Monday, May 25, 2015

John Forbes Nash, 1928-2015

John Nash and his wife died in a car accident this past Saturday in New Jersey.  If you've studied economics (or math, or computers, or politics or biology....), you've been influenced by John Nash. He was awarded the Nobel Prize in Economics in 1994 for his contributions to game theory.

Here is the obituary at the NYT.

Here is a story at BBC News

Here is a story at the WP

Externalities and energy

Externalities occur when the costs or benefits of a good sold in a market are not entirely paid or received by the market participants.  Negative externalities occur when someone other than the buyer or seller incurs a cost when a good is produced or consumed. Many forms of pollution can be classified as generating negative externalities. For example, when you power your car with gasoline, you pay the price at the pump, but other people "pay" a real cost because your consumption leads to air pollution which harms human and ecosystem health.  How much is that external cost?  A new study from Duke suggests that the external cost is an additional $3.80 per gallon of gasoline and $4.80 per gallon of diesel.  These external costs include healthcare costs, loss of workforce productivity, damage to crops, lost school days and higher insurance costs. This means that the "true" price of gasoline is more than $6.00 per gallon.  Society is heavily subsiding the use of fossil fuels.  Is this really a "free market"?  What is a potential policy change that could remedy this obvious market inefficiency?   

Positive externalities occur when someone other than the buyer or seller realizes a benefit from the production or consumption of a good. The use of renewable energy sources can be seen as providing external benefits to society in the form of pollution reduction and economic growth through job creation.  We know that when a market generates positive externalities, the efficient quantity will not be provided.   What is a potential policy change that could remedy this market inefficiency?  

Wednesday, May 20, 2015

Economics and the environment

As students begin to study the discipline of natural resource economics, there is often confusion about what the subject is about. This is especially the case when students are coming from backgrounds with only limited exposure to economics (e.g. Environmental Studies, where most student have had only 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.  Micro economists might try to find the best way to maximize profit for a particular firm or industry. 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 coral reef quality or marine turtle populations?  How can tourism serve to enhance the livelihoods of local populations?  How can governments in coastal areas respond to changes in the quality of natural resources?  What hunting regulations would maximize the net gains to society from white tailed deer populations?  Are tourists willing to pay fees to help finance conservation efforts?  What are people willing to pay to view marine turtles in the wild? Will people pay for marine turtle conservation, even if they never see a turtle in the wild?  How can these willingness to pay values be captured and used for conservation? 

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. 

Something that should also be obvious is that these are potentially contentious issues. It is easy to get caught up in the emotion that surrounds any debate about environmental issues. Please remember that an economists job is to provide objective analysis (i.e. without personal opinion or bias).  

Below 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 summer. 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 economic view of value).

How do Economists Really Think About the Environment (Fullerton and Stavins, RFF, 1998)
Economic Values without Prices (Loomis, Choices, 2005)

What are your thoughts on economics and the environment?  At the beginning of the course, do you see a role for economics in the environmental policy debate?