Environmental Economics

24 Update

I know I've fallen behind on my 24 viewing for the season, but after this, I'm ready for the season to take some odd turns soon:

The Tour de France can be unforgiving and crushingly heartbreaking. On Sunday's stage 15, Jack Bauer experienced this firsthand.

Does Jack infiltrate the U.S. Postal team to stop a redeveloping EPO ring?  Does Lance Armstrong make a guest appearance as the evil ringleader?

So many questions.

Climate Brothers (this would be a great show on HGTV ... sell your flood prone home at a bargain price or raise it and keep living there)

There is a neat profile in the NYTimes on the brothers Nordhaus:

Robert Nordhaus, a prominent Washington energy lawyer, and William Nordhaus, a Yale economist, who learned to love the outdoors while growing up on a New Mexico ranch, have taken leading roles in figuring out how to protect the environment. 

Here is the meat:

While Bob began his career in Washington, Bill received a Ph.D. in economics from the Massachusetts Institute of Technology and began teaching at Yale. By the late 1970s, when an increasing number of scientists were raising the threat of global warming, Bill wrote a paper proposing a tax on industries and businesses based on the amount of carbon they emitted into the air. The idea was revolutionary at the time, but economists, scientists and many world leaders now say it will have a powerful market effect and is the best way to stave off the catastrophic impacts of a warming world. Already, more than 30 countries have passed carbon-pricing laws.

In the ensuing decades at Yale, Bill developed an economic model that put a price tag on the effects of climate change, like more droughts, flooding and crop failures and stronger hurricanes. He called it the Dynamic Integrated Climate-Economy model, or DICE. ...

DICE profoundly changed climate policy. Although the chief political argument against curbing carbon emissions from cars and coal plants has long been that doing so would harm the economy, the DICE models show that, depending on various scenarios, one ton of carbon pollution can inflict $20 to $30 in economic damage — a major cost, given that the global economy emits about 36 billion tons of carbon a year. ...

But it is, for the time being, politically untenable in the United States. The conservative Heritage Foundation has called the DICE model “flawed beyond use for policy making” and warned that it should not be used to justify “trillions of dollars of government policies and burdensome regulations.”

Here the work of Bob comes in: Mr. Obama tried but failed to push a carbon-pricing bill through Congress in his first term, which is why he has turned to Bob’s section of the Clean Air Act as the legal underpinning for the regulation due out in June.

Bob, who was an energy adviser to President Jimmy Carter and general counsel at the Department of Energy under President Bill Clinton, now says that because he was not writing the provision with climate change in mind, the new regulation is an imperfect and perhaps legally vulnerable solution to regulating carbon pollution. Environmental lawyers note that it has almost never been used. ...

But one way the E.P.A. will justify the new regulation is with an analysis showing that the economic benefits of the climate change rule would outweigh the costs.

A core component of that analysis? The DICE model.

via www.nytimes.com

Jack's Back!

I'm stoked.

Just sayin'.

I can't be the only one giddy over this, can I?

Perfect substitutes: Gulf of Mexico water quality and minor league baseball!

Skip Sauer:

The WSJ reports that Governor Phil Bryant is allocating $15 million from Mississippi’s share of BP oil spill damages to be invested in a minor league ballpark in Biloxi. The city itself has voted to issue $21 million in bonds backed by stadium revenues, but the deal apparently hinged on the state’s investment of BP funds.

Biloxi’s population has declined 10% (to 45,000) since Hurricane Katrina in 2005, and the 2010 oil spill must have added to the economic destruction. But BP’s oil spill didn’t ruin baseball in Biloxi — it damaged the beaches, the livelihoods of fishermen, and so on. It’s a stretch to take BP’s settlement money and pour it into new stadium construction.

A counter-argument might be that building a baseball stadium is the most effective way to stimulate economic development in Biloxi, and generates a higher return on public investment than alternative projects. But it is well known that stadium building is an effect, not a cause, of economic development — see Coates and Humphreys (2000) for example. Nevertheless, the city council’s 5-2 vote approving the stadium project was cheered by “most of the 150 residents and business owners” attending a recent meeting.

No doubt there are real benefits to be realized from this project, although the fact that outside funding is required suggests they may total less than the costs. I’d wager that the Beau Rivage Resort and Casino, on whose land the stadium will be built, is the primary beneficiary, and an active political player in the deal to approve it.

For those with a WSJ subscription, here is the gated link to the story. This link to the WSJ stream may be accessible for a while as well.

via thesportseconomist.com

VSL in the WSJ

From the WSJ Weekly Review email:

Rail Safety and the Value of a Life
by: Ted Mann
Jun 17, 2013
Click here to view the full article on WSJ.com

TOPICS: Opportunity Costs, Regulation

SUMMARY: Transit systems and regulators are debating where to best put limited funds to improve safety: on upgraded signal systems or on structural repairs. "The effort to calculate the value of lifesaving is a growing area of research among regulators and economists alike, says Michael Livermore of the Institute for Policy Integrity at New York University's School of Law. The research enables "finer distinctions" about the cost that society is willing to bear to lower risks, he says.... In the past, to calculate the value of saving a life, the government used the value of the wages a person would have been expected to earn over the remainder of a lifetime, says W. Kip Viscusi, a professor at Vanderbilt University who consulted with the Reagan administration to overhaul life valuations in the early 1980s. At Mr. Viscusi's urging, the federal government adopted a measurement known as the "value of statistical life," or VSL-roughly speaking, the amount of money Americans find reasonable to spend for a given reduction in the risk of death. The switch to VSL raised the dollar value on preserving a human life. Among other things, that made costlier safety regulations easier to justify on economic grounds.... To calculate the value of life for a given government regulation, agencies use wage, consumer-purchase and job-safety data to calculate the premium already built into economic data to account for relative riskiness. So economists deduce from people's willingness to pay for safety features-say, air bags-how much they value lowering the risk of death."

CLASSROOM APPLICATION: Students can discuss the determination of the total expenditures, and allocation of the money, to improve (rail) safety. The allocation of funds between, for example, upgraded signal systems and structural repairs depends on the marginal changes in the value of a statistical life associated with each of the improvements. The total expenditures on improvements in rail safety depends also on opportunity cost of the funds used.

QUESTIONS: 
1. (Introductory) The Southeastern Pennsylvania Transportation Authority (SEPTA) identified a tradeoff in its expenditures to improve rail safety. What is the tradeoff?

2. (Advanced) Suppose SEPTA allocates a fixed amount of funds to safety improvements. In allocating these funds between signal improvements and rail maintenance, SEPTA's goal is to minimize the expected value of lives lost from train accidents. In optimally allocating the funds, does SEPTA equate the decrease in the expected value of lives lost associated with signal improvements to the decrease in the expected value of lives lost associated with rail maintenance?

3. (Advanced) What is the value of a statistical life? Why is this criterion used in evaluating safety programs better than the value of the wages a person would have been expected to earn over the remainder of a lifetime?

4. (Introductory) Why was the federal government quick to adopt the value of a statistical life as a criterion to evaluate the benefits of safety regulations?

Reviewed By: James Dearden, Lehigh University

 

Finally, an accurate depiction of an economist on TV

This reminds me of a time not long after I got my PhD.  I was golfing with my father and a group of his friends when one of them asked me, 'What do you do?"  My father quickly jumped in and said "He has a a PhD in economics.  But don't ask him what the stock market is going to do.  He has no clue."

I went to sleep last night at 11 pm

Even though I was disbelief (Viewers outraged ...):

NBC was pummeled by viewers who took to social media after the network cut away early from the closing ceremonies of the London Games on Sunday to air a new television show, drawing outrage from those who tuned in for the highly anticipated musical spectacle.

The Twitter-sphere exploded, with "#NBCfail" and "#closingceremonies" trending worldwide, after NBC cut out performances by Ray Davies, Kate Bush, The Who and the Muse in favor of a commercial-free airing of "Animal Practice." ...

NBC did air the Who's performance at the closing ceremonies in late night, following "Animal Practice." But that did little calm the fury of viewers ...

And if you think that excerpt is from The Onion, here it is at the WSJ:

But NBC decided to delay [The Who] for an hour so I can watch some show that’s Scrubs in a veterinary hospital.  I actually thought this was a joke. I kept waiting for NBC to say ha-ha. Because who would end two weeks of coverage by slicing off the very end of the ceremony featuring one of the world’s most famous bands?  NBC, apparently.

I DVRed the thing so my kids could watch it at a suitable time (we watched the spice girls this morning before school). Naturally, thinking that NBC could not be so stupid, I stopped the recording at 11 pm. Now they'll never know who The Who is (are?).

I blame Bob Costas (the messenger): 

"We'll be back from Olympic Stadium in about an hour for the London closing party featuring The Who. But stay tuned now for a full episode of 'Animal Practice,' the new NBC comedy presented commercial free."

Update: The video is now posted on NBC's website. Yet, "The Who performs 'Teenage Wasteland' ..."? I'm not sure, since I can't watch the video until I remember my Charter password, but I don't think they performed "Teenage Wasteland." 

Picture of the day: Outlier

An example for your econometrics course (source: Chronicle of Higher Education):

If one would like to create a spreadsheet for one's use, here are links to the president and faculty salary data:

• http://chronicle.com/article/Public-Pay-Table/131916/

• http://chronicle.com/article/faculty-salaries-table-2012/131433

A lot of people ask me ...

... hey, what do your notes look like (no one ever has asked me that). So, in order to keep the people happy, here is my comparison of consumer surplus and compensating variation from Benefit-Cost Analysis course last week (click for a larger image [hope it is correct!]). Today I get to explain "consumer surplus without apology." I haven't worried about this stuff in a long time, but we have a layer of graduate students enrolled in the course this semester (did you hear that SACS?).