Appalachian State University
Department of Economics
Seminars
2009-2010

All seminars are in Raley 3010 at 2:00 P.M. unless otherwise indicated.

...

November 6, John Whitehead, "Angler Heterogeneity and the Species-Specific Demand for Marine Recreational Fishing"

They were wowed (not) and now they are going to buy me a beer (I hope) ... I'll post more details on this project later

The title comes from a message from David Zetland (at aguanomics) who, besides asking questions with obvious answers, thinks posts about cow farts cheapen his blog.  To that I say, nothing can cheapen our blog--er, or something like that.

The World Watch Institute has released a new report arguing that the FAO’s estimate of livestock’s total contribution to global GHG emissions (18%) is a serious underestimate and that the true footprint of livestock production is around 51% of higher.
 
It bases this figure on the claim that the FAO report fails to count, misallocates or overlooks additional emissions that are attributable to livestock.
 

Thank you for your interest in the [EPA Science Advisory Board] Environmental Economics Advisory Committee. This is to let you know that you were not selected. We were privileged to have many qualified candidates such as yourself from which to fill just 4 openings on this committee.

Well at least I wasn't not selected from a pool of unqualified candidates.

The U.S. Senate Environment and Public Works Committee on Thursday approved a Democratic climate change bill that would require industry to cut emissions of carbon dioxide and other greenhouse gases 20 percent by 2020 from 2005 levels.

With Republicans boycotting the committee's work saying more analysis of the legislation was needed, 10 Democrats voted to approve the legislation and one Democrat, Senator Max Baucus, voted against it.

The bill will now become one of several initiatives aimed at attacking global warming. Senator John Kerry is leading an effort with some Republicans and the White House to craft a compromise bill, which likely would not be voted on by the full Senate until next year at the earliest.

What are the basics of the recent energy policy proposals in Congress?
There are two energy bills moving through Congress right now: The American Clean Energy and Security Act in the House of Representatives (*cosponsored by Waxman-Markey) and the Clean Energy Jobs and American Power Act in the Senate (**sponsored by Boxer-Kerry). The meat of both energy policy proposals is a Cap and Trade program for carbon dioxide emissions — a principal greenhouse gas to which climate change is attributed — in the US. Cap and Trade is a program for capping total carbon dioxide emission and creating a market for carbon dioxide (CO2) emissions among potential polluters. Regulators decide the total amount of CO2 society desires (the Cap) and then allocates permits or allowances to emitters totaling that amount. These allowances are fully marketable commodities (the Trade)***.

Read on to find out the potential economic impacts of Cap and Trade and why Ohio (and you) should care...

What are the potential economic impacts of a national CO2 Cap and Trade system?
There is no way around the reality that a Cap and Trade system (or any CO2 reduction regulation for that matter) will raise carbon-intensive energy prices and this rise in energy prices will trickle through in some way to most end products. As with the production of any final product, raising the price of an essential input — which in this case, CO2 can be thought of as an essential input into the production of energy and most other final products — will raise the price of the final products. This is not necessarily a bad thing, as the new prices will, if designed correctly, reflect the full social cost of energy production, including the costs of climate change.

Preliminary results from National Science Foundation-funded research that I have been involved in with Professors Bhavik Bakshi and Prem Goel indicates that a carbon allowance price of $.05 per kilogram of carbon — a carbon price consistent with the price increase expected under either the House or Senate version of the Cap and Trade program — will result in a 15 percent increase in the price of coal-fired electricity and a 10 percent increase in the price of petroleum-fired electricity.

Why should Ohio care?
The three sectors most impacted by a carbon pricing scheme, manufacturing, transportation and coal fired electricity, constitute 24 percent of Ohio’s GDP. Comparing that to the national average for these three of 17 percent, it is clear that Ohio is heavily invested in impacted sectors relative to other states****. Ohio is currently among the nation’s least invested states in renewable energy production. A strong case can be made for carbon allowances to be allocated in such a way that the resulting redistribution of revenues from energy production results in increased investment in renewable energy production in Ohio, thereby reducing the economic burden.

*Editorial deletion #1: nicknamed ACES

**Editorial deletion #2: with the much less pronouncable acronym CEJAP

***Editorial deletion #3: 

Emitters who can reduce a unit of CO2 cheaper than the going market-determined price for allowances can sell their allowances on the market to emitters who find reducing CO2 more expensive. In contrast to traditional regulatory approaches to pollution, which frequently either dictate the technologies to be used for pollution reduction on dictate the amount any individual polluter can emit, Cap and Trade ensures the total desired pollution reduction in met, while affording the emitters the ability to reduce emission at least cost. In other words, despite sounding like a bad breakfast cereal parody, Cap and Trade is the least expensive way of achieving any particular level of CO2 reduction.

I guess they didn't find that funny...or informative.

****Editorial deletion #4:

While these results can be interpreted as a call for Ohio’s Representatives and Senators to oppose Cap and Trade legislation on the grounds that Ohio bears a disproportionate burden of the costs, I would offer an alternative interpretation: These results call for careful consideration be given to the initial allocation of carbon allowances and the resulting redistribution of revenues. Ultimately, carbon pricing will provide incentives to shift from carbon based energy production to other, renewable forms of energy production.

A largely independent development of stated preference methods, called contingent valuation (CV) and focused on eliciting preferences for public goods, occurred in resource economics (Davis 1963; Randall et al. 1974). The method has been promoted and used somewhat uncritically as a tool for valuing resource damage, and there is a large and contentious literature on its validity, but methodologically it is simply a form of conjoint analysis with a truncated design for the experimental presentation of alternatives. Hence, the concerns of its critics are those for stated preference methods in general, with added concerns about consumers’ ability to generate preferences for unfamiliar public goods, separate self-interested preferences from broader preferences incorporating social norms, respond consistently in hypothetical versus real choice settings, and respond predictably to hypothetically incentive-compatible framing of survey tasks.

And there is a longer section on referenda. Here is something interesting n hypothetical bias (page 92):

An overall assessment is that studies finding the least bias focus on private goods, and that proponents of CV find fewer problems with hypothetical bias than do critics.

I'm wondering how proponents and critics are defined. The causality matters. If you find hypothetical bias in your study do you become a critic or vice versa?

Most expert economists agree: reducing our greenhouse gas emissions can help avoid a major economic malfunction. Those are the findings of a survey conducted by the Institute for Policy Integrity, released [yesterday] morning in a report called Economists and Climate Change: Consensus and Open Questions. 

Malfunction?

Over 84% of the top economic experts responding to the poll said that the effects of global warming will create significant risks to important sectors of the United States and global economies. There was near unanimity—98%—that a price on carbon will increase incentives for efficiency and innovation.

Insert snide SuperFreakonomics remark here (i.e., snark). Such as: "But, what about the evidence that doctors don't wash their hands?"

The next paragraph sets me off a bit:

The survey was sent to 289 economists who published at least one article regarding climate change in the top twenty-five economic journals over the last fifteen years—144 of those responded.  By limiting the sample to the economists with the most expertise on climate change, the survey was able to achieve a high response rate, and reduce the risk of error. ...

I have a quibble with the population of the survey, and I'll try to present it as snarkily as possible. If the survey was only sent to economists who published at least one article in a non top-25 journal, say, Land Economics, Environmental and Resource Economics or Resource and Energy Economics over the past 15 years it would increase the risk of error? Why, because economists who study climate change and can't crack the top-25 are jackasses? And are they less likely to respond to the survey? Huh?*

I would have rephrased that sentence to something like this:

By limiting the sample to the economists with the most expertise on climate change, the survey was able to avoid the ignorance of economists who have not studied climate change.

The press kit puts it this way:

If this survey were to be distributed among the thousands of American economists, results would likely be skewed by responder bias—only those with the strongest opinions would answer. By only inviting those with expertise on climate change, and thanks to the high response rate, results are more statistically valid and less sensitive to error.

Responder bias? Response bias results if the sample does not look like the population for some observable reason. For example, the sample might be more wealthy (i.e., elite) than the more general economist population. You can weight a response biased sample to make it more representative.

I think the surveyors are more worried about sample selection bias which results when those with the strongest opinions are more likely to respond. Sample selection bias is more difficult to detect since the bias is on an unobservable variable. I'm doubting if economists who publish in a sub-25 journal have stronger opinions than others. The statements above imply that "elite economic experts" are more objective than the jackasses who can't crack the top tier of journals.

Why not send it to economists who have published a climate change paper in any economics journal? My guess is that the surveyors lacked the time and money to put together a broader sample. Why not say so? To suggest that the non-elite are biased is ... well, biased.

The little guys who didn't get the survey have their feelings hurt.

*Note: I'm not personally offended since I don't have a climate change paper in any economics journal unless you define "climate change article" very broadly.

Scientists spent eight years tracking the movements of 179 great white sharks and discovered that these predators have very predictable migration patterns between Hawaii and the North American coast. Dots below show approximate locations where 68 sharks tagged with satellite sensors were recorded at various times.

Sen has a Nobel Prize.

I don't.

The contingent valuation method was developed over the past 30+ years. It involves asking hypothetical willingness-to-pay questions to elicit economic values for environmental quality and other things. I used it in my 1990 dissertation and along with a bunch of other environmental economists spent most of the 1990s writing "CVM" scenarios, analyzing the data and fending off "revealed behavior" critics.

Historically CVM has involved questions such as:

• Open-ended: How much would you be willing to pay for X?
• Closed-ended: Would you be willing to pay $A for X?

Here is how I put it about 10 years ago (and published as Chapter 3 in the Handbook on Contingent Valuation):

Willingness to pay v. behavioral intentions     

A helpful suggestion might be to think of a contingent valuation question as a behavioral intention question, not as a willingness to pay question. A behavioral intention question asks people about behavior under hypothetical conditions: ‘Would you donate $15 if that is how much it cost to protect sea turtle nesting habitat?’ or ‘How would you vote on the sewer bond if paying off the bonds cost you $125 per year?’ or ‘How many shellfish meals would you eat if they were safe and cost $12?’ Many people can imagine how much money they would donate, how they would vote, and how much they would eat under different circumstances. Behavioral intentions are also easier to compare to actual behavior.

Willingness to pay questions ask people to speculate on how much they would be willing to pay for something, not what they would do in a certain situation: ‘Would you be willing to pay $55 for an increase in water quality to the fishable level?’ Most people aren’t used to being asked about the size of their consumer surplus triangle. Also, hypothetical willingness to pay is not easy to compare with actual behavior. Even so, sometimes the willingness to pay question is unavoidable because a realistic scenario can’t be constructed around a behavioral intention question. If this is the case, try to remember the difficulties that respondents have with hypothetical situations.     

As far as I can tell there is not much more contingent "valuation" stuff being done anymore. Is it time to stop talking about contingent "valuation" and go with contingent "behavior"?

*Shameless plug: I've also been thinking about this issue as I'm corresponding with Tim and Ju-Chin Huang trying to meet the 2010 deadline for our revealed and stated preference data book.

The American Clean Energy and Security Act in the House of Representatives (nicknamed ACES and cosponsored by Waxman-Markey) and the Clean Energy Jobs and American Power Act in the Senate (with the much less pronounceable acronym CEJAP sponsored by Boxer-Kerry).  The meat of both energy policy proposals is a Cap and Trade program for Carbon Dioxide Emissions—a principal greenhouse gas to which climate change is attributed--in the U.S....

A strong case can be made for Carbon allowances to be allocated in such a way that the resulting redistribution of revenues from energy production results in increased investment in renewable energy production in Ohio, thereby reducing the economic burden placed on Ohio by Carbon pricing.

Here's the beginning of a Washington Post story I clicked on at 11:35 today:

The climate-change bill that has been moving slowly through the Senate will face a stark political reality when it emerges for committee debate on Tuesday: With Democrats deeply divided on the issue, unless some Republican lawmakers risk the backlash for signing on to the legislation, there is almost no hope for passage.

From time to time we have reported on green job projections. Many reputable economists question these studies, among them Tim Haab and John Whitehead at The Environmental Economics Blog ...

From now on the acronym for "The Environmental Economics Blog" is TEEB (pronounced TEEB, the double e spelling always results in the long e sound, like geek).

I admit that I’m torn in my opinion about SuperFreakonomics. I was predisposed to fully embrace it. The first book, Freakonomics, did great things for the economics profession. It made economics interesting and readable. It broadened the scope of the field in the mind of the public. Plus, Dubner is a graduate of Appalachian State University. He came to campus, gave the opening convocation talk, I went to his public reading, met him and he sent my kids a free copy of his Belly Button book. I’ve also contributed at the Freakonomics blog. So, I was horrified to hear that they got the science in their climate change chapter all wrong.

Don’t be mistaken. I don’t know if it is all wrong or not. I’m a simple economist. But it seems that real-life climate scientists, and not just the advocates, think that it is really, really wrong as well. The problem, to me, is that Dubner and Levitt stepped a bit too far outside their realm of economics.

And ends like this:

I wish SuperFreakonomics had stuck to economics.

In the middle I tell a fish story.

Greetings from Amazon.com. You saved $1.69 with Amazon.com's Pre-order Price Guarantee! The price of the item(s) decreased after you ordered them, and we gave you the lowest price.
The following title(s) decreased in price:

SuperFreakonomics: Global Cooling, Patriotic Prostitutes, and Why Suicide Bombers Should Buy Life Insurance
             Price on order date: $16.19
       Price charged at shipping: $14.50
 Lowest price before release date: $14.50
                        Quantity: 1
                   Total Savings: $1.69

$1.69 is your total savings under our Pre-order Price Guarantee.

Prices fall with falling demand or increasing supply. Do those rules work at Amazon.com? If so, what does it say about the market?

I continue to cringe at the SuperFreakonomics reviews, but I can't stop reading and reposting them. Is that admission a cry for help?

David Roberts at Grist:

Steven Levitt and Stephen Dubner are the latest to do it, in their new book Superfreakonomics. Their chapter on climate change sits awkwardly with the rest of their work; the original Freakonomics was based on Levitt’s academic work, real data and models the authors used to make ostentatiously counterintuitive points about perverse economic incentives. But Levitt did no original work on climate. The chapter’s not about economic incentives. There’s no evidence of deep or sustained engagement with the literature or previous research on the subject. The authors just high-stepped in, cast a cursory glance around, and started condescending to the people involved in it (and stepping on rakes).

Why? What leads people to think that entire areas of climate science and policy, the subject of close study by thousands of very smart people all over the globe every day, can be overturned with facile points of logic and Silver Bullets Nobody’s Thought Of?

I read the section of the climate change chapter on negative externalities. It is good, except for one thing. I don't get how a stray bullet, intended for a drug dealer, that hits an innocent bystander is a negative externality. Negative externalities are the result of voluntary transactions that harm someone not participating in the transaction. Next up is the geoengineering section!

Image source: http://i.ehow.com/images/GlobalPhoto/Articles/4537453/pumpkinsick-main_Full.jpg

... if it has come to pass that we can’t expect the William B. Ogden Distinguished Service Professor (and Clark Medalist to boot) at a top-rated department of a respected university to think clearly and honestly with numbers, we are indeed in a sad way. ...

May I suggest that if you should happen to need some friendly help next time you take on the topic of climate change, or would like to have a chat about why aerosol geoengineering might not be a cure-all, or just need a critical but informed opponent to bounce ideas off of, you don’t have to go very far. For example…

But given the way Superfreakonomics mangled Ken Caldeira’s rather nuanced views on geoengineering, let’s keep it off the record, eh?

Your colleague,

Raymond T. Pierrehumbert
Louis Block Professor in the Geophysical Sciences
The University of Chicago

I finished reading the prostitution chapter (it was great, but "patriotic prostitutes"? that's a reach) and the global cooling section of the climate change chapter. I must agree with the critics, it really does present global cooling as the scientific consensus, implying that the current scientific consensus might be just as nutty.

The largest stimulus program in the nation's history has created or saved at least 650,000 jobs, according to a report released by the Obama administration on Friday.

Based on approximately $150 billion in spending from the $787 billion recovery package, the tally is the first broad, concrete look at the stimulus program's impact on the economy. The numbers are drawn from tens of thousands of reports from state and local recipients as well as private companies.

Today the Washington Post had an article on the tension at Virgina Tech between those who want to tailgate for Thursday night games and, um, academics. My favorite quote: ' having a prominent football team "does great things for the university, much more so than somebody discovering something in their PhD dissertation, which five people read. That's true, and we're going to have to live with it." '

HAHAHAHAHA. I will bet you money that no more than five people have read my dissertation, and that's generously assuming that my committee did.

You'd lose that bet. In preparing to begin our sentence as bloggers, Tim and I have read every environmental economics dissertation ever written (that makes 7 people who read yours). I had hoped to keep that fact secret until I write my memoirs, but, now you know how we became so totally informed about the field of environmental economics (and why we felt obligated to name our blog thusly).

But, I digress. Back to the Hokies:

Some faculty members interviewed for this story said that while there has been no official mandate handed down by the school, it has been implicitly suggested that they cancel afternoon classes before Thursday night games in order to clear campus parking lots. While students may welcome an early start to the weekend, such a notion does not sit well with those who say it sends a message that athletics are more important than academics.

Isn't this confusing marginal and total? There would be no college football without the college. A school can shut down its football program but not vice versa. Therefore, the total value of academics exceeds the total value of athletics. But, a Thursday night football game is a special event with a large marginal value. The marginal benefit of that game is likely greater than the marginal cost of an afternoon of canceled classes.

Note: I canceled my class today to be in Charleston today (where I blog like a maniac while passively listening to various topics in fisheries biology). The marginal class, in most courses, can be effectively replaced with creative assignments. However, the more canceled classes the greater the marginal (and total) cost.

And:

"I'm highly annoyed by the misplaced emphasis on athletics at the university," Jan Helge Bohn, an associate professor of mechanical engineering at Virginia Tech, said in a telephone interview. "It infuriates me. The fact I have to move my car and go home and terminate work is outrageous in an academic community."

I hear this when we have Friday night (and Saturday) games. But I like it when my boss tells me to go home. If I need to work I have my computer. Don't scientists have labs at home? 

An e-mail sent by the school to students, faculty and personnel on Monday said Virginia Tech President Charles W. Steger had approved the closing of all university offices at 4 p.m. on Thursday, with the exception of those directly supporting classroom instruction. The message said classes would not be canceled.

Wink, wink.

And note: that first quote is from Gordon Kirk, a professor of mechanical engineering at Virginia Tech, instead of a student which is what I assumed.

[Steve Levitt] wondered if he was in for a Jim Cramer-type beatdown. But it turns out that Jon Stewart doesn't appreciate the global-warming fanatics either, and gave SuperFreakonomics a thumping endorsement.

Here it is on the Freakonomics blog:

He wondered if he was in for a Jim Cramer-type beatdown. But it turns out that Jon Stewart gave SuperFreakonomics a thumping endorsement.