Environmental Economics

Daily Demand and Supply: On the elasticity of demand for a college education

In general, the demand for a college education is fairly inelastic. Higher average prices don't tend to reduce the number of students going to college all that much. But I've often wondered (I wonder often), in a highly competitive market, whether a single school lowering their tuition would result in a significant enough increase in quantity demanded to offset the revenue loss per student in tuition. It looks like Belmont Abbey College in North Carolina is going to run a test for us.

If you’re a parent with college-age kids, you probably experienced sticker shock the first time you checked out tuition costs.  And maybe even a few times after that.

The College Board says that the average yearly cost for a four-year public university for an in-state student is now $8,240.  For a private college, it’s $28,500 per year.

William Thierfelder, president of Belmont Abbey College, says that most students are so discouraged with what he calls the "sticker price" of higher education that they don’t even consider applying to a school they think is beyond their families’ means.

via schoolsofthought.blogs.cnn.com

WWJHD?*

In a recent piece in the Journal of Economic Perspectives, Jerry Hausman provides a harsh critique of the use of stated preference studies (contingent valuation) for the assessment of benefits in benefit cost analysis.  While some of the criticisms of the methods are valid, Professor Hausman does little to provide constructive recommendations for how to proceed in assessing the social, ecological and health benefits of preventing incidents like this**:

A bridge collapsed in the West Deptford area of New Jersey on Friday, sending several train cars carrying toxic chemicals crashing into a creek near the Delaware River, the U.S. Coast Guard said.

Vinyl chloride, a highly toxic and flammable chemical, is believed to be leaking into Mantua Creek, Petty Officer Nick Ameen told CNN. No serious injuries have been reported, but nearby schools are on lockdown, a borough emergency official said, and people in the immediate area have been evacuated.

A representative for Underwood Memorial Hospital told CNN that the hospital has treated 18 patients with respiratory issues.

via www.cnn.com

Professor Hausman's recommendation seems to be rather than rely on stated preference methods, ask an expert.  "For public policy purposes, expert analysis...will hopefully avoid the “mistakes” that would arise with the use of contingent valuation and come to better allocative outcomes than if we were to depend on results from contingent valuation surveys that are not consistent with fundamental economic preferences on which we base economic welfare analysis." Although he does not define who that expert should be, or why that expert would know more about the nature of your benefits than do you.

So, let me know how you would go about assessing the social, ecological and health benefits of preventing toxic chemical spills without the use of stated preference survey methods.

*What would Jerry Hausman do?

 

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.

"The economics of carbon taxes"

This looks good:

With the growing need for reform in the US fiscal system, the idea of a tax on carbon has emerged as a possible solution. On Tuesday at AEI, four panels explored the merits and challenges of implementing a tax on carbon, discussing topics ranging from its distributional effects to its potential impact on international trade.

Roberton Williams of Resources for the Future began by highlighting three advantages that a carbon tax has over outright regulation, while AEI's Aparna Mathur explained the economic reasoning behind a theoretical tax on carbon to correct for externalities of pollution. Panelists also discussed how carbon taxes would function in an international framework and their potential macroeconomic effects.

Karen Palmer of Resources for the Future emphasized the difficulties posed by the complex structure of American government for a carbon tax. Donald Marron of the Urban Institute argued that carbon tax revenues could be used to lower corporate tax rates to increase economic efficiency in the US. Panelists overwhelmingly agreed that more research on the effects of a carbon tax is needed, but that it raises important questions for academics and policymakers alike.

It happened mid-November. Video and presentations are here: www.aei.org.

Isn't it time Quincy Jones got everyone together for a 'We are the World: Climate Change Edition'?'

The U.S. rejected Kyoto because it didn't impose any binding commitments on major developing countries such as India and China, which is now the world's No. 1 carbon emitter. The U.S. and other Western countries insist that the firewall in the climate talks between developing and developed countries must be removed so that the new treaty can apply to all nations.

China and other developing countries want to maintain a clear division, saying climate change is mainly a legacy of Western industrialization and that their own emissions must be allowed to grow as their economies expand, lifting millions of people out of poverty.

That discord scuttled attempts to forge a climate deal in Copenhagen in 2009 and risks a relapse in Doha as talks begin on a new global deal that is supposed to be adopted in 2015 and implemented in 2020.

The rich-poor divide is also deepened by arguments over climate aid meant to help developing countries convert to cleaner energy sources and adapt their infrastructure to rising sea levels and other effects of global warming.

via www.b.weather.com

Sing it with me...

When you're down and out, there seems no hope at all
But if you just believe there's no way we can fall
Let us realize that a change can only come
When we stand together as one

We are the world,
We are the children.
We are the ones who make a hotter day so let's start...negotiating in global long-term interests.

In case you couldn't tell, I have little experience in songwriting.

Identification of Causal Effects in Environmental and Energy Economics: Call for Papers

From Christian Vossler:

The Howard H. Baker Jr. Center for Public Policy (http://bakercenter.utk.edu/) in association with the Department of Economics, at the University of Tennessee, (http://econ.bus.utk.edu/) will host a workshop on the Identification of Causal Effects in Environmental and Energy Economics on Monday and Tuesday, July 15-16, 2013, in Knoxville, Tennessee.

The purpose of the workshop is to promote research that uses innovative approaches to identify the causal effects of policy interventions, market incentives and social nudges on environmental quality and energy use. Possible identification approaches include, but are not limited to: quasi-experimental and related applied econometric techniques; experiments, including natural experiments, field experiments and laboratory experiments; and structural modeling. Empirical papers with strong theoretical frameworks are especially encouraged, as are papers that combine environmental and energy topics with other fields of economics (e.g., public, industrial organization, and development).

Workshop papers will be considered for publication in the Journal of Economic Behavior & Organization (JEBO) under an expedited review schedule and subject to the Journal’s usual high standards for quality. Accepted papers will be published as part of a special issue tied exclusively to the workshop. The workshop organizers welcome submissions of full papers or long abstracts, though full papers are preferred. Long abstracts should provide evidence that a full paper will be available prior to the workshop.

Please email your submission to [email protected] no later than February 1, 2013. Authors of accepted papers will be notified via email by March 15, 2013. Funding for travel, accommodations, and an honorarium will be provided for workshop presenters and discussants. (Only one author per paper.)

Please see http://bakercenter.utk.edu for the call for papers and additional information about the workshop as it becomes available. The workshop organizers and JEBO guest editors are:

Mary Evans, Claremont McKenna College
Matthew Kotchen, Yale University
Christian Vossler, University of Tennessee

If not now, when?

If not us, who will post this?

New York and New Jersey residents, just coming to grips with the enormous costs of repairing homes damaged or destroyed by Hurricane Sandy, will soon face another financial blow: soaring flood insurance rates and heightened standards for rebuilding that threaten to make seaside living, once and for all, a luxury only the wealthy can afford.

Homeowners in storm-damaged coastal areas who had flood insurance — and many more who did not, but will now be required to — will face premium increases of as much as 20 percent or 25 percent per year beginning in January, under legislation enacted in July to shore up the debt-ridden National Flood Insurance Program. The yearly increases will add hundreds, even thousands, of dollars to homeowners’ annual bills.

...

The heightened financial pressure has emerged as an unintended consequence of efforts to stop the government subsidization of risk that has encouraged so many to build and rebuild along coasts increasingly vulnerable to extreme weather. Supporters of the effort acknowledged that it would squeeze lower-income residents but said it was vital for the insurance program to reflect the risk of living along the shore.

Because private insurers rarely provide flood insurance, the program has been run by the federal government, which kept rates artificially low under pressure from the real estate industry and other groups. Flood insurance in higher-risk areas typically costs $1,100 to $3,000 a year, for coverage capped at $250,000; the contents of a home could be insured up to $100,000 for an additional $500 or so a year, said Steve Harty, president of National Flood Services, a large claims-processing company.

Premiums will double for new policyholders and many old ones within three or four years under the new law.

via www.nytimes.com

One resident likened this to kicking people while they are down, and that is very true and heartbreaking. But, if the government suspends the insurance price increases then that would encourage rebuilding and there is a decent chance that this will happen all over again. 

Elsevier - fail

I'm trying to finish (i.e., start) a review for Resource and Energy Economics. I've lost my login info and requested it from the website. Here is the email I received:

Dear Prof. John C. Whitehead,

Here is your confidential password, which you will need to access the Elsevier Editorial System at http://ees.elsevier.com/ree/.

If you need to retrieve password details, please go to: http://ees.elsevier.com/REE/automail_query.asp.

Please save this information in a safe place. Once you log in, you may change your password and other personal information by selecting the "change details" option on the menu bar at the top of the page.
Kind regards,

Elsevier Editorial System
Resource and Energy Economics

If you can spot my login information, please let me know.

Another reason to hate Duke*

For all you Redskins fans:

The day after Rep. Heath Shuler's third term expires on Jan. 3, 2013, the outgoing congressman will start lobbying for Duke Energy.

The company announced Monday that Shuler will hold the title of senior vice president of federal affairs. ...

According to the release, Shuler's focus in 2013 will be "building the federal affairs team and working with leaders in energy associations in which Duke is involved to support federal issues important to the company's customers and shareholders."

Shuler, a moderate Democrat who did not seek re-election, will not be allowed to vote on any legislation affecting Duke Energy for the remainder of his term.

via projects.newsobserver.com

From Wikipedia:

Shuler voted in favor of HR 2454, the American Clean Energy and Security Act which would implement a cap and trade system aimed at controlling pollution.

*Insider joke.

Is increasing marginal cost a zombie idea?

I used to like Angry Bear -- "slightly left of center" macro stuff. I happened to land there this weekend and found it has gone post-Autistic (could that be true, or did I find a renegade post?). Here is an excerpt from a post equatings macro policy with 19th Century health care and equates those sorts of mistakes with standard micro theory:

The sense of similarity was heightened because I also (instigated by Nick Rowe) happened to be reading Mankiw’s micro textbook section on the rising marginal cost of production — a notion that 1. is ridiculous on its face, 2. is completely contrary to how profit-maximizing producers think, and 3. is based on just-plain incorrect math.* It’s just one of many central pillars of “textbook” economics that are still being taught with a straight face, even though they been resoundingly disproved by the discipline’s own leading practitioners, on the discipline’s own terms, and using its own language, constructs, and methods. These zombie ideas just won’t die. (Or to quote my friend Ole, “People never learn, and they never forget.”) ...

* The rising marginal cost theory is ridiculous on its face because it assumes that producers add one factor of production at a time — hire more workers, for instance, without renting more space for them to work. (This is exactly what Mankiw describes in his textbook; see “Thirsty Thelma’s.”) Voila! Each worker’s productivity declines. This is of course not what producers do, which is why only 11% of top-corporation execs say they face rising marginal costs of production. (I’m wondering if that 11% made the mistake of taking an intro econ class in college.) For a nice recap of that executive survey, and the faulty math of rising marginal costs, see here (PDF).

I'm no engineer and, like Karl Marx, I have never worked in a factory. But I did have the exploited labor sort of job in high school and college. So I think I can weigh in on this issue. If you begin the production process with the sole proproprietor with no employees and add workers to fixed capital in response to increasing demand, it is easy to understand the law of diminishing returns. Flipping that relationship gives the marginal cost curve. Of course, that involves firms with limited pricing power but I'm willing to believe that exists for many firms in the U.S. economy. That is as far as I can go as I hesitate to dive into 80 pages of post-autistic math (click on PDF above).

I'm not sure what to think of the Blinder survey results. Most CEOs and other execs of big corporations in the survey think that their marginal cost curves slope down.