Environmental Economics

Marcellus Shale is not a new pop band

Technological advances plus increased reserve estimates plus limited environmental regulation plus job friendly state government means increased drilling for natural gas in the Ohio region of the Marcellus Shale naural gas and oil deposits:

For many residents of this northeast Ohio hamlet, the oil bonanza began with a knock at the door. City Hall received a fax.

Spit from that machine last summer was a mineral rights lease offer -- just like those being hand-delivered to homeowners -- from oil and gas explorer Chesapeake Energy Corp. (CHK). In the subsequent months Chesapeake's oil-field leasing agents swarmed the region, laying claim to what the company and others say may be one of the last big unconventional oil discoveries in the U.S.

"It was a mad rush," said Mayor Rob Donham. Windham eventually sold Chesapeake the right to drill underneath 100 acres that hold the town's municipal buildings and ball fields for $55,000 -- enough to buy two new police cars -- and the prospect of decades of oil royalties.

Ohio is bracing for an oil boom as companies, led by Chesapeake, gobble up leases covering millions of acres in the eastern half of the state. While no one's yet proven the commercial potential of the Utica formation, an oil-rich layer of rock that underlies this area, some believe it will yield crude on par with the largest shale reservoirs in the U.S. and spark a Rust Belt resurrection.

Oil-drilling in Ohio's Utica, along with natural-gas drilling in the Marcellus shale there "could be a godsend" to the hard-scrabble region, Gov. John Kasich said in a written statement.

The budding boom here is the latest version of a story that has developed across North America in the last decade, as producers have figured out how to crack open deeply buried energy-bearing rocks, first unleashing floods of natural gas and later transferring the techniques to oil extraction. Surging global demand for crude and low natural gas prices have led to the highest level of oil drilling activity the U.S. has seen in more than 20 years.

Kasich has appointed a former oilfield service executive, David Mustine, to head Ohio's natural resources department. Among that agency's tasks: studying whether drilling is allowed on state parks. With an unemployment rate of 9.6% and a projected two-year budget deficit of $8 billion, "everything is on the table," Mustine said.

Beach hardening: market vs non-market values

Place me in the "critics" column:

Should the state [of North Carolina], for the first time, allow structures that stabilize some stretches of beach but may starve others?

Will the race to protect real estate end up destroying some public beaches?

State legislators took up the fight last week, introducing a bill that critics say would upset the uneasy balance between development and nature.

The bill would allow terminal groins, which jut into the sea like fingers, trapping sand along inlets. Groins could stabilize the eroding ends of barrier islands, including the tony enclaves of Bald Head Island and private Figure Eight Island near Wilmington.

But while groins stop erosion on one side, they can magnify it on the other. North Carolina and Oregon are the only two states that forbid hard structures such as seawalls and groins, which may protect property at the expense of a natural beach. State policy holds beaches in trust for public use. ...

The barrier islands and their beaches are restless by nature. Currents, wind and storms incessantly reshape them, depositing sand here, whisking it away there. Inlets between the islands change course often, wagging back and forth like a retriever's tail.

Rooted on those islands is $7.7 billion in insured real estate, from weathered cottages to gleaming high-rises. Preserving those buildings means trying to out-flank nature. ...

Is spending justified?

Insured-property losses from hurricanes averaged $10.6 million a year (in 2005 dollars) from 1949 to 1988 in North Carolina, the Property Casualty Insurers Association of America says. As development grew and hurricane activity intensified, average losses between 1989 and 2005 soared to $296 million a year.

Taxpayers share the burden, helping pay to repair storm damages and install erosion-control measures. The federal flood-insurance program has rebuilt homes that have been repeatedly flooded on the state's coast.

Beach towns argue that the spending is justified because their strands draw visitors from all over, fueling the state's $20 billion tourism industry. ...

Critics counter that it's a waste of public money to try to hold in place a constantly shifting environment.

via www.newsobserver.com

The key question for me is: would people stop going to the beach if the cottages and hotels aren't right on top of the ocean? Based on some research I've been trying to conduct*, the answer seems to be a net no. Some people would stop going but others would be just as happy, or happier, staying in a cottage or hotel off the ocean, a short drive or walk to the ocean. The key variable is beach width ... people want a strip of sand to hang out on. Beach hardening could potentially make that go away.

However, it sounds like the economic values that show up in markets will be weighted more heavily than the more difficult to measure market values.

*It is based on the best available revealed preference data, so the results are totally convincing. I'd ideally like to design a stated preference study for this issue.

Or we could just ask everyone to leave their refrigerator doors open

To see what climate effects [a non-superpower scale] regional nuclear conflict might have, scientists from NASA and other institutions modeled a war involving a hundred Hiroshima-level bombs, each packing the equivalent of 15,000 tons of TNT—just 0.03 percent of the world's current nuclear arsenal. (See a National Geographic magazine feature on weapons of mass destruction.)

The researchers predicted the resulting fires would kick up roughly five million metric tons of black carbon into the upper part of the troposphere, the lowest layer of the Earth's atmosphere.

In NASA climate models, this carbon then absorbed solar heat and, like a hot-air balloon, quickly lofted even higher, where the soot would take much longer to clear from the sky.

[...]

Earth is currently in a long-term warming trend. After a regional nuclear war, though, average global temperatures would drop by 2.25 degrees F (1.25 degrees C) for two to three years afterward, the models suggest.

via news.nationalgeographic.com

Picture of the day

From Bruce Johnson, currently doing Centre-in-London:

Yesterday, my classroom at Birkbeck College was in 47 Gordon Square, one of a long row of terraced houses lining the entire eastern side of the square in Bloomsbury. Birkbeck has taken over much of that side of the square and converted it to classrooms and offices. You enter through 43. Next door to my classroom is 46, which was the home of Keynes for 30 years until his death in 1946.

 

Quote of the day ;->

If only:

[John] List says more of his peers should take up field experiments.

“If Adam Smith saw what I do now, he would say it’s about time these economists started to go to the factories and go to the shops where people do business to see how people are behaving,” he says.

via www.bloomberg.com

And this gives me the opportunity to boast that I'm reading the Adam Smith bio. I'm on page 70+ and it is tough sledding (the small brain problem). But I'm sure that when I'm finished I'll have a better idea about what Adam Smith would have thought about my research.

I'll put my preliminary thought in the comments section ... and you can too!

Raising gas prices in Marion, NC

A Coase Response from Hahnel (and Sheeran?)

Robin Hahnel sent me a message last night asking if we would allow him to comment on my comment on Clark William-Derry's comments on the "Misinterpreting the Coase Theorem" article he co-authored with Kristen Sheeran (Google images provided the picture to the right of Robin and Kristen.  The only reason I posted it is to note that radical economists drink beer too).

So here you go--In Robin's words:

In a recent blog post, Sightline’s Clark Williams-Derry recently commented on my article, “Misinterpreting the Coase Theorem” published in the Journal of Economic Issues. Since our hope when we wrote the article was to stimulate discussion about what the Coase theorem does and does not say, and what a careful examination of the theorem does and does not suggests about the likelihood of achieving efficient pollution levels through voluntary negotiations between pollution victims and polluters even if property rights are clarified, we are pleased that Williams-Derry’s piece has sparked a great deal of response.

For the most part Mr. Williams-Derry summarized and interpreted our article well. However, we did we not write his blog, nor were we shown a copy before it was posted.  His words are entirely his own. And while Mr. William-Derry conveyed the substance of our argument accurately, in our opinion he did misrepresent what Coase wrote in some regards.

For example, Williams-Derry states that “Coase proved mathematically that, with a system of guaranteed pollution property rights and under ideal "free-market" conditions, society as a whole would get exactly the amount of pollution that its members want -- no more and no less.”. He then goes on to criticize the Coase theorem as an example of over reliance on theory and mathematics by the economics profession in general.

We, of course, are quite aware that Coase did not use any mathematics in his argument, and did not claim to have “proved” any “theorem.” While some economists can be rightfully accused of over reliance on formal theory and mathematics at the expense of common sense reasoning, Coase is actually not among them. As a matter of fact, early in our article we argued that this was a case where more formal mathematical modeling might have been useful to avoid the kinds of misinterpretations that have flourished.  To quote ourselves: “The confused history of misinterpretations of what is called the Coase ‘theorem’ demonstrates why formal modeling, where assumptions are stated rigorously and conclusions are derived as theorems, can sometimes be useful.” Moreover, we were very clear in our article that while many others have misconstrued Coasian negotiations as a “free market” process, Coase was fully aware that there was no market involved, and therefore did not assume “ideal ‘free market’ conditions” as  Williams-Derry states.

Since he is not a professional economist it is not surprising that Mr. Williams –Derry is not thoroughly familiar with Coase’s work , and has confused what Coase said with how some of his followers have misinterpreted him. We believe we have been quite careful in this regard in what we published. But Mr. Williams-Derry did  summarize our main findings well enough to warn the general public that the implications of the so-called Coase “theorem” are quite different from how they are usually portrayed, and we thank him for doing so.

More on bigfoot

I received this followup to NC bigfoot story from the inbox:

Animal Planet and the rest of the misguided Bigfoot junkies did indeed spend all day 02/12 looking [loon-ing] for Bigfoot in the Uwharrie Mountains (link below).
 
Note: played golf last Sunday at the Uwharrie Golf Club and a fellow in our foursome is a good friend of the hunter described below and he relayed this story.
 
The Bigfoot search group hired a local hunter from the Denton, NC area who is very familiar with the Uwharrie Mountains and Uwharrie National Forest. They pay him $20 an hour to guide them.
 
Fasten your seatbelt! The hunter said the group was very, very serious about this quest. They come upon a tree with claw marks and the group is certain it's “Bigfoot markings”. Then they come upon a dead deer that is half eaten. Oh, this is surely the work of Bigfoot! The hunter tells them it can’t be. The group asks why? You’ll love this one. The hunter points out that Bigfoot would have had to been carrying a hack saw with him, then points to the antlers having been sawed off. Oh gezzzzzz! We can assume this part will be edited out of the Animal Planet footage.

YES!

If you enjoy wrapping up your day with a cocktail, your heart might be better off for it, according to the most comprehensive review to date of research into alcohol consumption and cardiovascular disease.

Moderate drinking - no more than one drink a day for women, two for men - is associated with repeatedly proven cardiovascular benefits, according to an analysis of 84 studies over the past 60 years.

Drinkers cut their risk of coronary heart disease by as much as 35 percent, according to the study.

The University of Calgary analysis, which appeared this week in the British Medical Journal, doesn't surprise cardiologists, but its size and scope add weight to the advice they give patients when it comes to booze.

via www.dispatch.com

And my Dean is mystified

My Department chairman is mystified:  You would think that with the crisis in public budgets, the demand for new economics faculty members would have shifted leftward.  Similarly, with graduate students having delayed entry into the market, the supply of new Ph.D.s this year would have shifted rightward.  Together, these changes should have lowered the price (wage) that the market pays new Ph.D.s.

But no — the wage at good schools for new economics faculty appears to be much higher than two years ago.  Has the economics profession repealed the laws of supply and demand?  My answer, of course, is no.  Rather, with the prospect of little hiring and even shrinking faculty, economics departments have more incentive to stock up on the most promising young faculty to build their reputations.  Competition for the very best students has increased, raising the wage at the upper tier of the market.  Sadly, there is little substitution further down the quality scale: My students are not receiving higher pay than their recent predecessors. They are good students, but not at the very top tier of the new supply.  Any other explanations?

via freakonomics.blogs.nytimes.com