Environmental Economics Working Paper Series
Does Cleanup of Hazardous Waste Sites Raise Housing Values? Evidence of Spatially Localized Benefits
February 2012 - by Shanti Gamper-Rabindran and Christopher Timmins
Economists often rely on publicly available data provided at coarse geographical resolution to value spatially localized amenities. We propose a simple refinement to the hedonic method that accommodates this reality: specifically, we measure localized benefits from the cleanup of hazardous waste sites at the sub-census tract level by examining the entire within-tract housing value distribution, rather than simply focusing on the tract median. Doing so, we find significantly larger benefits from being listed on the Superfund’s National Priorities List (NPL) at lower percentiles. We find that the NPL’s “construction complete” and “deletion” designations have large effects across the housing value distribution, although these effects are also larger at lower percentiles. We confirm these results with restricted access census block data, and use proprietary housing transactions data to show that cheaper houses within a census tract are indeed more likely to be closer to a hazardous waste site, explaining the greater impacts they receive from the cleanup process.
Facing the Climate Change Challenge in a Global Economy
January 2012 - by Lee Branstetter and William A. Pizer
Over the past two decades, the international community has struggled to deal constructively with the problem of mitigating climate change. This is considered by many to be the preeminent public policy challenge of our time, but real progress has been disappointingly slow. This essay provides an abbreviated narrative history of international policy in this domain, with a special emphasis on aspects of the problem, proposed solutions, and unresolved issues that are of interest to international economists and informed observers of the global economic system. It discusses the potential conflict that could emerge between free trade principles and environmental policy imperatives.
The Competitiveness Impacts of Climate Change Mitigation Policies
January 2012 - by Joseph E. Aldy and William A. Pizer
The pollution haven hypothesis suggests that unilateral domestic emission mitigation policies could cause adverse “competitiveness” impacts on domestic manufacturers as they lose market share to foreign competitors and relocate production activity--and emissions--to unregulated economies. We construct a precise definition of competitiveness impacts appropriate for climate change regulation that can be estimated exclusively with domestic production and net import data. We use this definition and a 20-plus-year panel of more than 400 U.S. manufacturing industries to estimate the effects of energy prices, which is in turn used to simulate the impacts of carbon pricing policy. We find that a U.S.-only $15-per-ton CO2 price will cause competitiveness effects on the order of a 1.0 to 1.3 percent decline in production among the most energy-intensive manufacturing industries. This amounts to roughly one-third of the total impact of a carbon pricing policy on these firms’ economic output.
Getting REDDy: Understanding and Improving Domestic Policy Impacts on Forest Loss
December 2011 - by Alexander Pfaff, Gregory S. Amacher, and Erin O. Sills
Many constraints upon REDD+ policies’ ability to reduce forest loss are common across settings, inherent in the fact that agents making key choices respond also to other factors that influence the overall incentive to clear or to degrade a forest instead of conserving it. The record is mixed, at best, with regard to past public interventions to reduce forest loss, signaling the need to disseminate and to improve conceptual models of policy responses. We summarize three distinct models employed by economists to assess policy effectiveness: (1) producer profit maximization in choosing spatial extent and distribution of land uses, given complete markets; (2) rural household optimization given both incomplete markets and varied household assets and tastes; and (3) public optimization within interconnected choices about concessions, corruption, and decentralization, all important for degradation (‘D+’ in REDD+). Each model’s perspective on impact leads to a review of the evidence. We consider the impacts of forest-conservation and forest-relevant development policies for the settings, decisions, and scales for which each of the models best applies. Theory and evidence suggest options to increase the impacts of domestic REDD policies.
Beyond Belts and Suspenders: Promoting Private Risk Management in Offshore Drilling
December 2011 - by Lori S. Bennear
This paper critically examines existing policies for regulating offshore drilling. It argues that historical regulations based on requiring significant redundancy in safety systems—“belts and suspenders”—is ineffective because the risks of safety system failures are not independent. New regulations require detailed safety and environmental planning and can be broadly classified as management-based regulations (MBR). The paper evaluates the theory of management-based regulations as it applies to offshore drilling and presents the existing evidence on MBR effectiveness. The results indicate that MBR is theoretically well suited to regulate offshore drilling, but there is limited empirical evidence of the effectiveness of MBR in regulating low-probability, high-consequence events. The paper ends with a proposal for an alternative regulation called a deposit-discount-refund system that is designed to better promote private risk management by creating incentives for both the creation and implementation of risk management plans.
Participation Incentives, Rebound Effects and the Cost-Effectiveness of Rebates for Water-Efficient Appliances
December 2011 - by Lori S. Bennear, Jonathan M. Lee, and Laura O. Taylor
Rebate programs for retrofitting residential properties with water-efficient appliances have become a common conservation policy tool for local municipalities. Engineering estimates of water savings from rebate programs can be systematically biased because they assume all subsidized appliance replacements would not have occurred in the absence of the subsidy and because they fail to account for potential rebound effects. Using a unique database that combines water use data over a three-year period for all households that participated in the utility’s high efficiency toilet (HET) rebate program, water use data for a matched sample of neighbors, and a survey of rebate participants, this paper evaluates whether rebates are a cost-effective means for water utilities to promote water conservation, accounting for both selection and rebound effects.
U.S. Shrimp Market Integration
October 2011 - by Frank Asche, Lori S. Bennear, Atle Oglend, and Martin D. Smith
Recent supply shocks in the Gulf of Mexico—including hurricanes, the Deepwater Horizon oil spill, and the seasonal appearance of a large dead zone of low-oxygen water (hypoxia)—have raised concerns about the economic viability of the U.S. shrimp fishery. The ability for U.S. shrimpers to mediate supply shocks through increased prices hinges on the degree of market integration, both among shrimp of different sizes classes and between U.S. wild caught shrimp and imported farmed shrimp. We use detailed data on shrimp prices by size class and import prices to conduct a co-integration analysis of market integration in the shrimp industry. We find significant evidence of market integration, suggesting that the law of one price holds for this industry. Hence, in the face of a supply shocks, prices do not rise and instead imports of foreign farmed fish increase.
Measuring Welfare Losses from Hypoxia: The Case of North Carolina Brown Shrimp
October 2011 - by Ling Huang, Lauren A.B. Nichols, J. Kevin Craig, and Martin D. Smith
While environmental stressors such as hypoxia (low dissolved oxygen) are perceived as a threat to the productivity of coastal ecosystems, policy makers have little information about the economic consequences for fisheries. Recent work on hypoxia develops a bioeconomic model to harness microdata and quantify the effects of hypoxia on North Carolina’s brown shrimp fishery. This work finds that hypoxia is responsible for a 12.9 percent decrease in North Carolina brown shrimp catches from 1999 to 2005 in the Neuse River Estuary and Pamlico Sound, assuming that vessels do not react to changes in abundance. The current paper extends this work to explore the full economic consequences of hypoxia on the supply and demand for brown shrimp. Demand analysis reveals that the NC shrimp industry is too small to influence prices, which are driven entirely by imports and other domestic U.S. harvest. Thus, demand is flat and there are no measurable benefits to shrimp consumers from reduced hypoxia. On the supply side, we find that the shrimp fleet responds to variation in price, abundance, and weather. Hence, the supply curve has some elasticity. Producer benefits of reduced hypoxia are less than a quarter of the computed gains from assuming no behavioral adjustment.
Prices and Quantities to Control Overfishing
July 2011 - by Martin D. Smith and Sathya Gopalakrishnan
Economists have long promoted fishery rationalization programs, but individual transferable quotas (ITQs) may fail to address the ecological consequences of fishing. Of particular concern is that economic incentives to harvest larger fish (due to size-dependent pricing or quota-induced discarding) can destabilize fish populations or lead to evolutionary changes. A substantial theoretical literature in economics has explored incentive problems in ITQ fisheries but has treated highgrading as part of the stock externality. We provide an alternative viewpoint in that the stock externality and the size-based incentives are two distinct externalities and thus require two distinct policy instruments. In this paper, we show that if managers know the price-by-size distribution and the size distribution of the population, total revenues and total catch (in weight) by vessel are sufficient statistics to design a schedule of revenue-neutral individualized landings taxes that eliminate the incentive to highgrade in an ITQ fishery. Landings taxes can be used to address the ecological consequences of fishing while using ITQs to address the open access stock externality.
Incorporating Evaluation into the Regulatory Process
July 2011 - by Lori S. Bennear and Katherine Dickinson
For the last two decades substantial attention and resources have been devoted to increasing evaluation of government programs in an effort to promote evidenced-based and performance-based policies. However, federal efforts to promote evaluation through the Government Performance and Results Act and the Performance Assessment Rating Tool have had limited success. This paper seeks to evaluate the recent efforts at evaluation and provide guidance for how future efforts can be shaped. It provides a stylized model for evaluation in the regulatory process that is consistent with prior federal initiatives. It then examines four categories of barriers to implementation of this stylized model—cognitive, social/cultural, organizational, and incentive—and presents suggestions for how future evaluation efforts can be formulated to better overcome these barriers.
Measuring Improvement in the Energy Performance of the U.S. Cement Industry
May 2011 - by Gale Boyd and Gang Zhang
Recognizing the potential of energy efficiency to reduce CO2 emissions, the U.S. Environmental Protection Agency launched ENERGY STAR for Industry to educate manufacturers on steps to improve their energy efficiency. Energy management strategy is a key component of the ENERGY STAR approach. This paper focuses primarily on development of an updated ENERGY STAR industrial Energy Performance Indicator (EPI) for the Cement industry and the change in the energy performance of the industry observed when the benchmarking system was updated from the original benchmark year of 1997 to the new benchmark of 2008.
Success or Selection? An Economic Perspective on Fisheries Co-Management
April 2011 - by Lori S. Bennear and Martin D. Smith
This paper comments on a recent paper published in the journal Nature that claims that fisheries co-management causes successful outcomes in fisheries. We outline theoretical arguments in favor of and against co-management as an approach to solving fisheries-commons problems. We argue that the principal claims of the authors are not supported by their data and analysis. Spurious inference about effectiveness of co-management runs the risk of undermining rather than advancing the policy process.
Preliminary Analysis of the Distributions of Carbon and Energy Intensity for 27 Energy Intensive Trade Exposed Industrial Sectors
April 2011 - by Gale Boyd, Tatyana Kuzmenko, Béla Személy, and Gang Zhang
It is well documented that different manufacturing sectors require different amounts of energy. Primary materials conversion, e.g., iron ore and scrap into steel, limestone and sand into cement and glass, or wood and other fibers into paper, tend to be the most energy-intensive in the production process, while final consumer products like electronics and clothing require the least energy. This leads to something like the 80-20 rule, where a large portion of energy use is in a small number of industries. For example, the 2006 Manufacturing Energy Consumption Survey (MECS) reported that 75 percent of fuel use arises from only five of the 21 three-digit industries, using the North American Industry Classification System (NAICS). These five sectors are a small share of the total U.S. economy. The energy intensity for different industrial sectors is easily measured using published government statistics, but the plants within these industries are not homogeneous entities. This report measures the differences in energy use and associated CO2 emissions as a first step to understanding the within-sector heterogeneity of energy use.
Efficiency Gains from Pre-Investment Resource Queues: Coordinating Investment under Resource Uncertainty
April 2011 - by Miguel A. Fonseca, Alexander Pfaff, and Daniel Osgood
Farmers make investments before knowing how much water they will receive later in the season. The costs of the inefficiently high or low investment that may result can be significant. A spot market that efficiently allocates water once quantity is realized is unlikely to coordinate simultaneous efficient investments earlier in the season. This paper compares pre-established queues to a post-investment-and-resource-realization market in coordinating investment whose productivity depends on having the uncertain resource.
Hazardous Waste Hits Hollywood: Superfund and Housing Prices in Los Angeles
January 2011 - by Ralph Mastromonaco
This paper contributes to the ongoing debate concerning the effect of various actions taken by the U.S. Environmental Protection Agency (EPA) under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), commonly known as the Superfund Program, on housing prices. This study uses a housing transaction panel dataset encompassing the five major counties of the Los Angeles Combined Statistical Area to estimate the program's influence on the local housing market.
Bright Lines, Risk Beliefs, and Risk Avoidance: Evidence from a Randomized Intervention in Bangladesh
October 2010 - by Lori Bennear, Alessandro Tarozzi, Alexander Pfaff, H.B. Soumya, Kazi Matin Ahmed, and Alexander van Geen
This paper provides evidence on the effects of risk presentation on health behaviors using data from a cluster randomized controlled trial in risk presentation regarding arsenic in drinking water in Araihazar district of Bangladesh. The intervention was designed to test whether highlighting the existence of a gradient in arsenic risk—exposure risk increases with the level of arsenic and lower arsenic exposure is always better—led to better choices relative to “bright line” information provision that focuses on whether the arsenic level is above or below the country standard of 50 parts per billion (ppb).
Management of an Annual Fishery in the Presence of Ecological Stress: The Case of Shrimp and Hypoxia
September 2010 - by Ling Huang and Martin D. Smith
The emergence of ecosystem-based management suggests that traditional fisheries management and protection of environmental quality are increasingly interrelated. But fishery managers have limited control over most sources of marine and estuarine pollution and at best can only adapt to environmental conditions. This paper presents a bioeconomic model of optimal harvest of an annual species that is subject to an environmental disturbance, and parameterizes the model to analyze the effect of hypoxia (low dissolved oxygen) on the optimal harvest path of brown shrimp, a commercially important species that is fished in hypoxic waters in the Gulf of Mexico and in estuaries in the southeastern United States.
The Value of Disappearing Beaches: A Hedonic Pricing Model with Endogenous Beach Width
September 2010 - by Sathya Gopalakrishnan, Martin D. Smith, Jordan M. Slott, and A. Brad Murray
Beach nourishment is used to rebuild eroding beaches with sand dredged from other locations. Previous studies indicate that beach width positively affects coastal property values, but studies ignore the dynamic features of beaches and the feedback that nourishment has on shoreline retreat. This paper corrects for the resulting attenuation and endogeneity bias in a hedonic property value model by instrumenting for beach width using spatially varying coastal geological features.
Designing Cap and Trade to Account for "Imperfect" Offsets
September 2010 - by Brian C. Murray and W. Aaron Jenkins
The use of offsets can potentially improve a cap-and-trade system by lowering the overall cost of compliance, encourage mitigation from outside of the cap, and function as a bridge strategy, giving the regulated sectors time to innovate new low-carbon technologies and business plans. But offset provisions can be imperfect, and decision makers must appreciate the implications of these flaws and design the national offset program accordingly. This paper discusses three policy options for addressing offset integrity issues that can cause effective aggregate abatement to fall below the optimum level set by a compliance cap, and assesses the efficiency and welfare implications—for offset buyers and suppliers—of these policy options.
Participatory Protection in Theory and Application: Paper Tigers, Fences & Fines, or Negotiated Co-Management?
August 2010 - by Stefanie Engel, Charles Palmer, and Alexander Pfaff
Forest protection can involve limits on local communities (“fences and fines”), yet some attempts to form protected areas that block local land use are fruitless (“paper tigers”). Participation, i.e., involving communities in forest management (or “co-management”), is a relatively recent innovation in protection which falls between these two endpoints. This working paper models the emergence of negotiated agreements that can share management of and benefits from forest between actors with different objectives, i.e., state and forest user. This paper has been updated on September 7, 2010.
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