Environmental Economics

Free Webinar: Valuing Environmental Catastrophes (with an impressive lineup of experts if I do say so myself!)

Feel free to promote far and wide. Intended for a non-expert audience (my goal is to get a spot in the sequel to this blockbuster).

If you don't like QR codes, you can register here.

 

 

 

 

Our article in the Applied Economic Perspectives and Policy's "sizing up survey samples" symposium (?) is published online

This paper resulted from the BP/Deepwater Horizon damage assessment conducted for the state of Florida (Huffaker, Clouwer and Larkin 2012). We used the Knowledge Networks (KN) internet panel for the sample (besides me, the authors are Andrew Ropicki, John Loomis, Sherry Larkin, Tim Haab, and Sergio Alvarez). At one point I remember Sherry Larkin asking all of us if it was OK if KN filled out our sample needs (n=2000) with opt-in data (I don't recall what they called it back then). We all said fine, assuming KN knew what they were doing and it was the gold standard, right? The report sat without a paper carved out of it until I started using opt-in samples, noticed the different samples in the Florida data and compared models using the two different samples (*note). I presented the results at the 2019 Society for Benefit-Cost Analysis Annual Meeting and the paper sat a while longer. We finally submitted it to AEPP for a symposium on samples in stated preference research in the Fall of 2021 and it was accepted last month.

We find that the opt-in sample data leads to higher willingness to pay estimates and statistically insignificant scope effects (**note). The scope elasticity with the probability-based sample is 0.73 and statistically significant (***note). The income elasticity is higher with the probability-based sample too. 

There are three other papers in the symposium (not sure if AEPP is calling it a symposium, but I'm sure that it is a group of articles that are being published together) that are all good reads and should inform future research with internet panel data (which, I think, is the future). While I think opt-in data is inferior to probability-based panels, I'm not sure if the added cost is justified. This is especially true with more modern survey designs, relative to the NOAA panel era split-sample single binary choice scope test (repeated questions as CVM merges with discrete choice experiments), and methods to deal with the lower quality data (e.g., attribute non-attendance). One article in the symposium makes the comparison with this type of data (sans attribute non-attendance models). A third article compares high quality and convenience sample data and the fourth considers bots and other threats to data quality with internet data (Goodrich et al. 2023 -- the other two haven't appeared on AEPP's website yet). 

Here is the link to our paper: https://doi.org/10.1002/aepp.13352

Notes: 

*A recreation demand paper was previously published out of this report (Whitehead et al. 2018).

**This result might be due to low sample size. The scope elasticity is 0.37 which isn't crazy low. In other words, a huge sample size would reduce the standard error so that we could claim statistical significance. For example, see the federal study that has a sample size of n>3000 and a modest scope effect (the result becomes statistically insignificant if you randomly choose samples of n=1000, more on this someday). 

***I have another data set where GfK (formerly KN) did this. We are estimating CVM recreation trip models with repeated questions and variations in the choice attributes. I hope to write up the paper and submit it somewhere this summer. 

References:

Bishop, Richard C., Kevin J. Boyle, Richard T. Carson, David Chapman, W. Michael Hanemann, Barbara Kanninen, Raymond J. Kopp et al. "Putting a value on injuries to natural assets: The BP oil spill." Science 356, no. 6335 (2017): 253-254.

Goodrich, Brittney, Marieke Fenton, Jerrod Penn, John Bovay,and Travis Mountain. 2023.“Battling Bots: Experiences and Strategies to MitigateFraudulent Responses in Online Surveys.”Applied Economic Perspectives and Policy1–23.

Huffaker, R. G., R. L. Clouser, and S. L. Larkin. 2012. Contract for Analytical Services Related to the Deepwater Horizon Disaster: Estimation of Lost Indirect and Passive Use Economic Values to Floridians. Final Report to the Florida Legislature. Gainesville, FL: Food and Resource Economics Department, University of Florida. 

Whitehead, John C., Tim Haab, Sherry L. Larkin, John B. Loomis, Sergio Alvarez, and Andrew Ropicki. "Estimating lost recreational use values of visitors to northwest Florida due to the Deepwater Horizon oil spill using cancelled trip data." Marine Resource Economics 33, no. 2 (2018): 119-132.

 

My review of the BP-funded book critical of the contingent valuation method is online

Here is a link from 2017 with some background: BP has funded a book critical of the CVM. In that post I boasted that my review would be forthcoming in 2018. That boast was a commitment mechanism. I don't know if it would have worked unless Marit Kragt had not invited me to review the book for the Australian Journal of Agricultural and Resource Economics (thanks for the invitation!). Here is the link: https://doi.org/10.1111/1467-8489.12280.  

Here are two other reviews:

• Ute Barbara Thiermann. Journal of Environmental Assessment Policy and Management, https://doi.org/10.1142/S1464333217800035
• Silvia Ferrini and Kerry R. Turner, Journal of Economics, https://link.springer.com/article/10.1007%2Fs00712-018-0606-4

I knew the second review was out but I refrained from reading it until today. Ferrini and Turner point out a major concern:

In total, the book presents 11 chapters co-authored by 21 researchers. The majority of the authors (16) are established consultants, and with the exception of chapter 6 by McFadden, all chapters are partially funded by BP Exploration & Production Inc., as reported in the book acknowledgement. The book’s strength lies in the clarity and simplicity of the argumentation presented, with many chapters that do not get bogged down in details and technicalities. However, the reader might worry that BP sponsorship influenced the authors’ objectivity in testing SP failures. The authors are professional researchers and experienced consultants and readers might wonder whether researchers’ expectation (or preference) in poor results impact studies lay out [sic?]. Economists can easily spot a potential moral hazard here!

It concludes like this:

The key meritocratic conclusion that this book suggests is that ‘experts’ are the best judge of many environmental damages and the general public is often not capable of expressing a meaningful value. However, SP valuation economists do not seem to have a place in the ‘experts’ set.

The book is open access here: https://www.elgaronline.com/view/9781786434685.xml

The cost of offshore drilling safety regulations seem low relative to the costs

In case you missed it over the holiday break:

The Trump administration is poised to roll back offshore drilling safety regulations that were put in place after the 2010 Deepwater Horizon oil rig disaster in the Gulf of Mexico that killed 11 people and caused the worst oil spill in American history.

A proposal by the Interior Department’s Bureau of Safety and Environmental Enforcement, which was established after the spill and regulates offshore oil and gas drilling, calls for reversing the Obama-era regulations as part of President Trump’s efforts to ease restrictions on fossil fuel companies and generate more domestic energy production.

Doing so, the agency asserted, will reduce “unnecessary burdens” on the energy industry and save the industry $228 million over 10 years. ...

Industry groups like the American Petroleum Institute have long opposed the safety rules, calling them “flawed and costly.” The fossil fuel interest group warned in 2015 that the regulations would reduce capital investment in the Gulf by $4 billion a year and threaten 50,000 industry jobs. ...

The Obama-era rules, written in 2016, tightened controls on blowout preventers, devices that are intended to stop explosions in undersea oil and gas wells, and called for rig operators to have third parties certify that the safety devices worked under extreme conditions. In the Deepwater Horizon spill, a supposedly fail-safe blowout preventer failed after a section of drill pipe buckled.

As always with industry estimates you need to put them in context (ignoring the need to recognize that industry cost estimates are usually exaggerated to avoid regulations). The U.S. Energy Information Administration says that Gulf of Mexico oil production is 1.6 million barrels per day (2016). If the price per barrel is $65, then that leads to revenues of about $37 billion annually. The cost of the Obama-era rules is $22.8 million per year, about 0.06% of revenues or $456 for each lost job. The regulatory costs seem low to me, especially considering that the BP Deepwater Horizon blowout lead to 11 deaths and damages of $17.2 billion. 

Note, that in contrast to API's warning that 50,000 industry jobs were at risk in 2015, the EIA said that "Oil production in federal Gulf of Mexico expected to continue increasing."

What am I missing?

GASP! Exxon was not unbiased in the contingent valuation dispute

HT to Spencer Banzhaf for pointing us to this article that points out that Exxon was less than objective in their attacks on contingent valuation in the wake of the Exxon Valdez oil spill.  I wonder if the same can be said for BP after the Deepwater Horizon?  Indeed, I wonder.

Here's the abstract:

This paper examines consulting and expert work performed by (experimental) economists for the Exxon Valdez litigation case. One of the issues at stake was the use of a specific method, contingent valuation, to estimate the so-called passive use value part of the damage resulting from the Exxon Valdez oil spill of March 24, 1989. Our interest is less in the possibilities of using contingent valuation to estimate passive use values as such, and more in the dynamics of consulting and expert work itself, which in litigation cases mostly remains hidden behind the veil of contracts. Because Exxon went explicitly public in the Exxon Valdez case, this veil can be partially lifted. In contrast with Public Trustees, who submitted a monetary damage estimate to the Court, Exxon decided to follow a radically different strategy: it organized an all-out assault on the method by which such a monetary estimate was most likely to be produced. That strategy cut across social and epistemic commitments of different segments of the economics discipline, raising questions about the different meanings of expertise, and the role of economists in the legal, business, and public domain. This paper aims to address these questions.

BP has funded a book critical of the contingent valuation method

Exactly one week after the CVM article estimating BP damages appears in Science this book critical of the CVM is being published:

Contingent Valuation of Environmental Goods: A Comprehensive Critique

Edited by Daniel McFadden and Kenneth Train

Contingent valuation is a survey-based procedure that attempts to estimate how much households are willing to pay for specific programs that improve the environment or prevent environmental degradation. For decades, the method has been the center of debate regarding its reliability: does it really measure the value that people place on environmental changes? 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.

Individual chapters investigate how respondents answer questions in contingent valuation surveys, with a particular focus on how the procedure’s estimates change based on the costs that the researcher specifies, the payment mechanism, and the scope of the environmental improvement. Other issues covered include whether the survey respondents make trade-offs between the program costs and benefits; and whether corrections can be applied to account for any misunderstanding of the questions by respondents and for the hypothetical nature of the survey.

This book will appeal to environmental economists and students in environmental and resource economics. Government staff at environmental agencies and survey researchers will benefit from the close analysis of previous applications.

The acknowledgement says:

The research presented in this book (with the exception of Chapter 6) was partially funded by BP Exploration & Production Inc. ... The research conclusions and opinions contained in this volume are solely those of the authors.

The price is $155 but the book is currently open access. I've successfully downloaded all of the PDFs (and ordered the hardback)*. My book review is forthcoming in 2018**. 

*Discrete choice experiment folks ... enjoy the ride because they're going after you too (see chapters 1 and 9)!

**A commitment mechanism.

People are willing to pay a lot to prevent another BP-like oil spill

In my best Thomas Dolby voice: SCIENCE!

...According to a paper published in the journal Science on Thursday, Americans are willing to pay $17.2 billion to prevent another BP Deepwater Horizon oil spill. Thanks to a team of scientists who conducted a six-year study into the effects of the 134-million-gallon spill, we now have a more accurate picture of the devastating consequences—and also how desperately we want to reduce our dependency.  

To relate the true damages of an oil spill of this magnitude, researchers set out to equate the damage in monetary terms, as so often we view natural resources as permanent and limitless. In order to arrive at the $17.2 billion figure, scientists surveyed households across the country to see how much they’d be willing to pay to avoid similar spills in the future. Along with asking participants these questions, the study authors included detailed accounts of the damage already done to beaches, animals, marine life, and marshland. As one of the paper’s authors, Kevin Boyle, explained to Virginia Tech News, “This is proof that our natural resources have an immense monetary value to citizens of the United States who visit the Gulf and to those who simply care that this valuable resource is not damaged.”

Commissioned by the U.S. National Oceanic and Atmospheric Administration one month after the 2010 spill, the long-awaited study can now give us some insight into the actual dollar value of devastating the environment. What they also found was an overwhelming public willingness to put hard-earned cash into prevention funds. According to the survey, the majority of households said they’d willingly pay $153 each for prevention measures. Adding up all the reported figures led researchers to the $17.2 billion total.

Here's a link to the Science article.

New working paper on the Deepwater Horizon oil spill

Lost Recreational Value from the Deepwater Horizon Oil Spill Using Revealed and Stated Preference Data

John C. Whitehead, Tim Haab, Sherry Larkin, John Loomis, Sergio Alvarez and Andrew Ropicki

No 16-16, Working Papers from Department of Economics, Appalachian State University

Abstract: The lost recreational use values from the BP/Deepwater Horizon oil spill in the Gulf of Mexico were estimated from cancelled recreational trips to Northwest Florida. The impacts were calculated using the travel cost method for a single site with primary data collected from an online survey conducted after the spill. The data were collected in August and September 2011 with respondents residing in U.S. states that constitute the primary market for coastal tourism to Northwest Florida. The survey gathered information from respondents on their recreational visits to Northwest Florida, including detailed information on their past trips and the number of trips cancelled to the study region due to the oil spill. The empirical analysis involves the estimation of random parameters negative binomial count data demand functions. Using these models we find significant preference heterogeneity surrounding the effects of the oil spill. Aggregate damages are estimated to be $207 million. Key Words: BP/Deepwater Horizon oil spill,travel cost method,cancelled trips

Date: 2016

Downloads: (external link)
http://econ.appstate.edu/RePEc/pdf/wp1616.pdf (application/pdf)

via econpapers.repec.org

NOAA's NRDA presentation slides at the AERE Summer Conference

From the inbox:

As you may be aware, this year at the AERE Summer Conference in Breckenridge, we hosted a "Special Session" on research associated with valuing the economic losses from the 2010 Gulf of Mexico Spill. The 4 hour-long session was split into a recreation value section organized by Roger von Haefen from NSCU and a total valuation section organized by Norman Meade from NOAA (cc'd). The presenters have graciously made the slides from both sections available to the general public (including links to data sources and associated technical memos), and we thought that readers of your blog who weren't able to make it to Breck may find them useful. They can be found at the conference website here: https://sites.google.com/site/aeresummerconference/special-session. If you'd be willing to post a link to the website/slides on your cromulent blog, we'd be very appreciative!

Done!