Sunday, May 17, 2009

What do natural resource economists do?

As new students begin to study the discipline of natural resource economics, there is often a great deal of confusion about what the topic is really about. This is especially the case when students are coming from backgrounds with only limited exposure to economics (e.g. EVS, where you've only had one or two econ classes before this one).

Generally speaking, economists try to solve problems using a combination of theory, empirical analysis (data, statistics, math), and intuition. For example, macro economists try to address issues such as how to keep an economy growing without significant inflation. Natural resource economists try to solve problems associated with scarce natural resources.

Some examples from my work include: How to maximize fishery value while balancing the competing needs of commercial and recreational fishers and maintaining a biologically sustainable stock? How can Caribbean tourism grow without harming marine turtle popluations? What regulations would maximize the net gains to society from white tailed deer populations? In the face of depleted stocks, will a nation's supply of seafood increase or decrease with financial incentives to curtail fishing effort?

Obviously, these are complex issues that require interdisciplinary effort. One of the things that I really love about what I do is that I work side-by-side with biologists, policy makers and resource users to address these problems.

Here are links to two excellent essays that provide a nice perspective on the economic view of the environment.

The second essay covers non-market valuation, which we will cover in detail later in the term. It makes a good read now however, as it sets the stage for much of what we're covering at the beginning of the class (e.g. the anthropocentric view of value).

How do Economists Really Think About the Environment (Fullerton and Stavins, RFF, 1998)

Economic Values without Prices (Loomis, Choices, 2005)


Dr. Peter Schuhmann said...

This is from Abby, who is having trouble posting:

After reading both of these articles on how economists actually view the environment compared to how i thought they viewed they environment is actually nice to know. I almost have a new found respect because as these articles point out as a society we are informed of these "myths" or views that economists hold while in fact these articles point out that these are not always true. I really liked how they explained how economists simply use monetary value as a source of common measurement they explain it well by expressing they need a way to "add apples to oranges" this alone made it simple to understand why they use monetary value on things like the environment or human health. I have a much better understanding on how economists environmental thinking after reading both of these articles.

Alyssa said...

The world of environmental concerns within the economic marketplace is quite complex. These articles did a great job of breaking down the assumptions of the marketplace and offering complete counter-arguments to these assumptions. On of the most important statements was the acknowledgment that there are many situations in which laissez faire economic policy leads to inefficiency, especially within the environmental realm. From this, discussing that there are not always market solutions to problems and noting that government interventions can sometimes help balance the market inefficiencies helped greatly in understanding the need, and purpose, of government “interference” (which some are widely against). Also, addressing environmental concerns in terms of nonvalue benefits helps greatly in understand how, and why, externalities are forced into the markets, and also how nonvalue benefits can be taken into account. I did have a question on the two methods of establishing value, the travel-cost method and the contingent valuation method. I’ve had lessons about this before in an environmental policy class and we discussed how the contingent valuation method can widely overestimate the value that people are willing to pay. People tend to overshoot their estimations when asked what they value varies environmental benefits, e.g. clean air, clean water, etc., but are not actually prepared to pay the same amount that they valued these benefits. The article did not address this issue, and I was curious to see if this is indeed a common problem with contingent valuation.

Kendyll Goeman said...

Alyssa, I’m not sure if this helps with your question, but Fullerton and Stavins stated, “Unlike other social scientists, economists are generally wary of asking people how much they value something, since respondents may have incentives to behave
strategically and therefore not to provide unbiased assessments of their own valuations.” Giving a different value of what something means to an individual when compared to what the individual would actually pay isn’t an exact science.
I was interested to learn that environmental economists do not believe that the market solves all problems; they focus on the externalities of the market. Examples of these externalities include pollution, common property, and consequences of producing and consuming.

Alyssa said...

Kendyll- Thanks for the response.
I recall reading that portion of the Fullerton and Stavins and drawing the same conclusions that you did. My main question is with when economists are analyzing/forcing externalities into the marketplace through the contingent valuation method, is the error of human over-estimation of "willingness to pay" accounted for? I'm sure there is probably a technique or model that is used to counterbalance this problem and was curious to see how that may be achieved.

Dr. Peter Schuhmann said...


Yes, there is a large list of best practices used in creating CVM survey instruments to avoid or minimize an array of biases. The one you're describing is hypothetical bias, but might also be strategic bias.

The best practices were mostly developed by a NOAA panel of economists following Exxon Valdez, but have been refined in the literature.

Economists have been doing CVM for a long time now, and while it is not a perfect method, after literally thousands of studies all over the world, we're very good at it and it is still one of the only ways to derive non-use values.

We'll be into this topic more formally soon, but here's an interesting question to consider:

Would you rather have an imperfect estimate of value or no estimate of value?