Environmental Economics

Water pricing, "free" markets and climate change

Matt Kahn:

Adam Nagourney appears to be an adherent of the ideas of the Club of Rome.  In his NY Times front page piece today, he worries that California cities that encourage growth are exacerbating the "water crisis" by increasing demand during a drought that is likely to persist. What is the fallacy in his logic?

He implicitly assumes that policy reform will not take place in California.  Farmers consume roughly 80% of the state's water.  According to this article, farmers now pay $.0033 per gallon.   Yes, that's .3 cents per gallon.  Residential households such as myself pay .5 cents per gallon.  A gallon of water is a gallon of water. Suppose that the Water Authorities raised the price of water for farmers so that it equals the price that urbanites pay.  Or, allow the farmers to sell their water allocation to urbanites.  This 66% increase would incentivize the sector that consumes 80% of the water to be more efficient and to substitute away from water intensive agricultural output that yields a low market price.

If the state's farming sector could figure out a way to reduce its water consumption by 25%, how many urbanites could move to California?  For a 66% price increase to induce a 25% consumption decline implies a price elasticity = -.38 which strikes me as quite plausible in the medium term and perhaps too inelastic.

34.1 million acre-feet is used by California agriculture each year.  A 25% reduction in CA agriculture water consumption = roughly 8 million acre feet =  8 million *326,000  =  2.6 trillion gallons of water not used.

Suppose that 10 million new people moved to California's cities (so this is a 25% increase in the state's population).  The 2.6 trillion/10 million =   260000 gallons per new person per year = 712 gallons per new person per day.

See how we adapt by introducing market incentives to allocate scarce resources?  The challenge of adaptation is mainly political (not economics). Allow free markets to operate and the NY Times will have to find new doom and gloom headlines.

via greeneconomics.blogspot.com

I only have one quibble. The water market will never be a "free market" in the true sense of the word. A plea to the water authority (i.e., government) to price water more rationally is a plea for policy reform (the term Matt uses earlier) towards a better use of incentives. Free markets only exist when there is no government regulation of buyers and sellers, no taxes, no subsidies and no nothing. An efficient free market for water is a difficult thing to pull off since it is a common-pool resource. It is easier for the pizza market to operate efficiently since pizza is a private good. 

I don't think adaption to climate change can be accomplished efficiently by government taking a hands off approach. You can't privatize much of the natural environment. 

Matt also said this the other day:

Terry Anderson's book Free Market Environmentalism played a key role in my early thinking about Coase and environmental economics.   For years, Terry was in charge of PERC and I greatly benefited from my first visit to PERC in Bozeman MT a few years ago.  Today, some very serious economists will be meeting at Stanford for a 1.5 day conference on the economics of climate change adaptation.  The broad themes of this PERC conference are listed here.

Free Market Environmentalism played a key role in my early thinking about Coase and environmental economics too. My conclusion was that free market solutions wouldn't work. Call me an unserious (inserious?) economist. 

Beware (some) journal rankings

From the inbox:

Dear Dr. John C. Whitehead,

Your interesting published article "A Split-Sample Revealed and Stated Preference Demand Model to Examine Homogenous Subgroup Consumer Behavior Responses to Information and Food Safety Technology Treatments" drives me to call for new papers and honorary reviewer, on behalf of Review of Economics & Finance, which is an English journal in Toronto, Canada: https://ideas.repec.org/s/bap/journl.html

In the past 12 months, Review of Economics & Finance is ranked 50 among top 2,000 peer journals worldwide (Ranked by RePEc): http://logec.repec.org/scripts/seriesstat.pf?topnum=2000;citems=on;bymin=10;mrange=No;fm=;lm=;seriestype=redif-article;.cgifields=citems;.cgifields=listall;.cgifields=mrange;sortby=12d

This peer-reviewed quarterly is indexed by EconLit, American Economic Association (AEA), EBSCO, ProQuest, RePEc, National Bibliography of Canada, Library and Archives Canada, DOAJ, Ulrich, and so on.

(1) If you want to submit a new paper, please submit it by Sept. 20th, 2015.
Your paper will be published within 3-5 months from the date of submission, provided it is accepted for publication after refereeing. Two hard copies are free for you after publication.

(2) If you want to apply for an honorary reviewer, please kindly find the attached form and fill it out, then send it back.

Thank you for your consideration. Just contact us directly at [email protected] or [email protected]
Have a rewarding month!
Sincerely,
********************************************
H. Carlson
PhD. in Economics；Editor，Review of Economics & Finance
Tel: +1-647-476-3762 ext.733  Fax: +1-647-476-3762 ext. 329
Web: www.bapress.ca  Page: www.bapress.ca/ref-lastestissue.php

I had never heard of Review of Economics & (not and) Finance or BA Press so I assumed they were a potential, possible, or probable predatory scholarly open-access journal and publisher. But, I like RePEc's journals rankings and hoped that the PPPP journals haven't found a way to scam RePEc. It turns out that the top 50 link above is for file downloads and not the best way to rank a journal (AER is #99, JEEM is #536). The Review of Economics and Finance is ranked #634 on the aggregate rankings list (AER is #2 behind QJE, JEEM is #44) and my faith in RePEc is restored. 

So, while I am thrilled that they find our paper interesting, I don't think I'll submit a paper or serve as an honorary reviewer.  

Update: embarrassing typos and poor grammar corrected.

"The key is to keep these balls clean..."

Update on L.A.'s balls:

The benefits are clear, Professor Pradhanang insists, as Los Angeles strives to retain as much water as possible amid the drought. Like other urban cities, such as New York, they also face a constant battle to keep wildlife off the clean water reservoirs, as their feces is the real source of bacteria.

And, though the truck-load of balls cost $34.5 million, it is easily a much cheaper alternative to covering the site in tarps.

But any color would have been better than black.

'As we know, black absorbs heat. So that won't help the thermal blanket,' remarks Professor Pradhanang. 'The key is to keep these balls clean - but that will be a monumental task.' 

via www.dailymail.co.uk

Research ideas from the Onion

The sports stadium contingent valuation literature is getting saturated. It has become well known that, in most applications, the benefits, including hard to measure "intangibles" like civic pride, do not exceed the costs. However, that is when the payment vehicle is a tax:

Emphasizing that a new venue to replace the 19-year-old Edward Jones Dome is an absolute necessity, St. Louis Rams owner Stan Kroenke revealed Monday that the team will be forced to relocate as soon as 2016 unless taxpayers build a new stadium with their bare hands. “We want to keep Rams football in St. Louis, but realistically, we can’t continue operating here unless the city’s taxpayers agree to lay a 1.3-million-square-foot concrete foundation and then construct the new stadium by hand,” said Kroenke, adding that his proposal for a state-of-the-art riverfront stadium would require at least 22 months of manual labor from each of the 320,000 residents living in St. Louis. “The facts are simple: The people of St. Louis must be prepared to personally erect the arena’s 14,000-ton steel structure, raise and paint the 30-story-tall stadium walls, screw in each of the 80,000 seats, and install a retractable roof—all while using only basic hand tools, which we would be willing to provide. Otherwise, we’ll have to consider the possibility of moving the Rams elsewhere.” At press time, sources confirmed that Kroenke’s proposal was unanimously approved by the St. Louis city council.

via www.theonion.com

This is intriguing. One could propose a willingness-to-work payment vehicle as a stadium subsidy. It is not unprecedented since it works well in developing country applications. While money is tight for most sports fans, what with the price of team jerseys and what not, they might have plenty of time available to do manual labor in support of their team. Right?

Pot meet kettle

Professors often belittle their students for procrastination. From the inbox:

Many of you may be aware that we have seen performance issues today in AsULearn. In an effort to isolate the issue, we will temporarily restrict the process of import/restore to the non-peak hours between 5PM and 9AM each weekday.

The AsULearn service will still be available 24/7; only the teacher's ability to import/restore course materials is being time-limited. Other imports, such as gradebook/scantron imports, are not affected. NOTE: Files may still be added to the course, and no other course functionality will be affected.

We apologize for any inconvenience this may cause and appreciate your understanding as we work through this problem.

AsULearn is our Moodle course management system. "Import/restore" is when you take your saved course (i.e., syllabus, quizzes, other assignments) from a previous semester and move it to the current semester. Today is the first day of classes. So, yes, a bunch of professors waited until the last minute to get ready for the first day of class (I did my import/restore last week).

Daily Demand and Supply: Unintended consequences of low gas prices

Traffic fatalities are up 14% so far in 2015, according to new data from the nonprofit National Safety Council.

There were more than 18,600 motor-vehicle deaths from January through June this year, compared to 16,400 deaths in the first six months of 2014.

This year is now on pace to be the deadliest for drivers since 2007.

The estimated cost of the deaths, injuries and property damage related to the crashes is $152 billion, the NSC said in a press release. That's up 24% from the same period of 2014.

"The costs include wage and productivity losses, medical expenses, administrative expenses, employer costs, and property damage," the release says.

The NSC attributes the jump in fatalities to the fact that more people are driving because gas is cheaper. On average, gas prices are down 30% from 2014.

There are also more commuters on the road heading to work, since the U.S. economy has been steadily adding jobs throughout 2015.

via money.cnn.com

...and gas prices are expected to fall even more over the next few months.

"A Pigovian tax solution (for now) for review/publication of studies that use M Turk samples"

I'm not sure where the Pigouvian tax comes in, but Dan Kahan:

I often get asked to review papers that use M Turk samples.

This is a problem because I think M Turk samples, while not invalid for all forms of study, are invalid for studies of how individual differences in political predispositions and cognitive-reasoning proficiencies influence the processing of empirical information relevant to risk and other policy issues.

I've discussed this point at length.

And lots of serious scholars now have engaged this isssue seriously.   

"Seriously" not in the sense of merely collecting some data on the demographics of M Turk samples at one point in time and declaring them "okay" for all manner of studies once & for all. Anyone who produces a study like that, or relies on it to assure readers his or her own use of an M Turk sample is "okay," either doesn't get the underlying problem or doesn't care about it.

I mean really seriously in the sense of trying to carefully document the features of the M Turk work force that bear on the validity of it as a sample for various sorts of research, and in the sense of engaging in meaningful discussion of the technical and craft issues involved.

I myself think the work and reflections of these serious scholars reinforce the conclusion that it is highly problematic to rely on M Turk samples for the study of information processing relating to risk and other facts relevant to public policy.

The usual reply is, "but M Turk samples are inexpensive! They make it possible for lots & lots of scholars to do and publish empirical research!"

Well, thought experiments are even cheaper.  But they are not valid.  

If M Turk samples are not valid, it doesn't matter that they are cheap. Validity is a non-negotiable threshold requirement for use of a particular sampling method. It's not an asset or currency that can be spent down to buy "more" research-- for the research that such a "trade off" subsidizes in fact has no value.

Another argument is, "But they are better than university student samples!"  If student samples are not valid for a particular kind of research, then journals shouldn't accept studies that use them either. But in any case, it's now clear that M Turk workers don't behave the way U.S. university students do when responding to survey items that assess whether subjects are displaying the sorts of reactions one would expect in people who  claim that they are members of the U.S. public with particular political outlooks (Krupnikov & Levine 2014).

I think serious journals should adopt policies announcing that they won't accept studies that use M Turk samples for types of studies they are not suited for.

But in any case, they ought at least to adopt policies one way or the other--rather than put authors in the position of not knowing before they collect the data whether journals will accept their studies, and authors and reviewers in the position of having a debate about the appropriateness of using such a sample over & over.  Case-by-case assessment is not a fair way to handle this issue, nor one that will generate a satisfactory overall outcome.

So ... here is my proposal: 

Pending a journal's adoption of a uniform policy on M Turk samples, the journal should oblige authors who do use M Turk samples to give a full account--in their paper-- of why the authors believe it is appropriate to use M Turk workers to model the reasoning process of ordinary members of the U.S. public.  The explanation should  consist of a full accounting of the authors’ own assessment of why they are not themselves troubled by the objections that have been raised to the use of such samples; they shouldn't be allowed to dodge the issue by boilerplate citations to studies that purport to “validate” such samples for all purposes, forever & ever.  Such an account helps readers to adjust the weight that they afford study findings that use M Turk samples in two distinct ways: by flagging the relevant issues for their own critical attention; and by furnishing them with information about the depth and genuineness of the authors’ own commitment to reporting research findings worthy of being credited by people eager to figure out the truth about complex matters.

There are a variety of key points that authors should be obliged to address. ...

I feel pretty confident M Turk samples are not long for this world for studies that examine individual differences in reasoning relating to politically contested risks and other policy-relevant facts (again, there are no doubt other research questions for which M Turk samples are not nearly so problematic).  

Researchers in this area will not give much weight to studies that rely on M Turk samples as scholarly discussion progresses.  

In addition, there is a very good likelihood that an on-line sampling resource that is comparably inexpensive but informed by genuine attention to validity issues will emerge in the not too distant future.

E.g., Google Consumer Surveys now enables researchers to field a limited number of questions for between $1.10 & $3.50 per complete-- a fraction of the cost charged by on-line firms that use valid & validated recruitment and stratification methods.

Google Consumer Surveys has proven its validity in the only way that a survey mode--random-digit dial, face-to-face, on-line --can: by predicting how individuals will actually evince their opinions or attitudes in real-world settings of consequence, such as elections. Moreover, if Google Surveys goes into the business of supplying high-quality scholarly samples, they will be obliged to be transparent about their sampling and stratification methods and to maintain them (or update them for the purposes of making them even more suited for research) over time.  

As I said, Amazon couldn't care less whether the recruitment methods it uses for M Turk workers now or in the future make them suited for scholarly research.

The problem right now w/ Google Consumer Surveys is that the number of questions is limited and so, as far as I can tell, is the complexity of the instrument that one is able to use to collect the data, making experiments infeasible.

But I predict that will change. ...

via www.culturalcognition.net

I agree that you should make the case that the benefits of an MTurk sample exceed its costs. There are also other relatively cheap survey samples. SurveyMonkey and Survey Sampling, Inc charge as low as $3 and $6 per complete (as of the last time I checked). 

An interesting study would be to compare, say, a willingness-to-pay function from MTurk to these other samples. 

Note: Ash Morgan and I use an MTurk sample in this paper. 

Hat tip: Andrew Gelman

xkcd: Code Quality

I feel like this is an accurate representation of people looking at my code:

 

https://xkcd.com/1513/

I work with colleagues who are excellent coders: they comment and document things well, they break repeatable tasks into function, etc. Mine looks like I wrote it after a post-exam night out at Zeno's.

I really like the paper by Gentzkow and Shapiro and I'm working to try to incorporate their techniques into my work and I think I'm slowly making progress. I'd love to hear about other sources of inspiration that people use.

This work is not a product of the United States Government or the United States Environmental Protection Agency, and the author is not doing this work in any governmental capacity.  The views expressed are those of the author only and do not necessarily represent those of the United States or the US EPA.

 

 

For your syllabi: "Thirty Years of Economics at the Environmental Protection Agency"

I promised this a long time ago here is the published version of Al McGartland's talk upon receiving NAREA's Award for Outstanding Public Service through Economics. From the third paragraph:

I review the history of economics and its role in policymaking at EPA and provide insight into how economics has changed national environmental policy in the United States. EPA economists and economics make significant contributions to the agency that extend beyond the very important one of providing decision-makers with a sense of the benefits and costs of relevant policy options. An obvious triumph of economics is widespread adoption of market incentive-based policy instruments. Other noteworthy contributions by economists exist but may be less obvious. Taken together, these success stories—or failures, for those who think economics should have made even bigger contributions—provide lessons on how economics can play its role in the policy process. Have economics and economists made a difference to environmental policy? The answer, from my experience, is an emphatic yes. And some of our most profound influences have probably been outside the scope of a benefit-cost analysis. 

Al discusses the early history of environmental economics at EPA and how the influence of outside economists helped inform and expand economics at EPA; successes including the increased use of market incentives; Executive Order 12291 and benefit-cost analysis with examples including Alar and lead in gasoline; and ends with the current state of environmental economics at EPA and thoughts for the future.

Full disclosure: Al is my boss and a great one, but I would be recommending this anyway. I think the article is appropriate for any environmental economics class but I would think it's especially useful for cross-listed classes with a lot of non-economics majors who may not understand how environmental economics is relevant at EPA.

Complete article is here and is open access.

 

This work is not a product of the United States Government or the United States Environmental Protection Agency, and the author is not doing this work in any governmental capacity.  The views expressed are those of the author only and do not necessarily represent those of the United States or the US EPA.

 

Just braggin' about my ballsy math

On Thursday I used 'blog-quality research to come up with a 'blog-park' figure for how much water might be saved by Los Angeles plan to use millions of ping pong balls to cover the local reservoir to prevent evaporation.  Using rough numbers from swimming pool evaporation, I came up with an estimate of 311 million gallons saved per year.  Well, today I saw this from NBC News:

California has released millions of plastic water-saving 'shade balls' into their water reservoirs in an attempt to prevent evaporation as the state battles record-breaking drought. The effort is expected to save some 300 million gallons of water each year.

Assuming their number is accurate, I came up with a number that was off by less than 4% using nothing more than Google and 15 minutes of my time.  

Just sayin'.