Environmental Economics

Never the twain shall meet

From Edward Elgar:

Handbook of Choice Modelling (2014)

Edited by Stephane Hess, University of Leeds, UK and Andrew Daly, University of Leeds, UK and RAND Europe

In Chapter 1 Hess and Daly mention the Carson and Czajkowski chapter titled "The discrete choice experiment approach to environmental contingent valuation":

Carson and Czajkowski next look at the use of experimental data in the vibrant area of environmental economics where revealed preference data is often not an option, given the hypothetical nature of the valuations of interest. 

To me, since Carson and Czajkowski argue that referendum CVM is a simple form of choice modelling, that sounds like an endorsement of the use of CVM to better understand preferences towards the environment. Indeed, Adamowicz, Glenk and Meyerhoff ("Choice Modelling research in environmental and resource economics") in the research needs section of the Hess and Daly book note:

Contingent valuation is one form of 'discrete-choice experiment' - using terminology outlined by Carson and Louviere (2011), as are 'choice experiments' in which many attributes, including price, are manipulated using an experimental design. Various challenging issues continue to arise in the use of discrete-choice experiment stated preference methods in environmental valuation. 

The first five sections of the Adamowicz, Glenk and Meyerhoff chapter decribe research needs specific to stated preference data.

In the Critical Acclaim section of the website:

‘A truly astonishing collection of papers. This book is the new place to go for learning the latest and greatest in choice modelling.’

– Kenneth Train, University of California, Berkeley, US

But, also from Edward Elgar: 

Contingent Valuation of Environmental Goods: A Comprehensive Critique (2017)

Edited by Daniel McFadden, E. Morris Cox Professor of Economics and Kenneth Train, Adjunct Professor Emeritus of Economics, University of California, Berkeley, US

In the Critical Acclaim section of the website:

‘While scepticism about the validity of contingent valuation (CV) approach is widespread in many parts of the choice modelling community, advocates of CV for the valuation of environmental goods point to a number of guidelines that, if followed (often blindly), should lead to reliable results. The evidence in this excellent book, compiled in an objective manner by Dan McFadden and Kenneth Train, casts doubts on this, and points to the far bigger issue of respondents not being able to adequately value such unfamiliar goods in a survey context. The book makes required reading for anyone interested in the topic and suggests that researchers and practitioners in environmental economics should think very carefully about their continued reliance on CV, or indeed other stated preference approaches, for the valuation of environmental goods.’

– Stephane Hess, University of Leeds, UK

I read this and went all like "huh?".

So, what is "choice modelling"? From Wikipedia:

There are a number of terms which are considered to be synonyms with the term choice modelling. Some are accurate (although typically discipline or continent specific) and some are used in industry applications, although considered inaccurate in academia (such as conjoint analysis).^[2]

These include the following:

1. Stated preference discrete choice modeling
2. Discrete choice
3. Choice experiment
4. Stated preference studies
5. Conjoint analysis
6. Controlled experiments

Although disagreements in terminology persist, it is notable that the academic journal intended to provide a cross-disciplinary source of new and empirical research into the field is called the Journal of Choice Modelling.

Stephane Hess is the editor of the Journal of Choice Modelling and Kenneth Train is an associate editor. The editorial board is full of researchers who use stated preference data. The journal is full of articles that use stated preference data (here is the link to the most cited: https://www.journals.elsevier.com/journal-of-choice-modelling/most-cited-articles). 

McFadden and Train conclude their promotional blurb with this:

Bringing together leading voices in the field, this timely book tells a unified story about the interrelated features of contingent valuation and how those features affect its reliability. Through empirical analysis and review of past studies, the authors identify important deficiencies in the procedure, raising questions about the technique’s continued use.

Train and Hess are sending mixed messages with their book endorsements. Does Train still think that Hess' book is good? or should the stated preference chapters be purged? Does Hess, editor of the Journal of Choice Modelling, really believe that researchers should stop using stated preference methods?

What the heck is going on?

Methane Rule: unnecessary costs?

Timothy Cama and Devin Henry via thehill.com:

Three Republicans joined Senate Democrats on Wednesday to reject an effort to overturn an Obama administration rule limiting methane emissions from oil and natural gas drilling.

Only 49 senators voted to move forward with debate on legislation to undo the Bureau of Land Management (BLM) rule, short of the 51 votes needed.  ...

The failure of the resolution is a loss for congressional Republicans, who had targeted the methane rule as one of the main Obama regulations they wanted to reverse. Opponents of the rule argue that it unnecessarily adds costs to oil and natural gas drilling on federal land. 

"Unnecessarily adds costs" suggests that the benefits are less than the costs, right? I hadn't been paying much attention to the methane rule (except for fart jokes) so I wondered what the benefit-cost analysis concluded. I used the Google and found all the anti-methane rule stuff. If you want to read one with the industry funded criticism (I just love those), go here: http://westernwire.net/social-cost-of-methane-garbage-in-garbage-out/. Here is an example: 

NERA Economic Consulting took a look at [social cost of methane] models to evaluate EPA’s methane rule. NERA corrected the flawed assumptions regarding the discount rate, radiative forcing rates, geographic inconsistencies in the analysis, and inappropriate extrapolations about future mitigation policy. ...

NERA's study can be found here [PDF]. [Don't try the link in the excerpt because it is broken.] NERA didn't really correct anything, because who says that NERA is correct? They're paid to say that they are correct, sure, but that payment sniffs of bias in their analysis.  The study was funded by the American Council for Capital Formation which has funding from Exxon and the Koch Brothers. Here is one thing that the ACCF says about the methane rule on their website right now:

The rule is expected to cost producers up to $297 million per year to comply, while BLM estimates it would reduce global greenhouse gas emissions by only 0.0092 percent.

Comparisons of benefits and costs are a red flag. For example, did you know that the benefits are $360 million per year and the costs are only 0.0018% of annual GDP? My bias radar is flashing (and why does this stuff play ... does it only play with already biased people? [note*]). 

Disgusted, I realized that Resources for the Future probably had an unbiased review of the government study. They did (The agency vs Industry: Who's got it right on methane?). Alan Krupnick:

Last week, the US Environmental Protection Agency (EPA) issued its proposed rules for reducing methane from new and modified oil and natural gas wells, processes, pipelines, and storage facilities. The agency’s goal is to cut emissions of methane, a greenhouse gas, from the oil and gas sector by 40 to 45 percent from 2012 levels by 2025. These rules, however, were attacked out of the gate by the American Petroleum Institute (API). The charges: they are duplicative of ongoing industry practices, costly, and unnecessary. ...

The top-level question that should be asked is whether these rules offer society greater benefits than costs. According to EPA’s regulatory impact assessment (RIA), net benefits are positive. Note that I restricted my purview to the New Source Performance Standard (NSPS) rules. The RIA counts the benefits of methane reduction from reducing greenhouse gas emissions (valued at around $45 per ton based on the potency of methane as a greenhouse gas relative to carbon dioxide (CO2, termed CO2e) and the administration’s social cost of carbon), subtracts out the engineering costs of the rules over an estimate of what the industry would otherwise be doing, and adds the value of any natural gas the industry would capture that would otherwise have leaked away. Overall and on a per ton basis, according to the RIA, the rules cost $40 per ton whereas the benefits are a bit higher, so net benefits are around $8 per ton of CO2e emissions. Excluded from the calculation are the reductions of emissions of volatile organic compounds, which could fairly be allocated some of the costs of the rule. These are also important because these reductions would help lower the costs of meeting ozone standards. Also not counted are ancillary benefits from reducing hazardous air pollutants. So, the rules benefit society.

And here is more from RFF: http://www.rff.org/events/event/2016-09/cost-effective-approaches-managing-methane-emissions-us-oil-and-gas.*

*For example:

1. The oil and gas industry doesn't like a regulation that adds costs
2. Pays a consulting firm money to write a report criticizing a study that finds the benefits of the regulation exceed the costs
3. The oil and gas industry makes big campaign contributions to politicians who waive the study around and try to get rid of the legislation

Yes, that's how it works. The wonder is why anyone pays attention to any such study? And I'm looking at you (with a stupid grin) Exxon and BP funded economists who critique the CVM and DCE. 

 

 

I forecast the death of CVM in about 18 years

Notes:

1. I'm using the last half of this time series: http://www.env-econ.net/2017/05/contingent-valuation-method-vs-choice-experiment.html
2. My best guess of my retirement is 15 years away, so I'm good
3. We'll check back in about 5 years and see the effect of this: http://www.e-elgar.com/shop/contingent-valuation-of-environmental-goods

 

Don't get me started ...

The referendum vs status quo version of a discrete choice experiment is no different than referendum CVM https://t.co/CdRUj3zXBV

— John C. Whitehead (@johnwhitehead81) May 10, 2017

Contingent valuation method vs Choice Experiment

Do you know an editor at a top general interest journal?

No? Then your publication chance is much lower:

Abstract: This paper employs a unique dataset on articles, authors and editors of the top general interest journals in economics to investigate the role of social connections in the publication process. Ties between editors and authors are identified based on their academic histories. About 43% of the articles published in these journals are authored by scholars connected to one editor at the time of the publication. PhD students and faculty colleagues of an editor also improve their publication outcomes when this editor is in charge of a journal.

via www.mitpressjournals.org

Colussi, Tommaso. "Social Ties in Academia: A Friend is a Treasure." Review of Economics and Statistics, April 10, 2017.

Kind of like a fox guarding the henhouse

More evidence that the benefits of environmental quality have been executive ordered to zero (EPA dismisses members of major scientific review board):

The Environmental Protection Agency has dismissed at least five members of a major scientific review board, the latest signal of what critics call a campaign by the Trump administration to shrink the agency’s regulatory reach by reducing the role of academic research.

A spokesman for the E.P.A. administrator, Scott Pruitt, said he would consider replacing the academic scientists with representatives from industries whose pollution the agency is supposed to regulate, as part of the wide net it plans to cast. “The administrator believes we should have people on this board who understand the impact of regulations on the regulated community,” said the spokesman, J. P. Freire.

The dismissals on Friday came about six weeks after the House passed a bill aimed at changing the composition of another E.P.A. scientific review board to include more representation from the corporate world. ...

The scientists dismissed from the 18-member Board of Scientific Counselors received emails from an agency official informing them that their three-year terms had expired and would not be renewed. That was contrary, the scientists said, to what they had been told by officials at the agency in January, just before Mr. Trump’s inauguration. ...

 

Another of the dismissed scientists made his grievances public. “Today, I was Trumped,” Robert Richardson, an environmental economist at Michigan State University, wrote on Twitter. “I have had the pleasure of serving on the EPA Board of Scientific Counselors, and my appointment was terminated today.”

The board is charged with reviewing and evaluating the research conducted by the agency’s scientists. Those studies are used by government regulators to draft rules and restrictions on everything from hazardous waste dumped in water to the emissions of carbon dioxide that contribute to climate change.

Members of the board say they have reviewed the E.P.A.’s scientific research on the public health impact of leaking underground fuel tanks, the toxicity of the chemicals used to clean up oil spills, and the effects of the spread of bark beetles caused by a warming climate.

A larger, corresponding panel, the 47-member Science Advisory Board, advises the agency on what areas it should conduct research in and evaluates the scientific integrity of some of its regulations.

Both boards, which until now have been composed almost entirely of academic research scientists, have long been targets of political attacks. Congressional Republicans and industry groups have sought to either change their composition or weaken their influence on the environmental regulatory process.

Representative Lamar Smith, the Texas Republican who is the chairman of the House Committee on Science, Space and Technology, wrote the House-passed bill intended to restock the Science Advisory Board with more members from the business world.

Much of environmental economics is geared towards understanding the cost of regulations. I'm not sure if a business person is any better equipped to understand regulatory costs. Of course, economists also consider the benefits of regulations which is something a business person might be less inclined to do. 

Survey: Slashing EPA won't improve US economy

Quotes of the day:

Results from a survey of members of the Association of Environmental and Resource Economists, the leading professional organization of economists studying environmental and resource issues, found that 80 percent disagree that reducing the Environmental Protection Agency’s regulatory power will improve the U.S. economy.

“Markets, left alone, often fail to address environmental issues, and that is not good for the economy or society,” said the survey’s co-author Tim Haab, chair of the Department of Agricultural, Environmental, and Development Economics at The Ohio State University. The department is part of Ohio State’s College of Food, Agricultural, and Environmental Sciences. “It is significant that 96 percent of members surveyed disagree that unregulated markets provide public goods in optimal quantities.”

Haad [sic] pointed out that the survey was conducted in 2012 well before the current presidential cycle and yielded results that were not in any way influenced by the current debate over the Trump administration’s proposed significant policy and budget changes to the EPA.

If approved, the changes to the EPA would weaken various air and water regulations and, according to a consensus of the survey’s respondents, would be unlikely to improve the U.S. economy, Haab said.

 

via www.hpj.com

Countdown

R.I.P. William Baumol

Here is an obituary:

William Jack Baumol was born on February 26, 1922, and died on May 4, 2017.

He was an American economist.

He served as the professor of economics at New York University, Academic Director of the Berkley Center for Entrepreneurship and Innovation, and Professor Emeritus at Princeton University.

Baumol was a well known prolific author of more than eighty books and several hundred journal articles.

He has written extensively about the labor market and other economic factors that affect the economy.

Baumol also made very contributions to the theory of entrepreneurship and the history of economic thought.

Baumol was among the most influential economists in the world according to IDEAS/RePEc.

Baumol was elected a Fellow of the American Academy of Arts and Sciences in 1971.

He was considered a candidate for the Nobel Prize in Economics for 2003, and Thompson Reuters cited him as a potential recipient in 2014.

William Baumol passed away at 95 years old.

Here are my Baumol posts:

• The first member of the Pigou Club?
• Not funny 
• Who will win the next Nobel Prize in Economics?
• A note on the accuracy of Krugman's "cap and trade began as a Republican idea"

Ian Sheldon wrote this in 2014 [1]: 

William Baumol was born February 26, 1922, in New York City. After receiving his BSc from the College of the City of New York in 1942, he undertook graduate study at the London School of Economics, earning his PhD in 1949. He taught at Princeton University for 43 years, where he is now professor emeritus and senior research economist. He has also taught at New York University for over 36 years, where he currently holds the Harold Price Professorship of Entrepreneurship in the Stern School of Business. Professor Baumol is the author of more than 40 scholarly books, and has written over 500 articles published in peer-reviewed journals as well as the popular media. Among his many honors and awards, he was elected fellow of the Econometric Society in 1953, fellow of the American Academy of Arts and Sciences in 1971, and distinguished fellow of the American Economic Association in 1982.

Baumol’s research in economics has covered diverse areas of the discipline, including, among others: entrepreneurship and innovation, economic growth, industrial organization, and antitrust economics and regulation. His seminal contributions include a model of the transactions demand for money, the sales-revenue maximization model, an analysis of cost disease, the theory of contestable markets, and the concept of super-fairness. Most recently, Baumol has focused on entrepreneurship and innovation, The Economist magazine remarking that, “. . .Thanks to Mr. Baumol’s own painstaking efforts, economists now have a bit more room for entrepreneurs in their theories . . .” (March 9, 2006).

In the field of environmental economics, Professor Baumol is best known for his textbook on the theory of environmental policy, co-authored with Wallace Oates. First published in 1975, this book has become a standard reference in many graduate-level classes in environmental economics due to its comprehensive coverage of both the theory of externalities and the design of environmental policy, with chapters on topics such as imperfect competition and externalities, optimal pricing of exhaustible resources, marketable emissions permits, and international environmental issues. ...

Hat tip: Tim Perri

[1] Ian Sheldon, "William J. Baumol," Environmental and Natural Resource Economics: An Encyclopedia, edited by Timothy C. Haab and John C. Whitehead, March 28, 2014.