Environmental Economics

Jane, stop this crazy thing

Senator Vitter (R-LA) has read Hausman (2012) and the news is not good:

Today, U.S. Sen. David Vitter (R-La.), top Republican on the Environment and Public Works Committee, sent a letter to Jonathan B. Jarvis, Director of the National Park Service (NPS), regarding the NPS's intention to use a controversial survey method in order to assign a monetary value to increased "visibility" at national parks and wilderness areas. Instead of actual scientific data, the results from the public opinion survey would be used in cost-benefit analyses by the U.S. Environmental Protection Agency (EPA) in future rulemaking under the Clean Air Act (CAA), including the regional haze rule.

"This survey is just a ploy that won't benefit park goers - it only benefits the EPA's ability to make more rules," said Vitter. "The survey could ask if people want the sky to be more blue when they go to a park, and how much they would be willing to pay for that. The surveyed person can answer $100, or some arbitrary amount they'd hypothetically be willing to pay, but could not even have any intention of visiting the park. This method doesn't make sense and obviously lacks credibility and scientific value, and it could lead to significantly more control over air rules for the EPA."

The willingness-to-pay survey is based on what people would say they would do in a hypothetical situation, as opposed to what they actually do in practice. According to economists cited in the letter, these types of surveys frequently yield inflated and inaccurate values.

via www.epw.senate.gov

Hausman (2012) is cited in footnote 2 of the letter. Here is what I said in a letter to Sen. Vitter:

Senator Vitter:

I have read your letter to the NPS director about the use of the contingent valuation method and would like to try to make you aware of some other research on the issue. Hausman (2012) was written as part of a three article symposium in the Journal of Economic Perspectives. The other two papers are much more supportive of the ability of the contingent valuation method to accurately measure economic values that the public may hold. In response to Hausman, Tim Haab, Matt Interis, Dan Petrolia and myself wrote a response that pointed out that Hausman (2012) ignores much of the scientific literature concerning the method.

This is our summary: Hausman “selectively” reviewed the contingent valuation method (CVM) literature in 2012 and failed to find progress in the method during the 18 years since Diamond and Hausman argued that unquantified benefits and costs are preferred to those quantified by CVM. In this manuscript, we provide counter-arguments to Hausman's claims, not with the intent to convince the reader that the debate over CVM is settled in favor of the method, but rather to argue that the intellectual debate over CVM is ongoing, that dismissing CVM is unwarranted, and that plenty of work remains to be done for the truly curious researcher."

The paper was published in Applied Economic Perspectives and Policy. I would be happy to send you a copy of this paper if you think it might be helpful.

Sincerely,

John C. Whitehead
Department of Economics
Appalachian State University

You can send your own letter here: http://www.vitter.senate.gov/contact/email-senator-vitter and here http://www.epw.senate.gov/public/index.cfm?FuseAction=ContactUs.ContactForm.

Hat tip: Robert Joshi via the twitter

From the twitter

Apparently the new Farm Bill was written by Scrooge

After a long and sometimes heated debate, a new U.S. Farm Bill was passed this week (being in a College of Ag, I'm required to know this for continued employment).  Inside the bill is a little provision that is sure to spoil almost no one's holidays next year:

Tucked inside the massive new farm bill, which House Republican leaders are speeding to the floor, is a controversial 15-cent fee the government will collect on every Christmas tree cut in or imported into the U.S.

Dubbed the “Christmas tree tax” by opponents — a term to which industry backers vehemently object — it is an idea that’s been kicking around the Capitol for years, but finally got enough support to land inside the 959-page farm bill.

via www.washingtontimes.com

Here are my and John's take on the Tannenbaum Tax, or Christmas Tree Fee, or Scrooge Screw, or Grinch Pinch, or Pagan Price, or Yule Tithe, or whatever you want to call it, from 2011.

Actually, higher insurance premiums was not an unintended consequence

While their magnitude and the backlash may have been a surprise, the cost increases are what was intended. But why should it have been a surprise? Removing subsidies is never popular:

A major flood insurance bill was a rarity when it passed what is widely derided as a do-nothing Congress in 2012, but a year and a half later, there is now an enthusiastic bipartisan effort to gut it. ...

It appears to be another Washington story of unintended consequences, and a warning, environmentalists say, of the rising costs of climate change. Most important, the bill may be a preview of the fights to come over who will pay those costs.

The Biggert-Waters measure sought to reform the nation’s nearly bankrupt flood insurance program, ending federal subsidies for insuring buildings in flood-prone coastal areas. Over the past decade, the cost to taxpayers of insuring those properties has soared, as payouts for damage from Hurricanes Katrina, Irene, Isaac and Sandy sent the program $24 billion into debt.

The aim of the measure was to shift the financial risk of insuring flood-prone properties from taxpayers to the private market. Homeowners, rather than taxpayers, would shoulder the true cost of building in flood zones.

Deficit hawks liked the idea because it would curb a rapidly rising source of government spending. Environmentalists liked the bill because they said it would reflect the true cost of climate change, which scientists say is ushering in an era of rising sea levels and more damaging extreme weather, including more flooding.

But a year after the law passed, coastal homeowners received new flood insurance bills that were two, three, even 10 times higher than before.

via www.nytimes.com

The flood insurance problem will never be addressed until the true cost of coastal living is faced by coastal homeowners. One expensive way of jumpstarting the process is to buy out coastal homeowners who can't afford the new insurance premiums at the pre-policy market price. The government could then sell it at a market price that reflects the new insurance premiums. The goverment budget deficit would take a one-time hit but that would be better than taking a long term hit by having taxpayers subsidize coastal living through the National Flood Insurance Program. 

So, I see three unattractive options:

1. Ignore the problem and let taxpayers continue to subsidize coastal homeowners
2. Leave Biggert-Waters in place and make coastal homeowners pay the true cost of coastal living
3. Ease Biggert-Waters into place with buyouts of homeowners who cannot afford coastal living

In the long run, options 2 and 3 are strongly preferred in terms of economic efficiency. 

What in the world will I ever use this for? Percentage Change

Another in my WWWTF series (What in the world will I ever use this for?)

Math Concept:  Percentage Change

Percentage changes are a way to compare changes in numbers relative to the starting value.  To calculate a percentage change you take the new value of the number (Ending Point) and subtract the starting value (Starting Point), then divide this difference by the starting point:

(Ending Point-Starting Point)/(Starting Point)

This will give the the change in decimal form.  To express the change as a percent, just multiply the decimal form by 100.

For example, if a number increases from 50 to 52, we can calculate the percentage change as:

=(52-50)/50

=0.04

This is the decimal form.  To put it in percentage form, multiply by 100:

percentage change = 0.04*100

=4%

So when the number increased from 50 to 52, the number increased by 4%.

What in the world will you ever use this for?

Here is one for the 2014 top 10 list

And yes, reissues are allowed on the John's top 10 albums list:

Great news alt.country fans! On January 28th, Legacy Recordings will reissue Uncle Tupelo‘s widely acclaimed debut LP, 1990′s "No Depression." The release will be a special two-disc expanded edition featuring rare and previously unreleased material. Of course, the influential alt.country trio would later birth Wilco (Tweedy) and Son Volt (Farrar.)

"No Depression: Legacy Edition" improves on the original album's "tinny" production. Remastering has been done by engineer Vic Anesini, and the reissue features new liner notes by original band booster Richard Byrne of St. Louis’ alt-weekly The Riverfront Times. The second disc features the band’s original 1989 eight-song demo, Not Forever, Just For Now, which has never been released on CD.

Also included is a recently unearthed 10-song demo tape "Not Forever, Just Now," recorded by the original UT, Jeff Tweedy, Jay Farrar, and Mike Heidorn in 1989. Below, listen to one of the demo tape’s tracks, an early version of “I Got Drunk” (via Consequence of sound).

The reissue will also include bonus tracks that appear on the album’s 2003 reissue; songs taken from their 1983 self-released Live and Otherwise cassette; and five cuts off the band’s 1987 demo Colorblind and Rhymeless.

Legacy will also issue a limited edition seven-inch vinyl single of Uncle Tupelo’s “I Wanna Be Your Dog” b/w “Commotion” for Record Store Black Friday on November 29th.

via www.nodepression.com

A fracking jobs mess

A debate over job creation and the economic benefits of eastern Ohio’s Utica shale boom has continued unresolved since drilling and fracking began in late 2010.

Oil and gas industry officials predicted in September 2011 that the growing effort to tap oil and gas in the Utica shale would lead to more than 200,000 new jobs in four years.

So far, that has not panned out, even in the counties with the most drilling activity.

For example, Carroll County’s job market is still below pre-recession levels based on two key measures. In November, the county had 12,800 employed residents and an unemployment rate of 7.6 percent, according to the Bureau of Labor Statistics. In November 2007, the county had 13,100 employed residents and an unemployment rate of 5.7 percent.

via www.dispatch.com

Oops.

What do the U.S., Russia, Ireland and Morocco have in common?

Illustration credit: Richie King, Quartz; (click for larger image)

via www.yahoo.com

I prefer bourbon .  Unlike vodka, it has a flavor.  And I refuse to call it whiskey.  I don't know why. 

We're moving our blog to WordPress

When one of our daughters goes to college, gets the appropriate training and figures out how to do it.

James Hamilton:

We have migrated our blog-management system over to WordPress, which will give Econbrowser a slightly different look and help us keep up better with improving technology. For example, by clicking on the appropriate icon that you’ll now find at the end of each post, you can instantly communicate anything you find of interest through other social media such as Facebook and Twitter. Please let us know if you have trouble with any old links, encounter any problems with the new system or have other suggestions.

Thanks to my tech-savvy daughter for helping us to make the switch. You can learn about her company at AdditiveAnalytics.com.

via econbrowser.com

The only thing it is missing is a Typepad "reblog" button (sigh).

My guess is that enterprise zones aren't the greatest idea

I've spent 35 years reading newspaper articles with ideas about helping coal mining regions (and I even had the romantic notion about that being my destiny out of grad school). Here is the latest:

As Mr. Obama prepares to deliver his annual speech to Congress, he can point to a steadily improving economy. But many Americans say they have seen little benefit from the recovery and complain that the economic deck is stacked against them.

Nobody doubts that this hilly and remote stretch of Appalachia could use the help. The local unemployment rate is 12.8 percent. Drug abuse is rampant. The poverty rate is nearly 26 percent.

But experts are broadly skeptical that any federal initiative would be enough to combat either the immediate economic upheaval caused by the loss of coal jobs or the long-term economic torpor that is a product of remoteness, poor infrastructure and an undereducated work force. ...

Despite their modest track record, enterprise zones continue to attract supporters from across the political spectrum. In Kentucky, Mr. Obama’s program has the backing of the Democratic governor, Steve Beshear, and even the assent of one of the country’s most conservative senators, the Republican Rand Paul.

But local workers and officials — even while welcoming any help that towns like Hazard could get — voiced skepticism that there was much the government could do to fundamentally turn around the economy.

via www.nytimes.com

Back when Tim and I were at ECU the notion of a "global transpark" was being pushed for Kinston, NC. I was talking about this with a professor from another department who was arguing that it was a great idea that would help the economy of a relatively low-income region. I argued that the net benefits were probably negative, it would only regionally reallocate jobs and it would be cheaper for people to move to where the jobs were (and the economics of migration show how those who move and stay are both better off as a result). The other professor disagreed and said we have to do something, anything, to help low-income areas out (I think, conceding that a global transpark wasn't the greatest idea). I disagree that we have to do something, anything. 

You would think that a guy with "Appalachian" in his affiliation (and lots of friends from coal) would have a better answer.