31 May 2016

People vote as teams not individuals

Economists love to talk about voting as a collective action problem, i.e., where the gain of an individual vote in terms of impact is far lower than the time and effort cost of the vote. They thus call voting paradoxical -- a characteristic that many pundits repeat.

But people vote, so there must be a reason.

I was chatting with a girl from Poland the other day about her country's current, semi fascistic but democratically elected government. She said "yeah, all the young people stayed home to protest the bad choices so that party won. Big mistake."

It occurs to me that parties exist to create an ingroup vs out group dynamic that will bind individuals together into teams. Thus voting becomes not an individual choice but group bonding exercise. I'm pretty sure that sociologists and political scientists get this but economists could do better.

Bottom line: Vote for your team, especially if it is gracious in victory.

27 May 2016

26 May 2016

Planning and implementing new water policies

I wrote this in a now-discarded draft report, but I think it is worth sharing for its outline of the steps necessary for implementing a (water) policy.

Necessary -- but not sufficient -- conditions for success
The implementation of a new regulatory and economic instrument (REI) requires a plan (or road map), which will suggest necessary preconditions. These preconditions do not guarantee success, so it is useful to test REIs via pilot projects, to see if they are compatible with local conditions.

  • Inputs: Natural resources, labor, etc. that are combined to produce outputs.
  • Outputs: These include market and non-market goods, e.g., everything from food to industrial outputs to water flows of targeted quality, quantity and location.
  • Outcomes: The value of outputs to citizens in terms of their quality of life.
  • Road Map: A plan to move from current to targeted conditions.
This stage focusses on translating inputs into targets (outputs and outcomes), which can be reached by following a road map. The actual transformation of inputs to outputs (and thus outcomes) will depend on local conditions as well as resolving potential conflicts among goals.

The lack of one or more necessary preconditions will impede progress, thereby wasting effort, resources and support for the REI. The expression "pushing on a string'" captures this sense of useless action. All of the following preconditions are necessary for adequate operation of REIs affecting irrigation, drinking water, hydropower, etc. These preconditions are present in countries with functioning, reliable water systems (examples: DE, NL, SG, UK). They are weak or missing in countries with failing water systems.
  • Laws must enable typical utility operations (e.g., allowing service disconnection for non-payment) as well as protect water quality (regulations against pollution, laws against pollution, etc.)
  • Water associations need personnel who are qualified for the work, paid normal salaries (to resist bribery), and rewarded/punished for success/failure. Government needs similarly qualified personnel to write and enforce laws and regulations.
  • Data on water supplies, transport, withdrawals and return flows will make it easier to understand water quantities. Water quality data are required to enforce regulations on pollution (waste water) and treatment (drinking water).
  • Different technologies can be used for legacy systems, large scale infrastructure, smaller/community scale infrastructure and even "green" infrastructure. All options should be considered for each situation, depending on funding levels, personnel, desired outcomes, etc.
  • The OECD suggest that water services can be funded via tariffs, taxes (local or national), and/or transfers (from international sources). Tariffs help water providers provide better service, but customers in poor countries may need income support. Taxes and transfers tend to distract water managers from serving customers, but they can fill funding gaps.
  • Customers and citizens need to understand new REIs before they will support implementation. Outreach always improves efficiency, but its importance rises when money is tight, as (a) there is less room for mistakes or extra projects and (b) support makes it easier to get "more bang for the buck."
Bottom Line: Every journey needs a destination, but successful journeys need adequate planning, personnel and institutions.

24 May 2016

Water can flow... or break you

People are accustomed to a bit of give and take as they talk or walk or work things out amongst each other. There may be confusion, but there's usually time to figure out what's going wrong and how to fix it.

Water is similarly flexible, flowing around obstacles, down hills or up (as vapor) over landscapes as various forces push and pull on its molecules.

Adaptation and flexibility does, however, fail when there is too little time for people to understand each other or too little time for water to flow out of the way (or to its desired destination).

It's in those moments that people argue and fight. It's in those moments that water floods you or shortages result from demand exceeding local supplies.

Bottom Line Water and people both need time to be managed correctly.

19 May 2016

The future of superstorms and 2m of sea level rise

If you haven't read the paper, then you should definitely watch this video summarizing the research that IPCC has not included in its reports. Thus, you will learn about the extra 2-7m of sea level rise by 2100 that's not included in IPCC's 1m estimation. Oh, and you'll also learn about how the N Atlantic is set to see "superstorms" far more often in the next decades.

17 May 2016

Use of Economic Instruments in Water Policy -- the review

I worked on the Economic Policy Instrument-Water project from 2011 to mid 2013. This book represents one of the final outputs of the project. I was sent the copy I am reviewing here -- as both an insider (I worked with all these authors) and outsider (I published my work elsewhere).

My review will be brief, as I am discussing more the book and its use than the merits of the particular case studies.

The book aims to explain how economic instruments affect water use (and abuse) with the examples from about 25 case studies from the EU and another 5-6 countries. These case studies are arranged in a "fixed" format such that each case study presents information in the same order for the same topics. This format makes it easier to campare cases side-by-side but it makes it harder to present the individual character of each case.*

The book has introductory and concluding chapters, as well as section defining chapters for the different types of EPIs. It's at this point that readers can read 5-8 cases on the various types of EPIs: Pricing, market trading, and "other types of incentives." Those first two categories obviously fall into the economic arena, but the "other incentives" concern cases where voluntary cooperation and other forms of communal negotiation mattered. Although you might call that last group "economic" in terms of creating value, I tend to separate them into the "political" bucket occupied by non-excludable public and common pool goods. (Economic incentives make more sense with excludable, private or club goods.) It's thus that this book's definitions may be confusing to some readers. One thing that I think you should see (it's drawn from my 2011 paper with them [pdf]) is the figure at left (click to enlarge), which shows how to evaluate instruments for performance and what factors affect instrument implementation. Those categories are worth thinking about.

Turning to the content of the chapters and book (draft versions appear here), I was slightly surprised to see some glaring typos and signs of potential copy/paste errors. As to the cases themselves, I have to say that some are stronger than others. The sad thing was that we did not all have time to read and comment on each others' chapters during the project. Thus, I think that some of the chapters didn't get the peer review they deserved (although I am sure they are better here than in draft form). I know that my papers went through 2-3 rigorous (painful) revisions before they were published.

I see from the book's website that it has over 2,000 downloads. That sounds huge to me, for a €100 book (or €30 chapter!), but it may reflect Springer's "bundling" of the book with other subscriptions. My advice to curious readers is to look at a few drafts before spending on the book. If you've got an academic subscription, then definitely download it -- make sure you read chapter 28 first, to get a feel for how the book's ideas are supposed to be organized.

Bottom Line: I give this book FOUR STARS for making it easier for academic and professional readers to get a feel for how EPI begin, evolve, succeed and fail.

* I preferred to revise the papers around their core topics rather than use the EPI-Water format. Thus, I could not also publish in this book. These papers are:

16 May 2016

12 May 2016

The worst type of predatory publisher?

When I finished writing my PhD Dissertation in 2008, I was given three options for its mandatory publication into a public record by ProQuest, the monopolist holder of those publishing obligations rights. I could give them a digital version that they would sell for $38/copy to anyone who wanted to read it, could pay them $95 to make my dissertation open access,1 or submit merely an abstract, which would "reduce the reach" of my work.

I took the third choice, gave them an abstract, and posted my dissertation on SSRN.2 This move was a triple win, as it gave readers access for free, allowed me to format it (two colums, double sided) as I wanted, and gave me many more readers (1,600+ downloads so far!)

A few months later, I got a letter from VDM Verlag (now Akademiker Verlag3), a German firm that offered to publish my dissertation at no cost to me (they even sent me two copies). What's to lose, I wondered? Maybe I could even make some of that phat royalty money off their €63 price? I sent them the PDF, got two (print on demand) copies of my "book," and forgot about it.

Yesterday, I got an annual royalty statement, which revealed an even funnier pattern of rip offs.

If my book sells, I get €3.81 (6%) of the cover price, but that's not how it works.
  • In 2009, one copy sold. The royalty was lower than the monthly minimum of €10, so no payment.
  • In 2010, no copies sold, but my 2009 royalty disappeared... "as described in the publishing agreement."
  • In 2011, one copy sold, but the royalty was kept as before.
  • In 2012, the monthly minimum was reduced to €0.01 but no sales.
  • In 2013, one copy sold! But my royalty came as a voucher for VDM books. Great.
I've sold no copies since then, and you can see why I don't care. I'm sad that three people have wasted €63 on my dissertation when 1,600+ people got it for free on SSRN, but I'm glad to have a priceless lesson in how publishers screw authors as they make money off garbage content (sorry, but they didn't even care about what my PDF contained).

Bottom Line: The academic world has scams just like everywhere else.

  1. Those are current prices. I think they were higher back in 2008.
  2. Conflict and Cooperation within an Organization: A Case Study of the Metropolitan Water District of Southern California should be required reading for anyone interested in California water development, subsidies to sprawl, and political fighting over water and money, but that's perhaps a based opinion ;)
  3. Their website, curiously, is only in German, but author logins are in English. I think they are hiding from English speakers who may want to know more about this scummy company.

11 May 2016

The struggle to govern the internet

Erkki writes:*

As people have become more dependent on Internet the idea of having it as a basic human rights has started to gain momentum. World Summit on the Information Society (WSIS) supports this view. It is a UN sponsored body that consist over 2,600 members, and that has initiated more than 5,000 projects. It is committed to bringing equal access to the benefits of the Information Society to everyone, but also works as a medium for the discussion over Internet governance for governments, private sector and NGOs. This far, the governance of the internet has mainly been a multi stakeholder business that has allowed all the actor’s involved to participate. Without a doubt the multi stakeholder governance model has been influenced by the lack of control mechanisms for the information flow. This has led Internet to develop as a non-excludable public good - equally accessible to all with a relatively low cost. Not all, however, think this should be the case.

Many governments including China, Russia and Pakistan have started to voice increasing demands towards controlling the national borders of Internet. These calls are aimed at stopping the free flow of information, and to strengthen cyber sovereignty. The aim is to create a new Internet where states are free to control Internet within their borders without interference from other states. In fact, this would lead to the creation of multiple Internets – one for each country – and transform the internet to a state level club good.

These demands for change have not been embraced by other countries such as the U.S., many civil society actors, and certainly not by most tech companies. These actors recognize that the promise of freely accessible knowledge for all, that has been the driving force of Internet, is threatened by its opposite promoted by some regimes. As the struggle for the governance of Internet grows more intense it is important to remember that a large portion of the perks of modern life are based on the services provided by it. Things like social media, free internet calls, online banking, route planners and maps, email, and many more are possible because of the freely accessible web. Therefore, standing up for a free Internet is standing up for all these benefits for people all around the world.

Bottom Line As the struggle for internet governance gets more intense it’s important to remember all the benefits we derive from its access and connection among all the world's peoples.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

10 May 2016

OPEC’s failures: A prisoner’s dilemma

Steve writes:*

The past months have been tough on the OPEC member states’ economies. The oil price has fallen from $100 a barrel in 2014 to $45 a barrel today. The Organization of the Petroleum Exporting Countries (OPEC) has been trying to reverse the fall by decreasing supply, but unwillingness from some OPEC member states has made this a complex issue.

After the failure of the OPEC meeting in Doha, the price of a barrel of Brent crude oil went down to $40, after which it slowly recovered to $43 a barrel. A decrease in supply would drive up the price of oil, but Saudi Arabia, the largest producer, does not want to decrease its production if other member states do not do so either. As Saudi Arabia turned to OPEC to come to an agreement, the Saudis found out that a decrease in production is much harder to accomplish than they had initially hoped.

Ever since the international embargo on Iran has been lifted in January this year, oil production in Iran has been increasing by the day, and the Iranian government – finally able to fully benefit from oil exports – is eager to return to the global market, where it can sell more oil for higher prices than during the embargo.

With Iran not willing to decrease production, despite the fact that it could benefit all OPEC members, we can see that there is a classic prisoner’s dilemma going on. If all OPEC countries were to cooperate and cut production, the price for a barrel of oil would increase, leaving all member states better off in terms of oil revenues. The pay-off of cheating, however, is higher than the pay-off of cooperating if all other member states stick to their promises to cut production. Furthermore, if a country (e.g. Saudi Arabia) suspects that another country (e.g. Iran) might cheat, it is better to also keep production at the same level (i.e. cheat), because cutting production makes no sense if the other country does not do so as well. In short, cheating is always the best response to the other country’s action.

The only way for OPEC to come to a solution would be if the benefits of cooperating would outweigh the benefits of cheating. Imposing a punishment on cheating members could be a way to do this, but because OPEC is a multilateral agreement, there is no whip to enforce punishments. In short, this means that it may take a long time for OPEC to get to an agreement on a decrease in oil production.

Bottom Line Cooperation on decreasing production is a better solution for all OPEC members, but the benefits of not cooperating – if all others do cooperate – are higher, meaning that it will be difficult to get to a common solution.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

Running the wrong race: antimicrobial resistance

Lauke writes:*

Already in 1945, Alexander Fleming, the Nobel Prize winner for co-discovering penicillin, warned of limits to the use of antibiotics in the fight against bacterial infectious diseases. He predicted that eventually due to the large scale usage of antibiotics, they would become ineffective, since the bacteria they are supposed to fight would have become resistant. Now, 70 years later, Fleming must turn in his grave, knowing that he was right; the Golden Era of antibiotics has elapsed and we are now on a frantic hunt for new kinds, against which the targeted bacteria have not developed resistance yet.

In this hunt for new antibiotics, governments are increasing investments in research clinics. However, a new problem emerges. The amount of money governments reserve for Antimicrobial Resistance (AMR) research is fairly small, such that this branch of research is chronically underfunded and clinics are incentivised to compete with each other. The competition scheme could be visualised as follows:

If two clinics cooperate and share their knowledge of which antibiotic has been tested against which bacteria, the chances of either of them finding a new one soon are quite high. The acknowledgement for this innovation would also be shared equally, which could possibly affect future funding and business. If however, within this collaboration, one of two clinics shares all its findings, but the other one holds back valuable information, the chances of the latter finding a new antibiotic earlier are much higher. They will still have to acknowledge the other clinic’s contribution to the research, but in a repeated game setting such as this one, the clinic who finds the most new antibiotics will eventually be more renowned. The interesting feature of this is that the two players do not necessarily have to know whether the other person cooperated or competed, since the outcomes are still based on probabilities. Lastly, if both clinics decide to refrain from the collaboration, the chances of each individual clinic finding a new antibiotic in the near future are quite small, but if they succeed, the individual name gain will be very large. Interestingly, we can derive from the fact that clinics are now incentivised to compete rather than cooperate, that they generally value possible future name gain over the increased probability of quickly finding a new medicine.

Governments could take multiple courses of action to prevent this type of unproductive, competitive environment from emerging. They could either invest more money in research, which would take away the incentive to compete, or implement policies that tackle AMR on the longer term, for example by tightening regulation laws or normalising vaccinations that prevent some bacterial infections from occurring in the first place. However, the problem with these long-term solutions is that they also create a collective action problem, since regulation laws and vaccinations only take effect when implemented on a large scale, i.e. by different countries, with different legislative systems and cultural values.

Bottom Line We are running a race against the clock; at this rate, protection against bacterial infections by antibiotic treatments will soon become a luxury good. The government could increase funding in order to discourage research clinics from competing; yet, all that would do is buy us more time before we actually run out. For a long-term solution, we have to start looking outside the lab and into policies such as large scale vaccinations and the restriction of distribution laws. However, seeing the collective action problems these solutions bring about, we will need every extra minute the government can buy us before we can successfully implement them.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

9 May 2016

Monday funnies

Bottled water = the measure of weird.

Putting a price on rainforests

Zach writes:*

How absurd would it be if somebody turns around and says, “I would like to buy some rainforest please?" Strangely, nowadays, in the latest attempt to save the world’s rainforests against the constant, ongoing battle of deforestation, this idea of letting people and companies purchase parts of a rainforest is under serious consideration. Upon acquisition of their share of the rainforest, irrespective of the buyer being a person or a company, the sole intention has to be for preservation. This is in direct contrast to the traditional (sadly current) practice of aggressively cutting trees for slash-and-burn agriculture. At least, on the face of it, this [preservation scheme] sounds like a possible solution to the plague of deforestation.

The notion of putting a price on rainforests carries a strong rationale. On the condition that rainforests have a price, wouldn’t there be less of an inclination for corporations and governments to commit deforestation? The obvious rebuttal to this idea is that having a price on rainforests would simply mean that corporations and governments will eventually be willing to pay the price that permits destruction to the rainforest. This, consequently, will suppress momentum towards finding a long-term solution against deforestation.

The reality, unfortunately, is that over the last century governments, corporations, and industries, alike, never really had a firm understanding why rainforests are far more valuable than their mere aesthetic appearance. This is augmented by the fact that the role rainforests play often remains underappreciated, mainly, because all the benefits rainforests do provide can’t be directly measured or captured. This, subsequently, means that there is limited amount of known benefits causing an undervaluation of rainforests. In saying this, efforts to push for solutions to help combat against the impacts from deforestation still continue. This is because there is still hope that the world will realise that world’s rainforests ensure that the climate is controlled at a level that supports humanity’s very existence.

Bottom Line Pricing rainforests is yet to go through the implementation process. Rainforests are seen as valuable but because deforestation is free, rainforests are rapidly in decline. The goal, therefore, is to price rainforests to the extent that they become more valuable alive than dead.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

A case for environmental desires

Camelia writes:*

In the 1930s two leading thinkers – Lionel Robbins in economy and Talcott Parsons in sociology – wanted to bring peace between their disciplines, which at that time were trying to ferociously incorporate one another. Parsons proposed a grand division of labor: the economists should keep going on the relationship between means and ends, whereas sociologists should investigate the matter of the ends themselves. But here’s the catch: he argued that institutions, as an embodiment of what each society deems valuable, should be dealt with by sociologists, not economists [pdf]. It took it economics 80 years to recover from this bad deal (though to what extent this deal was bad for the economists it is debatable), and today’s institutionalism is an attempt to bring back the serious concern of economists with values.

Environmental desires are not flickering preferences about whether to visit the seaside or the mountains over the spring break: they are values, beliefs, deep seated insights about the worth of nature and how this worth relates to other values in our life.

For instance, is the Earth a ‘dominion’ for us humans to use, in order to fulfill the wish of God? Guth et al. shows that the answer to this question – yes, if you are religious, conservative person with eschatological beliefs – influences your attitudes on environmental policies!

Environmental desires are not easy to spell out, even less to transform into monetary value. Moreover, libertarian economists say they are not necessary to spell out, as long the system of incentives is built to promote the right environmental outcome.

The environmental outcomes look promising, at least in the developed world: we recycle more, we pollute less, we see the word ‘sustainable’ in every new policy document, etc. The theory of the environmental Kuznets curve [pdf] suggests that the trend reflects something akin to an economic law: after the initial drop in environment quality caused by economic development, the population in a country reaps more and more benefits, satisfy their material needs and eventually starts asking for cleaner environments. Thus we shouldn’t worry too much about our environmental desires: they are there, ready to take the spotlight after we achieve sufficient economic development.

I can think of a reason why this would not be the case: the valuation of nature can change over time in the opposite direction because we lose exposure to nature. For instance, Adevi and Grahn (2011) show in a very interesting piece how adults are attracted to the landscape features they were exposed to as children. Thus people who spent some childhood summers in a farm will value higher the green lands. What about those who grew up in a tall building with no tree in sight – an increasing proportion of people in developing countries, where urbanization is very speedy – reaping the benefits of economic development? Will they value nature enough to ask for a better treatment of the environment, or will they be content with a more and more artificialized landscape?

And remember, Kuznetz was wrong before.

Bottom Line Environmental desires, like other values, should not be left for investigation only to sociologists. They should be taken seriously by economists, as in the long run they are of primary importance for environmental policy-making.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

6 May 2016

Friday party!

Kingsday in Amsterdam helps you see life in a city of people

without many cars

...and then there are games of chance and skill:

The unsustainable incentive to recycle aluminum

Rosanna writes:*

Recycling aluminum is universally perceived as more sustainable than using raw materials in production. Virgin aluminum is created from bauxite ore. To name one large environmental advantage of recycling aluminum, ridiculous amounts of energy are needed in order to extract bauxite ore from the ground, as only 3-5% of the bauxite ore contains aluminum. Research has shown that recycling aluminum requires on average 5% of the energy needed when manufacturing aluminum from bauxite ore [pdf]

However, it is often forgotten that the recycling process also involves ‘hidden’ environmental costs that are not included in the price. These negative externalities do not necessarily, if at all, make the recycling process less sustainable than producing virgin aluminum from bauxite, but they should not be neglected. For example, contaminated aluminum waste produces heavy chemical pollution during remelting. Additionally, recycling aluminum requires heavy machines and ovens which are often powered by fossil fuels.

Another issue that causes these hidden costs is that aluminum recycling is largely done by privately owned companies, which have making profit as their main objective. Thus, companies are incentivized to recycle aluminum for financial reasons rather than sustainability reasons. One might say that this is not necessarily a problem, because the reason as to why companies recycle is not relevant as long as recycling occurs. However, it appears that this profit incentive stagnates possible improvements because companies do not bear the environmental costs and thus have little incentive to improve sustainably. I will give a simple example below.

Suppose there is a company in Germany (company A) that collects glass bottles from public containers. Often, glass bottles have a cap made out of aluminum, and therefore the glass bottles must be separated from the aluminum caps as both have a different recycling procedure. The company, however, only recycles glass, and thus has a supply of recyclable aluminum which they want to sell to another company that does have the necessary recycling technologies. Now, the logical way would be to sell the waste directly to that other company. However, the waste is sold to yet another company (B) that does not recycle either, but merely stores the waste and sells it to a company (C) that does recycle. On top of this, company B is situated in the Netherlands and company C in Poland. This means that now, instead of transporting the waste from Germany to Poland directly, the waste goes from Germany (A) to the Netherlands (B), after which the unaltered material is transported to Poland through Germany.

In this example, an extra process (storage) is added to the life cycle, which is not only useless and inefficient, but also increases the total environmental costs of the process. The main problem here is the rise in transportation emissions, since there is much more transportation needed. Similar situations frequently take place in reality. Companies seek for opportunities to get involved in a process in order to gain from it financially, without considering the possible negative externalities. Meanwhile, the sustainable character of recycling is completely disregarded. In other words, they act out of their self-interest rather than out of the public interest.

Bottom Line Although recycling aluminum is more sustainable than producing aluminum from raw materials, there is still much room for improvement with regards to the environmental costs. This can make aluminum recycling even more sustainable. However, this improvement seems to be stagnated by companies’ main goal to make profit.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

Water pollution and illness in the Philippines

Kelly writes:*

Water pollution has become a rising concern for todays world, especially with rapid increases in population, urbanization and industrialization. Thus, methods to control this situation must be set in place, however, this is rather difficult as oceans and large bodies of water are not owned by an individual entity; making it hard to control and manage the amount of pollution released.

Pollution comes in the forms of raw sewage, detergents, fertilizer, heavy metals, chemical products, oils and solid wastes, hereby resulting in 22.2 million metric tons of organic pollution annually, thus the country urgently needs methods to control the pollution. Especially considering the fact that 50 out of the 421 rivers are considered biologically dead, in addition to only 47% of the 127 freshwater rivers contain good water quality.

Due to the lack of freshwater and the majority of bodies of water being infected, causing an outbreak in many disease-causing bacteria and viruses resulting in health outbreaks and increase in death rates, including economic costs of P67 (€1.25) billion for health, fisheries production and tourism. Some of the known diseases caused by poor water include gastro-enteritis, diarrhea, typhoid, cholera, dysentery, hepatitis, and severe acute respiratory syndrome. Whereby one of the reasons may be due to the fact that only 6 out of 115 Philippine cities have sewerage systems. However, the awareness of the situation is still low, which is reflected in low willingness-to-pay for connection to a sewerage system.

Thus, although the Philippines has several laws regarding water pollution, including the Clean Water Act implemented in 2004, the lack of enforcement is of great concern, in addition to problems such as inadequate resources, poor database, and weak cooperation among different agencies and Local Government Units.

Bottom Line The Philippines needs to increase the awareness regarding the improvement of sanitation and water pollution to reduce illnesses caused by water-born sources, and act upon implementing these solutions (such as expanding sewerage collection and treatment) since 31% of illnesses are caused by water born diseases.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

5 May 2016

Corporate capture in the palm oil industry

Anne-Maria writes:*

The advancement of corporate agendas by an economic elite to the detriment of the environment and human rights has become a pertinent issue within environmental policy-making. One of the primary missions on the agenda of NGOs like Friends of the Earth International is the elimination of this problem of corporate capture, i.e., environmental regulators serving corporate rather than public interests.

The unsustainable palm oil industry, widely accused of a reckless disregard for human rights and the environment, is one of the most pressing environmental issues today. The WWF states that approximately half of all packaged supermarket foods contain palm oil. While palm oil production is highly efficient, it leads to rampant levels of deforestation, loss of biodiversity, land erosion, illegal land clearing and threatens endangered species crucial to the functioning of tropical ecosystems.

Besides environmental degradation and gross violations of human rights, palm oil extraction has raised political tensions and exascerbated corruption in exporting countries (Indonesia and Malaysia jointly account for nearly 90% of the world’s palm oil supply).

The alarming rate of illegal land clearing plays a decisive role in the tension between the Indonesian government, sub-national governments and indigenous communities. After Suharto’s dictatorship came to an end in 1998, Indonesia decentralized the power over land. The smaller kings ‘bupatis’ have been frequently accused of corrupt allocations of logging concessions. Tomasz Johnson, forest campaigner at the Environmental Investigation Agency (EIA) notes that the bupatis “take decisions in best interest of companies (…) rather than communities.”

Although the illegal and corrupt practices of the unsustainable palm oil industry have been publicly denounced on the national political level, instances of sub-national oppression, transgression of environmental regulations and violence against local communities are abound. EIA’s detailed investigation [pdf] sheds light on lax law enforcement and corruption in the palm oil industry in Indonesia. Furthermore, it unveiled practices of regional governments transferring public resources to private firms.

While disproportionately large shares of the benefits from palm oil extraction are captured by corporate palm oil industries, the deleterious consequences are borne by the public. Even though national governments have acknowledged and publicly condemned this corporate grabbing hand, both corporations and smaller firms have found ways to circumvent and transgress regulations and boundaries at a sub-national level. This points towards the necessity of potential reformations like a recentralization of land power, increased transparency measures, more effective monitoring, improvement of corporate governance and raising awareness on the graveness of the current palm oil situation.

Bottom Line Palm oil corporations and smaller firms strategically manipulate governments and public institutions to their advantage at the expense of the public interest. This notion of corporate capture necessitates solutions to protect the environment, (endangered) species and human rights.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

Multiplying sustainable and innovative landscapes

Anniek writes:*

Our planet increasingly requires sustainable and innovative alternatives to stabilize and reduce today’s global challenges. One example of such an initiative is the ‘Smog Free Project’ by Dutch artist and innovator, Daan Roosegaarde. The project in the shape of a tower is located in Rotterdam and consists of the “largest smog vacuum cleaner in the world” and “uses patented ion technology to produce smog-free bubbles of public space, allowing people to breathe and experience clean air for free”.

Apart from the sustainable and technological component, the well thought-through marketing technique makes this project particularly versatile. Namely, Studio Roosegaarde has created jewelry out of the compressed carbon from the tower. These jewelry pieces including cufflinks and rings don’t only fund the project, but prevent compressed carbon from going to waste whilst every purchase also donates 1000m3 of clean air to the city of Rotterdam.1

This multipurpose project hence also has a significant socio-psychological influence as it educates and raises awareness about air pollution and the future of innovative landscapes. In the case of the smog free tower, there is much more going on than just the environmental benefits, and when looking down at Roosegaarde’s jewelry items you don’t only see a ring or cufflink but also the compressed carbon. Thus, the jewelry is making air pollution tangible thereby also contributing to the multiplier effect by introducing awareness and knowledge, thereby shifting demand outwards for more similar projects. Implementing even more projects that are balancing technology and sustainability would complement today’s landscapes and enhance this multiplier effect even further.

Bottom Line Sustainable innovative alternatives like Roosegaarde’s ‘Smog Free Project’ are creating a multiplier effect in which today’s global challenges are made tangible and are creating awareness.
* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

[1] I looked all over their website for pricing, ordering, specifications on the ring. All they have is a tag on some photos. Daan is clearly a conceptual artist, but does he do anything? -- DZ

4 May 2016

Should smokers pay more for their health insurance?

Markéta writes:*

Although, it is well-known that smoking significantly damages individual’s health, there are still approximately 32% people who are smokers in the Czech Republic. Even more alarming is the fact that smoking is nowadays most popular among young people (15 – 24 years). It is estimated that 44.7% of them are regular smokers. Further, on average smoking is the cause of premature death in one of five cases in the Czech Republic. One fifth of total healthcare spending (48.2 bln CZK, in 2011) was allocated for extra treatment of people who suffer from the diseases directly caused by smoking (27 CZK=1€). If the external cost which is imposed on the non-smokers (“society”) is added, it is estimated that the total social cost would increase to 75.3 bln CZK (2011), which was actually equal to 3.8% of the Czech GDP in 2011. Such disturbing numbers often lead to highly discussed question whether smokers should pay more for their heath insurance or not. 

picture taken from: Wikipedia
The conflict of interest has arisen because everyone who gets salary in the Czech Republic is required by law to pay for the health insurance (government pays for children, students and seniors). The amount that the individuals must pay is not however based on individual’s likelihood of using healthcare, but rather on the income level. It is undoubtedly easier to create and run system based on income than based on the likelihood of using healthcare, since it is hard to accurately estimate the individual’s likelihood of using healthcare. On the other hand, the average estimations of using healthcare become quite accurate when there is large sample. Many politicians, economists and doctors argue that it would be more beneficial to have a system in which individuals who damage their health by their own lifestyle (particularly smoking), would have to pay more for the health insurance, because they on average use healthcare more than non-smokers. Simply stated, the smokers should pay more, in order to compensate the “additional” spending in healthcare, since the tax on cigarettes has not helped to fully cover the cost of the treatment of the diseases directly caused by smoking. 

Even though, this is a classic example of market failure which is caused by negative externality, where the demand and supply fail to allocate the right amount and price of smoking that would be accepted by the individuals and the society, it is extremely difficult to come up with an effective solution. Firstly, if smokers were required to pay more for their health insurance, the Constitution as well as Health Act would have to be changed, because they guarantee “free of charge access to healthcare.” Such process could be lengthy, complicated and could not ensure quick fix of the system which is needed. Secondly, large percentage of the smokers are young people who are exempted from paying health insurance anyways, since the government pays the insurance for them. Third of all, it would be hard to come up with the system that would fairly determine how much an individual should pay, mostly because the health effects usually appear in the long run. Lastly, if such system was imposed it would have to be ensured that the additional collected money is used in healthcare spending and not in other areas of government-public spending.

Bottom Line: People who damage their health by their own lifestyle (particularly smoking) should pay more for their health insurance, because they are using health care more than the average citizens of the Czech Republic. However, although morally everyone could say that it is a good suggestion, in reality such decision might be very hard to enforce because of the limitations (stated above).

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

How food labels increase information asymmetry

Isabel writes:*

We can no longer grab a bite or go grocery shopping without being bombarded with jargon such as ‘organic’, ‘Fairtrade’, ‘vegan friendly’ or ‘non-GMO’. Alongside the growth in demand for such products, food labels can increasingly be found in various shapes and sizes. The consumers’ correct understanding of what these labels mean is however very limited. Labels are often misleading, unclear or, as research has shown, wrongly located on products.

Why do we label food in the first place? Labels attempt to correct for information asymmetry between the consumer and producer. It supposedly gives the customer a clearer understanding of what is in their food, and assures food quality. This way the market can properly function, because consumers will purchase goods that best match their preferences [pdf]. Firms however may not have an incentive to provide consumers with full information. In these cases, labels inaccurately represent what is in the product and consequently consumers buy goods that are not what they intend to purchase.

An example highlighting such misperceptions is that consumers put “a higher value on the non-GMO label than the organic label". This is ironic, given that when something is labelled ‘organic’ this automatically entails it does not contain GMO ingredients. Vise versa, a non-GMO label does not necessarily mean the product is organic. That people prefer non-GMO labels therefore indicates that these labels are misunderstood. Another example of unclear labelling is the use of the word ‘natural’, which is yet to be defined by the food industry. 65% believes that ‘natural’ means no artificial ingredients, pesticides or GMOs [pdf]. However, it does not and thus consumers are left deceived by the food industry.

The above supports the opinion that food labels are increasing information asymmetry rather than reducing it. People trust labels without knowing what is really behind them. Because individual dietary choices can have a range of social welfare consequences, it is important that labels correct for these negative externalities. They should provide the consumer with full comprehensible information of the product. If this isn’t the case, they can not make a full informed decision resulting in food choices that increase externalities. Regulating food labels is a good start, but more importantly people need to start educating themselves on what labels really mean.

Bottom Line Misleading labelling of foods has increased information asymmetry between consumers and producers. People are unaware of what labels mean and trust them blindly. This results in people making less informed dietary choices that result in social welfare externalities. However, consumer’s have the right to know what is in their food and thus food labelling needs to improved.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

3 May 2016

The future of UK upland farming subsidies

Silas writes:*

The uplands are made up of large tracts of undeveloped moor, valley, hill and mountain landscapes and are widely considered to represent the UK’s best remaining wilderness. This common attribution of wilderness is questionable, however, due to the considerable history of intervention by humans in all these areas, most notably through farming. Farming on the uplands is characterized by low-intensity livestock grazing that is dependent on subsidies to make it financially viable. In recent years there has been growing criticism that the subsidies received by farmers are not only inefficient but contribute to the ecological deterioration of these areas.

Since farming is the dominant land use in the uplands, it is unsurprising that it has been implicated in several damning reports that detail this deterioration. One study (pdf) showed that of the 877 species monitored, all have declined, 35% substantially. Crucially, it said that most species would benefit from less intensive grazing regimes. Some conservationists go even further and argue that grazing should be almost entirely eliminated. They contend that sheep, being such close grazers, prevent any kind of substantial vegetative growth, so that even one sheep per hectare can keep land barren in ecological terms.
Although considerable funds go to farmers in the uplands, their agricultural output is relatively low. For example, it has been argued that while 76% of Welsh uplands is dedicated to livestock farming, Wales imports seven times as much meat as it exports. At the same time, subsidies for farmers in the uplands sometimes surpassed their earnings by £20,000 in some areas. Fittingly, most uplands in the UK are categorized as ‘Less Favoured Area’ (LFA), a European Union designation for areas with reduced agricultural potential due to challenging physical conditions. However, if the farming in these areas is difficult, sometimes very costly and characterized by low output, it begs the question why it continues to be subsidized at all.

A reduction in subsidies would force farmers off the uplands and cause dramatic change to the landscape, a loss of tradition and culture, and potentially greater agricultural intensification elsewhere. To decide the value of the subsidies, it is worth clarifying what we want from the uplands and reconsidering both the costs and benefits of upland farming practices. Such reconsideration might lead to policies that please both conservationists and farmers.

Bottom Line Subsidies for upland farmers in the UK support tradition and culture but are unproductive and are may well be maintained at the expense of the environment. If we were able to reach a consensus regarding what we want from the uplands, we could then decide whether farming delivers those desired ends, and if it does not, how it could be adapted to do so in the future.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

Dumping mining waste in Norwegian Fjords?

Ferdinand writes:*

The Norwegian Government has permitted Nordic Mining ASA's to start mining rutile in Vevring and Naustedal, and subsequently dispose of waste in Førdefjorden. This has created some controversy as local and state authorities have approved the plans while environmental organisations and affiliated interested groups have opposed this decision.

Activists have voiced their disagreement and over 100 people were removed and fined by the police due to a demonstration which involved activists chaining themselves to Nordic Mining's equipment. These interest groups' main claim is that mining activity and marine waste disposal will have a negative impact marine life native to Førdefjorden. Havforskningsinstituttet (Institute of Marine Research) have in part supported such claims and advocated that waste disposal in the fjord poses a substantial risk to the marine ecosystem in Førdefjorden.

Naturally, Nordic Mining claim that their current plans are acceptable and that new industry is necessary as a shift from petroleum activity, creating new jobs and further develop a mineral industry in mainland Norway. The Norwegian Environmental Protection Agency, prior to allowing planned mining activities in April 2015, had turned down the proposal in 2014 due to environmental considerations.

This is a typical dispute between economic (in a narrow view) and environmental interests. The answer is not necessarily based on whether one adheres to one camp or the other as it is natural to want both, however achieving them both is impossible due to opportunity costs. Therefore we must ask ourselves how much we are willing to “sacrifice” of one in order to acquire the other and then compare it to the options presented to us. Yet, even if this was clear we should also keep in mind the natural bias towards everything which is easily quantifiable, such as the economic gains from new industry. It is important to recognise the problems of attempting to always put another “price tag” on our environment. If not, we may fall into a vicious habit of always prioritising GDP growth for the next IMF or World Bank report, rather than the environment which we will have to endure until the next space shuttle to Mars.

Bottom LineEconomic activity taking place in any environment will have several stakeholders, however in the context of the natural environment or nature we should be cautious and guard against a bias favouring "easily" measurable economic activity and thus neglect other services provided by natural capital.
* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

2 May 2016

Bleg: California groundwater governance?

Osvaldo Aly Junior writes from Brazil:
I am doing my doctorate. My professor, Ricardo Hirata (a groundwater researcher here at USP - University of São Paulo) and I are interested in studing how governance works (or doesn't) in order to reach a sustanable and integrated use for both surface- and groundwater.

There are two things for me (in this moment) that are importante for groundwater governance: private and government institutions.*

Here in Brazil our institutions and laws give major power to goverment, and in California (we think) laws are for private initative.

In Brazil, our society is very weak to be able to influence water managment, information about water problems and crisis they are not clear. So people don't know exactaly what is happening.

I want to compare these two situations in order to see if any one of them is more positive for a sustanable and integrated use of ground/surface water.

I would like to know if you can help me suggesting some researches or professors that I could visit or make an interview.

I'll be at San Francisco from 25 May to 2 July. I intend to visit Berkeley, Davis and Stanford.
If you have any contacts, ideas or time to meet with Osvaldo, then please email him!

* NB from DZ: Government is different from social, i.e., forming top-down vs bottom up collective institutions.

The reality behind American over-consumption

Daniek writes:*

While US families are confronted with increasing debt, they endure rising accusations and condemnations from society. Economist Robert Frank claims that America’s newfound “Luxury Fever” forces middle-class families to “finance their consumption increases largely by reduced savings and increased debt.” Furthermore, politicians and the press such as the Guardian emphasize strongly on“the high price of the western world’s obsession with all things material.”

However, one fundamental principle that is often underestimated by these accusers is that, having more of one thing means having less of another. That is, families are not just spending more of what they earn, they are also spending what they have not earned.

The Over-Consumption story gets support from current economic data on the American families. First, families have more to spend than a generation ago. This is because mothers have entered the labor market, which changes the number of earners in an average income family from one to two. (Figures and references pdf) Moreover, although incomes have increased American families have decreased the amounts of savings. Hence, US citizens have changed from a nation of savers to a nation of spenders. As savings have fallen, debt has risen.

Therefore, because families are making more money than ever and at the same time get in financial trouble, this supports the over-consumption notion. Yet, delving deeper into the household spending gives a different light.

First, clothing, the average family of four today spends 21% less (inflation adjusted) on clothing than a similar family did in the early 1970s. New technology and cheap labor results in lower prices. In 1973, clothing for a family of four took nearly $750 more a year from the family budget than what we buy today for our shirts.

Meanwhile, areas where American families have increased there budget on are big-screen televisions and other technology that did not exist decades ago. For these luxuries, families spend 23% more, and extra $170 annually. However, in terms of food, the average family of four spends 22% less on food (at-home and in restaurant eating combined).

Likewise, other areas are just as balanced. The average family spends more on airline travel but less on dry cleaning. When the numbers are all added up, “there seems to be about as much spending today as there was decades ago.”

Thus, the income has increased, nevertheless, the proportions in the family budget have changed at the same time. Consequently, if middle-class income families are not spending that much more then how can the financial debt be explained? One possible explanation is that the costs to buy a house is much more than it used to. Furthermore, mortgage-costs and health-insurances have increased in the last decades.

Bottom line: while the over-consumtion story is not entirely based on false grounds, politicans and economists should be cautious with their sharp accusations. Since data suggests that we live in an area whereas middle class families are clipping coupons and buying pasta in bulk, while they suffer to pay the bills for their mortgages and housing.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

Is locally produced food better for the environment?

Robin writes:*

Over the last decade or so, 'locavore' movements have been gaining traction. Consumers are showing an increasing interest in locally produced food and are willing to spend extra on it. People buy locally for lots of reasons. Local food is thought to be fresher, more nutritious and better tasting. Consuming it is a way to increase self-reliance in terms of food production and a way to support the local economy and farming communities. Seemingly the most important reason to buy locally produced food is an interest in lowering the environmental impact of food production. This last argument is questionable.

Why? Locally produced food is mostly inefficient. In Economics classes, we are taught that specialisation according to comparative advantage and subsequent trading leads to welfare gains for all parties involved. This principle seems to be especially applicable to agricultural products since their production costs depend on the natural qualities of the environment (e.g. soil quality, rainfall and temperature). Foregoing comparative advantage and economies of scale to localize food production means that more inputs must be used for the same amount of food output.

Steven Sexton estimated [pdf] the environmental effects of a 'pseudo-locavore' system in the US where every state that produces a crop grows only enough for its own population (and thus trades nothing). Each state must also start growing other crops that it previously imported. He finds that for the production of soybeans, for example, land use would increase by 18%, fertiliser use would increase by 55% and fuel use would increase by 34%. This increased demand for inputs that is associated with local food production would possibly increase CO2 emissions and environmental pollution per unit, rather than decrease them.

Local food production might have environmental benefits in that food does not need to be transported as far, but even this is questionable. Weber and Matthews estimate [pdf] that transportation represents only 11% of greenhouse gas emissions associated with food production. 83% of GHGs are actually emitted during the production phase, which, as mentioned, would likely be even more polluting in a locavore system. In fact, the benefits of shifting from red meat and dairy products to chicken, fish or vegetables for just one day a week reduces GHG emissions much more than buying all locally produced food.

Bottom Line: Locally produced food isn't necessarily better for the environment.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.