Valuation

We're starting our study of valuation. Valuation means figuring out what something is worth, usually in dollars.
It is important to note that economic value involves much more than market transactions. People value things that are not traded in markets and people value things that they never use.  Another important point is that economists don't just go around trying to place a value on things for no reason. We engage in valuation when understanding what something is worth can help inform the policy process. Any time there is a tradeoff involving environmental quantity or quality, valuation can serve an important role in terms of helping us understand what is at stake.

One situation where valuation is useful is in determining the monetary value of a fine or fee to impose on a responsible party in the case of natural resource damages. For example, BP will pay about $4.5 billion in criminal and civil penalties for the Deep Water Horizon spill.  Transocean (the owner of the rig) will pay $1.4 billion.
 
What are some other scenarios where valuation might be useful for informing policy?

I sometimes encounter hostility when I first present the idea of valuation to people who have never been exposed to it.  One line of reasoning is that valuation somehow "cheapens" the environment by expressing its worth in dollars and cents. My response to this objection is that the default value is typically zero. That is, most people treat the environment as if it were free, and you can't get much cheaper than that.  Valuation often helps people realize that the environment is extremely valuable, despite it being available for "free".

Another thing to realize is that we are constantly engaging in valuation anyway, through our actions.  For example, when society chooses to spend a certain amount of money on highways, healthcare, and social security and NOT spend that money on environmental protection, are we not indirectly placing a value on the environment relative to those other things?  On a micro level, when you choose to drive your car instead of walking, are you not revealing that you value your own convenience more than you value the environmental damage from your emissions?


Here are some links to more reading about valuation:

The National Ocean Economics Program

NOAA's State of the Coast

Ecosystem Valuation

Economic Values without Prices (Loomis, Choices, 2005)
FAO Fisheries Valuation Summary
Here is a pdf version of a presentation that I put together for SocMon Caribbean

Fuel efficiency standards and holiday travel

Here is a link to an interesting article by the Union of Concerned Scientists. Note the highlighting of opportunity costs as well as the projected impact of new fuel efficiency standards.

These CAFE standards are a type of performance standard.

These standards set the minimum fuel efficiency for a fleet of vehicles. They are not without controversy. Improving fuel efficiency means a lower marginal cost per mile driven, which may induce people to drive more (at least partially offsetting the intended effect). Further, it can be argued that the same result can be achieved with a gasoline tax, but at lower total cost to society. A gas tax is of course the classic Pigouvian solution to negative externalities.

Here is more detail on the research noted above.

Here is more on the issue from Resources for the Future.

And even more RFF reading here.

If you have not yet been exposed to RFF, I highly recommend that you explore their website.

What do natural resource economists do?

This is an edited re-post from an earlier semester.

------

As students begin to study the discipline of natural resource economics, there is often 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.  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? What hunting 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 economic view of value).

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

Economic Values without Prices (Loomis, Choices, 2005)

Welcome summer school students

Hi everyone.

Welcome to the ECN/EVS 330 blog.

The purpose of this blog is to facilitate discussion of class issues. I will post topics and links to readings as often as I can. I hope that you will find the resources useful and that you will contribute to the discussion. Please note that I am not interested in personal opinions or political rants. I am looking for objective, research-based contributions. Cite your sources when possible or provide links to further reading.  Posting questions is good too.  If you find topics, articles in the news or have a suggestion for a blog post, please send it to me via email.

Pigouvian taxes

Here is a short and sweet article on the merits of Pigouvian taxes by Robert Frank at the NYT.

Final thoughts?

Last chance for some participation credit...

What were your most/least favorite parts of the class?

What were some central themes?

What can I do to improve blog participation?

What works in fisheries managment, and why.

Here is a great article by J. Sutinen illustrating the historical failure of command-and-control approaches to fisheries management. 

You don't have to take an economist's word for it.  Read more here and here and here and here.

Marine Spatial Planning as a means of curtailing overfishing

MSP is essentially zoning in the ocean.
Read about it here at the University of Hawaii (application to tuna).
More here at UNESCO and here at the Ocean Conservancy. 
Note the call for valuation in the first article.
How can economic valuation help in MSP?

Two additional solutions for slowing deforestation

The first is called "extractive reserves", which sounds a bit contradictory. The idea is to allow selective and sustainable extraction of certain resources while preserving the ecosystem as a whole.  Read more about extractive reserves here at World Watch Institute.

"Intercropping" is another idea that looks great. By planting certain species of trees alongside staple crops, nutrients are retained in the soil, significantly increasing yields. Read about tree intercropping here at SciDev.net.

Deforestation in Amazon slows down a bit

Here's the story from the BBC.