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Good resources for econometrics

Posted by Evan Herrnstadt on February 17, 2009

If that’s not an eye-catching title, I don’t know what is.

As a development economics and politics blogger, Chris Blattman stands out.  However, since adding him to my Google Reader feeds, I’ve noticed that he often links to extremely useful microeconometrics tutorials and guides.  The latest is a guide to regression discontinuity methods in economics, but previous links include IV vs. structural models and Andrew Gelman’s review of a new inexpensive volume on labor econometrics.

Which brings me to Gelman’s blog on statistics in the social sciences.  Gelman is a real live statistician with a joint appointment in political science.  A lot of his posts are pointing out abuses of statistics or interesting statistical tidbits.  But his biggest value added is that he looks as social science methods through the lens of a statistician.

Posted in Economics, Metablogging, Research | Leave a Comment »

Attention urban planners: my alley is full of latent research

Posted by Evan Herrnstadt on January 13, 2009

From ScienceDaily:

If you leave it up to the rats, New York City beats New Orleans any day.  This surprising finding comes from new research by Tel Aviv University zoologists and geographers, who are working together to invent a novel way to test urban designers’ city plans. Instead of using humans as guinea pigs, the scientists went to their nearby zoo and enlisted lab rats to determine the functionality of theoretical and existing plans…

“Using our model of rat behavior, it takes just a few minutes for city planners to test whether a new plan will work. It’s a way to avoid disasters and massive expense.” He expects that the choices the rats make will eventually be optimized and plugged into a computer tool.

…“We put rats in relatively large areas with objects and routes resembling those in Manhattan,” explains Prof. Eilam. The rats, he found, do the same things humans do: They establish a grid system to orient themselves. Using the grid, the rats covered a vast amount of territory, “seeing the sights” quickly.  In contrast, rats in an irregular plan resembling New Orleans’ failed to move far from where they started and didn’t cover much territory, despite travelling the same distances as the “Manhattan rats.”

Cool stuff, though I’m not sure why it is surprising that people and rats more easily navigate a grid than a system of “unstructured and winding streets.”  At any rate, in the interest of science, I should probably rearrange my pizza boxes to better simulate potential development around WMATA’s planned Silver Line.

Posted in Research, Urban | Leave a Comment »

$1141 divided by $53 times…

Posted by Daniel Hall on June 26, 2008

Just to put some numbers on the point Rich made about ANWR this morning, here’s the abstract of a paper [ungated version here] from one of my former professors:

This paper provides model-based estimates of the value of oil in Alaska’s Arctic National Wildlife Refuge (ANWR). The best estimate of economically recoverable oil in the federal portion of ANWR is 7.06 billion barrels of oil, a quantity roughly equal to US consumption in 2005. The oil is worth $374 billion ($2005), but would cost $123 billion to extract and bring to market. The difference, $251 billion, would generate social benefits through industry rents of $90 billion as well as state and federal tax revenues of $37 billion and $124 billion, respectively. A contribution of the paper is the decomposition of the benefits between industry rents and tax revenue for a range of price and quantity scenarios. But drilling and development in ANWR would also bring about environmental costs. These costs would consist largely of lost nonuse values for the protected status of ANWR’s natural environment. Rather than estimate these costs and conduct a benefit–cost analysis, we calculate the costs that would generate a breakeven result. We find that the average breakeven willingness to accept compensation to allow drilling in ANWR ranges from $582 to $1782 per person, with a mean estimate of $1141.

And from the section of the paper on the benefits of drilling:

As stated previously, two benefits of drilling in ANWR that are often put forth are a decrease in the price of oil and reduced reliance on foreign imports. The numbers above suggest, however, that neither of these benefits is likely to be consequential. Domestic oil prices are determined in a world market and would be unaffected by the relatively small annual flows from ANWR. Moreover, the quantity of oil in ANWR, 7.06 BBO, is merely 0.55% of the proven reserves worldwide (EIA, 2006b). Analysts also recognize that even if ANWR’s supplies were large enough to affect world prices, the Organization of Petroleum Exporting Countries (OPEC) would countermand the increase in production and thereby negate any price effects (EIA, 2004; Gelb, 2005). It is also clear, with ANWR accounting for a maximum of 3.2% of domestic consumption in 2025, that something other than drilling in the Refuge will be necessary to substantially reduce our dependence on foreign oil.

The benefits that would be real and substantial are the economic rents and tax revenues that would arise from drilling in ANWR. From a social perspective—the one used in benefit–cost analysis—it is important to recognize that the oil is not worth the total revenue that it generates. There are opportunity costs associated with finding, developing, producing, and transporting the oil, along with the required rate of return on capital. The only portion of total revenue that would generate a benefit to society is the net return, which would consist of economic rent to the oil industry and state and federal tax revenues.

We extend the USGS model (Attanasi, 2005b) to estimate the economic rents and tax revenues that would arise from ANWR oil. The first step of deriving an estimate of total revenue is straightforward. For any given price, we multiply the price times the quantity of oil indicated by the long-run marginal cost curve in Fig. 1. Using our best-estimate scenario of $53 per barrel and 7.06 BBO, total revenue is $374.2 billion. Considering the 95% and 5% certainty scenarios, the estimate of total revenue ranges from $203.0 billion to $565.3 billion. Table 1 reports the estimates of total revenue for the full range of prices evaluated under the three different scenarios. [emphasis added]

Their alternative scenarios vary the amount of recoverable oil but not the price. They don’t consider prices above $59 per barrel. I’ll outsource the commentary to John Whitehead:

It is hard to imagine nonuse values over $1000 for ANWR (even if these are for households and not individuals). The nonuse values that I played around with 2 years ago are all less than $50.

Addendum: The values are for individuals age 18 or over.

Posted in Natural Resources, Oil, Research | 1 Comment »

Link from this week’s Economics Focus

Posted by Evan Herrnstadt on June 26, 2008

This week the Economist‘s Economics focus column addressed competitiveness concerns in the context of carbon mitigation. The article cited a paper from RFF and if, like me, you did not notice the sidebar titled “Websites”, you might not know where to find the relevant article. So here’s a link to that work from the RFF report “Assessing U.S. Climate Policy Options” by Morgenstern, Aldy, Herrnstadt, Ho, and Pizer. If you’re interested, check out Dick Morgenstern’s other issue brief on related policy options here.

The link for the broader report, which I imagine Daniel will consider to be the eldest sibling of his future human children, is here.

Note: as the RA that worked on the Pew paper cited by the column, I’d like to point out that it’s humbling to have a year of your life summed up in one sentence.

Posted in Cap and Trade, Climate Change, Research | 1 Comment »

Mexico City drivers understand incentives. Regulators…

Posted by Daniel Hall on April 3, 2008

…not so much.

Lucas Davis examines Mexico City’s decision to limit all cars to only 4 weekdays of driving:

In 1989, the government of Mexico City introduced a program, Hoy No Circula, that bans most drivers from using their vehicles one weekday per week on the basis of the last digit of the vehicle’s license plate. This article measures the effect of the driving restrictions on air quality using high-frequency measures from monitoring stations. Across pollutants and specifications there is no evidence that the restrictions have improved air quality. Evidence from additional sources indicates that the restrictions led to an increase in the total number of vehicles in circulation as well as a change in composition toward high-emissions vehicles.

Note that this is not because of problems with compliance. (The police in Mexico City are happy to take your bribe.) The basic story is that drivers purchased a second (usually cheap and dirty) vehicle that allowed them to continue to driving every day of the week:

While it was hoped that the program would cause drivers to substitute to low-emissions forms of transportation, there is no evidence of a decrease in gasoline sales or an increase in public transportation use. Instead, the evidence indicates that HNC led to an increase in the total number of vehicles in circulation as well as a change in the composition of vehicles toward high-emissions vehicles.

Here is another write-up.

Ok, you say, big deal, Mexico City got what it deserved, no benefit for a dumb policy. But surely no one else out there is stupid enough to try this. Erm…

Indeed, since HNC was implemented, similar programs have been implemented such as pico y placa in Bogota, restriccion vehicular in Santiago, and rodizio in Sao Paolo. In total, over 50 million people live in cities with driving restrictions based on license plates.

Similar programs are currently being considered for Monterrey and Beijing. Driving restrictions may seem like a reasonable approach for addressing the difficult problem of urban air pollution. However, this article illustrates the importance of conducting ex ante economic analysis of the substitution patterns likely to be induced by these policies.

Toll roads. Tax gas. Subsidize mass transit. Use prices. DON’T try to ration a valuable resource with arbitrary rules, regardless of how “easy” you think they are to enforce.

Posted in Research, Transportation | 2 Comments »

New York City Counsel approves congestion pricing

Posted by Daniel Hall on April 1, 2008

New York City wants to move ahead with a congestion pricing plan. The plan now goes to the state legislature in Albany.

This plan to have a “cordon charge” for all drivers entering a specific zone in the city is much better than the current “no policy” alternative. It should reduce congestion and travel times, improve air quality, reduce CO2 emissions, and provide additional revenue for public transportation.

Still, a recent discussion paper from RFF scholars Elena Safirova, Sebastien Houde, and Winston Harrington suggests NYC could do much better by implementing some kind of comprehensive vehicle miles traveled (VMT) tax. Their analysis of various transportation policies for Washington, DC finds that the improvement in social welfare from a comprehensive “VMT tax” (set at the socially optimal level) would be an order of magnitude greater than the increase in welfare under an optimal “cordon charge” policy. This is largely because any cordon charge is going to affect less than 10% of vehicle miles traveled, whereas a comprehensive VMT tax affects them all.

Don’t get me wrong, this congestion pricing plan from NYC is a good idea, and should be implemented. It’s appropriate that we as a society start realizing more clearly that driving has external costs, and become more accustomed to paying for them. But the ultimate model we should be looking at involves a persistent marginal charge for every mile we drive. This could be implemented fairly easily alongside pay-as-you-drive insurance. (Maybe we could even have a meter in the car — ala taxicabs — that constantly displayed the charges we were racking up? Something for the behavioral economists to think about.)

It’s not a future that’s very likely in the near-term, but it’s where we should be headed.

Posted in Research, Transportation | 5 Comments »

Choose Your Own (Climate) Adventure

Posted by Evan Herrnstadt on March 11, 2008

I found this link in my inbox this morning:

Today, Yale’s School of Forestry & Environmental Studies posted a new website developed by economics professor Robert Repetto. In a way that anybody can easily understand, it synthesizes the results of thousands of policy simulations from 25 economic models being used to predict the economic impacts of reducing U.S. carbon emissions. To try this new website, just click on This website identifies the seven key assumptions accounting for most of the differences in the models’ predictions. It shows that even under the most unfavorable assumptions regarding costs, the U.S. economy is predicted to continue growing robustly as carbon emissions are reduced. Under more favorable assumptions, the economy would even grow more rapidly if emissions are reduced than if they are allowed to continue to increase as in the past. Even better, this new website allows site visitors to decide how likely they think each of the seven key assumptions are, and on that basis see for themselves what economic impacts all the leading economic models would predict, if carbon emissions are reduced by specific percentages over the next two decades. If you visit this site, you can make your own assumptions about the key factors that will influence the costs of stopping climate change and see the results.

I think this meta-analysis is a really good idea for people who, like me, do not quite understand all the nuts and bolts of a climate model. It is valuable to go play around a bit and see precisely how the key economic and behavioral assumptions affect the economic impacts of climate change. However, in the case of someone who isn’t really in it for reasons of curiosity, I feel like the structure of the site will help confirm initial biases. Read the rest of this entry »

Posted in Climate Change, Research | Leave a Comment »

Daylight saving time increases energy use

Posted by Daniel Hall on February 28, 2008

I posted previously about research that showed that at the margin, extending daylight saving time (DST) doesn’t save energy, suggesting that the U.S. isn’t going to get any energy benefit from it’s recent extension of DST. (DST begins March 9 this year in the U.S. Prior to 2007 it would have started 3 weeks later.) I noted in that post, however, that “this doesn’t mean DST does not save energy for the parts of the year where it is already used, merely that it likely cannot be extended at the margin for increased energy savings.”

A new research paper now speaks to the larger question of whether DST as a whole saves energy, and suggests rather that the institution increases energy use. Matthew Kotchen and Laura Grant exploit a natural experiment in Indiana and report:

Our main finding is that—contrary to the policy’s intent—DST increases residential electricity demand. Estimates of the overall increase range from 1 to 4 percent, but we find that the effect is not constant throughout the DST period. There is some evidence of electricity savings during the spring, but the effect lessens, changes sign, and appears to cause the greatest increase in consumption near the end of the DST period in the fall. These findings are consistent with simulation results that point to a tradeoff between reducing demand for lighting and increasing demand for heating and cooling. Based on the dates of DST practice before the 2007 extensions, we estimate a cost of increased electricity bills to Indiana households of $8.6 million per year. We also estimate social costs of increased pollution emissions that range from $1.6 to $5.3 million per year.

It looks like the upshot is that while DST saves energy on lighting, it uses extra energy for heating and cooling, particularly for AC use in late summer and early fall. (People are going home from work and running their ACs longer and harder because of the extra daylight.) Yesterday’s WSJ had a great write up of the results. The Indianapolis Star ran a story today. As pointed out by the WSJ, there are other reason for DST beyond energy use:

There may also be social benefits to daylight-saving time that weren’t covered in the research. When the extension of daylight-saving time was proposed by Mr. Markey, he cited studies that noted “less crime, fewer traffic fatalities, more recreation time and increased economic activity” with the extra sunlight in the evening.

The $8.6 million that DST is costing Indiana households on their electricity bills works out to $3.19 per household per year, so it may be a price worth paying.

Matt was one of my favorite professors in grad school at UC Santa Barbara. He’s an engaging and thoughtful guy, and really smart about designing interesting research questions. Here is Matt suggesting that we should drill for oil in ANWR. Here he is on household participation in green electricity programs.

If you’re in DC in early April (the 10th) and want to hear Matt talk about these results, come by RFF for an academic seminar. Please come!

H/T: Tyler Cowen.

Posted in Electricity, Research | Leave a Comment »

Survey research quote of the… month? year?

Posted by Daniel Hall on February 27, 2008

This probably only makes much sense to our academic audience (does it exist?), but Chris Blattman has a trenchantly funny aside about research he’s conducting on a program working for inter-ethnic harmony in Serbia/Kosovo:

I’ll give you a preview of how the program is going so far: not so hot. On the other hand, from a pure research point of view, if you’re running a panel survey of youth ethnic and political attitudes, it does not hurt to have a declaration of independence midway between the two survey rounds.

Posted in Humor, Research | Leave a Comment »

Electricity as female empowerment

Posted by Daniel Hall on February 19, 2008

This paper investigates the employment effects of a mass roll-out of household electrification in rural South Africa. … My findings show that cooking with wood falls sharply in treated areas over a five-year period, and lighting and cooking with electricity increase substantially. IV employment results indicate asymmetric responses by gender: female employment rates increase by 13.5 percentage points in treated areas, while there are no significant male effects. Middle-poor communities respond most to the new option to use electricity, and employment effects are large for women in their thirties and forties who are less constrained by child-care responsibilities.

That is Taryn Dinkelman, graduating from Michigan, in her job market paper. The basic story is that when you spend a few hours per day tied up in home production — collecting wood and cooking — the provision of electricity can free up significant time for other opportunities. Note that the poorest households don’t benefit as much, probably because while connections were completely subsidized in South Africa, the poorest households remain less able to afford the appliances that use electricity. Also note that this is a very large employment effect on the extensive margin: the female employment rate is 7% in her study area.

Posted in Development, Electricity, Research | Leave a Comment »

From whence innovation?

Posted by Daniel Hall on January 14, 2008

I have been sitting on this post for almost two weeks now, trying to work out a satisfactory (and clever) way to do a back-of-the-envelope calculation that would help me get a rough handle on the degree to which innovation gets spurred by regulation versus emerging from the rigors of the competitive market. Alas, I haven’t come up with anything yet, so I’m choosing to post a more qualitative discussion for now.

The Free Exchange blogger who first alerted me to Arik Levinson’s VoxEU post I discussed two weeks ago goes a bit too far when discussing the implications of this research:

This finding is key for three reasons. First, it demonstrates that regulations are an effective way to generate innovation. Second, it shows that tighter regulations can be consistent with continued output growth. And finally, it reveals that tighter regulations in developed countries need not lead to massive leakage of production and pollution to places with loose pollution rules.

Well, that sure sounds nice — regulations are good for you! — but it’s not necessarily what this research implies. The problem with claiming that “regulations are an effective way to generate innovation” is that Levinson isn’t trying to disentangle cause and effect; indeed, he notes early in his post the inherent challenges facing those who set out to conduct causal analyses. Levinson’s research shows that technological improvement (innovation) has accounted for 60% of the decline in U.S. manufacturing emissions from 1972 to 2001. (The rest is due to changes in what we consume and changes in where things are made.) But how or why this technological innovation has occurred is a much different question than assessing its relative contribution to total reductions.

Environmental regulations may be driving technology innovation, but Levinson’s analysis doesn’t shed light on whether or to what extent this is the case. Companies have private incentives to reduce emissions to a degree as well — for example, efficiency improvements that save companies money are a big part of the reason why there is a secular trend towards a more energy-efficient economy. This question — does regulation induce innovation? — is an important and interesting one, but it needs a more direct treatment before we jump to an answer.

Enter reader Tidal, who comments that:

I think it rather important to note that he does not consider CO2 as a manufacturing emission. US CO2 emissions have risen quite dramatically over that time frame, albeit with falling “intensity” vs. GDP. Granted, there have been fewer incentives for US manufacturing firms to reduce CO2 over the same period.

This is where I hoped to develop some type of numerical back-of-the-envelope estimate of the reduction in CO2 emissions and compare it to the pollutants that Levinson is looking at. What is going on with CO2 emissions over the same time period, and can it tell us something about how much unregulated emissions may have improved (or worsened) on their own?

Read the rest of this entry »

Posted in Pollution, Research, Technology Policy | 5 Comments »

The primacy of technology for reducing pollution

Posted by Daniel Hall on January 2, 2008

We’ve discussed the environmental Kuznet’s curve (EKC) here at CT previously, most directly in a post where I worried that if emissions were being reduced primarily through offshoring manufacturing then eventually the world was going to run out of places to shove their pollution off on. Arik Levinson allays those fears today with an excellent post at VoxEU describing his results in a new working paper. He examines manufacturing emissions in the U.S. between 1972 and 2001, which declined by 58% while manufacturing output simultaneously increased by 71%. He estimates that 60% of the reductions in U.S. emissions between 1972 and 2001 have come from improvements in technology; at most 28% of the emissions reductions have been produced by international trade (increases in net imports). This is good news, because it implies that improved manufacturing and pollution control technologies should be able to lower the environmental impact of manufacturing regardless of where it occurs. In Levinson’s words:

If the 75% reduction in pollution from US manufacturing resulted from increased international trade, the pundits and protestors might have a case. Environmental improvements might be said to have imposed large, unmeasured environmental costs on the countries from which those goods are imported. And more importantly, the improvements in the US would not be replicable by all countries indefinitely, because the poorest countries in the world will never have even poorer countries from which to import their pollution-intensive goods. The US clean-up would simply have been the result of the US coming out ahead in an environmental zero-sum game, merely shifting pollution to different locations. However, if the US pollution reductions come from technology, nothing suggests those improvements cannot continue indefinitely and be repeated around the world. The analyses here suggest that most the pollution reductions have come from improved technology, that the environmental concerns of antiglobalization protesters have been overblown, and that the pollution reduction achieved by US manufacturing will replicable by other countries in the future.

Much more, including a cool graph, at Levinson’s original post. Do read it.

H/T: Free Exchange, of which further discussion in a subsequent post.

Posted in Pollution, Research | 2 Comments »

Auction design sentence of the day

Posted by Daniel Hall on November 29, 2007

The FCC hasn’t avoided testing their auction design ideas in experiments, it is just that they have chosen to experiment in high-stakes, hard-to-control, live action auctions with billions of dollars of resources at stake.

That’s Mike Giberson over at Knowledge Problem, in a superb overview of a paper from David Porter and Vernon Smith, “FCC Spectrum Auction Design: A 12-year Experiment.” The paper is forthcoming in the Journal of Law Economics and Policy; it is highly readable and strongly recommended.

Posted in Research | 1 Comment »

Most. Biased. Sample. Ever.

Posted by Daniel Hall on November 27, 2007

I got a master’s degree in environmental science and policy. Some current students would like some help with a research project. From the alumni mailing list:

We hope you’ll take a few minutes to help us with our… project. The purpose of our study is to help understand consumer preferences and behaviors regarding environmentally-friendly product selection. Your input from this survey will help inform criteria to identify green businesses and services.

Did I mention this was sent out to the alumni mailing list? For an environmental science program?

I shudder to think what is going to be done with these results. I think the best case scenario is that they manage to caveat the results to irrelevance.

Still, I didn’t create their problem, so I don’t really have any qualms about reinforcing it:

Just click the following link, or copy and paste it into your browser, to get started:

You can enter for a chance to win a free book by completing the survey. All while shredding whatever pretense of academic integrity and rigor my degree might once have had.

Posted in Research | 1 Comment »

Does extending daylight saving time conserve energy?

Posted by Daniel Hall on November 4, 2007

Energy conservation was the rationale used for extending daylight saving time (DST) a total of 4 weeks in the Energy Policy Act of 2005 (DST started 3 weeks earlier this year, and ended one week later). A paper from earlier this year by Ryan Kellogg and Hendrik Wolff [non-gated version here] suggests that at the margin the DST extension is unlikely to save energy. Their study focused on a fascinating quasi-experiment: Australia’s decision to extend DST in some states during the 2000 Olympic Games in Sydney. The authors report:

Read the rest of this entry »

Posted in Research | 2 Comments »

The best sentence I read today

Posted by Daniel Hall on October 6, 2007

…the TOU rate places a high value on the solar production at peak times that replace peak consumption from the grid, but a tiered rate can put a high value on all of the solar PV substitution from grid consumption for a high-consumption household.

This is from a new working paper by Severin Borenstein on the installation of residential photovoltaic (PV) power systems in California and the requirement they use time-of-use (TOU) pricing. It examines whether homeowners who are considering installing a solar PV power system are better off under a flat-rate or TOU electricity pricing scheme.

The upshot is that which rate structure is more advantageous depends on which one has higher marginal prices, since solar power is displacing electricity use at the margin. And which rate structure has higher marginal prices can depend on whether the structure incorporates block-rate pricing.

First, a little background: Read the rest of this entry »

Posted in Climate Change, Electricity, Energy Technology, Research | Leave a Comment »

Seeing the forests for the trees

Posted by Daniel Hall on October 4, 2007

I went to an interesting seminar today at Resources for the Future, given by Brent Sohngen from Ohio State, on the role that forests could play in climate stabilization. He’s done some modeling that tries to get a handle on how much carbon sequestration you could get from forests globally through two means: 1) reforesting some areas of the world (called afforestation), and 2) preventing deforestation that would otherwise occur in other areas. Here’s my summary from hearing his talk and participating in the interesting discussion that followed:

1) His results showed that in theory forest sequestration could significantly contribute to global reductions in carbon emissions, accounting for around 20% of the total reductions over the next century.

2) Effectively incorporating forest sequestration into a global climate policy could reduce global costs significantly.

3) The biggest portion of available sequestration is in the developing world, and is avoided deforestation that will happen in a business-as-usual world. In fact, avoided deforestation in South America and Africa could potentially account for more than half of near-term — in the next 30 years — global emissions reductions. A much smaller portion of available sequestration is afforestation, mostly in developed countries.

4) Monitoring these reductions would have to be both local and global in scale: local because you have to account for all the trees, and global because it does the climate no good to protect one stand of trees here if someone else comes along and cuts down another strand over there. Literally every tree — globally — would have to be monitored to make this work. Project-based activities like those that many offset programs have used thus far won’t be effective because the more you specifically protect some forests the more other forests will come under pressure.

My impressions from the talk? There is a big payoff for the world in cheap reductions if we can get the rules and institutions right; however, that’s a huge if. I am somewhat — but not too — worried about the local/global scale of an effective global forest registry; I think remote-sensing satellite data can help address this. I am very skeptical, however, that in countries like Brazil or [insert any African country here] that good institutions — effective governance, private property rights, etc. — can be implemented within the next few years in order to avoid the massive amounts of deforestation that are projected to occur over the next couple decades. Basically, I think that there are too many very real but hard-to-measure transaction costs in these countries that will prevent a carbon price — even a relatively high carbon price — from translating into substantive forest sequestration.

Posted in Climate Change, Forestry, Land Use, Research | Leave a Comment »

Will the EKC hold for non-democratic governments?

Posted by Daniel Hall on September 21, 2007

Reader Greg leaves an interesting comment in response to my post on the environmental Kuznets curve (EKC) hypothesis:

This may be me misunderstanding, but one problem I have with EKC is that it seems like an economic explanation of a primarily political phenomenon. … [Y]our explanation seems like an argument that rising incomes allow different preferences to be expressed in the marketplace. It seems to me, though, that the primary thing that actually moves environmental quality, at least over the past forty years, is government regulation (including, obviously, market-based regulations).

I certainly agree with Greg that regulation has been the major driver of improved environmental quality in the developed world. In terms of his comment about the EKC being an economic explanation of this political phenomenon, I have a couple things to say. The first is that for researchers the EKC hypothesis is an observation, not an explanation; it is a question of empirics, not theory. Indeed, one of the slightly odd things about the EKC literature is how replete it is with caveats that the authors are not forwarding a theoretical explanation. The second thing is to acknowledge that this is not very satisfactory; people want to know why something happens. Just saying that an empirical relationship exists but refusing to explain it is — I suspect — a big part of why some people think economists are BOR-ING! Since to my mind being boring is far worse than being wrong, I will wade into murky waters and speculate on why.

Read the rest of this entry »

Posted in Government Policy, Pollution, Research | 4 Comments »

The limits of the environmental Kuznets curve?

Posted by Daniel Hall on September 21, 2007

National Geographic News has a series of photos of the 10 most polluted places on Earth. Like they say, a picture is worth a thousand words, and it’s hard not to look and think, “There, but for the grace of God environmental Kuznets curve, go we.” These places are almost all in poor countries, and the environmental Kuznets curve seems to promise that things will get better once people get richer, as happened in the United States. But I wonder if there are not limits.

The environmental Kuznets curve (EKC) hypothesis posits an empirical U-shaped relationship between pollution and income (i.e. per capita GDP).* Although the research literature has tried to stay away from theoretical models and focus on the empirics, the popular explanation is that countries start out poor but with a relatively pristine environment, go through a phase of economic growth and pollution, and then once they get rich enough develop a taste for environmental quality and so clean up, thus generating the U-shaped relationship.

Read the rest of this entry »

Posted in Pollution, Research | 3 Comments »

Math and Environmental Policy – Because we’re not smart enough

Posted by Rich Sweeney on September 20, 2007

In a recent post, Dani Rodrik describes a reality that I encounter all the time as economist (aspiring at least) working on “liberal” issues. While he’s actually talking about anti-poverty and development, the same holds for environmental policy. Subjects like these are particularly susceptible to sentimentality, but are also far too important to be left to “mushy thinking” (his words, not mine). His point is that when it comes to politically and emotionally charged subjects like these, a lot of people have very strong opinions. In such situations, we need well specified arguments and rigorous analysis in order to convince others that our “conclusions follow from our premises and that we haven’t left loose ends hanging in our argument”. Rodrik notes that some people can do this without math, but most of us aren’t smart enough.

Posted in Government Policy, Research | 3 Comments »