FNR 4660 Exam 2
Specific Recommendations
1. Biophysical realism of ecosystem service models 2. Assess trade-offs of ecosystem services under competing policies 3. Consider off-site effects (of political decisions) 4. Include comprehensive stakeholder involvement to ensure feasibility of management options
Framework for analysis
1. Groups converge around knowledge claims (biophysical processes; who controls nature) 2. Coalitions emerge between groups with divergent views through discursive compromise 3. Some coalitions fail to form despite similar views on nature and policy
Evidence on BCA
1. No substantial evidence that regulatory costs are excessive enough to require BCA on all regulations 2. BCA could identify preferred alternatives 3. Matters who conducts the BCA, and they should be open to review 4. Guidance is needed from Congress on how to weight economic criteria 5. Incentives more effective than BCA at lowering costs?
Basic steps of BCA
1. Specify alternatives • Resource constraints • Political realities • Cognitive constraints (4-7 alternatives at most) • Counter-factual (usually status quo) • Limitations - not a deus ex machina ranking of all policy alternatives 2. Determine standing (whose benefits/costs 'count'?) • Local, state, regional, national, global? • Transboundary environmental issues 3. Catalogue impacts and choose measurement indicators • Broadly defined • Secondary and tertiary impacts • Stated goal of the project • Anthropocentric values only • Countervailing benefits/costs by group • Data availability 4. Predict impacts quantitatively for the life of project • Predicting behavior changes • E.g., lives saved • Compensating/offsetting behavior • Substitution/spillover effects • Uncertainty (Ballad of ecological awareness (K. Boulding; p.13)) 5. Value (monetize) relevant impacts • E.g., statistical value of a life • Willingness to pay, etc. 6. Discount benefits/costs present value • Present Value of a one-time net benefit (Bn) received n years from now, where r is the discount rate, is: 7. Calculate net present value (NPV) of alternatives • Support only alternatives with NPV > 0 • Select the alternative with largest NPV • Effectiveness vs. effieiency 8. Sensitivity analysis (key assumptions) • Uncertainty • Effectiveness of the project, discount rate, standing, etc. 9. Make recommendation (if normative) • Highest NPV (economic criterion) • Risk (e.g., most stable NPV based on sensitivity analysis) • Political feasibility and administrative practicability • Analysts (standard BCA) • Guardians (fixated on revenue in- and outflows)
Property Rights
A bundle of entitlements defining the owner's rights, privileges, and limitations for use of the resource. ♦ What kinds of ownership rights can you think of? (bundle of sticks)
Other methods: Contingent ranking and choice experimentsOther methods: Contingent ranking and choice experiments
Contingent ranking and choice experiments are useful when project options have multiple levels of different attributes. Travel Cost Models infer values of recreational resources by determining how much visitors spent getting to a site and then using this information to estimate a demand curve for that site. • Hedonic pricing uses regression analysis to infer environmental values from spending on goods which include those values.
Discourse Coalitions - from Knowledge to Policy
Discursive compromise: proceeding by reasoning/argument rather than intuition • Policy choices as cluster of concepts and priorities around how to govern nature
Externalities as a Source of Market Failure
Externalities exist whenever the welfare of some agent depends not only on his or her activities, but also on activities under the control of some other agent
• Incorporate Systems Thinking
Feedback loops, dynamic complexity • Organizations for ecosystem-level decisions • Focus on larger scales • Collaborative learning environment
What causes the increased use of these kinds of new environmental policy in the West?
Grazing rights retirements, conservation easements, reserve programs, and game farm regulations Emerging management policies developed from discursive alliance of landowners, outfitters, and environmentalists
• Develop a Sense of Place
Meanings, beliefs, and feelings • Emotional attachment sense of purpose for stakeholders • Human values policy choice
Need for Holistic Approach
Most effort on valuing recreation benefits (35%) or preferences for water quality change (18%); very little emphasis on most supporting and regulating services (Liu et al. 2010) • "...fundamental challenge... providing an explicit description and adequate assessment of the links between the structure and functions of natural systems, the benefits (i.e., goods and services) derived by humanity, and their subsequent values" (US NRC 2005: 2) • Valuation research needs to be more problemthan tool-driven (Hahn 2000)
Risk Assessment - phthalates example
Scientific enigma • No standard procedure to determine child exposure • Varying levels in toy components • Animal tests unreliable • Delayed symptoms • Studies and action • Link to breast cancer and child development problems • San Fran and EU bans in 2006 • National Academy of Sciences report (2008) • Consumer Product Safety Reform Act (2008) • Strict limits on lead and phthalates, and mandatory/certified testing • Precautionary Principle as risk assessment standard (wow!)
Externalities as a Source of Market Failure
The output of the commodity is too large. • Too much pollution is produced. • The prices of products responsible for pollution are too low. • As long as the costs are external, no incentives to search for ways to yield less pollution per unit of output are introduced by the market. • Recycling and reuse of the polluting substances are discouraged due to the cheap external cost.
• What values do we consider? (Letson reading)
economic values
Current BCA use
• 1000s of regulatory economic analyses (1,200 by EPA alone) • Different BCA for different laws • Clean Air Act prohibits decisions based on cost • Safe Drinking Water Act requires "consideration" of benefits and costs (typical approach) • Occupational Safety and Health Act... shall only consider "economically feasible" regulation • Presidential RIA only when not required by particular law • No law compels decision on the basis of a BCA
Dioxin Example
• 2,3,7,8-tetrachlorodibenzodioxin (TCCD) • Limit exposure to grain of sand sliced 1 billion times • Times Beach, Missouri - removal and mistake • Ecological havoc • EPA restudy, and restudy, and restudy • Significant health risk from normal diet • 100 of 1400 cancer deaths each year • Problems with studies - limits to testing, relative toxicity different for certain species, lack of scientific controls for epidemiological studies
Markets (Jordan)
• Adam Smith's Wealth of Nations (1776) "invisible hand" • Alfred Marshall's Principles of Economics (1890) "equilibrium" and consumer surplus • Neoclassical economics
• Practice Adaptive Management
• Adapt to constantly changing conditions • Flexible management tools • Policies as hypotheses and management as experiments • Continuously monitor, assess, revise
Role of Marketplace
• Allocates resources, declares price • Auction between buyers and sellers • Price accurately reflects how society values and item, and distributes to those most willing to contribute • Market as information-processing system (scarcity, desire, etc) • Assumptions for efficiency: • Perfect knowledge by all parties • Perfect competition among producers • Utility maximization by all parties • Nonsatiation
Impact Analysis
• An impact analysis attempts to quantify the consequences of various actions. • Impact analysis places a large amount of relatively undigested information at the disposal of the policymaker.
Complicating Issues
• Benefits or costs in the distance • Apply a discount rate • Which is appropriate? Low or high? • Nordhaus (1999) FL resources example • Moral obligations/ethics - future generations • Uncertainty and irreversibility
Emergent Policies
• Block management and access to hunters • Habitat easements • Grazing retirements • Wildlife partnerships • Elk farm deregulation
• Share Power and Information
• Build ownership over a process and problem definition • Avoid top-down directives • Demonstrate value in collaboration • Share information widely
• Build Informal Relationships
• Catalysts for coordination, collaboration • Trust, social capital • Information channels
Valuing Benefits: Valuation Methods (for monitizing assessment)
• Classifying Valuation Methods • Revealed preference methods • Methods which are based on actual observable choices and from which actual resource values can be directly inferred • Stated preference methods • Methods to elicit respondents' TWP when the value is not directly observable • E.g., Kenyan elephants contingent valuation and travel cost estimates (p.46)
Valuing Benefits: Valuation Methods, cont'd
• Classifying Valuation Techniques • Contingent valuation, choice experiments, and contingent ranking (stated preference) • Travel cost models (revealed preference) • Hedonic property value and hedonic wage approaches (revealed preference)
The Environment as an Asset
• Closed system vs. Open system • Closed system: A system where there are no inputs and no outputs of energy and matter from outside the system • Open system: A system which imports or exports energy or matter from outside • The first law of thermodynamics • Energy and matter can neither be created nor destroyed. • The second law of thermodynamics • The amount of energy not available for work increases. • It is also called as entropy law.
Regulation Strategies: Command-and-Control
• Command-and-Control regulatory process: • Goals (ultimate objectives) identified by Congress • Identify criteria (the technical data) for setting pollution standards • Reliable data? • Controversial (preferential data sets) • Use whatever data are available • Set quality standards (max levels allowed; what is considered to be pollution; defining acceptable risk) for each regulated pollutant • Create emissions standards (Permissible emissions levels? Available technology?), which must be created or revised periodically • Enforce the quality and emissions standards • Good enforcement: Act w/ reasonable speed, carry sufficient penalties to encourage compliance, and do not enable officials to evade a responsibility to act • Voluntary compliance often used (limited resources) • Negotiate and avoid litigation whenever possible • Fundamentally political • Administrative discretion = conflict • Words, phrases or policy objectives unclear • Compliance deadlines are flexible
Markets?
• Common pool ("free", open access) resources • Rivalry in consumption • Non-excludable in provision • Pure public goods • Non-rivalry in consumption • Non-excludable in provision • Pure private goods • Rivalry in consumption • Excludable in provision • Toll goods • Non-rivalry in consumption • Excludable in provision
Ecological considerations in valuation
• Complexity • Non-linearities of natural systems • Critical threshold (e.g, fish population collapses) • Resilience (description and measurement) • Ecological redundancy • Critical species - drivers vs. passengers • Response depends on small (unknown?) fraction of species pool • Irreversibility • Technical - technology which can mitigate impacts of development does not exist (e.g., nuclear waste cleanup) • Economic - costs of remediation are prohibitive even if right tech exists • Precautionary principle • Whole vs. part worth • System worth more than the sum of parts
Precautionary Principle
• Consumer Product Safety Reform Act (2008) • "When an activity raises threats of harm to human health or the environment, precautionary measures should be taken even if some cause and effect relationships are not fully established scientifically." • Advantages: • Preventative action when uncertain • Shifts burden of proof • Promotes exploration of alternatives, including not creating the hazard • Encourages public participation, requires transparency • Disadvantage: "stop innovation before it starts"
• Consumer surplus
• Consumer surplus is the value that consumers receive from an allocation minus what it costs them to obtain it. Consumer surplus is measured as the area under the demand curve minus the consumer's cost.
Neoclassical economics, cont'd
• Critique: • Preferences are mutable (education, advertising, abundance/scarcity, culture, social/environmental contexts) • Plural identities (consumer, citizen) and sustainability (fairness, etc.) • Poor subjective perceptions (e.g., risk) • Multiple objectives, imperfect knowledge, uncertainty, limited cognitive resources habits, rules, social comparison, satisficing, regret minimization, strategic interactions
Normative Ideas on Management of Nature
• Dysfunctional ethology and access • Privatized habitat and exclusion • Anthropogenic Ecology and Intervention • Regulated Wilderness and Non-Intervention
Risk Assessment: Limits to Science
• EPA ~7500 risk assessments per year • Clinton Executive Order 12866: All regulatory agencies to consider risk by various substances, explain how proposed regulation will reduce risks, and how risk levels relate to others within the agency's jurisdiction • Blend of politics and science • Episodic, heavily contested • Policy makers want accurate, credible information • Scientists want quick, forceful action on critical ecological issues
Major Challenges of Ecosystem Service Valuation
• Ecology: quantities/qualities of ecosystem services • Ecological production function (quantity/quality of services) How are services produced, changed? Economics: values of ecosystem services • Appropriate and reliable methods • Total or marginal values • Apply value (as WTA or WTP) to the change using a suitable method • Example: Coastal wetlands as breeding and nursery grounds for fish • Production function approach: estimate increased fishery productivity due to wetlands • Value of fishery productivity: for commercial fishery it is the change in profit plus consumer surplus with increased productivity Question: If the prices of fish or associated profits are low, does that mean that wetlands aren't valuable?
• Proactive Approach
• Ecosystem goals and early protection • Precautionary principle
Public Goods
• Efficient level of diversity • The efficient allocation maximizes economic surplus, which is represented geometrically by the portion of the area under the market demand curve that lies above the constant marginal cost curve. • The allocation that maximizes economic surplus is Q*, the allocation where the demand curve meets the marginal cost curve.
Contingent Valuation Method (CVM)
• Elicit people's willingness-to-pay (WTP) in a hypothetical market • A NOAA panel (1993) legitimized the use of contingent valuation. • Use and nonuse values • Major concerns: hypothetical bias, strategic bias (and protest bids), information bias, starting-point bias, discrepancy between WTP and willingness-to-accept (WTA), scope/scale problem
Uncertainties and Unknowns: • What's causing changes in elk demographics?
• Environmental changes • Land management • Disease
Environmental Justice
• Environmental justice, Env. equity, or Env. racism • "the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation, or enforcement of environmental laws, regulations, and policies." • The ethical question of whether risks, benefits and costs are distributed equitably • Environmental legislation and the likelihood of passage given its distributional burden.
Demand for BCA
• Ex ante • BCA required by some laws usually ex ante • Sometimes specific form • RIAs when not required • Cost ~$1mn each • Ex post • Rarely mandates for ex post • 1990 CAA Amendments a notable exception • Used to inform resource allocation (e.g., Head Start; deregulation)
Externalities as a Source of Market Failure
• External diseconomy or negative externality • It imposes costs on a third party. • External economy or positive externality • It occurs whenever an activity imposes benefits on a third party.
Benefit-cost analysis (Boardman)
• Franklin's moral or prudential algebra • Systematic cataloguing of impacts (pro/con) • Assignment weights (valuation) • Determining net benefits vs. status quo • BCA and social benefits/costs • 'Aggregate value of a policy is determined by its net social benefits' or net benefits • Two fundamental disagreements: • (1) social critics - aggregate individual utilities can be maximized and tradeoff utility gains/losses between citizens; • (2) public policy participants - practical concerns (e.g., what impacts will actually occur; how to monetize; intergenerational tradeoffs)
Stages of environmenteconomy nexus
• Frontier economics (laissez-faire stage) • Vision of infinite economic growth and human progress • Any environmental problems can be mitigated through technology • Environmental protection (regulatory stage) • Controlling damage, setting limits to harmful activities • Common property set aside
Environmental Accounting
• GDP as national income, measure of economic performance • Consumption, Investment, Governmental Spending, & Net Exports (C + I + G + X = GDP) • Condition or amount of natural capital not considered • False signal of economic wellbeing • Accounting for natural goods and services • Shadow pricing (opportunity cost) • Benefit-Cost Analysis (e.g., building a hydroelectric dam [p.110]) • Environmental Impact Analysis • Weakness of policy mechanisms • Tyranny of small decisions
• Producer surplus
• Given price P*, the seller maximizes his or her own producer surplus by choosing to sell Qs units. • The producer surplus is designated by area B, the area under the price line that lies over the marginal cost curve, bounded from the left by the vertical axis and the right by the quantity of the good.
Risk Assessment - phthalates example
• Greenpeace International reports (1998) • Chlorine-based vinyls used in toys; also found in cosmetics, detergents • Liver damage in rats • Plasticizers a global commodity • Highly technical dispute • Organized groups weigh in - environmentalists, consumers, public health interests, industry, agencies, parents, political think tanks, etc • 12 consumer, environmental, and religious groups push CPSC • Toy manufacturers push back
• Protecting Regionally Significant Habitats
• High value resources • Overall levels of ecological services, high function, system integrity
Environmentalists and hunters share discourse, and Very similar view of nature, but don't form coalition. Why?
• Hunting • Class • Local versus outsider • Subsistence meat • Environmentalists' anti-access coalitions • Environmentalists not appreciating local knowledge (hunters as "barstool biologists") Environmentalist respect for landowner knowledge • Private wildness
The Case for Benefit-Cost Analysis
• Identify undesirable/desirable regulations • Promote search for least-cost methods • Leads to accountability of public decisions • Identify data deficiencies (ignorance revelation) • Common metric for comparing policies • Make regulators more sensitive to costs • Brings rational calculation to emotional subjects
Importance
• Identify/approximate optimal economic choices • Reveal the economic importance of past choices
Neoclassical economics
• Ideological perspective, cont'd: • Consumer choice theory, and rational actor • Self-interest and purposeful behavior • Values expressed by preferences • Preferences are stable, invariant, well-ordered, internally consistent • Strength of preferences as WTP or WTA • Complete information and perfect knowledge about choices • Reliable subjective probabilities about outcomes • Rational behavior and utility maximization
Neoclassical economics (Chee)
• Ideological perspective: • Market essentialism • Market as ideal institution for efficient allocation of scarce resources • Ecosystem services problem = pricing problem • Role for incentives, markets for ES, property rights • Substitution, resource fungibility, and technological optimism • Few things are unique; resources are interchangeable; environmental concerns are alarmist • Utilitarian, anthropocentric, and instrumentalist ethical framework • No value without WTP • Compare to rights-based views • Responsibility to community as a whole
Valuation Problem
• If we must choose a common metric... • Environmental accounting (what inputs are needed? Money, energy?). Difficult to do. • Contingent valuation • E.g., Exxon Valdez oil spill in Prince William Sound (1989); $30 per person... $2.8 bn to avoid a similar disaster • Enormous variability (e.g., value of old- growth forest in PNW ($119bn - $359bn); whooping crane extinction ($51bn - $715bn)) • CAA and Superfund must include indirect impacts on people • Not required otherwise; would likely be challenged in court • Environmental risk (Compare risk- dollars tradeoff)
The Policy Response
• In 1992, the Office of Environmental Equity was established to deal with the environmental impacts or people of color and low-income communities. • Executive Order 12898 was issued by President Clinton in 1994. The goal was to make sure minority groups and low-income populations were not subjected to unequal levels of environmental risk. • A 2004 evaluation of this report did not give it a good grade. • Lack of scientific data to evaluate environmental justice claims • Lack of agency resources and resolve
Case Against, cont'd
• In practice, don't actually lead to consideration of alternatives • Data deficiencies (inherent bias) • Inability to evaluate efficiency (only effectiveness)
Regulation Strategies: Market-based Incentives
• Incentives more easier to administer (spend regulatory energy to design) and relies on private sector energies to reduce pollution • Easier for the public to understand and support • Bubbles, nets, and offsets • Allows firms to decide how to meet ambient standards • Banking let firms keep credits below req'd level, save for future • Very cost-effective • Cap and Trade SO2 ("Acid Rain Program") • Impressive environmental and economic results • Reduce US emissions by 2010 to 8.5 mn tons below 1980s level • Significantly lower costs than cap-and-trade • Fewer lawsuits
Economic Development
• Inception growth maturity • Ecological succession • No pollution in a mature system? • Can and should we continue to expand?
• Why value the environment?
• Inform policy choices • Assess existing policy • Many federal agencies require benefit/cost analysis for decision-making
Activities and arguments
• Intellectual activities: • Moral justification • Give good reasons for the moral claim • Description • Science - correct description • Explanation • Relationships; Events and processes • Prediction • Future tense descriptions • Assessing arguments: • Plausibility of their premises (true premises) • Validity (must be true if premises hold)
Environmental Knowledge and Policy
• Knowledge: reflects the specific forms of practice undertaken in daily life; embedded in daily political and environmental activity • Newcomers versus long timers • Rural vs. urban • Production vs. environmental "consumption" - tourism, recreation, etc. • Wise use (property rights) vs. conservation
• Focused Education and Training
• Learning change behavior, create policy • Interdisciplinary learning communicate better • Human-ecological linkage • Outreach new behaviors and tools
Major Challenges of Ecosystem Service Valuation, cont'd
• Linking ecology and economics • Analytically difficult to link economic and ecological processes • Ecologists focus on changes to structure, processes • Complexity - limits of science • Need accurate estimates of ecological responses of ecosystem services to anthropogenic changes • Economic studies typically use highly simplified ecological models • Ecosystems produce multiple ecosystem services • Services are closely interconnected • Interconnections make it difficult to analyze one service in isolation • Policy choices may involve tradeoff among services • Limits application of single-service study • Danger of mistaking single service value for the value of the entire ecosystem • A complete accounting would be "correct" but virtually impossible with current (or near-term) methods
• Inter-Organizational Collaboration
• Management across multiple boundaries • Greater coordination • Conflict management
• "Value" means willingness to pay
• Market • Non-market
• What methods do we use? (Hanley et al. reading)
• Match methods with values • WTP versus WTA
Willingness to pay
• Maximum WTP (change in income) • WTP depends on preferences and income • Biased in favor of wealthy? • Efficiency vs. equity concerns • WTP vs. WTA • Existence of substitutes • Loss aversion • Correct stance?
Alternatives to BCA
• Methods: • Discource-based methods (e.g., citizens juries) • Simulation modeling • Probabilistic risk assessment (e.g., dose-response); distributions • Multi-criteria decision analysis (i.e., weight criteria, rank options) • Scenario planning (i.e., compare 3- 4 stories about possible outcomes; include uncertainty)
Risk Assessment: Limits to Science
• Missing data • Problems too recent • Insufficient resources (data on exposure for only 7% of 1400 chemicals that pose a threat) • Late and latent effects • E.g., asbestos takes up to 50 years to show symptoms • Decisions to regulate must be made now, but impacts happen much later • Limited neutrality and bias (e.g., weakening disciplinary perspectives after engaging in political process)
Valuation Approaches
• Monitizing assessment • Revealed-preference (e.g., market, travel cost, production, hedonic) • Stated-preference (e.g., contingent valuation, conjoint choice) • Production function (e.g., replacement, avoidance) strong role of ecologists • (Benefit transfer) • Non-monetizing assessment • Civic valuation (e.g., citizen juries; discourse- based; deliberative democracy • Biophysical ranking methods (e.g., emergy) • Ecosystem benefit indicators • Measures of attitudes and preferences • Decision science (e.g., multiple criteria analysis) • Subjective happiness metrics
Market Distortions
• Monopolies (and other noncompetitive structures) • Externalities • Ignoring the value of natural capital • Problem of 'the commons'
Moral arguments
• Moral agent: capable of choice, reflection, reasoning • Cannot infer normative claim from purely empirical premises (Hume) • Enthymematic arguments (premises not explicitly stated) • The is-ought gap (Gulf between facts and values) • Science-ethics linkage • Which moral assumptions are "belief- worthy"? • E.g., Should US consumers pay the 'true cost' of oil? Reject normative conclusion b/c reject empirical assumption about the true cost • Social scientist must understand natural world (e.g., economist BCA on Maldives sinking; climatology, geology, etc.)
Ethical theory (VanDeVeer and Pierce)
• Moral and empirical claims • Moral/ethical/normative (e.g., human life is valuable) • What we ought or ought not do • Factual/empirical/positive (e.g., There are over 6 bn people on earth) • Falsification • Role for scientific enquiry • Policy issues as moral issues • Should we have a national biodiversity policy? What should we do about climate change? Should we eliminate old-growth forests to provide jobs? • Logical positivist movement: Only empirical and falsifiable claims were "cognitively meaningful"
Environmental Accounting: New Directions
• NDP (Net domestic product) = GDP - DNC (depreciation of natural capital) • SSNNP (Sustainable social net national product) = NDP - DE • Defensive expenditures (DE) included to preserve quality of life, protect resources, etc • Index of Sustainable Economic Welfare (Daly and Cobb 1989) • 'True' economic welfare when factoring in los of wetlands, mitigating acid rain effects, health costs, etc. • US economy has not improved since about 1970
Recent Advances - Holistic Studies
• Need holistic studies (ecological functions, ecosystem services, social/human welfare, landuse decisions, dynamic feedback) (Turner et al. 2003) • Valuing the Arc (http://valuingthearc.org/) - 5-yr study (2007-2011) to assess ecosystem services from Eastern Arc Mountains, Tanzania • Natural Capital Project (http://www.naturalcapitalproject.org/) and InVEST • MIMES (multiscale intergrated models of ecosystem services) (http://www.uvm.edu/giee/mimes/) • Spatially-explicit dynamic modeling, open source • E.g., NJ's natural capital worth up to $19.6bn/yr (Liu et al. 2010)
Acceptable Risks
• No clear and consistent definition • Standards differ by substance and laws • Criteria • Health-based (cost oblivious; e.g., Clean Air Act [1970]) • Technology-based (e.g., Safe Drinking Water Act [1974]) • Balancing (e.g., CBA) • Excessive control by Congress - complicated regulations • Interest groups active in regulatory process; Litigation! • Defining acceptable risk is a political matter
Case Against
• Often incompetent analysis • Vulnerable to partisan manipulation; deliberately distorted (e.g., Corps and water projects) • Overstates regulatory costs (easier to quantify) • Ignores learning curve by regulated interests • All RIAs estimated costs, but < half estimated benefits • Overstates benefits of allowing environmental harm (e.g., dam the Grand Canyon?) • Lacks social conscience • Ignores equity and environmental justice • Dollars or lives? (SVL?) • Environment as commodity
Improperly Designed Property Rights Systems
• Other Property Rights regimes • Private property regimes • Individuals hold entitlements. • State-property regimes • Governments own and control property. • Common-property regimes • Property is jointly owned and managed by a specific group. • Res nullius or open access regimes • No one owns or exercises control over the resources. • Common pool resources— characterized by nonexclusivity and divisibility.
Recent Advances -Holistic Studies
• PINEMAP (Martin, Peter, Monroe, Adams, et al.; 2011-2016; http://pinemap.org/) • Water (WaSSI-C hydrologic process model) • Carbon (e.g., FIA data) • Timber production (3PG at stand level, SRTS at regional level) • Climate (downscaled CC predictions) • Life cycle analysis (CORRIM) • Bioeconomic model w/ benefit transfer • WTA land management
Alternatives to BCA, cont'd
• Participatory approaches • Citizen science, comprehensive social debates, social learning, value formation, deliberation, risk assessment, negotiation, and reconciliation of interests • Embrace uncertainty • Mechanisms for: 1. Articulating visions about social goals 2. Learning about the decision problem 3. Exploring system dynamics and potential outcomes 4. Risk assessment and analysis of uncertainty 5. Facilitating discussion, deliberation, and negotiation about trade-offs 6. Evaluating options in search of compromise solutions
Application of ecosystem valuation
• Policy appraisal (benefit-cost analysis) • Project appraisal • Environmental management • Setting environmental (pigouvian) taxes • Damage claims (e.g., BP oil spill) • 'Green' national accounting
The Economic Approach
• Positive Economics • Describing what is, what was and what will be • Normative Economics • Attempting to answer what ought to be
The Pursuit of Efficiency
• Private Resolution Through Negotiation • The simplest means of restoring efficiency • The Courts: Property Rules and Liability Rules • Not well-defined property rights corrected by courts • The Coase theorem • Negotiation costs are negligible and affected parties can freely negotiate, the entitlement can be allocated by the courts to either party and an efficient allocation will result. Only the distribution of costs and benefits among the effective parties is changed. • Legislative and Executive Regulation • Several forms taken including taxes and regulatory laws • An Efficient Role for Government • Considering the role of the government in restoring efficiency
Role of Economic Analysis
• Private cost of environmental regulation • 0.06% of GDP in environmental protection • 2.5% of federal budgets (compare to 20% and 22% for medicare and social security) • Annual benefits far exceed costs (Fig. 5-1, p.166)
Nature of the Good
• Private goods - exclusive and exhaustible (rival in consumption) • For non-private goods, value must be imputed (e.g., willingness to pay) • 'Renewable' resources? (p.93)
Market Distortions, cont'd
• Problem of scale (size of human presence in the ecosystem), carrying capacity • Discount rate (obligations to future generations) • Nonsubstitutability (e.g., pollinators) • Nonmarket values; attributable vs. intangible values • Tropical forests and pharmaceuticals • Marshlands and the Mississippi River
Regulation Strategies: Command-andControl
• Problems with command-andcontrol: • Offers little economic incentive for rapid compliance or reducing emissions below requirements (too costly) • Federal government must (continuously?) specify standards (science amateurs?)
Types of Inequity
• Procedural inequity • Rules, regulation, and evaluation criteria not applied uniformly • Geographic inequity • Benefits and costs of environmental decisions accrue to different regions • Social inequity • How environmental decisions mirror power distributions
Property Rights
• Producer Surplus, Scarcity Rent, and Long-Run Competitive Equilibrium • In the short run, producer surplus = profits + fixed cost. • In the long run, producer surplus = profits + rent. • Under perfect competition, long-run profits equal zero and producer surplus equals rent. • Scarcity Rent • Scarcity rent is the producer surplus persists in the long-run competitive equilibrium.
Property Rights
• Property Rights and Efficient Market Allocations • Efficient Property Right Structures • Exclusivity—All the benefits and costs should only accrue to the owner. • Transferability—Property rights should be transferred to others. • Enforceability—Property rights should be secure from seizure or encroachment.
Public Goods
• Public goods • They are both indivisible and nonexcludable • Free-rider problem • Biodiversity • It includes the amount of genetic variation among individuals within in a single species and the number of species in a community
Purpose, types, and uses
• Purpose: • Inform social decisions • Facilitate efficient resource allocation • Rationale for governmental interference (market failure as prima facie rationale) • Demonstrate superiority of a policy choice • Types (and uses): • Ex ante BCA - before implementation; informs specific decisions • Ex post BCA - after implementation (costs are "sunk"); informs decisions about a class of interventions; "learning" if similar enough • In medias res - during the project; informs continuation and trajectory of the project • Compare ex ante with ex post (or in medias res) - for the same project; decision-making and evaluative tool; rarely seen published
Benefit-Cost Analysis
• Quantitative assessment of the net costs and benefits of a proposed action (usually a regulation) • Forbidden for some laws ("cost-oblivious") • Clean Air Act • Occupational Safety and Health Act • Resource Conservation and Recovery Act • Even when mandated, agencies treat BCA as formality?
History of BCA
• Reagan and Regulatory Impact Analysis (RIA) • Any new regulatory proposal • Demonstrate that benefits > costs • Relaxed under Clinton (and reduced OMB's role), but BCA still required • GW Bush revived RIAs (2nd generation of BCA) • Identify in writing the specific market failure • Designate a political appointee as "regulatory police officer" to control upcoming rulemaking • Provide "best estimates" of cumulative regulatory costs and benefits • OMB authority to issue "guidance documents", other instructions to regulatory agencies • Obama reset to Clinton status, but added... • Expanded analysis to include benefits difficult to quantify (equity, human dignity, fairness, and distributive impacts) and emphasize public participation. • Requires, where possible, consideration of environmental justice
Government Failure
• Rent seeking • Use of resources in lobbying and other activities directed at securing protective legislation. • Examples include agricultural producers seeking price supports and consumer groups seeking subsidies.
Stages of environmenteconomy nexus
• Resource management (incentive stage) • Anthropocentric • Take greater account for natural capital • Concern for life-supporting services • Ecodevelopment (cooperation stage) • Synergistic relationship with nature • Economizing ecology Ecologizing the economy • Adaptability, resilience, uncertainty, system complexity
Disappearing Threshold
• Risk reduction, not risk tolerance (risk averse Congress) • Assumption of threshold exposures • Discouraged CBA • Technological progress on detection nullifies threshold
Ethical theory
• Set of claims • Belief-worthy • One or more normative claims • Presuppose empirical claims (e.g., human nature is...) • Ideally, should: • State whose life, well-being, etc. counts and why • Provide determinate applications for solving conflicts (e.g., life vs. life) • Criteria for assessing theory: • Empirical assumptions are plausible ('ought implies can') • Claims are logically consistent (can all be true) • Relatively precise judgments about what action is allowed or required • Comprehensiveness of scope (broad array of decisions) • 'Suitable' empirical assumptions (compatible with our morals)
Market and Value
• Smith's distinction between value and price • Value in use (utility) versus value in exchange (purchasing power) • Water versus diamonds • Market price value in exchange • Price measures marginal utility; Welfare measures total utility
Case for Economic Valuation
• Starting point for policy decisions • Helpful to identify tradeoffs • Highlights uncertainty • Can identify and characterize non-monetary values • Some value is better than none
Example of Policy Problem: Elk population in N. Yellowstone
• Statewide expansion • Migratory • Elk machine • Oversized herd• Value to users • Highly political • Shift in land ownership • Public/private boundaries • Multiple state agencies • Human and environmental drivers?
Environmental Problems and Economic Efficiency
• Static Efficiency • Economic surplus is the sum of consumer's surplus plus producer's surplus. • Economic surplus derived from those resources is maximized by the static efficient allocation.
Ethical Theories
• The Egoisms • Psychological and ethical egoism • Supports markets; conflicts with altruism? • Divine command theory • Deity commands/forbids behavior act is right or wrong • Cultural norms interpretation? • Rights theories • Active vs. passive; negative vs. positive; Moral vs. legal
• Why do we need to know economic values?
• Tradeoffs • Finite resources • Externalities • Opportunity cost
Valuing Benefits: Types of Values
• Types of Values : Use Value • the willingness to pay for direct or indirect use of the environmental resource Option Value • the willingness to pay for the future ability to use the environment Nonuse/Passive use Value • individuals' willingness to pay to preserve a resource that he or she will never use Total willingness to pay (TWP) • TWP = Use Value + Option Value + Nonuse Value
Ethical Theories
• Utilitarianism • Greatest net utility (ignores justice, equity?) • Consequentialism • Anthropocentric • Natural/divine law • Natural order • 'the way things are' • Ignores large consequences? • Golden rule • Universal rules • Rawlsian criterion
Production function
• Value as input of production • Dose-response models (e.g., pollution) • Ecosystem function valuation models (e.g., wetlands and crab output)
Harm and benefit
• Who has moral standing? • Anthropocentrism (only humans do) • Intrinsic value (non-humans, and even biotic systems do) • Harm: • Premature death • Pain • Nonfulfillment of wants and desires • Environmental justice (consent to pollution by living in certain area; being paid for high-risk work) • Complex environmental disputes: • Those affected are 'nonstandard' (e.g., pandas, krill) • Focus may be on ecosystems, not individuals • Those affected may not yet exist (e.g., future generations) • Harm is cumulative of many individual choices • Uncertainty/probability of harm