Environmental Economics

An example of why we started this blog...and why it is still relevant

Bear with me, this might take a minute to get to the point.  In 2005, John and I started Env-Econ with the following mission:

The Environmental Economics blog is dedicated to the dissemination of economists’ views on current environmental and natural resource issues. We hope this blog will help bring economists’ views on environmental issues further into the mainstream. The intended audience includes the general public and students. Posts are non-technical. [emphasis added]

I added the emphasis to that in light of a comment I received this morning on this post from yesterday.  As background: in the post, I asked an academic colleague to give me a back of the envelope calculation of the social value of beach renourishment.  At the end of the post I linked to the academic article on which my colleague based the back of the envelope calcualtion--mainly to give credit where credit is due and also to let any reader so inclined to take a look at what goes into making the sausage that is Env-Econ.  Anyway, one of our readers was so inclined--and apparently didn't like what  they saw in the sausage factory:

I tried to read and understand Sathya Gopalakrishnan's abstract and I can't. I need an interpreter. I'm pretty sure it's English. Maybe someone could get a "grant" to find out just what percent of the US adult population accurately understands her language? Maybe I'm just dumb. I do have a B.S. degree from a highly regarded university but that was a long time ago.

A few points:

1. What percentage of the US adult population accurately understands her language is irrelevant for the abstract.  The abstract is intended for an audience of academic environmental economists and as such the relevant question is 'What percentage of the world population of those interested in academic issues relevant to environmental economists understand her language?'  Based on almost 20 years of experience (including a stint co-editing the journal in question), I would venture a guess that the percentage is very high--but the denominator in that percentage is pretty small.
2. The commenter has discovered one of the dirty little secrets of academics.  We academics like to use jargon, big words and complicated phrasing to make it intentionally difficult to understand what we are trying to say.  In doing so we create a nice barrier to entry into the profession. It takes years of additional education just to be able to learn the language of our discipline.  That education is costly both in terms of resources and time expended.  But for those who clear the barrier, the level of complication helps to keep the supply of academics who can make things as unnecessarily complicated as we do, and more importantly understand that complication, low.  And we all know that decreased supply increases prices (in this case wages).  So, you see, unnecessary complication is necessary.  It's a means to self-preservation and higher wages.
3. There are usually less complicated ways to explain highly technical stuff without losing the basics of what is being said.  That is the purpose of this blog.  Allow me to illustrate.  Here is an excerpt from the academic abstract in question:

We use the empirical results to parameterize a dynamic optimization model of beach nourishment decisions and show that the predicted interval between nourishment projects is closer to what we observe in the data when we use the estimate from the instrumental variables model rather than OLS. As coastal communities adapt to climate change, we find that the long-term net value of coastal residential property can fall by as much as 52% when erosion rate triples and cost of nourishment sand quadruples.

To the non-academic (hopefully many of our readers), that reads as follows:

We use the [blah] to [blah-blah] of beach nourishment decisions and show that the [blah] between [blah] is closer to [blah] when we use the [blah-blah] from the [HOLY S***]. As coastal communities adapt to climate change, we find that the [blah] of coastal residential property can fall by as much as [a bunch of made-up crap].

So in good Env-Econ fashion allow me to interpret the abstract:

Using a bunch of complicated statistics and math that no one else has thought to use, we find that beach house prices fall when beaches wash away or when the cost of putting more sand on the beach goes up.

That, our dear readers, is why we started this blog.

No need to thanks us.

Standing on the shoulders of...er...John

Following up on John's post from earlier on the potential value of beach renourishment projects (and the bad use of benefit cost analysis by policymakers), I sent the following message to one of our outstanding young faculty members (in my opinion of course), Dukie (we don't hold that against her), and bright mind thinking about coastal issues and the interplay between ecological and economic systems, Dr. Sathya Gopalakrishnan: 

Sathya...Do you have any idea (rough guess will do) of the welfare gains per dollar spent on renourishment?

Sathya's response:

I haven't seen any estimates of return on nourishment investment. 

My back of the envelope calculation based on just the hedonic valuation in NC would be $3 per dollar spent. 

For an average ocean front property valued at approx $800000, the semi log hedonic coeff (accounting for endogeneity of width) of 0.11 suggests a value of $8800 per foot of beach width. With the cost of nourishment sand is approx $5 per cubic meter and fixed cost of $1000000. The cost per foot of nourishment per ocean front home would be approx 2300 (assuming costs are distributed across 50 homes along a 1km stretch of the coastline, and a limiting nourishment depth of 10m). That would be $6500 net gain, which is approx a $3 for every dollar spent. 

And in good self-promotional fashion:

We used a similar calculation of net benefits in [our] JEEM paper simulations. 

Well played Sathya.  I'm sure you recognized the influence our blog will have on your readership.

A Flood from the Past

In light of events surrounding Hurricane/Frankenstorm Sandy, and John's post calling for reductions in federal subsidies for flood insurance in repeated flood zones, I thought it would be a good time to dig through the archives and find what John and I said about flood insurance in the aftermath of Hurricane Katrina.  So here's a link to an article John and I wrote for the Milken Institute Review on the National Flood Insurance Program back in 2006.  While the whole article is obviously well worth the read (despite a few typos), here's a particularly prescient excerpt:

While it would be irresponsible to abandon federal flood insurance overnight after providing financial incentives for coastal development for more than 35 years, it would be equally irresponsible to subsidize fl ood insurance on new construction. If a developer wants to build in a flood zone, the real cost of insuring against flood damage should be built into the market value – much the way location in a poor school district or a high-crime area is built into the value.

Lack of information on the true likelihood of floods might still lead property owners to make bad decisions. Requiring them to buy unsubsidized flood insurance as a condition for obtaining a federally insured mortgage would be one way to solve the problem. But one could imagine a less coercive approach in which the best available information of flood risks is provided to every person buying or developing property in flood zones.

A well-intentioned government program has encouraged millions of Americans to live and play in places – often very beautiful places – that are accidents waiting to happen. It would be fitting to use the same program to tame this risky behavior gradually, at minimal cost to property owners and taxpayers.

I sure am glad people listened to us back then...sarc.

Waterworld

Here's a link to a fun little sea level rise tool to waste some time at work, er, for you doomsday lovers out there, er, for you climate change deniers, er, for you climate change alarmists, er, for you.

No matter the scenario...I sure hope those Army Corp engineers knew what they were doing in New Orleans.

"Aguanomics: It's not as simple as selling books"

This is the beginning and end of a long post from David Zetland:

Many people ask me to comment on statements made by journalists covering the water sector. Most of the time, I am happy to see journalists covering water issues, since they tend to promote awareness of the need to change our ways, but there are two big exceptions. The first is when a lazy journalist fails to see that water shortages are not caused by a failure to rain as much as a failure (of managers) to keep demand below supply. In those cases, I often leave comments or send emails to correct them, hoping that they look a little deeper in the future.

The second problem is much more dangerous: a journalist posing as an expert.

But what does it take to be an "expert"? Well, it doesn't mean you need a PhD or need to spend years studying the topic. You need a decent framework that explains causes and effects within local institutions that also matches the knowledge and intuition of those who have lived with the situation for many years. ...

Bottom Line: Journalists can cause a lot of damage when they misdiagnose problems, offer the wrong solution and appeal to fear, uncertainty and dread. What they need to do -- and what I try to do -- is explain the facts and barriers to change before suggesting gradual reforms to improve our water management. 

via www.aguanomics.com

The guts are worth the time and effort.

Quote of the Day: Tradeoffs

"When we're in a drought, there's a struggle for water and it's going in all different directions...Keeping it in the reservoir for recreational fisheries is not at the top of the priority list."

via www.wric.com

I don't even have time to read this morning

Recommended reading (Inching Toward Energy Independence in America):

Across the country, the oil and gas industry is vastly increasing production, reversing two decades of decline. Using new technology and spurred by rising oil prices since the mid-2000s, the industry is extracting millions of barrels more a week, from the deepest waters of the Gulf of Mexico to the prairies of North Dakota.

At the same time, Americans are pumping significantly less gasoline. While that is partly a result of the recession and higher gasoline prices, people are also driving fewer miles and replacing older cars with more fuel-efficient vehicles at a greater clip, federal data show.

Taken together, the increasing production and declining consumption have unexpectedly brought the United States markedly closer to a goal that has tantalized presidents since Richard Nixon: independence from foreign energy sources, a milestone that could reconfigure American foreign policy, the economy and more. In 2011, the country imported just 45 percent of the liquid fuels it used, down from a record high of 60 percent in 2005. ...

How the country made this turnabout is a story of industry-friendly policies started by President Bush and largely continued by President Obama — many over the objections of environmental advocates — as well as technological advances that have allowed the extraction of oil and gas once considered too difficult and too expensive to reach. But mainly it is a story of the complex economics of energy, which sometimes seems to operate by its own rules of supply and demand.

No comment, as I have only read one+ of five web pages. It appears to be a must read for anyone interested in energy, the environment and economics. Later, I may have something inane to say (fingers crossed).

And here is a new (to me) pop-up box from the NY Times:

Beginning in April, visitors to NYTimes.com will have access to 10 free articles per month instead of 20.

 

But, I got here first!

Here's an interesting (at least to me) property rights dispute taking place in a Columbus suburb that raises some questions about the timing of development and the externalities it may cause.  The short version, to what extent are downstream developers/homebuyers expected to be able to predict the effects of future upstream development on their property in the future?  Or maybe better: Is 'I got here first' a legal claim to compensation?

The main draw of a Gahanna subdivision — a scenic creek — has become its greatest danger, threatening trees, fences and backyards.

The banks of Souder Ditch are eroding as its flow increases, and city officials want to fix it before it causes any more damage. That could cost local taxpayers $250,000 if the city doesn’t get a state grant.

Residents “are finding what they thought was a gentle, meandering brook through their backyards is suddenly a raging torrent of water,” said City Engineer Karl Wetherholt.

From Christie Nickell’s deck 10 yards from the creek, the water runs so loudly that it can be heard over the telephone.

“It’s beautiful back here. It’s so nice,” Nickell said. “It’s exactly the reason why we moved here.”

But that was 12 years ago. Back then, the 3-foot-wide stream dried to a trickle during the summer. These days, it’s twice as wide and runs year-round, taking down trees and pushing debris through the subdivision during heavy rain.

The Nickells have lost four trees. They paid $30,000 to put up a retaining wall, although it has helped only on one side. The erosion has created sewer problems, exposed an underground power line and is eating away at a century-old bridge. In one of the worst instances, there’s a 20-foot drop from a home’s backyard to the creek.

In all, Wetherholt thinks the erosion area directly affects about a dozen or so homes between Ashley Court and Farm Creek Drive.

The stream, a tributary of Rocky Fork Creek, has moved faster over the years because of runoff from developments north in Jefferson Township. Also, homeowners in the subdivision mow their lawns all the way to the creek instead of allowing room for natural plant life along the banks that could slow storm runoff.

“It would’ve been very difficult for people to predict this, especially if they bought the house and moved in during drought conditions, which occurred in the early 1990s,” Wetherholt said. The city is applying for a grant from the Ohio Environmental Protection Agency to help pay for a detention basin in Gahanna Woods, which should cut down the stream’s flow by about 30 percent. In all, officials expect it to cost $250,000, which includes a multipond wetland and walking trails.

The city will go ahead with the plans even if it doesn’t get the state money, Wetherholt said. The city also is paying more than $52,000 for a study to determine how much erosion has occurred, how bad the damage could get and what can be done to stop it permanently.

Meanwhile, Nickell and other residents have been fighting development efforts that could add even more water to their creek. A developer who wanted to build homes upstream on Havens Corners Road recently withdrew his application after protests.

“We’re trying to find a way that everybody can be happy,” Nickell said. “They can still develop, but as long as they’re not devaluing our property.”

via www.dispatch.com

Listen to me, listen to me*

I used to worry about those folks out west, what with their swimming pools and desert lawns and not enough low priced water. No longer, I think they'll be fine with new technology:

With climate change threatening to diminish water supplies in the fast-growing Southwest, more cities are considering the potential of reclaimed water. A new report from the National Academy of Sciences said that if coastal communities used advanced treatment procedures on the effluent that is now sent out to sea, it could increase the amount of municipal water available by as much as 27 percent.

San Diego’s success, 12 years after its City Council recoiled from the toilet-to-tap concept, offers a blueprint for other districts considering wastewater reuse.

via www.nytimes.com

OK, I usually try to poke a hole in it whenever anyone says they've found a win-win policy. But, this one seems to be the real deal. With a single wastewater treatment plant we can finally get around to more efficiently pricing water out west. Now I think the incentives are in place to ration scarce water with a high price on virgin supplies and a lower price on toilet water.

Get real, right? Sigh.

*Quote of the day from, your boy, Digger.

There is an environmental economics lesson in here somewhere

The Comics Curmudgeon:

Just beneath the corny wackiness of Beetle Bailey is of course a constant undercurrent of brutal violence, but I’ve never seen it quite so explicit as it is today. We see Camp Swampy as a set of mutually hostile fiefdoms, whose simmering resentment towards each other could escalate to open carnage based on the most minor of disputes, with little that the camp commanders can do to restrain their nominal underlings. The final panel is particularly harrowing: Sarge, still so keyed up that he probably can’t even feel those visible bruises yet, stalking off wide-eyed from the mangled corpse of his rival, which he’s left among the strewn garbage and its stink lines.

Something about common property resources, I think.