Posts Tagged ‘Jason Shogren’

Valuing Environment and Natural Resources

February 27, 2013

ValuingEnvironmentAndNaturalResourcesThe two-volume tome Valuing Environment and Natural Resources, edited by Kenneth G. Willis and Guy Garrod, was published last year. It is interesting of at least two reasons. In the interest of backwardness, the least important reason is that it is titled almost identically to the book Valuing Environmental and Natural Resources (look again) by Timothy C. Haab (of env-econ.net) and Kenneth E. McConnell. As if the similarity in the title was not enough, they are both published on Edward Elgar.

The other, more important, reason for taking an interest in Valuing Environment and Natural Resources is buried deep in volume two. In chapter 32 of volume two, to be exact. Chapter 32, the first chapter in Part X (Marine), is namely a reprint of my very first published article. The article appeared initially in the journal Marine Resource Economics, volume 23, number 2, and was titled ‘The Premium of Marine Protected Areas: A Simple Valuation Model.’ The abstract goes as follows:

MRE

The article addresses the induced cost, the premium, from establishing a marine protected area in a deterministic model of a fishery. Outside the protected area, the fishery is managed optimally through total allowable catch quotas. The premium is found to be increasing and convex along the protection parameter. Biological measures are introduced to increase the understanding of the mechanisms in the bioeconomic system. Time-series solutions show that the net return per unit of fish increases after the protected area is established.

In fact, I discovered that the article was reprinted by mere accident (if to google yourself could be regarded a ‘mere’ accident). While I know the journal holds certain rights, I was surprised I was not even informed about the reprint. Oh well. Other authors who’s work are reprinted include big guns like Ian Bateman, Nick Hanley, John List, V. Kerry Smith, Jason Shogren, and a number of others and it is rather pleasant to be reprinted in the same book as them. The publisher describes the book as follows:

Over-exploitation of environment and natural resources is becoming increasingly widespread in the modern world. To combat this, environmental economists have attempted to value such resources in order to ensure that they are given due recognition in any ex ante appraisal, or ex post evaluation of projects or policies; and also to ensure that optimal levels of consumption are determined for the resource. This authoritative collection, along with an original introduction by the editors, brings together seminal papers published in the last three decades which demonstrate the application of a number of techniques employed to value a range of environmental and natural resources. It will be of immense value to students, scholars and practitioners with an interest in environmental affairs and natural resources. [Yes, italics are mine…]

 

Kahneman on the Precautionary Principle

January 10, 2013

In Daniel Kahneman’s Thinking, Fast and Slow, there is an interesting discussion of how moral intuitions behind the precautionary principle conflicts with efficient risk management:

The intense aversion to trading increased risk for some other advantage plays out on a grand scale in the laws and regulations governing risk. This trend is especially strong in Europe, where the precautionary principle, which prohibits any action that might cause harm, is a widely accepted doctrine. In the regulatory context, the precautionary principle imposes the entire burden of proving safety on anyone who undertakes actions that might harm people or the environment. Multiple international bodies have specified that the absence of scientific evidence of potential damage is not sufficient justification for taking risks. As the jurist Cass Sunstein points out, the precautionary principle is costly, and when interpreted strictly it can be paralyzing. He mentions an impressive list of innovations that would not have passed the test, including “airplanes, air conditioning, antibiotics, automobiles, chlorine, the measles vaccine, open-heart surgery, radio, refrigeration, smallpox vaccine, and X-rays.” The strong version of the precautionary principle is obviously untenable. But enchanced loss aversion is embedded in a strong and widely shared moral intuition; it originates in System 1 [the thinking fast system]. The dilemma between intensely loss-averse moral attitudes and efficient risk management does not have a simple and compelling solution[p. 351, italics in original].

I suspect similar morals lie behind the US Endangered Species Act, which actually prohibits any kind of risk management; any specie should be conserved at any cost. One of my favorite economists, Jason Shogren, have written extensively on the problematic aspects of the Endangered Species Act. In one of his memorable passages, he writes:

Essentially, the approach of the Act that prohibits any activity that harms a listed [endangered] species puts a very large or infinite value on avoiding extinction. This view places endangered species beyond the reach of economic tradeoffs, and the economist is relegated to helping find the least cost solution to achieve a biological-based standard [Brown and Shogren 1998, Economics of the Endangered Species Act, The Journal of Economics Perspectives, Vol. 12, No. 3, pp. 3-20, p. 10].

Rebuilding Global Fisheries

September 15, 2009

Boris Worm, Ray Hilborn, and, among others, Chris Costello, recently had the article ‘Rebuilding Global Fisheries’ in Science (Vol 325, pp. 578 – 585). It discusses trends in the rebuilding of fisheries and marine ecosystems. The inherent problem in fisheries is the tragedy of the commons; many fisheries are poorly managed and access rights are not distributed properly. ‘Rebuilding Global Fisheries’ touches upon it in the introduction:

[…] progress toward curbing overfishing has been hindered by an unwillingness or inability to bear the short-term social and economic costs of reducing fishing [p. 578].

And again, while discussing species collapse:

Rebuilding […] collapsed stocks may require trading off short-term yields for conservation benefits [p. 581].

Short-term costs are like an investment in future abundacy; if fishermen are uncertain whether the promised future will enrich themselves, they will probably avoid the investment if they can. Accordingly, Worm et al. list access rights and economic incentives among tools for rebuilding fisheries:

Assingning dedicated access privileges, such as catch shares or territorial fishing rights, to individual fishers or fishing communities has often provided economic incentives to reduce effort and exploitation rate […] Realigning economic incentives with resource conservation (rather than overexploitation) is increasingly recognized as a critical component of successful rebuilding efforts [p. 583].

Another problem for many fisheries is simply that they are located in the developing world:

On a global scale, a key problem for rebuilding is the movement of fishing effort from industrialized countries to the developing world […] This north-south redistribution of fisheries has been accelerating since the 1960s […] and could in part be a perverse side effect of efforts to restore depleted fisheries in the developed world, as some fishing effort is displaced to countries with weaker laws and enforcement capacity [p. 584].

Collapsed fisheries in the developed world, like the Canadian Northern Cod scandal, are also a likely source of effort movements to the developing world. Further, the technological ability to fish far from, and even independent of, (home) port, poorly regulated fisheries, limited enforcement of regulations, corrupted, political systems, and lack of knowledge are all probable reasons for the sorry state of many fisheries in the developing world. Also, many fisheries in the developing world are small-scale, artisanal fisheries and such fisheries cannot be managed in the same way as industrial fisheries (p. 582).

Finally, Worm et al. discusses open questions in relation to the rebuilding of fisheries. One I found interesting (I’m doing related research) relates to by-catch problems of vulnerable, and, one might add, endangered species:

[An area] of inquiry relates to the question of how to avoid contentious trade-offs betweeen allowable catch and the conservation of vulnerable or collapsed species. Recovering these species while maintaing global catches may be possible through  improved gear technology and a much more widespread use of ocean zoning into areas that are managed for fisheries benefits and others managed for species and habitat conservation. Designing appropriate incentive for fishers to avoid the catch of threatened species, for example, through tradable catch and by-catch quotas has yielded good results in some regions [p. 584].

In conclusion, Worm et al. has a grand view for fisheries science:

We envision a seascape where the rebuilding, conservation, and sustainable use of marine resources becomes unifying themes for science, management, and society. We caution that the road to recovery is not always simple and not without short-term costs. Yet it remains our only option for insuring fisheries and marine ecosystems against further depletion and collapse [p. 584].

Maybe the most important message I take home from ‘Rebuilding Global Fisheries’ is the crucial role the economist must play in order to make conservation and rebuilding strategies work; incentives matter and are very important. The same message, by the way, is made by Gardner Brown & Jason Shogren  in relation to the Endangered Species Act (I’ve posted excerpts from their article here).

Hat-tip: Legal Planet

Economics of the Endangered Species Act

April 30, 2009

I’m reading the article by Gardner M. Brown Jr. and Jason F. Shogren (Journal of Economic Perspectives, Vol 12, No 3). Here is some of what I highlighted:

The Endangered Species Act of 1973 addresses the market failure associated with the unpriced social benefits of such species. […] Although the benefits of protecting endangered species accrue to the entire nation, a significant fraction of the costs imposed by the Act are borne by private landowners [p. 3].

Many natural scientists and ecologists view the methods and mindset of economists with grave suspicion. […] [E]conomists can help to raise the chances that when society imposes and bears costs for protecting endangered species, it is more likely to succeed [p. 4].

The intention of the Endangered Species Act is to save all species. There is no explicit recognition of relative costs and benefits in the 1973 Act. […] Recovery plans are typically designed with little regard for total or marginal economic benefits relative to costs, nor with much regard for ecological-economic interactions, including the relative value of information that allows policymakers to discriminate among alternative recovery plans [p. 6].

Since owning land which is hospitable to an endangered species can dramatically circumscribe any development plans for that land, owners have an incentive to destroy the habitat before listing occurs, sometimes known as the “shoot, shovel and shut-up” strategy. [p. 7].

Preferences are not an ingredient of science [p. 8].

[O]nly one with modest expectations would give the Endangered Species Act a high performance rating. Since the inception of the Act in 1973, 11 species of more than 1,000 listed [as threatened or endangered] have recovered and have been removed from the list […] [L]ess than 10 percent of the listed species have exhibited an improved status and the status of four times that amount is declining. […] The ratio of declining species to improving species is 1.5 to 1 on federal lands, and 9 to 1 on private lands [p. 10].

Most of the services provided by the endangered species, including their corresponding levels of biological diversity, are not priced by the market. […] Essentially, the approach of the Act that prohibits any activity that harms a listed species puts a very large or infinite value on avoiding extinction. This view places endangered species beyond the reach of economic tradeoffs, and the economist is relegated to helping find the least cost solution to achieve a biological-based standard [p. 10].

A recent survey found that over 70 percent of Scottish citizens were completely unfamiliar with the meaning of biodiversity [see article for reference], and there is little reason to expect substantially more knowledge in the United States [reference, see article; pp. 12-13].

The opportunity costs of the Endangered Species Act include the foregone opportunities due to restrictions on the use of property due to listings, designation of critical habitat, and recovery plans.  Opportunity costs also include the reduced economic rents from restricted or altered development projects, agriculture production, timber harvesting, minerals extraction, recreation activities, wages lost by displaced workers who remain unemployed or who are re-employed at lower wages, lower consumer surplus due to higher prices, and lower captial asset value [p. 13].

[E]conomists can frame the endangered species debate in benefit-cost terms. Such calculations are bound to be uncomfortable and controversial, especially since the overwhelming fraction of benefits from the preservation of endangered species are likey to be in the nature of public goods whose benefits are received in the future. […] Economists naturally seek criteria and conduct analysis which permit a discrimination among species in recognition of the existence of budget constraints. Of course, anyone who offers analysis which leads to increased risk of a species becoming extinct will suffer attacks, but the present system is assuredly allowing many such actions, without the meliorating grace of admitting or examining them openly [pp. 15-16].

[W]heather and which species are or soon will be endangered are not purely ecological questions, but are in part economic questions too. After all, economic variables influences the likelihood of extinction  and even evolution [see article for reference; p.16].

At present, the Endangered Species Act sets a lofty rhetorical goal of saving every species, while making no distinctions among species except those governed by “science,” a term left largely undefined. It is driven by the belief that risk of extinction is a question best left to the natural sciences; if economics is allowed in the door at all, it is relegated to task of managing the risk levels determined by others [see article for reference]. The Act largely ignores the importance of the incentives facing private landowners. These are shortcoming that economists are well-suited to address [pp.17-18].

Related post:

Economics Is Hard

March 19, 2009

In an old post on Freakonomics that discusses the Coase Theorem, Steven Levitt, the great economist, writes:

The basic idea of the Coase Theorem is that no matter who is assigned property rights, as long as transaction costs are not too high, the efficient outcome will be achieved.

That’s wrong, as far as I know. Well, at least, Deirdre McCloskey, who seem to know her stuff better than most, writes in her little gem Economical Writing:

“[T]he Coase Theorem” [that is] “the proposition that property rigths matter to allocation in the case of high transaction costs” (which, incidentally, is the correct statement of the theorem, widely misunderstood in economics) [p. 60, 2nd edition].

The quote is taken out of context, which is a discussion of the use of Capitalization, but that’s beside the point. Now, I looked the theorem up in the book I learned it from back in the days (‘Environmental Economics – In Theory and Practice’ by Hanley, Shogren, and White, 1997), and it was wrongly stated there as well:

The so-called Coase theorem posits that disputing parties will work out a private agreement that is Pareto efficient [that is, no-one can be made better off without making someone else worse off], regardless of the party to whom unilateral property rights to the non-market asset are assigned initially [p. 25].

Both Levitt and my text book are right, of course; property rights do not matter to efficiency when transaction costs are ignored. They are always present, however, and that’s were Coase put his emphasis, I think; when transaction costs are substantial, property rights matter. I should look up Coase’s original formulation and find out for myself, I know. I’m lazy, though, maybe some other time. I did google it, however, and every single explanation I found among the top hits got it the wrong way.

Economics is hard. Or confusing, maybe.