26 Nov 2013

Why bother with environmental economists?

I got this email:
As a student studying environmental engineering, I'm curious to know what exactly is the role of an environmental economist? Does he add any value to onfield projects and what are the research opportunities available?
Let me answer with a few points:
  1. An economist is good at weighing costs and benefits.
  2. A good economist can also consider who gets the costs and who gets the benefits.
  3. The environment creates benefits that are hard to quantify; economic activities can have environmental costs that are significant. An environmental economist can help you understand these BEFORE you even begin field work, as well as integrate them into choices made in the field ("gee, maybe you shouldn't release that tailwater into the river; people downstream don't like to drink pollution.")
  4. There are many research opportunities, since engineers are not trained in talking to people about preferences, choices, tradeoffs and willingness to pay.
Can you add more?


Dominic Moran said...

Good theme, I'd add:

engineers tend to build stuff and economists tend to have to work out (ex post) that there wasn't any demand for what they supplied....

Jonathan Eyer said...

I like your point in 3 but the important corollary (and one that isn't always intuitive to the lay community) is the idea that all pollution isn't made equal. It's less bad to release tailwater into the river when there is no one downstream to suffer negative health consequences.

Anonymous said...

Good points, but a good economist should be more than a cost/benefit accountant. Economists think about incentives and behavior, and should provide insight into unintended behavioral effects as a result of a project or policy.

VM said...

I took a Cost Benefit Analysis Course as part of my undergrad ~3 years ago and I'll always remember what my professor had to say about environmental engineers and their cost benefit analyses. Essentially, his point was that they do great work insofar as the direct costs and benefits. Their financials are usually completely correct too. What they miss that economists take into account are social effects. opportunity costs, and indirect values (passive or nonuse values, etc.). This isn't a rule, but engineers don't spend as much time with these issues and sometimes don't include them in their analyses.

Honestly, from what I've seen of Cost-Benefit analyses written by engineers, I think that your first and third point are taken into account by Environmental Engineers, but it was been a couple of years since I've read those studies.

W.E. Heasley said...

Why bother with environmental economists?

IF you can find an environmental economist without massive confirmation bias. IF you can find an environmental economist who is not a talking piece for an environmental special interest. IF you can find environmental economist who can explain Pigou -and- Coase. IF you can find an environmental economist who read the complete works of Pigou and realizes Pigou stated his tax would never work as politicos would use the tax for political constituency building purposes and fuel rent seeking of special interests…..then maybe you can use that environmental economist.

Good luck!

nemi said...

As anonymous touch upon above, I think identifying costs and benefits also is a big part of it. In fact, this is where economists (in general - i.e. not environ. econ. in particular) are supposed to have the real comparative advantage - at least w.r.t. cases where the effect is big enough to change peoples behavior.

CJW said...

Dearest Mr. (Ms.?) Heasley,

Environmental economist here who has read Pigou and Coase, bear with me while I confirm a few of my strongly held beliefs...

I am appalled (shocked!) by the idea that an economic concept would be used for political purposes. This just can't be right. How could society permit such a thing?

But, um, taxing bad things for society (i.e., pollution) rather than productive things (i.e., labor) seems like a pretty intuitive concept regardless of political rhetoric. And, okay, Coaseian bargaining is a great concept that solves a lot of external problems of economic activity in a vacuum. But, the "as if" concept behind these ideas is fundamental to all economic theory, not just those folks working on environmental problems.

I hazard to guess that you might be confusing environmental advocates with economists who study environment.

John Whitehead said...

Because economists are (slightly) less arrogant than engineers?

Ironman said...

John -- That's only because economics is just a subset of engineering, where it's called "optimization". And the answer to Zetland's question is "so you know who's going to be providing some of your design constraints."

J. David Foster said...

Going back to Zetland's 4th point, I would agree that few engineers are skilled in those areas but, sadly, most economists aren't either. This is particularly true when it comes to Opportunity Costs for consumers in developing countries. In the 20 years I worked in Asia and Africa I rarely met anyone who would even consider the cost of the young girl's time who would invariably be the designated water carrier.


Environmental Economists cad describe the need for the study of env economics as under:
The environmental resources are
1. Unique - hence there are no substitutes for Env resources or that the elasticity of substitution is zero
2. Indispensable - for flora and fauna and for entire humanity. Therefore there are equity implications over space and time
3. Irreversible - once we destroy or degenerate our natural forests or ecosystems, it is impossible to recreate or return to original position
4. Uncertain - the way env resources behave has great uncertainty eg. Tsunami, Natural disasters which even if we are able to predict with some reasonable time frame, is difficult to evacuate persons due to tremendous social costs
5. Intricate: complex interrelationships in nature and environment which are difficult to be captured or understood in reasonable time frame due to synergies (eg. Global warming, Green house effect, carbon sequestration, rainforests, hydrological cycle, ecological foot print, climate change...)
7. Externalities: environmental resources unlike private goods or services display external effects in the process of extraction and use, resulting in either under production resulting in inefficiency and welfare loss (due to negative externalities) or over production resulting in inefficiency and welfare loss.
These seven unique properties render us difficulty in assigning property rights on environmental resources thereby influencing efficiency, equity and sustainability in their use. In fact assigning private property rights is virtually impossible as the costs of exclusion are colossal in environmental resources.
Lastly my Professor Deshpande (former Director of ISEC USED TO Explain as to why engineers will only be able to predict and propose how nuts and bolts and their efficient combinations can and will work, but not the society. For example, on the field, the way Chandrakanth + Stephen + Ibrahim + Ms Carla + elderly Doddaiah + middleaged unemployed work, cannot be predicted by engineers, as effectively as environmental economists or sociologists can. Thus there can be biological clones but no social clones since social cloning only has worked in specific cases but not biological cloning.
These factors certainly make us to think that efficiency (myself + today) is relatively unimportant compared with equity (myself + yourself, today) and sustainability (myself + yourself, today and tomorrow). Thus in order to understand and bring the concept of sustainability, the above complexities need to be appreciated and understood which is relatively possible by env economists rather than engineers.

This is my first class in Env Economics in the University of Agricultural Sciences, GKVK, Bangalore, India. Thanks for this opportunity.
MG Chandrakanth, Professor and University head of Agricultural Economics, UAS Bangalore, India

Post a Comment

Note: only a member of this blog may post a comment.