Environmental Economics

Kahneman's loss aversion replicated ... finally!

That was sarcasm, my friends, since it has already been replicated in economics n + 1 times:

Researchers are encouraged by newly released results of a project that successfully replicated 10 of 13 psychological studies. The project, conducted by a large international consortium, was set up in response to findings in recent years that many psychological studies, including classic experiments, were flawed.

• Source: Nature

Ten of the effects were consistently replicated across different samples. These included classic results from economics Nobel laureate and psychologist Daniel Kahneman at Princeton University in New Jersey, such as gain-versus-loss framing, in which people are more prepared to take risks to avoid losses, rather than make gains. . . .

Of the 13 effects under scrutiny in the latest investigation, one was only weakly supported, and two were not replicated at all. Both irreproducible effects involved social priming.

via chronicle.com

And isn't loss aversion one of the fatal flaws of the contingent valuation method? From "Hopeless to Curious" (p. 8, 2014):

Since the onset of stated value elicitation surveys, researchers have been troubled by the seemingly simple finding, perhaps obvious to some, that compensation demanded (WTA) regularly exceeds compensation paid (WTP). Based on this common WTA/WTP gap, researchers have split along two lines in their conclusions. Some dismiss contingent valuation based on the naïve premise that the gap represents a violation of basic economic theory and thus invalidates value elicitation surveys. Others remain curious about the cause of the disparity and wonder whether the gap can be explained, either within the neoclassical framework, or by necessary extensions to this framework that draw upon psychological insights from behavioral economics. In dismissing contingent valuation, Hausman (2012) claims that “Basic economic theory suggests that [questions phrased to elicit willingness to pay to avoid a negative outcome and questions phrased to elicit willingness to accept the negative outcome] should give (approximately) the same answer …” 

"New draft of Cartoon Climate Change..."

Yoram Bauman:

Here’s the latest draft, which covers the entire book, as a 15-meg 2-to-a-page PDF. (This is better for printing and mimicking the feel of holding an actual book, but if you want the 30-meg 1-to-a-page PDF please email me.)

Note that we didn’t do much (if any) editing to Parts 1 and 2, so suggestions that you made on those parts are still under discussion. Our focus in the last month was completing a draft of the 3rd and final part of the book!

Comments welcome on the wiki or via email, etc! Note that Chapters 1-7 are close to being locked-in except for text changes, but of course we’re always happy to correct errors and consider alternatives; Chapters 8-11 (and especially 12-16) are in much rougher shape and have greater potential for structural change.

via standupeconomist.com

"How (Not) to Lie with Benefit-Cost Analysis"

Scott Farrow at The Economists' Voice:

Benefit-cost analysis is the applied side of welfare economics. Its broad use in support of public decisions draws both detractors and defenders. This tongue-in-cheek piece demonstrates that knowing how to lie provides insights into how not to lie; we assume the former is always accidental among economists and we hope it is so for others. ...

Analyzing public decisions using benefit-cost analysis is poison for some, a truth serum for others and a targeted diagnostic for a few (heavily concentrated among economists). Its surface simplicity and its subtle complexities make it easy to lie, accidentally or not.

Benefit-cost analysis in a simple form was described by Benjamin Franklin, implemented for water resource investments since the late 1930s and has been required by Presidents of both parties from the 1980s through the present day for major government regulations and for some other Federal decisions. It is used to a more limited extent in states, charities, other countries and international lending institutions. Textbooks and government guidance struggle to explain how to do it right but do not provide clear examples of doing it wrong. What is benefit-cost analysis doing and why is it so hard to avoid lying?

Benefit-cost analysis tries to answer whether a society is better off from an action when impacts of all kinds are put into monetary terms, including those generally outside the marketplace such as avoided fatalities. The bottom line measure, the eponymous benefits less the costs (net benefit) is defined as a measure of the change in economic efficiency (and who can be against efficiency?). A positive value, using equal monetary weighting for all concerned, is standardly interpreted to mean that society will be better off by taking the action and the converse for a negative result. This apparent simplicity obscures numerous challenges in practice and interpretation and so I offer the following lies and how to avoid them as aids to distinguish among good, bad and ugly analyses. Some “lies” may just reduce credibility and yet not change the sign; the devil is in the details.

Here are the four lies:

Lie #1: Be selective in your impacts and values

Lie #2: Confuse the baseline

Lie #3: Count jobs entirely as a benefit

Lie #4: Act as if a number is certain

Read more here.

Aguanomics: Why bother with environmental economists?

David Zetland:

I got this email:

As a student studying environmental engineering, I'm curious to know what exactly is the role of an environmental economist? Does he add any value to onfield projects and what are the research opportunities available?

Let me answer with a few points:

1. An economist is good at weighing costs and benefits.
2. A good economist can also consider who gets the costs and who gets the benefits.
3. The environment creates benefits that are hard to quantify; economic activities can have environmental costs that are significant. An environmental economist can help you understand these BEFORE you even begin field work, as well as integrate them into choices made in the field ("gee, maybe you shouldn't release that tailwater into the river; people downstream don't like to drink pollution.")
4. There are many research opportunities, since engineers are not trained in talking to people about preferences, choices, tradeoffs and willingness to pay.

Can you add more?

via www.aguanomics.com

I'll answer Aguanomics post title question with a question: Because economists are (slightly) less arrogant than engineers?

"Holes in ASS as journal pulls two papers"

Just trying to keep environmental economics readers up to date with the latest retraction news:

The journal Applied Surface Science (okay, so maybe it’s not called ASS at the home office) is retracting a pair of articles in its December issue. ...

via retractionwatch.com

Holes in ASS? I'm thinking I could have written a better title ... so it is time for a little holiday post title contest. Write your entry into the comments box. The winner could receive a free turkey dinner (but check out my second entry -- beat that!)!

Also, this reminds me of the name of Dan Petrolia's research group: Coastal Research and Policy.

Friday beer post

"Quirky Appstate"?

For far too long, this small town nestled in the Blue Ridge Mountains seemed like a barren desert for craft beer, a mirage compared to the oasis two hours south in Asheville.

Earlier this year, the area’s image slowly began to change. The first craft brewery in Boone opened in February, another began pouring next door in Blowing Rock earlier this month and soon a third will start in nearby Banner Elk.

Three more breweries are located a short drive down down backcountry roads.

The scene is nowhere near as evolved as rival Asheville, where roughly two dozen breweries make it the state’s craft beer haven. And the question for Boone area: what took so long? “That’s a good question,” said Nathan Paris, at Flat Top Brewing in Banner Elk. “We’ve pretty much got it all, and (craft beer) is finally catching on.”

Boone, elevation 3,333 and population 18,000, is often ranked as a top mountain town by national publications. Anchored by quirky Appalachian State University, the town sports a mellow vibe and serves as a launch pad for adventure seekers.

Good beer was always easy to find at Peabody’s Wine and Beer Merchants, the best local bottle shop, which is located at the town’s crossroads. But until recently, a local brewery was missing. Appalachian Mountain Brewery filled the gap when it opened earlier this year.

via www.newsobserver.com

First person account: AMB is quite good. 

Daily Demand and Supply: $70 is pretty steep for most grown-ups

Price and other factors affecting demand:

■ More anecdotal evidence of an attendance tipping point:

On Monday night, college basketball junkies were all abuzz on Twitter at the sight of so many empty seats, especially in the student section, at Cameron Indoor Stadium for the Blue Devils' first-round NIT win over UNC Asheville.

Tuesday night, with gaping open spaces in the upper-level student section, Rupp Arena saw its lowest attendance figure of the John Calipari era when an announced crowd of 20,305 watched the fourth-ranked Cats whip up on Texas-Arlington.

That was the smallest Rupp attendance for a UK basketball game since November 2008.

What are the common denominators here? Both games featured non-competitive opponents. Both games suffered from poor attendance in the student section.

Not just that, however. Both schools tried to sell the unoccupied seats but could not muster a walk-up crowd.

We've gone over all the reasons before — high-definition television; ramped-up ticket prices; a plethora of entertainment alternatives, including more interesting games on the various cable networks — but it seems that students aren't showing up at games just to show up at games. And neither is the general public.

■ Duke Coach Mike Krzyzewski ripped the ticketing process mandated by the NIT, but Duke's student attendance has been declining for the past five years. As well, the face value of the tickets was $70. Pretty steep for college kids.

■ By the way, a check of Ticketmaster shows plenty of upper-level seats available for UK's game with Cleveland State on Monday night. Including fees, price is $47 a ticket.

via www.kentucky.com

And $47 is pretty steep for most grown ups too.

How many factors affecting demand are there:

1. Low quality product (Coach Calipari called less competitive opponents "popcorn state" ... ugh, please show some respect Coach)
2. Less expensive substitutes (HDTV)
3. High priced complements (it is much cheaper to make popcorn at home)

Quote of the Day: If this doesn't work, we're going to hold our breath and stomp our feet until you listen

"There exists a vibrant community of pluralist economists in the UK and elsewhere, but these academics have been marginalised within the profession. The shortcomings in the way economics is taught are directly related to an intellectual monoculture, which is reinforced by a system of public university funding (the Research Excellence Framework and previously the Research Assessment Exercise) based on journal rankings that are heavily biased in favour of orthodoxy and against intellectual diversity," they said.

via www.theguardian.com

University of the District of Columbia cuts economics major

Ugh:

The university’s interim president, James E. Lyons Sr., had proposed dropping varsity sports as part of a broader package of cuts. But the trustees voted, 7 to 5, to delay action on disbanding intercollegiate sports teams and to seek other ways to find savings, The Washington Post reported.

The board largely supported Mr. Lyons’s proposals for reshaping the curriculum. The 17 undergraduate majors they voted to eliminate included economics, history, physics, and sociology.

via chronicle.com

I think I'm moving this to the top of my vacation reading list

I'm heading out for a vacation next week.  I'm about to put this on reserve at the library:

The Bet by Paul Sabin

In 1980, the iconoclastic economist Julian Simon challenged celebrity biologist Paul Ehrlich to a bet. Their wager on the future prices of five metals captured the public’s imagination as a test of coming prosperity or doom. Ehrlich, author of the landmark book The Population Bomb, predicted that rising populations would cause overconsumption, resource scarcity, and famine—with apocalyptic consequences for humanity. Simon optimistically countered that human welfare would flourish thanks to flexible markets, technological change, and our collective ingenuity.

 

Simon and Ehrlich’s debate reflected a deepening national conflict over the future of the planet. The Bet weaves the two men’s lives and ideas together with the era’s partisan political clashes over the environment and the role of government. In a lively narrative leading from the dawning environmentalism of the 1960s through the pivotal presidential contest between Jimmy Carter and Ronald Reagan and on into the 1990s, Paul Sabin shows how the fight between Ehrlich and Simon—between environmental fears and free-market confidence—helped create the gulf separating environmentalists and their critics today. Drawing insights from both sides, Sabin argues for using social values, rather than economic or biological absolutes, to guide society’s crucial choices relating to climate change, the planet’s health, and our own.