Environmental Economics

The Ideal Political Platform Part #2

Last week I introduced the basic tenets of an ideal political platform in America, which largely parallels the major tenets of classic liberalism/conservatism as espoused in the 1970s by many prominent economists, notably Milton Friedman. Classic liberalism posits that government should be limited to what government does best, that social welfare should be provided in ways that are minimally distorting to the economy (e.g. lump-sum payments), that the tax system should be simple and transparent, and that individuals should be allowed to do pretty much whatever they want to as long as their actions do not directly harm others (e.g. gays should have full rights and most personal drug use should be decriminalized).

The Effects of Contamination Risks on Commercial and Industrial Properties

From the Social Science Research Network:

What are the Effects of Contamination Risks on Commercial and Industrial Properties? Evidence from Baltimore, Maryland, by Alberto Longo and Anna Alberini, FEEM Working Paper No. 111.05: Abstract Using the hedonic pricing approach, we investigate how the information released on public registries of contaminated and potentially contaminated sites affects nearby commercial and industrial properties in Baltimore, Maryland. We find that commercial and industrial properties are virtually unaffected by proximity to a site with a history of contamination. Knowing that the site is no longer considered contaminated does not have a rebound effect on property prices either. We also find that urban economic development policies, such as Empowerment Zones and Enterprise Zones, have little effect on property values. In sum, brownfield properties in Baltimore are not particularly attractive investments for developers, and there is little potential for self-sustaining cleanup based on appropriate fiscal incentives, such as Tax Increment Financing. It is doubtful that "one size fits all" measures to encourage the cleanup of contaminated sites can be successful in this context. [Free link to paper.]

Salmon versus Agricultural and Commercial Interests

The fight over water resources in the Northwest continues. Federal courts have rejected the administration's water diversion plans giving the latest round in the battle to those in favor of diverting less water from rivers to protect the remaining salmon runs:

Latest champions for Northwest's salmon, by Brad Knickerbocker, The Christian Science Monitor: ASHLAND, ORE. - Uncle Sam is getting hammered in federal courts for failing to protect endangered salmon... The US Ninth Circuit Court of Appeals Tuesday rejected the Bush administration's water diversion plan for the Klamath River in California and Oregon because it does not protect the river's coho salmon, listed as threatened under the Endangered Species Act.

New Source Review

New source review is one of those environmental policies that economist have thought inefficient for a long time. In order to update a factory, industry must check with the government to see if it is OK which might lead to the government requiring expensive pollution controls. This provides an incentive to let your factory grow old and even more inefficient.

Economic incentive policies (e.g., tradeable pollution permits) can be used to cap emissions with permits and allow firms to reduce emissions using the cheapest methods that they know. They can update the plant and become more efficient at cleaning up their own mess or purchase permits from efficiently abating firms.

You WERE in good hands...

As I talked about here, it is difficult for private insurers to survive in areas subject to catastrophic risk.  That is, if everyone is prone to losses at the same time, it is impossible for an insurer to fully indemnify all claims.  Even if they can, it is unlikely that the insurer would want to continue to insure residents in the affected area.  Need evidence?  Here's Allstate's Gulf Coast reaction:

Amish horse poop: implications for free market environmentalism

Free market environmentalists argue that private, "Coasian," bargaining will solve much of the world's environmental problems (e.g., see The Commons Blog). I really like it when rich people decide to buy land and protect it from development. In this case, markets work at protecting the environment.

Also, just this week, after the initial complaint (private negotiation), I started walking my 14 year old dog past the mailboxes in my little neighborhood (4 year round residences) so that she doesn't poop in the yards. After she poops, I let her do her deaf and blind wandering around. In this case, private bargaining seems to work!

Trouble is, many environmental problems have significantly larger transactions costs than my small neighborhood. In Tuesday's NYTimes, we read about one of the older environmental problems, horse poop (Amish may be good neighbors).

News Update: ANWR drilling approved

I'm probably a little behind on this but WaPo reports that the Senate Energy Committeee yesterday voted to allow Alaska National Wildlife Refuge drilling.  In an interesting twist, the committe did not support separate legislation to increase oil supplies but instead attached the drilling to the next budget bill. 

Gas tax opinion poll

Even I'm getting tired of talking about the gas tax but you knew this poll was coming, didn't you? This is your chance to let us know what you think. The new Env-Econ opinion poll asks:

Do you support or oppose a $.50/gallon increase in the federal gasoline tax?

A $.50/gallon increase in the gas tax would cause a gallon of regular unleaded gasoline to rise from its current $2.85/gallon to about, say, $3.20/gallon. What do you think?

Vote early and often in the right hand column!

Rebuild NOLA poll closed

Do you support or oppose building a system of levees to protect New Orleans from a category 5 ("catastrophic") hurricane?

 

Producer prices are rising faster than consumer prices

The NYTimes today has an interesting take on energy induced inflation.  The upshot, producer prices are rising faster than consumer prices in most non-energy related sectors.  Why?