Esp 212B: Environmental Policy Evaluation



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ESP 212B: Environmental Policy Evaluation

  • Mike Springborn
  • Department of
  • Environmental Science & Policy
  • [image: USGCRP, 2010]

Overview

  • Introductions
  • Syllabus/website
  • Today’s discussion:
    • What is this course? What is public policy analysis? What is economics? Environmental economics? The place of economics in policy?
    • The discipline of economics and subfields of environmental and resource economics
    • Focal economic ideas relevant for policy

Conceptual overview map on the website

I recommend subscribing to the daily digest of environmental policy news via Greenwire: eenews.net/gw (use UC Davis email account)

We must take a messy world, select and analyze the essential components and provide policy guidance

  • select and formalize (model) the essential components; analyze
  • using methodological tools (jargon)
  • provide policy guidance and intuition for environmental management
  • simplifications,
  • assumptions
  • select findings and translate insights into plain language

Public policy judgements stem from particular value systems with views on ethics and morality with consequences for efficiency and fairness

  • 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?
    • Economic efficiency?

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

Economics is 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 and Prescriptive
    • 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.

Major concerns:

  • 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)
  • Environmental economics is the application of economic principles to the study of how scarce environmental resources are (descriptive) and should be (prescriptive) managed

Study env/res econ to understand causes, consequences & solutions

  • 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

Public good provision game

Economic incentives:

  • 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.
  • www.danspiegel.net

Scarcity

  • marginal (incremental)
  • benefits
  • marginal (incremental)
  • costs
  • ESP 162
  • Scarcity
    • 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.
  • Key ideas in economic thinking: Cost/benefit and policy analysis
  • (quazoo.com)
  • (L.A. Times, 1998)

Rational choice:

  • Rational choice:
    • 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
  • marginal (incremental)
  • benefits
  • marginal (incremental)
  • costs
  • (quazoo.com)
  • ESP 162
  • 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.
  • Key ideas in economic thinking: Cost/benefit and policy analysis
  • "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?

Can we/should we put numbers on things?

  • Over the past several decades rigorous and reliable methods have been developed for estimating how individuals value 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.“
  • Source: “Health bill foes solicit funds for economic study” Michael D. Shear, Washington Post, Monday, November 16, 2009

We must take a messy world, select and analyze the essential components and provide policy guidance

  • messy social, political, economic, environmental system
  • select and formalize (model) the essential components; analyze
  • using methodological tools (jargon)
  • provide policy guidance and intuition for environmental management
  • simplifications,
  • assumptions
  • select findings and translate insights into plain language

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
    • Overview & dynamic issues
    • Measuring Benefits
    • Measuring Costs
    • Application: Climate Change
    • Application: Arsenic

Course Outline, Part II

  • Policy for Market Failure
    • 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
    • Climate change
    • Invasive species
    • Ecosystem service valuation
    • Arsenic in drinking water

Additional definitions to study on your own

Public Policy; Analysis

  • (Webster’s dictionary)
  • Policy:
  • 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.
  • A projected program consisting of desired objectives and the means to achieve them.
  • Analysis:
  • Separation or breaking up of a whole into its fundamental elements or components or component parts.
  • 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
  • Microeconomics (core-general theory): the behavior of consumers (individuals) & producers (firms) interacting in markets.
  • Public economics: how government policies (do and should) effect the economy and individuals (welfare economics, public goods, externalities, taxation).
  • Macroeconomics (core-general theory): the economy as a whole with an emphasis on understanding growth (expansion/depression), interest rates and employment
  • Industrial organization: the behavior of firms under imperfect competition
  • Political economy: behavior of actors in government
  • Agricultural economics: behavior of the agricultural sector
  • International trade: international exchange (patterns of imports and exports) and the movement of production between countries.
  • Development economics: issues of poverty and industrialization in developing countries.
  • Game theory: the behavior of individuals/firms in the economy who act strategically (make choices accounting for the expected actions of others).
  • Econometrics: statistical methods employed/developed to answer economic questions.
  • Environmental economics is a composite field that draws from several subfields in economics:

Resource economics: the study of how society allocates scarce natural resources, usually changes to a stock.

  • Resource economics: the study of how society allocates scarce natural resources, usually changes to a stock.


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