Environmental Economics

"Noahpinion: The backlash to the backlash against p-values"

Apparently, some psychology journals are not allowing p-values (or asterisks, I guess) on regression coefficients. Noah Smith:

... Significance tests results shouldn't be used in a vacuum - to do good science, you should also look at effect sizes and goodness-of-fit. There is a culture out there - in econ, and probably in other fields, that thinks "if the finding is statistically significant, it's interesting." This is a bad way of thinking. Yes, it's true that most statistically insignificant findings are uninteresting, but the converse is not true. For something to be interesting, it should also have a big effect size. The definition of "big" will vary depending on the scientific question, of course. And in cases where you care about predictive power in addition to treatment effects, an interesting model should also do well on some kind of goodness-of-fit measure, like an information criterion or an adjusted R-squared or whatever - again, with "well" defined differently for different problems. Yes, there are people out there who only look at p-values when deciding whether a finding is interesting, but that just means they're using the tool of p-values wrong, not that p-values are a bad tool. ...

Fortunately I see a few signs of a backlash-to-the-backlash against significance testing. In 2005 we had a famous paper that used simulations to show that "most published research findings [should be] false". Now, in 2015, we have a meta-analysis showing that the effect of p-hacking, though real, is probably quantitatively small. In addition, I see some signs on Twitter, blogs, etc. that people are starting to get tired of the constant denunciation of significance testing - it's more of a hipster trend than anything. Dissing p-values in 2015 is a little like dissing macroeconomics in 2011 -

via noahpinionblog.blogspot.com

Most economics papers that I read have sample sizes large enough (and not too large) that the p-values are meaningful. In the area of nonmarket valuation, where we estimate willingness to pay and consumer surplus, effect sizes are always assessed so I am not very familiar with that part of the problem. But when I teach senior seminar (the last time was Fall 2013) I emphasize effect sizes. Here is the recommended outline from the paper guidelines:

Paper Outline:

1. Introduction - describe the economic problem that you are addressing (rewrite your paper proposal). The last paragraph of the introduction should begin with “the purpose of this paper is to ….” The introduction should be about 1 page in length.
2. Literature Review – The purpose of the literature review is to learn as much as you can from the efforts and work of others; it prevents duplication and/or identifies replication needs; it identifies the frontier of knowledge and the potential research contribution of your paper; it provides ideas and directions. In the literature review you should analyze, compare and contrast the papers in the annotated bibliography. Make sure you identify a gap in the literature. Don't cut and paste the five paragraphs of you annotated bibliography. The literature review should be between 1 and 2 pages.
3. Model - describe the empirical models that you intend to estimate and the expected effect of the independent variable on the dependent variable using economic theory
4. Data - describe the source of your data, what you did with it (i.e., transformations of variables) and univariate statistics (Tables 1 and 2). ...
5. Results – describe the statistical results in some detail (Table 3)
6. Discussion – describe the economic importance of your results; interpret marginal effects, elasticities, etc.; employ at least one bar chart or graph
7. Conclusions - summarize your findings, how they compare with earlier literature, and address any policy implications and unresolved issues.
8. Tables - Table 1. Variable descriptions; Table 2. Summary statistics; Table 3. Regression models; Table 4. Economic impacts
9. Figures - at least one bar chart illustrating economic importance (for categorical variables), or at least one graph illustrating economic importance (for continuous variables)
10. References

What am I missing?

RePEc journal rankings

From the inbox:

I am writing to you to see if you help me getting hold of the latest rankings of the journals in Environmental Economics. ...

I see no reason not to use the RePEc rankings. They are up to date, exhaustive (except for JAERE, MRE and JEEP*) and seem to correlate fairly well with all of the other rankings we've posted here. RePEc ranks almost 1500 journals. Here are the environmental and resource journals in the top half of the RePEc list (the first number is the RePEc rank): 

1. 43 Journal of Environmental Economics and Management
2. 61 Energy Economics
3. 63 Ecological Economics
4. 94 American Journal of Agricultural Economics
5. 104 Environmental and Resource Economics
6. 123 Review of Environmental Economics and Policy
7. 139 Resource and Energy Economics
8. 145 Land Economics
9. 204 Environment and Development Economics
10. 239 Annual Review of Resource Economics
11. 240 Journal of Agricultural and Resource Economics
12. 246 Journal of Agricultural Economics
13. 272 Journal of Agricultural and Applied Economics
14. 274 International Review of Environmental and Resource Economics
15. 350 Agricultural and Resource Economics Review
16. 351 Climate Change Economics
17. 355 Australian Journal of Agricultural and Resource Economics
18. 448 Economics of Energy and Environmental Policy
19. 544 Journal of Environmental Planning and Management
20. 567 Environmental Economics and Policy Studies
21. 653 Canadian Journal of Agricultural Economics
22. 673 International Environmental Agreements

I compiled these rankings after a search on several key words, not an exhaustive reading of each line of text, so I may have missed one or more. I also skipped a few that did not appear to be reputable or published a low percentage of environmental and resource economics papers. Please let me know in the comments how this list could be improved. 

*These three journals have been ranked in other posts. JAERE is ranked #2 and MRE #10 here. JEEP is #2 here.

 

Coastal erosion

Here is one last picture from my vacation. I built this sand castle using everything I knew about coastal engineering. In the right hand side of the picture you can see the last structure left standing from what used to be a proud, but poor, coastal town. Alas, it could not afford protection against high tide. The more affluent community has a moat, a seawall (with an ingenious gap that allows water to come through, avoiding the full force of the waves) and another moat that first breaks the force from the waves. This affluent community was built to last!

Snakes. Why'd it have to be snakes?

Hidden on hillsides in a remote part of western Vermont, a small number of venomous timber rattlesnakes slither among the rocks, but their isolation can't protect them from a mysterious fungus spreading across the eastern half of the country that threatens to wipe them out.

In less than a decade, the fungus has been identified in at least nine Eastern states, and although it affects a number of species, it's especially threatening to rattlesnakes that live in small, isolated populations with little genetic diversity, such as those found in Vermont, New Hampshire, Massachusetts and New York.

In Illinois the malady threatens the eastern massasauga rattlesnake, which was a candidate for the federal endangered species list even before the fungus appeared.

Biologists have compared its appearance to the fungus that causes white nose syndrome in bats, which since 2006 has killed millions of the creatures and continues to spread across North America.

via hosted.ap.org

I have very mixed emotions on this story. i get the whole ecosystem linkage arguments, take out one piece and the whole system could collapse, blah, blah, blah, but is getting rid of snakes really a bad thing?

No, I mean really.

Snakes.

Blech.

My new profile picture

Inspired by Tim's post, I'm watching "wetheeconomy" (the hidden value of nature). It is great, but I can't help but wonder if I'd get better teaching evaluations if I looked like this:

Or like Jodi or Gernot. The tragedy of the commons was never younger or hipper!

I also wonder if I'd get better teaching evaluations if I could speak in complete sentences or put a coherent paragraph together without going off script in the middle of a thought. Another annoying thing that I do, and can't seem to stop, is begin a sentence, pause, and then go back to the beginning before I can get to the end. For example, I can write this:

The second situation is when increased revenue is used to fund an efficient increase in a public good.

But if I say it it comes out like this:

The second situation is ... the second situation is when increased revenue is used to fund an efficient increase in a public good.

Even I think that is annoying. I need to take a public speaking course. 

Practical politics?

Tim found this update from Greg Mankiw:

Update: Responding to my post, John Whitehead writes, "The standard textbook treatment of a Pigouvian tax is agnostic on what happens to the revenue."

He is right, of course. So let me clarify. I was trying to make a point not about textbook economics but about practical politics.  Here are two propositions:

1. The tax system should be shifted in a Pigovian direction.
2. Government should be larger.

These are largely unrelated claims. Logically, one can believe both, neither, or only one of them.  In my view, it much easier to make the case to many voters, especially those on the right, for proposition 1 than for proposition 2.  As a result, if you strongly believe in proposition 1 and are trying to put together a coalition to make it happen, marrying it to proposition 2 is not the best move.

I'm no expert in practical politics. Indeed, I have no idea how I would advise a politician how to answer this Republican debate question: “I want to know if any of [the candidates] have received a word from God on what they should do and take care of first?” When a word from God is an important issue isn't it a little bit ridiculous to wonder what God would advise on Pigouvian tax revenue? 

But I'll take a stab at broadening the menu of practical political options. First, I'd say that presenting your counter argument with the vague "Government should be larger" and a "carbon tax needs to be evaluated on its own merits and should not be a stalking horse for a broader, big-government agenda" is not a signal that you are an unbiased advocate for more efficient environmental policy. Here is how Wikipedia explains big government:

Big government is a term generally used by conservatives and libertarians to describe a government or public sector that they consider to be excessively large, corrupt and inefficient, or inappropriately involved in certain areas of public policy or the private sector. 

So, we might assume that to Mankiw "big government" is a pejorative term. In other words, an increase in government revenue is a bad thing. I don't think that this is necessarily the case. There are at least two situations that I can think of that might be inconsistent with increased government revenue being a bad thing. The first is that the U.S. government is currently running a budget deficit. Increased revenue could be used to fund the existing size of government and shrink the deficit. Even Mankiw (in 2006) mentioned that increased revenue would be a good thing (however, the notion was gone in 2007). 

The second situation is when increased revenue is used to fund an efficient increase in a public good (when the benefits of the increase exceed the costs). I'm thinking, for example, that maybe an increase in the gas tax could be used to fund transportation system maintenance. It could be possible to build a political coalition around higher gas taxes and safer roads and bridges, right? The Pigou Club's Wikipedia page even mentions that some of the "elite" members are in favor of this option:

The Pigou Club is described by its creator, economist and blogger N. Gregory Mankiw, as "an elite group of economists and pundits with the good sense to have publicly advocated higher Pigovian taxes, such as gasoline taxes or carbon taxes." These pundits and economists often advocate lowering other taxes to keep the total amount of taxes collected the same, though many have also proposed dedicating the revenue to other worthwhile projects.

Second, Pigouvian taxes are not the only way to achieve an efficient regulatory outcome. An alternative is cap and trade:

... both a carbon tax and carbon cap-and-trade will achieve the same level of increased efficiency by achieving the optimal abatement level at the minimum cost. The only difference is the distributional implications. The cost to the firm is lower for carbon cap-and-trade. The government receives tax revenue with a carbon tax. Both policies are preferred over techological or output standards (i.e., command and control regulation).

It seems to me that one could put a coalition together around cap and trade with freely distributed permits. In that situation, rents would accrue to many low abatement cost firms while high abatement cost firms would suffer. As a practical political matter, it might be good to get the big money people on your side before you make the case to the voter-peons, right? You would think that this sort of efficient environmental policy plus practical politics would be favored by Mankiw, but no such luck. This is because they don't raise revenue:

But the history of cap-and-trade systems suggests that the allowances would probably be handed out to power companies and other carbon emitters, which would then be free to use them or sell them at market prices. In this case, the prices of energy products would rise as they would under a carbon tax, but the government would collect no revenue to reduce other taxes and compensate consumers.

Nat Keohane at EDF has a critique of Mankiw's argument against cap and trade so I'll just say that there is an alternative opinion. A here is an excerpt from a good summary of the practical political considerations from 2007, right before both presidential candidates Obama and McCain both came out in favor of cap and trade: 

In theory, both approaches aim to achieve the same result: by making it more costly to emit carbon into the atmosphere, the government would discourage the burning of fossil fuels, encourage producers to find alternative energy from renewable sources and prod consumers into using energy more efficiently. Each side can make a compelling case. So what’s the argument?

Many economists line up behind a carbon tax. They argue that it is the most cost-effective way to limit global warming emissions, that it provides a more predictable long-term price for energy producers of all kinds and that emissions trading schemes would be subject to manipulation by special interests. ...

Indeed, most politicians favor cap-and-trade, in part because it obscures the full cost of curbing carbon emissions. ...

Supporters of a cap-and-trade program argue that explictly raising carbon taxes high enough to make a serious dent in the output of global warming gases would be politically impossible.

But environmental advocates make a further argument. While they agree that cap-and-trade programs will lead to higher prices, too, they say that the only way to achieve support for an ambitious global warming agenda from both the general public and those within the energy industry is to guarantee that emissions will fall. ...

In just the last few weeks, the debate has heated up, so to speak, as both sides recognize that with both Republicans and Democrats agreeing that something needs to be done, their shared goal may be within grasp. That makes winning support for the right approach, as each side sees it, even more important.

So, considering the political atmosphere in 2007 and given the current state of affairs, that cutting income taxes is considered by many people as a panacea for many problems, I'm not convinced that Mankiw's Pigouvian tax and lower income tax coupling is an effort to build a political coalition. I think it is great that Mankiw is such a great proponent of Pigouvian taxes. I just wish he would lighten up on the persistent coupling. 

For the record, I would be in favor of either a carbon tax or cap and trade as an efficient approach to climate policy. I'm agnostic on what happens to the potential revenue because (1) there are three potentially efficient approaches and (2) we can get bogged down into mostly distributional issues and economists don't have a monopoly on their understanding of fairness. 

We must have faces made for blogging

Browsing through the streaming videos available on Amazon Prime last night, I came across a documentary series called "wetheeconomy."  I'm probably slow to the party but the series features a series of short (5-10 minute) documentaries introducing basic economic topics like supply and demand, measuring GDP, what is money,...  Of particular interest to this blog, one of the documentaries is titled "A Bee's Invoice: The Hidden Value in Nature," which is designed to answer the question: Are natural resources vital to the economy?  

The environmental economist in me is excited to see environmental valuation included in Chapter 1 of a series introducing a wide array of economic topics.  Maybe, this whole environmental economics thing is gaining some traction. 

The jealous, rapidly aging human in me is jealous that the film features appearances by two economists, both of whom have interacted on our blog, and neither of whom is named Whitehead or Haab. Anyway, nice work Gernot Wagner and Jodi Beggs* in promoting the cause.  I presume they were chosen because the producers thought  John and I were unavailable--either that or they wanted younger faces to attract a different demographic than the epitome of boring middle-class soccer/baseball dads.

*Jodi once called us cool, and Gernot stoops so low as to occasionally contribute to Env-Econ.  I'm going to go as far as say we had a part in launching the careers of these two film stars.  Hopefully they remember us when the riches start to flow.

The env-econ Facebook page is missing some posts

From Typepad:

Facebook is aware of a known issue where app connections continue to break. You may see a "fix it" error when sharing to Facebook within your Typepad account due to this Facebook bug. Facebook is currently working on it, and we're keeping tabs on its status. If you see the error in your Typepad account, click "fix it" to re-establish the Facebook connection.

I just fixed it and this post is going to facebook (I think). We'll see how long it lasts.

September JAERE is now up to 5 articles!

I suppose the University of Chicago Press sent the email announcement about the September issue a few days too soon. 

Follow-up: "Cap and trade began as a Republican idea"

There was some interesting discussion in the comments to this post. Brad DeLong says this:

Doesn't the name "Richard Schmalensee", member of George H.W. Bush's Council of Economic Advisers belong in this story somewhere, as the driver of market-friendly environmental protection policies in the U.S. government for four years? ...

While Schmalensee has written much on the acid rain program (e.g., Schmalensee and Stavins 2013), it took some digging for me to find something that gives him credit for its implementation. But I did find it. Here is footnote 33 from Stavins (2006):

References:

Schmalensee, Richard, and Robert N. Stavins. "The SO₂ Allowance Trading System: The Ironic History of a Grand Policy Experiment." The Journal of Economic Perspectives (2013): 103-121.

Stavins, Robert N. "Market-based environmental policies: what can we learn from US experience (and related research)?" in Jody Freeman and Charles, D. Kolstad, Moving to Markets in Environmental Regulation: Lessons from Twenty Years of Experience: Lessons from Twenty Years of Experience. Oxford University Press, 2006.