Environmental Economics

Friday beer post: "Willingness to Pay for Sensory Attributes in Beer"

Please tell me this was a field experiment:

Title: Willingness to Pay for Sensory Attributes in Beer

Authors: Gabrielyan, Gnel, McCluskey, Jill J., Marsh, Thomas L., Ross, Carolyn F.

Keywords: beer, contingent valuation analysis, willingness to payIssue

Date: 2014-04

Abstract: As microbrew beers have become more popular, the intrinsic characteristics of beer have become more important in consumer purchasing decisions. We identify sensory properties that influence consumers’ willingness to pay for beer using a contingent valuation model that includes subjective sensory evaluations and sociodemographic characteristics of consumers. We find that overall taste and hoppiness of a beer have a significant and positive impact on willingness to pay.

URI: http://purl.umn.edu/165908

Agricultural and Resource Economics Review, Volume 43, Number 1, April 2014

Total Pages: 15From Page: 125To Page: 139Collections:Volume 43, Number 1, April 2014

via ageconsearch.umn.edu

"Life among the Econ" and ... "Dubious and Dubiouser"

From the inbox: 

29-May-2014

Dear Dr. Whitehead:

It is a pleasure to accept your manuscript entitled "Dubious and Dubiouser: Contingent Valuation and the Time of Day" in its current form for publication in Economic Inquiry.

Thank you for your fine contribution. On behalf of the Editors of Economic Inquiry, we look forward to your continued contributions to the Journal.

Sincerely,
Dr. Yoram Bauman
Co-Editor, Economic Inquiry
[email protected]

Here is the abstract (I think Tim may have suggested the last sentence):

We collect contingent valuation data from 524 student survey respondents over a three day, 72 hour period. Data analysis of a hypothetical campus referendum focuses on time of day effects on willingness to pay for a renewable energy project. We find that subjects responding to the survey during the night time hours (i.e., between 12 a.m. and 6 a.m.) do not display the law of demand, offering theoretically invalid responses to questions with important policy implications. Results from this research may have serious implications for the contingent valuation method. In short, just like your father said, nothing good happens after midnight when using the contingent valuation method.

The co-author is David Dickinson. The paper will be published in the Miscellany section:

A “Miscellany" section is available in Economic Inquiry and intended for humor and curiosities. Economic Inquiry has a venerable tradition in humor, dating at least to the publication of Axel Leijonhufvud’s 1973 “Life Among the Econ.” ...

The referees don't think the paper is funny (at all) but there are a couple parts that still make me laugh out loud. Also, finally, I've managed to include "cromulent" in a paper. 

I can't wait until Monday!

Nathan Richardson:

On Monday, President Obama is set to announce proposed regulations limiting emissions from the existing fleet of power plants. These existing source performance standards or ESPS will be the most important part of the administration’s climate policy and, as my colleague Dallas Burtraw likes to point out, the most significant action any President will have taken on climate change. ...

That coverage is good since the rules are important. Anyone interested in energy and climate should be paying attention. But if you’re getting up to speed on this my advice is to wait until next week. Then we’ll actually have something to talk about. But if you can’t resist, below are the five things I’ll be looking for most when the proposal is released. I’ll come back to these on Monday and explain how they turned out.

1) Emissions

Most observers will focus on the rule’s stringency – how much will they cut emissions, and how quickly. ...

2) Flexibility

Traditionally, performance standards are fixed targets that each emitter must meet. That’s better than a technology mandate, but it’s still not a very cost-effective way to cut emissions. Market-based tools like trading and taxes are better. To what extent will the proposal give free rein to states to use such flexible tools, and to trade amongst themselves? ...

3) Coal and Gas

In reality, the flexibility question won’t be resolved by Monday’s proposal, but rather by each state as it decides how to regulate under the program. But EPA can signal what it will accept. And the agency does control the basic structure of the program. Most importantly, it will determine whether coal and gas plants can trade with each other. Allowing such trading is probably the lowest-cost large emissions-cutting opportunity in the U.S. economy today. ...

4) Scope

The standards will cover almost all fossil fuel power plants in the U.S. Assuming EPA allows flexibility and states go along, many if not all of these sources will be able to trade with each other in some way, reducing the cost of emissions cuts. But there may be even cheaper opportunities outside these plants. There is persistent evidence that increasing energy efficiency is cheaper than cutting emissions at power plants or switching to gas. At some point, renewables become cost-effective ...

5) Mass or Rate?

In the proposal, EPA is not actually setting standards, despite what most coverage would lead you to believe. Instead, the agency is setting guidelines for what states must do. ... EPA could set that target in a variety of ways, but the most likely are either a rate (tons of carbon emissions per megawatt-hour generated by plants in the state) or a mass (tons of carbon) – i.e. a cap. ...

Check back on Monday and I’ll review what the proposal actually does on each of these points. 

via common-resources.org

I predict this story is about the law of unintended consequences

It’s the law of unintended consequences at work.

See...told you so.

European Union efforts to fight climate change favored diesel fuel over gasoline because it emits less carbon dioxide, or CO2. However, diesel’s contaminants have swamped benefits from measures that include a toll drivers pay to enter central London, a thriving bike-hire program and growing public-transport network.

“Successive governments knew more than 10 years ago that diesel was producing all these harmful pollutants, but they myopically plowed on with their CO2 agenda,” said Simon Birkett, founder of Clean Air in London, a nonprofit group. “It’s been a catastrophe for air pollution, and that’s not too strong a word. It’s a public-health catastrophe.”

How bad is it?  Here's a comparison:

The EU limits NO2 to a maximum of 40 micrograms per cubic meter of air. The concentration on Marylebone Road, a stone’s throw from Regent’s Park, was almost 94 micrograms in 2012, according to the most recent data from the EEA.

The level for the site last year was 81 micrograms, and it’s averaging 83 micrograms this year, according to King’s College London. In 1998, when the King’s College data begins, it was 92. That’s about the time the switch to diesel started.

In contrast, Beijing had a concentration of 56 micrograms last year, according to China’s Ministry of Environmental Protection. The Chinese capital has a worse problem with other pollutants, registering almost triple the level of PM10 particles (bigger than PM2.5s) as on Marylebone Road.

via www.bloomberg.com

A controversial paper gets an update

From the inbox:

Hi.

I just wanted to alert you to our new paper titled "Changes in the global value of ecosystem services" in Global Environmental Change.

This paper builds on our 1997 paper published in Nature on the global value of ecosystem services, and estimates the changes since then. It updates the unit value estimates based on work done by the TEEB (The Economics of Ecosystems and Biodiversity) study and combines them with new global land use estimates to arrive at the first estimates of the changes in global ecosystem services value between 1997 and 2011 in monetary units. We estimate (with appropriate caveats) that the loss of ecosystem services from 1997 to 2011 is on the order of $20 Trillion/yr.

The paper also addresses some of the misconceptions and critiques arising from the 1997 paper and compares the results with more elaborate global systems modeling approaches.

You can view and download the paper at:

https://sites.google.com/a/idakub.com/www/CV/publications/2014_Costanza_GlobalValueUpdate.pdf

or:

http://www.sciencedirect.com/science/article/pii/S0959378014000685

If you have any trouble, let me know and we can send you a copy.

All the best

Bob

Dr. Robert Costanza

• Professor and Chair of Public Policy
  Crawford School of Public Policy (https://crawford.anu.edu.au/)
  Australian National University, Canberra, Australia

Here is a link to what I've said in the past: http://www.env-econ.net/2006/10/asking_the_wron.html. I've softened my views on this a bit. I really don't think there is anything wrong with this sort of valuation as long as the authors and readers are aware that this sort of valuation isn't appropriate for benefit-cost analysis. The purpose is mostly in the area of environmental awareness.

New editors at the Journal of Benefit-Cost Analysis

Good luck guys!

Editors-in-Chief

Glenn C. Blomquist, University of Kentucky

William H. Hoyt, University of Kentucky

via www.degruyter.com

Glenn was my dissertation advisor and Bill was on my committee. I'm biased, but I can't think of a better editor-in-chief team.

One of the WSJ Numbers "Guys" reads the AER

The new WSJ Numbers Guy [guy?] seems to love economics more than Carl does:

Cheap gas makes people use too much of it — that’s the takeaway from a study in this month’s American Economic Review. In “The Economic Cost of Global Fuel Subsidies,” Lucas Davis, a associate professor at Berkeley’s Haas Business School, uses World Bank data to show that countries with consumer fuel subsides have higher fuel consumption.

Crude and refined oil are traded internationally, so their wholesale prices are similar everywhere. What causes such a great variation in price — from $0.08 a gallon in Venezuela to $9.61 in Turkey — are taxes and subsidies. Mr. Davis determined countries’ subsidies by calculating the difference between domestic consumer prices and international spot prices, and factoring in distribution, transport and retail costs. Basically, if what people pay at the pump is less than the cost of the fuel and its related costs, he considers the fuel subsidized. Without factoring in external costs to the environment, Mr. Davis estimates the opportunity cost of gasoline everywhere to be roughly $3.57 per gallon.

Using this rationale, he determined that 24 countries subsided [sic] gas and 35 subsidized diesel in 2012, totaling $110 billion in fuel subsidies world-wide. Compared to countries without fuel subsidies, these countries generally use more fuel than necessary. According to the report, “subsidies create deadweight loss by enabling transactions for which the buyer’s willingness-to-pay is below the opportunity cost.” ...

The U.S. is a bit of an outlier in this theory. U.S. subsidies are on the production end, which Mr. Davis said only amounts to “cents” worth of savings on the consumer end. Because Americans pay more than the opportunity cost for fuel at the pump, Mr. Davis doesn’t consider its fuel to be subsidized — but that doesn’t stop Americans from using lots of fuel.

There are a number of reasons Americans consume so much gas. First of all, even without consumer subsidies, fuel doesn’t make up a huge share of U.S. income and it is lightly taxed compared to other OECD countries (An average of $0.49 a gallon in the U.S compared to $4.00 in Germany and the Netherlands). Mr. Davis said U.S. taxes don’t reflect the huge external costs of excess driving — roadwork, traffic congestion, accidents, and carbon dioxide emissions — which  he approximates should be about double what Americans pay in taxes per gallon. ...

via blogs.wsj.com

Economic impact of climate change: 25% snark

Krugman (with the snark deleted and one [substitution]):

The U.S. Chamber of Commerce just came out with its [study of] Obama administration regulations on power plants. ... the Chamber wanted to ... show ... the economic impact of the regulations .... And I was eager to see ... the numbers.

... The Chamber ... outsourced the analysis. And ... found ... that dramatic action on greenhouse gases would have surprisingly small economic costs.

The Chamber’s ... headline is that regulations would cost the US economy $50.2 billion per year in constant dollars between now and 2030. That’s for a plan to reduce GHG emissions 40 percent from their 2005 level, so it’s for real action.

So, is $50 billion a lot? Let’s look at the CBO’s long-term projections. These say that average annual US real GDP over the period 2014-2030 will be $21.5 trillion. So the Chamber is telling us that we can achieve major reductions in greenhouse gases at a cost of 0.2 percent of GDP. That’s cheap!

...the chamber also says that the regulations would cost 224,000 jobs in an average year. ... US employment is determined by the interaction between macroeconomic policy and the underlying tradeoff between inflation and unemployment, and there’s no good reason to think that environmental protection would reduce the number of jobs (as opposed to real wages). ... at face value that’s ... a small number in a country with 140 million workers.

... what they’ve ... shown is that ... the economics of climate protection look quite easy.

via krugman.blogs.nytimes.com

Editing for snark reduced the length of the excerpt by about 70 words.

I'm not sure what, but I think this says something about the job market

Last week, we advertised what amounts to an entry level office associate position; entry-level for the University.  In one week, we received 189 applications.

I think there is a surplus in the entry-level employment market.

Surprise! Functional form matters for trend forecasting

Using data from almost 9 years of pageviews at this blog, I fit a trend line with an OLS regression model where the dependent variable is the 30 day moving average (the blue line) of page views as measured by Typepad (where x is the time period). Here are two contrasting 1000 day forecasts (the trend line beyond the blue). First, the R² maximizing cubic function (the linear model has an R² of near zero):

Second, here is the quadratic:

Which forecast would you choose? I'm hoping for the quadratic because the light is at the end of the tunnel.