Environmental Economics

Some pre-Christmas oil price snark

It's the end of the semester and oil prices are low.  What better time to give my thoughts on the inevitable catastrophic low oil price story.

The epic oil crash could end next year.

EPIC!  Can you feel it, see it, hear it today?

But before prices start to climb higher, they could go even lower.

...or higher.  But probably lower.  Definitely lower.  Yeah, lower.  Maybe.

It's been a catastrophic 18 months for crude oil, which has suffered a dramatic 68% plunge due to a massive supply glut.

Perspective rewrite:  It's been a glorious 18 months for consumers of crude oil based products, who have reveled in low prices due to a 68% decrease in oil prices thanks to increased production.

Oil fell to a fresh seven-year low below $34.50 a barrel on Friday.

...and Hotelling wept.

The collapse in prices has wreaked havoc on the industry, causing tens of thousands of job losses, a surge in corporate defaults and plunging stock prices.

Perspective rewrite: The decrease in prices resulted in an efficient reallocation of tens of thousands of jobs and the shutdown of the highest cost producers.

Many Wall Street oil experts believe that prices will rebound in late 2016.

Is there oil on Wall Street?

Yet more pain may be inflicted -- some say it's actually needed -- before prices bounce higher.

Can you imagine writing about the disappointment in low prices in other industries?   

"Yet more pain may be inflicted before car prices bounce higher."

"Yet more pain may be inflicted before chocolate prices bounce higher."

"Yet more pain may be inflicted before movie prices bounce higher."

"It's still a long road ahead. The oversupply problem will be with us for a little while," said Mike Wittner, global head of oil research at Societe Generale.

...maybe we need a cartel of oil producing countries that can keep oil prices artificially and inefficiently high for a long period of time.

Goldman Sachs wagers that crude oil will average $38 a barrel in February. That's lower than prices were for most of this year.

Pete Rose was banned from his industry for life for wagering.  Just sayin'.

The problem is that the long-awaited "rebalancing" of the global oil market has yet to happen.

 I don't know what that means. 

In other words, the world's supply of oil remains far above its demand. The supply glut was mostly created by skyrocketing American production.

Oh, it means that the global oil market doesn't understand Econ 101.  When Supply is 'far above demand' there is a surplus, which will create downward pressure on prices.  When there is downward pressure on prices, prices go....wait for it...DOWN. Like to $34.50 a barrel.  Like they are now.  Sounds like a pretty good rebalancing act to me. 

But OPEC, led by Saudi Arabia, has exacerbated the issue by pumping oil ferociously. It's a strategy designed partly to pressure American producers out of the market.

Competition sucks...for inefficient producers.  But guess what.  Hummer loving consumers love low price Hummers. 

Get your mind out of the gutter.

OPEC declined to cut production when it met earlier this month, reinforcing the idea it's not coming to the rescue of oil markets.

...or reinforcing the idea that OPEC is no longer a functioning cartel. 

via money.cnn.com

And YES, I do recognize that I failed to account for any externalities associated with the consumption or production of oil.  That's for other posts.  This snark-filled post is simply a demonstration of how prices fluctuate in well-functioning markets...and who benefits and who loses.  It sounds odd to call the oil market well-functioning, but it seems like its about as close to a competitive market as it has been in my lifetime.  

Now for those pesky externalities...

Star Wars*, Academic Administration and Moral Suasion

A message I just sent to our department faculty:

I know it’s ridiculous timing, and the University scheduling committee needs to take a close look at this, but PLEASE MAKE SURE YOU GET YOUR GRADES FOR GRADUATING STUDENTS IN BY MIDNIGHT TONIGHT. All other grades are due by Monday at midnight.

Sorry for the all caps, but I am on call tomorrow for anyone who does not get their grades in on time and frankly I don’t want to have to field calls while watching Star Wars with my son. 

So be kind to my son and get your grades in on time.

*I'm an admitted Star Wars dork.  The first trilogy defined my childhood--Episode IV came out when I was 7.  And John still occasionally calls me Chewbacca, I guess because I'm tall, hairy and only speak in grunts.

The U.S "should/shall" employ incentive-based policy to address climate change

Ben Yagoda at Lingua Franca on COP21:

As the deadline approached, attention focused on one particular set of auxiliary verbs: shall (implying a commitment) and should (implying a general wish and desire). The United States delegation was especially partial to should. Legally binding language, such as shall, would have required that the treaty be submitted to the Senate, which would almost certainly scuttle it.

By the end of the conference, the United States had succeeded in plucking out all its targeted shalls, and everything looked copacetic. But as Todd Stern, the lead negotiator, said on NPR, there was a moment of panic at the very last minute. “So the draft comes,” Stern told Ari Shapiro. “We print it. We all sit down. And I’m flipping through it, and I go, ‘What happened here??’” What happened was that one line in the final text read, “Developed country Parties shall continue taking the lead by undertaking economy-wide absolute emission reduction targets” instead of the agreed-on “Developed country Parties should … ”

Stern informed Secretary of State John Kerry. “When I looked at that, I said, ‘We cannot do this and we will not do this,’” Kerry told reporters later. “‘And either it changes or President Obama and the United States will not be able to support this agreement.’” ...

I "should" soon stop blogging and turn my attention to more important matters.

I "shall" soon stop blogging and turn my attention to more important matters.

Quote of the day

In a post simply titled "December 16, 2015", Tyler Cowen:

All the major reviews for Star Wars seem to be positive, but no one is calling it an “intense personal vision.”  So it probably isn’t very good. ...

The solstice approaches, and I am waking up slightly later than usual.

via marginalrevolution.com

"Looking for the Perfect Gift? Social Science Can Help"

Arthur C. Brooks:

ARE you in a panic, not sure what to get that special someone this year? Fear not, because my fellow social scientists have the answer for you.

For economists, the perfect gift is simple: cash. Indeed, they often express surprise that anyone would give anything else. There is even lively economics literature on the “deadweight loss of Christmas.” One economist writing in the prestigious American Economic Review estimated this loss at between 10 and 33 percent — meaning that gifts we buy others are worth up to a third less to them than what they would buy for themselves if we just gave them the money instead.

Imagine the look on the kids’ little faces when, instead of putting presents under the tree, you whip out your wallet and give them each a crisp $100 bill. I proposed that once to my wife and she suggested that we should also start a fund to pay for their counseling.

Perhaps you are fretting that you might get someone a bad gift by mistake. How important is the perfect gift? Sociologists have taken up this question. In a 2008 study in the journal Social Cognition, four sociologists conducted an experiment in which young men and women who had just met gave one another gift certificates. Unbeknown to the participants, the researchers manipulated the gifts, giving half of the recipients popular certificates, and the other half embarrassing ones.

Let’s consider this from the point of view of a participant. You sign up for an experiment to help out a sociology professor, because you’re a good person. You meet an attractive person in the experiment, and give him or her a certificate to a nice bookstore. Maybe he or she will go out with you later, right? It turns out the researcher switches your gift for a certificate for something like acne cream. Perhaps someone should do a study about why sociologists don’t want you to be happy.

So what happened in the experiment when the participants got a bad gift? The answer depended on gender. Women who got an undesirable certificate shrugged it off, while men who got bad certificates judged themselves to be very dissimilar from the women who gave them. In other words, it’s easier for women to wreck a new relationship with a bad gift.

Fortunately, in perhaps the most unsurprising finding of the decade, scholars in the science journal PLOS One published an article in 2013 with the self-explanatory title “Women Are Better at Selecting Gifts Than Men.” Somebody actually might have gotten tenure figuring that one out. ...

According to psychologists, the thought does indeed count — but only up to a point. In one 2012 study published in The Journal of Experimental Psychology, participants were asked to recall good and bad gifts they had received from loved ones. Surprisingly, recipients paid relatively little attention to the thought behind gifts that they liked. On the other hand, receivers of bad gifts positively evaluated the thought behind them.

One 2002 study by two psychologists entitled “What Makes for a Merry Christmas?” in the Journal of Happiness Studies found that people reported feeling happier when their holidays focused more on religious faith, and less on money. This marks a major rift in the social sciences. While economists say you should give cold cash, psychologists apparently believe you should just say a nice little prayer for each person in lieu of a gift. Either way, you’ll be a huge hit. ...

So there you have it: a guide to the social science of gift-giving. Best wishes from our entire profession for what is the most joyous time of the year, and for the inevitable regression to the mean that follows.

via www.nytimes.com

The best statement that I've heard of giving cash was on Blackish where Junior gets a gift card to J Crew and unhappily says something like "you turned cash that I could spend anywhere into a card that I can only spend at J Crew?"

Picture of the day

No one believed me when I said I was a discussant in a SBCA session. Here's the proof:

November 24, 2015

SBCA sponsored two panels at the Southern Economics Association annual conference on Saturday, November 21.  One, organized by JBCA editor Glenn Blomquist, focused on the benefits and costs of environmental and health policy.  ...

Health and Environmental Policy:

Session Chair - Susan Dudley, George Washington University

Papers:

• Accidental Environmentalists? Californian Demand for Teslas and Solar Panels - Matthew Kahn, UCLA Institute of the Environment and Sustainability, Magali Delmas, UCLA Institute of the Environment and Sustainability, and Stephen L. Locke, Western Kentucky University
• Retrospective Benefit-Cost Analysis of EPA’s Renewable Fuel Standard - Sofie E. Miller, George Washington University
• The Fatality and Morbidity Components of the Value of Statistical Life - Elissa Philip Gentry and W. Kip Viscusi, Vanderbilt University
• Risk Beliefs and Preferences for E-Cigarettes - W. Kip Viscusi, Vanderbilt University

Discussants:

• Lala Ma, University of Kentucky
• John Whitehead, Appalachian State University
• Lisa A. Robinson, Harvard University
• Glenn Blomquist, University of Kentucky

via benefitcostanalysis.org

In my humble opinion, my department is awesome

I spent an hour or so today setting up a Google Scholar profile for my department.  Here's a link.  A few notes:

1. Google Scholar is not overly amenable to group pages.  Unless the department name is spelled out exactly, searches are difficult.
2. As long as someone has a Google Scholar Profile set up, they are easy to find.  Just search for their profile and add as a co-author.
3. Only 8 out of our 19 faculty members have Google Scholar profiles set up.  Apparently only ego-maniacs set up self-congratulatory citation over-inflating websites dedicated to tracking who is paying attention to their work.
4. Here's mine.
5. Here's John's.
6. Damn.  John has more cites than me.
7. But my book has more cites than anything John has produced.  So there's that.
8. But this is about the Department.  Not me.
9. My book is the most cited thing in the Department.
10. Ok, enough.
11. If you didn't notice, The Ohio State University is an adjective friendly workplace.  Officially we are the Department of Agricultural, Environmental, and Development Economics in the College of Food, Agricultural, and Environmental Sciences.
12. ...and yes, the Oxford commas are official.
13. I need to get to work on a second edition.  I'm worried my citation count might fall off. 
14. Sounds like a plan.

Daily Demand and Supply: How markets work

An app launching in January 2016 is promising to help flyers find better seats on a plane using a digital marketplace.

The app will allow the 'seller' to be compensated for the swap while the 'buyer' could get an upgrade on their current position.

via www.dailymail.co.uk

Outline for my first class in econ 101 next semester:

1) Show students this story.
2) Ask who is made better off by such 'swaps'?
3) Class dismissed. For the semester.

A journal that stutters

From the inbox:

Dear  T Tim,

Greetings…!

Journal of Marine Biology & Oceanography a peer-reviewed scholarly Journal, dedicated to disseminate the most complete and reliable source of information on the discoveries and novel promising developments in all areas of Marine Biology, Oceanography, Fisheries Science with the generous support of strong Editorial Board of eminent scientists from all over the world.

My response:

Dear E Editor,

Your greeting left me excitedly hanging...!!  I am especially intrigued by your editorial style which allows for run-on non-sentences.  I have many students who are readily able to match your writing style. Your appearance on Beall's list of potential, possible, or probable predatory scholarly open-access publishers gives me hope that my writing challenged students may be able to find an outlet for their marginally interesting work.

S Sincerely,

T Tim

 

 

Reply to “Comment on: A revealed preference approach to valuing non-market recreational fishing losses from the deepwater horizon oil spill and its corrigendum”

Here is the introduction:

In his comment, Train (2015) claims to have uncovered “numerous errors and misstatements” in our recently published article (Alvarez et al., 2014) and accompanying corrigendum (Alvarez et al., 2015), yet close inspection reveals that all these errors and misstatements have been discussed at length in the article and corrigendum. This document outlines Train's claims and the corresponding section of the article and corrigendum that address each of his concerns. However, we first offer some background on the evolution of the research and the ensuing response from Train and BP plc.

The Alvarez et al. (2014) study relies on data continuously collected by a third party, the National Marine Fisheries Service, for purposes other than measuring the effects of oil spills and made publicly available online as the MRFSS/MRIP data. The study was conceived as an illustration of using the MRFSS/MRIP data to create a choice model capable of depicting angler behavior in response to a quality change brought about by an oil spill. In doing so, our study diverges from the previous literature on the effects of oil spills on recreational use of natural resources, which relied entirely on post-hoc surveys of recreational users designed for the sole purpose of fulfilling the data needs for the creation of these models. While our approach overcomes the post-hoc nature of data collection prevalent in the previous literature, it suffers from the necessary shortcoming of relying on data that was not collected for the purpose at hand. To get around these shortcomings, a series of assumptions must be made, and it is with these assumptions that Train appears to be taking issue. As will be discussed in this reply, these assumptions are clearly documented in the original article.

Furthermore, the Alvarez et al. (2014) study was conceived, designed, and carried out completely independent of the legal process surrounding the Deepwater Horizon spill. It did not rely on funding from any stakeholder group, and its objectives or content were never reviewed by attorneys involved in either side of the legal process. However, the research was presented at various conferences and other venues, and comments and suggestions received from participating scholars shaped the research process, which began in late 2010 and culminated with the publication of the article in late June 2014.

In August 2014, we were contacted by Train, who expressed concerns about the compensation estimate documented in Alvarez et al. (2014), in particular the use of the ‘short-cut’ formula for estimation of welfare changes, or equation (7) in Alvarez et al. (2014). He also suggested we retract the article. In response, we developed the corrigendum which was submitted to the journal and shared with Train as a courtesy during September 2014. The corrigendum focuses on the use, and misapplication, of the ‘short-cut’ formula, explains the relationship between the welfare estimate and the number of sites affected, and provides a number of alternate welfare estimates that would result under different scenarios of sites affected. Besides addressing Train's initial concern, the corrigendum adds to the literature by shedding light on the correct use of the short-cut formula, and as such, it should prove useful to the Journal of Environmental Management's readership.

In October 2014, we were again contacted by Train with additional concerns. As a professional courtesy we shared all of our raw data, computer code, and estimation datasets that offered complete disclosure of our approach and assumptions, which we had already fully disclosed in Alvarez et al. (2014). Disclosure of the data and computer code allowed Train to re-estimate or re-design the model using differing assumptions, and these results could be used for their scholarly merit or as evidence in the legal process.

In the following section we list the issues that Train claims to have uncovered and outline the sections of the article and corrigendum where they have been discussed. In summary, none of these topics add to the peer-reviewed literature with respect to either the theory or empirical application. ...

via www.sciencedirect.com