus, whose bills totaled $416,900.90. Stratus and TEA prepared a November 2006 report entitled "Natural Resource Damages at the ExxonMobil Bayway and Bayonne Sites" (the Stratus report). The Stratus report outlined a plan to restore and replace natural resources at the Bayway and Bayonne sites, which would cost $8.9 billion. The report addressed only the refinery sites themselves, and not "the Arthur Kill, the Kill van Kull, Newark Bay, New York Harbor, or the broader Hudson-Raritan Estuary," which would be addressed in future reports. The Stratus report described in great detail the natural environment that was present at the sites before they became contaminated, the nature of the contamination found on the sites and a proposed restoration plan, relying upon the on-site restoration specifications and costs established in the 3TM report. The report estimated that the Bayway site could sustain restoration of 464 acres of intertidal wetlands, 59 acres of palustrine meadow and 28 acres of upland forest; the Bayonne site, with ongoing industrial operations, could sustain 25 acres of restored intertidal habitat. Those on-site restorations would cost $2.5 billion. In addition, off-site replacement of 11,000 acres of intertidal salt marsh, 19,000 acres of palustrine meadow/forest, and 3,400 acres of upland meadow/forest would be needed to compensate for the decades of harm at the site and because some portions of the site cannot be restored; this would cost $6.4 billion.
Another expert for defendant, William H. Desvousges, Ph.D., opined in his February 2008 report that no significant losses in ecological services had occurred at the Bayonne site, so he did not calculate any damages for that site. As to the Bayway site, he calculated past reductions in ecological services only from 1977 and projecting forward until remediation/restoration activities are completed. He used the 1977 date "on advice of counsel." He found that only twenty to forty-seven acres of onsite restoration would be required, and restoration costs would range from $1,378,000 to $1,837,000. If he instead used the higher estimates developed by Dr. John Rogers for restoration of all habitat areas, Desvousges calculated that restoration damages would range between $1,965,000 and $3,004,000; the top of that range reflected the higher cost for an offsite salt marsh project, the approach that Rogers preferred. The cost under that calculation would be $45,600 per acre, well within the $10,000 to $84,000 per-acre range that Desvousges had seen for similar projects, whereas the DEP's experts used a figure well outside that range, $274,000 per acre. Desvousges criticized the Stratus report as "inherently flawed" and "unlike any that I have seen in more than 20 years of conducting NRDAs." He contended that the Stratus report failed to conform to sound economic principles or practices, failed to account for contamination from other sources, and overstated the baseline conditions including the effects of the refinery structures in the damage estimates.
The guardian of academic integrity or something? I should blissfully enjoy being snowed in and not having to teach negative externality in an 8 am micro class. From the inbox:
Classes that begin before 12:30 p.m. on Thursday, Feb. 26, are canceled. Classes that begin at 12:30 p.m. and later will be held as scheduled.
[ begin rant ]
I understand the need for safety. But the university has absolutely no plan for snow cancellations. Three ideas are:
Adding make up days to the end of the semester
Saturday make up days
Online lectures / assignments on cancelled days (some faculty already do this; others take a holiday)
Tuesday / Thursday morning classes have now missed two weeks out of the semester. Classes later in the day also get cancelled so that different sections of the same course don't get off track. At some point the students aren't receiving the equivalent of 3 sh of college instruction. The above suggestions may be too costly or impractical but cancelling classes without any discussion of the academic implications is not acceptable.
"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