30 May 2008

What is Aguanomics?

MBJ sent me this question:
Could you propose a list (or a pointer to) of good economics textbooks dealing with "aguanomics" with some comments on their particular merits?
This question requires a multiple-step answer:
  1. I made up "aguanomics" as the combination of agua+economics (duh!). At first, I wanted aquanomics (from the Latin), but that URL was taken. OTOH, I kinda prefer "agua": More people speak Spanish than Latin :) and the developing world has many water issues.
  2. Aguanomics may seem a narrow focus, but water and economics themes can be found in many places. Sometimes this blog reflects this diversity by addressing seemingly distant topics.
  3. I choose to approach aguanomics from an institutional and social perspective. By this, I mean that I pay attention to the rules of the game, and how we (as humans in social constructs) make, alter, obey and ignore these rules. Many economists who work on natural resource (e.g., water supply and demand) and/or environmental (e.g., water quality, externalities) economics use mathematical models (dynamic optimization, game theory, etc.) or quantitative methods (econometrics, calibrated simulations, etc.) to work on these topics. I have (limited) respect for these methods and their utility. I prefer to look inside the black box -- to see how people act and react in the messy, real world.
Perhaps that's more than anyone wanted to know, but I want to clarify why I recommend some books and put those recommendations into context. So, here's a few:
  • Olson, M. The Logic of Collective Action Harvard University Press (1971): Every environmental or resource economist should read this. (Well, everyone interested in social sciences!) [Amazon]
  • Ostrom, E.; Gardner, R. & Walker, J. Rules, Games, and Common-Pool Resources Ann Arbor Books (1994): An excellent theoretical and experimental book written at the graduate student level. [Amazon]
  • Polanyi, K. The Great Transformation: The Political and Economic Origins of Our Time Beacon Press (2001/1944): I don't agree with many of Polanyi's conclusions, but his insights on the evolution of society are valuable and his passion (similar to Marx) helps you understand the "water is a right" crowd. [Amazon]
  • Reisner, M. Cadillac Desert Penguin Books (1993): A history of water policy in the western US written for a general audience that can be applied elsewhere. [Amazon]
  • Schelling, T. C. The Strategy of Conflict Harvard University Press (1960): Anyone interested in game theory should read this, not only because it will broaden your view of what GT is, but also because it will immunize you to a slavish devotion to closed form solutions. [Amazon]
  • Scott, J. C. Seeing like a State: How Certain Schemes to Improve the Human Condition Have Failed Yale University Press (1998): An powerful analysis of government that gives insights to the dark side of "public control". [Amazon]
  • Smith, A. The Theory of Moral Sentiments (1759) and An Inquiry into the Nature and Causes of the Wealth of Nations (1776): Anyone serious about economics should read the latter; anyone serious about society should read the former. Anyone serious should read both :), but they can be dense... [Amazon] [Amazon]
  • Wilson, J. Q. Bureaucracy: What Government Agencies Do and Why They Do It Basic Books (1989): An amazingly powerful analysis of incentives that should be read with Olson and Scott. [Amazon]
Note that I have not recommended "text" books. This is not intentional, but it is also not an accident. I have very little use for most textbooks -- the only ones I still have are Varian and Kennedy, because sometimes I want to know how someone is beating me up. I think that most mathematical economics is "mathturbation" leading to no insight on real humans. OTOH, I do use econometrics and lots of basic game theory, so I think everyone should have a good foundation in applied methods.

You asked for my opinion, right?

Bottom Line: Economics, as a social science, should be applicable here and now. Too much academic research cannot be applied, and the stuff that can be applied frequently is not. Choose sides and get to work.

ps/if you want to recommend a book or four, please comment!