Environmental Economics

Economic Convergence Is Happening: What does it mean for the environment?

This fascinating article in the NYT shows that the developing world is going gang-busters, but this time the growth is sustainable because it is fueled by current account surpluses (and by increasing domestic demand). This will be the biggest anti-poverty event in all of human history. As to the environmental angle, here's the catch: which force will outweigh the other, the increasing demand for environmental quality that will come with this increased wealth or the environmental degradation caused by it? Any thoughts?

Hog Wash

Just in case you needed something to help you enjoy that last weekend of 2006 check out this great article on the pork industry and how it's decimating the environment of the Southeast. And here's the environmental economics angle: if the prok producers actually had to pay to treat the millions of tons of toxic pig excrement they would lose money. Instead, they dump it into rivers largely untreated, killing millions of fish and destroying ecosystems. Happy New Year!!

Happy New Year

Happy New Year from Env-Econ.  We'll be back on Tuesday with the usual consistent blend of telling insights and blind stupidity you're used to.  Until then, have a safe weekend.

Why measuring economic impacts is wrong

I'm was recently asked "Why go through the trouble of measuring the value people place on things and why not just measure the amount of money people spend on things and use that as the measure of value?"  We call this total amount of money spent the economic impact, and here is why using economic impacts as a measure of value is wrong:

The tally for Hurricane Katrina waste could top $2 billion next year because half of the lucrative government contracts valued at $500,000 or greater for cleanup work are being awarded with little competition.

That $2B went somewhere, so it benefited someone.  But could the same money have been used more effectively?  That is, could the same amount of money (resources) been used to provide a greater benefit?  That's the question asked in economic valuation.

Are HGTV producers env-econ fans?

It's a slow week and John doesn't think the world will end if he stops posting.  I'm not as optimistic because I think y'all would miss my charming wit if I didn't give you something to read between now and the New Year.  But, I'm on an in-house vacation so I'll just post what other people send me.  Env-econ reader Sarah Hofstetter sent the following on behalf of HGTV:

If you think you’re an environmentalist, you may enjoy a view of the lighter side of living with someone who is as dedicated to the environment as you.

Ed Begley Jr, the star of countless quirky movies and the classic TV hit “St. Elsewhere,” stars in “Living with Ed,” which premieres New Year’s Day on HGTV, a show about how his wife, an aspiring Hollywood star, tries to handle his ultra-green lifestyle. The guy’s such a true believer, he’ll ride on a bike just to power his toaster.

The premiere is Jan 1, 1pm (EST and PST) – perfect for starting the new year off with a laugh. Then you can catch it Sunday nights at 10.

Your readers will enjoy Ed’s 10 Tips for Going Green along with other ideas for green living at www.hgtv.com/green.

Hey Sarah, in the spirit of giving, you think you can get somone at HGTV to give env-econ.net a mention (or at least land us a spot on Landscapers' Challenge)?

Feliz Navidad from El Nino

From the NYTimes, another in the long list of possible effects of warmer winter temperatures*:

Retailers are calling it the Coat Crisis of 2006, a fashion fiasco measured in racks of unsold fur-lined shearlings at Saks Fifth Avenue and down puffer jackets at Bloomingdale’s.

Balmy temperatures on the East Coast, with average highs this holiday season 15 degrees warmer than last year, have been disastrous for sales of all kinds of cold-weather clothing, from cashmere caps to wool scarves.

What seemed like a meteorological aberration — the coatless, hatless, gloveless morning commute in Washington, New York and Boston — is starting to feel like the new normal, encouraging consumers to splurge on a flat-screen television instead of a peacoat.

Now back to the gluttony.

*The article seems to credit global warming, but I think this is more of an El Nino effect.  Besides, it made for a better title.

An instant classic holiday post

Happy Yule and any other winter holiday that you might celebrate (e.g., my mother's birthday)!

I'm going to be conducting an empirical test to see if the world will continue to spin on its axis if this is my last post of 2006. But here is one last gem from the WSJ (How Christmas Brings Out the Grinch in Economists - $):

Given the fanfare and billions of dollars in spending it generates, you might think Christmas is the best thing to happen to the economy all year. But some economists say we would be better off without it.

In the cold, hard analysis of the dismal science, Christmas is a highly inefficient way of connecting consumers with goods. Squeezing a big chunk of people's spending into a year-end frenzy of gift-buying generates an abundance of ill-considered presents -- millions of unwanted ties, picture frames and toe socks that, had they found the right owners, could have brought a lot more satisfaction.

Economists call that foregone benefit the holiday's "deadweight loss."

This is the same deadweight loss that arises from taxes, subsidies, etc.

Still, if people's spending were better targeted, the benefits could be significant. Prof. Waldfogel estimates that if everyone bought gifts only for themselves this holiday season, the added satisfaction would be worth more than $10 billion. He derives the number from a study in which he asked college students to place a value on things they bought on their own and on the gifts they received for Christmas. On average, they valued their own purchases 18% more highly than the gifts.

It takes environmental economists to understand the broader implications of gift-giving:

Indeed, economists increasingly are looking for ways to broaden their concepts of social welfare to incorporate people's feelings. In the case of Christmas, some have made attempts to estimate gifts' sentimental value, a factor Prof. Waldfogel explicitly ignored.

In one study, economists John List and Jason Shogren created an auction in which they offered students money for their Christmas presents, asking them to split their price into material and sentimental value. The result: On average, sentimental value accounted for about half the total. That more than offsets Mr. Waldfogel's estimate of deadweight loss, suggesting that Christmas gift-giving might not be such a bad thing when all factors are taken into account.

"People get a whole heck of a lot of value out of doing something for others and other people doing something for them," says Mr. Shogren, a professor at the University of Wyoming who specializes in putting a value on such things as biodiversity and human life. "Aunt Helga gave you that ugly scarf, but hey, it's Aunt Helga."

Is the Endangered Species Act Endangering Species?

I haven't had a chance to read this NBER paper yet, so this isn't an endorsement for the paper or its results (or a criticism), but thought I'd pass it along:

Is the Endangered Species Act Endangering Species?, by John A. List and Michael Margolis, Daniel E. Osgood, December 2006: Abstract We develop theory and present a suite of theoretically consistent empirical measures to explore the extent to which market intervention inadvertently alters resource allocation in a sequential move principal/agent game. We showcase our approach empirically by exploring the extent to which the U.S. Endangered Species Act has altered land development patterns. We report evidence indicating significant acceleration of development directly after each of several events deemed likely to raise fears among owners of habitat land. Our preferred estimate suggests an overall acceleration of land development by roughly one year. We also find from complementary hedonic regression models that habitat parcels declined in value when the habitat map was published, which is consistent with our estimates of the degree of preemption. These results have clear implications for policymakers, who continue to discuss alternative regulatory frameworks for species preservation. More generally, our modeling strategies can be widely applied -- from any particular economic environment that has a sequential-move nature to the narrower case of the political economy of regulation.

Bogus oil subsidies

A typical economic analysis of any sort of government subsidy shows that the costs exceed the benefits (exceptions to this rule accepted in the comments section ;-), unless the subsidies encourage an activity that generates a positive externality. So let's assume that encouraging U.S. energy production helps relieve our dependence on Middle East oil and improves national security. In today's NYTimes we find that government subsidies to the U.S. energy sector don't do much to improve national security, but they do alot for the oil industry's profits (Incentives on Oil Barely Hurt U.S., Study Suggests):

The United States offers some of the most lucrative incentives in the world to companies that drill for oil in publicly owned coastal waters, but a newly released study suggests that the government is getting very little for its money.

Details below. Plus, as a holiday bonus, I insert my own radically mainstream* economic and other thoughts after each paragraph (from the section of the long article that I found most interesting)! I repeat: after each and every paragraph. Wow.

Clean water, very clean

Here's a great story about how a certain people, stereotypically nice, with funny accents, who live north of here and enjoy lager, like to build garbage dumps on top of the purest artesion wells in the history of the world. My favorite line:

Paradoxically, given how much people are willing to pay for clean water, the pristine water is a nuisance at the dump site.

One word: wazzupwidat?

Hat tip: env-econ book reviewer Josh Markle.