Environmental Economics

I've been taking my OCSA (i.e., "sabbatical") very seriously

I've even taken a sabbatical from this blog. I think that the dog walk has become a substitute (guilty pleasure when I'm working at home*) for the blog post (guilty pleasure when I'm in the office). Whatever is going on, I have too much to say about the way the world works to let this go on much longer. 

*"Working at home" ... hahahahahahahaha!

 

My new autoresponse to appstate.edu emails

Hello,

John Whitehead is happy to report that he is no longer a part-time academic administrator (i.e., Economics Department Chair). If your email is regarding department business, please redirect it to our new chair Todd Cherry at cherrytl at appstate.edu.

John Whitehead is also happy to report that he is on Off-Campus Scholarly Assignment (i.e., sabbatical) in Fall 2017 and back to teaching, research and service in Spring 2018. If your email is about non-department business, he'll reply ASAP (or maybe not).

Thanks,

John Whitehead

P.S. For the remainder of his academic career, John Whitehead will refer to himself in the third person.

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.

I can't take seriously any journal whose acronym is BM

I am an expert in the field of "Stupid and Stupider." From the inbox:

Dear Dr. John Whitehead,

My name is Ellery Willianms, the editorial assistant of Business and Management Studies (ISSN: 2374-5916; E-ISSN: 2374-5924). BMS is an open-access, peer-reviewed journal published by the Redfame Publishing. The journal is published Quarterly (March, June, September and December) in both print and online versions.

I have had an opportunity to read your paper "DUBIOUS AND DUBIOUSER: CONTINGENT VALUATION AND THE TIME OF DAY", and can tell from your work that you are an expert in this field. Therefore, I would like to personally invite you to submit manuscripts to our journal. Business and Management Studies is inviting papers for Vol. 2 No. 3 which is scheduled to be published in September 2016.

Submission Deadline: August 5, 2016.

My data mining has uncovered a weekend effect in stated preference surveys. Maybe the title of this next paper should be "Hopeless and Hopelesser: Contingent Valuation and the Day of the Week"? But, before I get too excited, Redfame Publishing in on Beall's List. 

And note, while one of the referees suggested the paper had a real result (it did) and should be written accordingly (I just couldn't bring myself to do it), it is actually a sarcastic/silly take on the contingent valuation debate. So, all you predatory publishers should be reading my real papers to determine if I am an expert in "this" field!

From dubious to a new hope

The AERE Summer Conference Program has been released! From the inbox:

The AERE Summer Conference schedule of papers has been posted!  We are excited about the variety and excellence of this year’s program--click here to see all the sessions.  The list of papers for Friday afternoon’s special session on The 2010 Gulf of Mexico Oil Spill: Estimating the Economic Losses will be posted by early next week.

My favorite paper title? "Alternative value elicitation questions in contingent valuation: A new hope." If Vossler and Holladay are Skywalker and Solo, who is Lord Vader? 

Plausible responsiveness to scope in contingent valuation

This paper, a response to Desvousges, Mathews and Train's "adequate responsive to scope" paper, has just been published online in the methodological and ideological options section of Ecological Economics:

Plausible responsiveness to scope is a question of economic significance, in addition to statistical significance, of the scope test in contingent valuation. We briefly review the history of the scope test in order to place the current issue in the context of the BP Deepwater Horizon oil spill. As a result of the review we gain insights into how the issue of scope “adequacy” arose twenty years after it was first mentioned by the NOAA Panel on Contingent Valuation following the Exxon Valdez oil spill. We then provide a review of Desvousges, Mathews and Train (2012) who promote the adding-up test to identify inadequate responsiveness to scope adequacy. The adding-up test is a test of the construct validity of the contingent valuation method but is flawed as a measure of economic significance. We propose scope elasticity of willingness-to-pay as a measure of economic significance. A simulation suggests a likely range of elasticity estimates given linear and quadratic functional forms for the willingness-to-pay function. In order to illustrate the ease of implementation of scope elasticity within the context of the standard scope test we calculate scope elasticity with willingness-to-pay estimates from several studies, describe two studies that directly estimate scope elasticity and estimate scope elasticity with primary data from two studies. All of these empirical estimates of scope elasticity fall within the range of scope elasticity suggested by the simulation. Scope elasticity provides a practical way forward, relative to the adding up test, on the issue of economic significance of scope effects.

The paper started as a comment but grew to about 10,000 words so I submitted it as a regular article.

Is some number better than no number?

Lucas Davis at the Energy Institute at Haas blog (emphasis added):

Last month Meredith wrote about coal being too cheap and Max wrote about gasoline being too cheap. But what is the right price for energy?

Nobody in recent years has done more to try to answer this question than Ian Parry, a University of Chicago trained economist now at the International Monetary Fund.  Over the last 20 years Parry has written dozens of articles on this topic, including influential work on gasoline taxes, pollution externalities, traffic congestion, and the double dividend.

In his latest work, Parry has turned his attention in an ambitious new direction.  Together with a team of IMF researchers, Parry set out to quantify energy externalities for 156 countries.  The result is the aptly-named study, “Getting Energy Prices Right”.  The summary can be accessed for free here, or the entire report can be purchased for $28 here.  Following best practices for open science the team has also made all of the data from the project publicly-available here including all of the information on power plant locations, mortality rates, emissions factors and transport data.

These figures begin to give a sense of the scale of the project.  You want to know local pollution damages from coal in Bangladesh?  They have it. Traffic congestion damages from gasoline in Morocco?  Sure.  Vehicle accident externalities from diesel consumption in Sri Lanka?  Yep.  Previous studies had measured marginal damages for particular energy types and for particular individual countries, but this new work provides comprehensive estimates for the entire planet. ...

I’m a big believer in the idea that some number is better than no number. Quantifying the external costs from energy for 156 countries is an incredibly ambitious task that is impossible to get exactly right. Can the IMF numbers be refined and improved? Absolutely. But in striving to assign actual numbers to these externalities, Ian Parry and co-authors have taken a significant step forward. If policymakers are going to make informed decisions they need to be able to weigh the full social benefits and costs of different alternatives.

Some number is better than no number? Yes, always, at least in the context of environmental benefit-cost analysis (when the crucial step of sensitivity analysis is not ignored). But egads, that question gives me nightmares!

We're #4! And #7! And They're #22!

Most read articles from Applied Economics Policy and Perspectives in February, 2016: 

1. Jonas Kathage, Menale Kassie, Bekele Shiferaw, and Matin Qaim "Big Constraints or Small Returns? Explaining Nonadoption of Hybrid Maize in Tanzania" Appl. Econ. Perspect. Pol. (2016) 38 (1): 113-131 first published online April 7, 2015 doi:10.1093/aepp/ppv009
2. Harry de Gorter and David R. Just "The Social Costs and Benefits of Biofuels: The Intersection of Environmental, Energy and Agricultural Policy" Appl. Econ. Perspect. Pol. (Spring 2010) 32 (1): 4-32 doi:10.1093/aepp/ppp010
3. Peggy J. Liu, Jessica Wisdom, Christina A. Roberto, Linda J. Liu,and Peter A. Ubel "Using Behavioral Economics to Design More Effective Food Policies to Address Obesity" Appl. Econ. Perspect. Pol. (2014) 36 (1): 6-24 first published online October 2, 2013 doi:10.1093/aepp/ppt027
4. Timothy C. Haab, Matthew G. Interis, Daniel R. Petrolia, and John C. Whitehead "From Hopeless to Curious? Thoughts on Hausman's “Dubious to Hopeless” Critique of Contingent Valuation" Appl. Econ. Perspect. Pol. (2013) 35 (4): 593-612 first published online October 22, 2013 doi:10.1093/aepp/ppt029
5. Richard G. Frank "Long-term Care Financing in the United States: Sources and Institutions" Appl. Econ. Perspect. Pol. (Summer 2012) 34 (2): 333-345 doi:10.1093/aepp/pps016
6. Pierre Chandon "How Package Design and Packaged-based Marketing Claims Lead to Overeating" Appl. Econ. Perspect. Pol. (2013) 35 (1): 7-31 first published online July 10, 2012 doi:10.1093/aepp/pps028
7. Timothy C. Haab, Matthew G. Interis, Daniel R. Petrolia, and John C. Whitehead "Interesting Questions Worthy of Further Study: Our Reply to Desvousges, Mathews, and Train's (2015) Comment on Our Thoughts (2013) on Hausman's (2012) Update of Diamond and Hausman's (1994) Critique of Contingent Valuation" Appl. Econ. Perspect. Pol. (2016) 38 (1): 183-189 doi:10.1093/aepp/ppw003

Emphasis added for self-promotional purposes. 

Oddly, the reaction to #4 which prompted #7 only came in at #22.

William Desvousges, Kristy Mathews, and Kenneth Train "From Curious to Pragmatically Curious: Comment on “From Hopeless to Curious? Thoughts on Hausman's ‘Dubious to Hopeless’ Critique of Contingent Valuation”" Appl. Econ. Perspect. Pol. (2016) 38 (1): 174-182 doi:10.1093/aepp/ppv023

 

 

Nutty fudgekins!

Zuh? Paul Glimcher and Michael A. Livermore in the NY Times:

THE United States government recently announced an $18.7 billion settlement of claims against the oil giant BP in connection with the Deepwater Horizon oil rig explosion in April 2010, which dumped millions of barrels of oil into the Gulf of Mexico. Though some of the settlement funds are to compensate the region for economic harm, most will go to environmental restoration in affected states.

Is BP getting off easy, or being unfairly penalized?

This is not easy to answer. Assigning a monetary value to environmental harm is notoriously tricky. There is, after all, no market for intact ecosystems or endangered species. We don’t reveal how much we value these things in a consumer context, as goods or services for which we will or won’t pay a certain amount. Instead, we value them for their mere existence. And it is not obvious how to put a price tag on that.

In an attempt to do so, economists and policy makers often rely on a technique called “contingent valuation,” which amounts to asking individuals survey questions about their willingness to pay to protect natural resources. The values generated by contingent valuation studies are frequently used to inform public policy and litigation. (If the government had gone to trial with BP, it most likely would have relied on such studies to argue for a large judgment against the company.)

Contingent valuation has always aroused skepticism. Oil companies, unsurprisingly, have criticized the technique. But many economists have also been skeptical, worrying that hypothetical questions posed to ordinary citizens may not really capture their genuine sense of environmental value. Even the Obama administration seems to discount contingent valuation, choosing to exclude data from this technique in 2014 when issuing a new rule to reduce the number of fish killed by power plants.

Do we respond to contingent valuation studies the way we respond to all other known classes of economic decisions? Or do we behave differently when environmental value is involved?

To find out, we conducted a study, just published in the journal PLOS One, that compared, at a neurological level, how people responded in both situations.

In the budding field of neuroeconomics, researchers have found striking similarity in the brain structures responsible for valuation across a host of different kinds of decision making. Our study used functional magnetic resonance imaging to examine activity in the brain’s valuation areas when subjects were asked to value environmental proposals (for example, protection of sea turtles, cleanup of the Gowanus Canal in New York), snack foods (e.g., tortilla chips), consumer goods (e.g., “The Simpsons: Complete Sixth Season” DVD, a Moleskine notebook) and time spent on daily activities (e.g., jogging, doing laundry).

Across all four types of questions, neural activity indicated that participants were paying attention. But when it came to putting values on things, we found differences. Specifically, when people put values on consumer goods, foods and time spent on daily activities, this was correlated with neural signals in the traditional valuation areas of the brain. But when people answered survey questions about the value of environmental proposals, their brain activity was uncorrelated with these areas.

The takeaway was clear: The brain did not respond to contingent valuation studies the way it did to all other known classes of economic behavior.

This means that contingent valuation does not line up with what we know about the neural basis of ordinary economic decision making. However, we do not yet know how it fails to line up. Contingent valuation may overestimate environmental valuation; it may underestimate it; it may overestimate sometimes and underestimate at other times. ...

Here is the PLOS One abstract:

Environmental public goods—including national parks, clean air/water, and ecosystem services—provide substantial benefits on a global scale. These goods have unique characteristics in that they are typically “nonmarket” goods, with values from both use and passive use that accrue to a large number of individuals both in current and future generations. In this study, we test the hypothesis that neural signals in areas correlated with subjective valuations for essentially all other previously studied categories of goods (ventromedial prefrontal cortex and ventral striatum) also correlate with environmental valuations. We use contingent valuation (CV) as our behavioral tool for measuring valuations of environmental public goods. CV is a standard stated preference approach that presents survey respondents with information on an issue and asks questions that help policymakers determine how much citizens are willing to pay for a public good or policy. We scanned human subjects while they viewed environmental proposals, along with three other classes of goods. The presentation of all four classes of goods yielded robust and similar patterns of temporally synchronized brain activation within attentional networks. The activations associated with the traditional classes of goods replicate previous correlations between neural activity in valuation areas and behavioral preferences. In contrast, CV-elicited values for environmental proposals did not correlate with brain activity at either the individual or population level. For a sub-population of participants, CV-elicited values were correlated with activity within the dorsomedial prefrontal cortex, a region associated with cognitive control and shifting decision strategies. The results show that neural activity associated with the subjective valuation of environmental proposals differs profoundly from the neural activity associated with previously examined goods and preference measures.

Khaw, Mel W., Denise A. Grab, Michael A. Livermore, Christian A. Vossler, and Paul W. Glimcher. "The Measurement of Subjective Value and Its Relation to Contingent Valuation and Environmental Public Goods." PloS one10, no. 7 (2015): e0132842.

This is a cromulent study with results (below) that aren't totally surprising. Of course the dorsomedial prefrontal cortex will embiggen with the Simpsons 6th season! So, instead of environmental vs other goods, my experimental design would divide the goods up according to private vs public goods like we explain it in intro micro:

1. Rival, excludable: private good (e.g, pizza)
2. Rival, nonexcludable: common pool resource (e.g., fisheries)
3. Nonrival, excludable: club good (e.g., private park)
4. Nonrival, nonexcludable: public good (e.g, air quality, national defense)

Use of the crayola oblongata method applied in the sophistimacated doowhackey would beginulate a craptacular advance in the CVM knowledgeum. Anything less would be a traumedy.

 

"Exxon Mobil Settles With New Jersey Over Environmental Damage"

A Natural Resource Damage Assessment case study for the classroom and beyond:

A long-fought legal battle to recover $8.9 billion in damages from  Exxon Mobil Corporation for the contamination and loss of use of more than 1,500 acres of wetlands, marshes, meadows and waters in New Jersey has been quietly settled by the state for around $250 million.

The lawsuits, filed in 2004, had been litigated by the administrations of four New Jersey governors, finally advancing last year to trial. By then, Exxon's liability was no longer in dispute; the only issue was how much it would pay in damages.

The stakes were high, given the enormous cost the state's experts had placed on restoring and replacing the resources damaged by decades of oil refining and other petrochemical operations, as well as of the public's loss of use of the land. ...

But a month ago, with a State Superior Court judge believed to be close to a decision on damages, the Christie administration twice petitioned the court to hold off on a ruling because settlement talks were underway. Then, last Friday, the state informed the judge that the case had been resolved. ...

The attorney general's office said in its brief in November that the sites had been "adversely affected by or buried under the discharge of hazardous substances," including over 600 identified chemicals.

On the Bayway site, a 2007 court opinion noted, marshland adjacent to a creek was "now mostly covered with a tar of petroleum products or filled with other hazardous constituents and debris." Another 45 acres comprised "sludge lagoons," one-time tidal marshes that had been used as hazardous waste disposal facilities.

The state had set the cost of primary restoration of the sites at $2.6 billion; the state also sought $6.3 billion for what it described as compensatory or "loss of use" damages, intended "to make the public whole." ...

Exxon had vigorously contested the lawsuit, and in its brief after the trial said that it had long ago taken responsibility for cleaning up the contamination; that there were "fully functioning" marshes, forests and wildlife on the sites; and that, because they had been closed to the public for years, the state was seeking a windfall "for something the public never lost."

Exxon argued that the state's arguments "ignore the evidence, science and the law" and that no damages should be awarded.

via www.cnbc.com

The NRDA economics are fascinating. From the Superior Court of New Jersey, Appellate Division, Docket No. A-0316-09T2, 2011 (HTML, PDF): 

The fourth [New Jersey Department of Environmental Protection] expert was Stratus, whose bills totaled $416,900.90. Stratus and TEA prepared a November 2006 report entitled "Natural Resource Damages at the ExxonMobil Bayway and Bayonne Sites" (the Stratus report). The Stratus report outlined a plan to restore and replace natural resources at the Bayway and Bayonne sites, which would cost $8.9 billion. The report addressed only the refinery sites themselves, and not "the Arthur Kill, the Kill van Kull, Newark Bay, New York Harbor, or the broader Hudson-Raritan Estuary," which would be addressed in future reports. The Stratus report described in great detail the natural environment that was present at the sites before they became contaminated, the nature of the contamination found on the sites and a proposed restoration plan, relying upon the on-site restoration specifications and costs established in the 3TM report. The report estimated that the Bayway site could sustain restoration of 464 acres of intertidal wetlands, 59 acres of palustrine meadow and 28 acres of upland forest; the Bayonne site, with ongoing industrial operations, could sustain 25 acres of restored intertidal habitat. Those on-site restorations would cost $2.5 billion. In addition, off-site replacement of 11,000 acres of intertidal salt marsh, 19,000 acres of palustrine meadow/forest, and 3,400 acres of upland meadow/forest would be needed to compensate for the decades of harm at the site and because some portions of the site cannot be restored; this would cost $6.4 billion.

And:

Another expert for defendant, William H. Desvousges, Ph.D., opined in his February 2008 report that no significant losses in ecological services had occurred at the Bayonne site, so he did not calculate any damages for that site. As to the Bayway site, he calculated past reductions in ecological services only from 1977 and projecting forward until remediation/restoration activities are completed. He used the 1977 date "on advice of counsel." He found that only twenty to forty-seven acres of onsite restoration would be required, and restoration costs would range from $1,378,000 to $1,837,000. If he instead used the higher estimates developed by Dr. John Rogers for restoration of all habitat areas, Desvousges calculated that restoration damages would range between $1,965,000 and $3,004,000; the top of that range reflected the higher cost for an offsite salt marsh project, the approach that Rogers preferred. The cost under that calculation would be $45,600 per acre, well within the $10,000 to $84,000 per-acre range that Desvousges had seen for similar projects, whereas the DEP's experts used a figure well outside that range, $274,000 per acre. Desvousges criticized the Stratus report as "inherently flawed" and "unlike any that I have seen in more than 20 years of conducting NRDAs." He contended that the Stratus report failed to conform to sound economic principles or practices, failed to account for contamination from other sources, and overstated the baseline conditions including the effects of the refinery structures in the damage estimates. 

I can't find anything on the methods used to develop the $6.4 billion estimate. Stratus Consulting (who just recently merged with Abt, according to their website) and WH Desvousges & Associates (both institutional members of AERE) have disagreed before over the contingent valuation method in the NRDA context (e.g., adequate responsiveness to scope in contingent valuation). 

Hat tip: An editorial in the NY Times that lays some blame on the administration of Gov. Christie for the lowball settlement (Shortchanging NJ by billions).