ESP 212B:
Environmental Policy
Evaluation
Mike
Springborn
Department of
Environmental
Science & Policy
[image: USGCRP, 2010]
Class Website
http://www.des.ucdavis.edu/faculty/Springborn/courses/esp212b/index.html
[Google: “esp 212B”]
Spring 2014
Conceptual overview
map on the website
Course readings
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K&O: Course textbook, Keohane and Olmstead
Additional articles are hyper-linked (you’ll need UC Davis network access to
to retrieve some articles.)
Spring 2014
Breakdown
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10% class participation
45% essay assignments
15% class presentation
15% midterm
15% final (essay)
Value systems:
efficiency, distribution, ethics and morality
• How do we decide what decision should be
preferred by society?
– Based on outcomes or intrinsic morality?
• If we’re concerned with outcomes, then
what outcomes?
– Equity?
– Efficiency?
• Make no one's slice of the pie smaller?
– Pareto efficiency
• Just make the pie as big as possible?
– "potential" Pareto efficiency/Kaldor-Hicks criteria
Public policy analysis:
reality Czech
Benefits and Costs
• Costs to the state budget: $403M/year (15.6B CZK)
– premature death (forgone income taxes and social security
contributions)
– sickness (medical costs and sick leave)
– lost property from fire
• Benefits to the state budget: $553M/year (20.3B CZK)
– cigarette taxes receipts
– savings on retirement pensions and other government provided services
for the elderly because smokers die prematurely
• Conclusion: smoking is beneficial for the Czech Republic because it
saves the state budget every year about $150M (5.8B CZK)
Ross (2003)
Philip Morris statement:
"All of us at Philip Morris are extremely sorry.
No one benefits from the very real, serious, and
significant diseases caused by smoking" (English, 7/27/01)
Philip Morris CEO:
the study showed “a complete and unacceptable disregard of
basic human values.” (Sandel, 2009, p. 42)
Public policy analysis
 the process of assessing, and deciding
among alternatives in public choices based
on their usefulness in satisfying one or more
social goals or values
Adapted from:
MUNGER, Analyzing Policy (New York, NY: WW Norton, 2000), p. 6
WEINER AND VINING, Policy Analysis (Upper Saddle River, NJ: Prentice Hall, 1998), p. 27
What is economics?
• “Allocation science”; the study of how society [allocates]
[should allocate] scarce resources
– Tools for solving problems (e.g. cost-benefit analysis to compare
alternatives)
– Insights for making broad philosophical arguments.
– "A refuge for scoundrels“?
• Descriptive/Positive and Prescriptive/Normative
– Descriptive /Positive [“what was, what is, what will be”]
• Concerned with causality: understanding how the world works
• Prediction: forecasts about what will happen under different conditions
– Prescriptive /Normative [“what should be”]
• Concerned with optimal outcomes (efficiency) and sometimes equity.
What is economics?
• “Economists …like to provide formal, algebraic
accounts of the behaviour they explain.
• [specialists in] teasing confessions out of data
• Economics is what economists do…”
The Economist, 1/3/09.
Environmental economics
• The application of economic principles to the
study of how scarce environmental resources are
(descriptive) and should be (prescriptive)
managed.
• Major concerns:
• (1) failures of the market system associated with
environmental (public) goods, and
• (2) evaluate alternative policies designed to correct such
failures
– Failures typically occur when human activity leads to costs
and/or benefits to others which are not included in prices paid,
i.e. when there exist “externalities”
(demo: public good provision)
Why study environmental/resource
economics?
• Many causes and consequences of environmental degradation and
poor natural resource management are economic.
• "Market-based" approaches to resource management and
environmental regulation are increasingly common at all levels of
government.
• Economics plays a central role in environmental policy debates.
– Concerns about the cost burden of environmental policy
 a central hurdle to more stringent policy
– Knowing the basic principles enables you to formulate or refute
economic arguments.
Keohane & Olmstead, 2007
Key ideas in economic thinking
• Rational choice:
– behavior that is optimal (consistent with values
and objectives of the decision maker given
available information). Economic agents
(people, firms, etc) are optimizers who make
choices to maximize their own payoffs.
(Hackett, 2006, pg. 8)
– Behavioral economics acknowledges
important departures from rational choice.
Key ideas in economic thinking
• Economic incentives:
– forces in the economic world that attract or repel people, causing
them to change their behavior (e.g. in production or consumption)
in some way.
– Without incentives that cause decision makers to “feel” the true costs of
their actions, few will voluntarily account for all the effects of their
choices.
“Earthquake
survivors play
dominoes at the Cite
Soleil slum in Portau-Prince March 18,
2010.
...clothespins [are] a
penalty for losing
multiple hands of the
game.”
(REUTERS/Eduardo Munoz)
• Scarcity
Key ideas in economic thinking:
Cost/benefit and policy analysis
– Something is said to be scarce if the following is true: If it were
offered to people at no cost, more would be wanted than is
available.
• Trade-off
– The situation when something must be given up to
obtain something valued. (“No free lunch.”)
• E.g. More goods  more pollution.
• Devoting resources (money, labor, time, etc) to issue A means
we can’t focus those resources on issues B, C, D, etc.
Delhi Sands Flower-Loving
Fly, San Bernadino County
* $6M to move hospital 250 ft
schwadroncartoons.com
Key ideas in economic thinking:
Cost/benefit and policy analysis
• Valuation for public policy
–Values and tradeoffs used in public policy
should be informed by observations of the
same in society.
– Willingness to pay (e.g. for environmental quality), willingness
to accept (e.g. for environmental degradation), discount rate.
Can we/should we put numbers
on things?
"In this approach [of assigning dollar values to
human life, human health, and nature itself] formal
cost-benefit analysis often hurts more than it helps:
it muddies rather than clarifies fundamental clashes
about values. … [E]conomic theory gives us
opaque and technical reasons to do the obviously
wrong thing.“
-Ackerman and Heinzerling (2004)
Can we/should we put numbers
on things?
• Over the past several decades rigorous and reliable
methods have been developed for estimating WTP and
WTA for a broad range of environmental threats and
damages.
• These methods have been validated and even required
by government (Stavins, 2011):
– Executive Orders (Reagan, Bush, Clinton, Bush, and Obama)
– Federal statutes (Clean Air Act, Clean Water Act, CERCLA)
– Best practices (Guidelines of U.S. Office of Management and
Budget, U.S. Environmental Protection Agency, and others)
Only as objective as the practitioner….
• A 2009 e-mail, written by the U.S. Chamber of Commerce’s senior
health policy manager proposes:
– spending $50,000 to hire a "respected economist" to study the
impact of health-care legislation
• "The economist will then circulate a sign-on letter to hundreds
of other economists saying that the bill will kill jobs and hurt
the economy. …
• We will then be able to use this open letter to produce
advertisements, and as a powerful lobbying and grass-roots
document.“
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Source: “Health bill foes solicit funds for economic study” Michael D. Shear, Washington Post,
Monday, November 16, 2009
Doctrine or Toolkit?
• Philip J. Reny (chairman of the economics department at
the University of Chicago — the “temple of free-market
economics”)
– theory and methods are “taught to avoid personal biases and
conclusions that aren’t found in the data”
– (Like any science) the field changes course slowly: “It requires
evidence, and if evidence is there, it will accumulate and
positions will move.”
• Dani Rodrik (economist, Kennedy School of
Government, Harvard)
– “I fall into the methods of the mainstream, but not the faith.”
• Faith~ the belief that more markets and free trade are always good
and government regulation is always bad.
Material and quotes from: “In Economics Departments, a Growing Will to Debate Fundamental Assumptions”, Patricia Cohen, New York
Times, 7/11/07.
Course Outline, Part I
• Analytical Tools: What is a market and how does it
function? What economic and environmental outcomes
are desired? When is there a role for policy (government
intervention), i.e. when does an unregulated market fail
to generate the desired outcome?
– Benefits and Costs, Demand and Supply
– Market Equilibrium and Economic Efficiency.
– Introduction to market failure: externalities, public goods and the
“tragedy of the commons”.
• Benefit Cost Analysis
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Overview & dynamic issues
Measuring Benefits
Measuring Costs
Application: Climate Change
Application: Arsenic
Course Outline, Part II
• Policy for Market Failure
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Introduction and criteria for evaluation
Decentralized Policies
Command and Control Strategies
Market Based Strategies
• Price instruments (e.g. taxes)
• Quantity instruments (e.g. cap and trade)
• Applications
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Climate change
Invasive species
Ecosystem service valuation
Arsenic in drinking water
Additional reference slides
(required reading)
Public Policy; Analysis
(Webster’s dictionary)
Policy:
1. A definite course or method of action selected from among
alternatives and in the light of given conditions to guide and
usually determine present and future decisions.
2. A projected program consisting of desired objectives and the
means to achieve them.
Analysis:
1. Separation or breaking up of a whole into its fundamental elements
or components or component parts.
2. A detailed examination of anything complex made in order to
understand its nature or to determine its nature or to determine its
essential features, through a study.
Public policy analysis
MUNGER, Analyzing Policy (New York, NY: WW Norton, 2000), p. 6
• Policy Analysis is the process of assessing, and deciding among
alternatives based on their usefulness in satisfying one or more
goals or values.
WEINER AND VINING, Policy Analysis (Upper Saddle River, NJ: Prentice Hall, 1998), p. 27
• Policy Analysis is client-oriented advice relevant to public
decisions and informed by social values.
MAJONE, Evidence, Argument, & Persuasion in the Policy Process, (New Haven CT: Yale University Press, 1989) p. 7
• The job of analysts consists in large part of producing evidence
and arguments to be used in the course of public debate.
Source: Perreira (2009) http://www.unc.edu/~perreira/guide1.html
Environmental Economics, a composite field
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Microeconomics (core-general theory): the behavior of consumers (individuals) & producers (firms)
interacting in markets.
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Public economics: how government policies (do and should) effect the economy and individuals
(welfare economics, public goods, externalities, taxation).
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Macroeconomics (core-general theory): the economy as a whole with an emphasis on understanding
growth (expansion/depression), interest rates and employment
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Industrial organization: the behavior of firms under imperfect competition
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Political economy: behavior of actors in government
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Agricultural economics: behavior of the agricultural sector
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International trade: international exchange (patterns of imports and exports) and the movement of
production between countries.
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Development economics: issues of poverty and industrialization in developing countries.
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Game theory: the behavior of individuals/firms in the economy who act strategically (make choices
accounting for the expected actions of others).
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Econometrics: statistical methods employed/developed to answer economic questions.
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Resource economics: the study of how
society allocates scarce natural
resources, usually changes to a stock.
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either harvest/extraction or emission of
resource stock or stock pollutant.
Major concern: problems following from
open access