Blog Post for Tomorrow (Thursday)

http://www.rff.org/files/sharepoint/WorkImages/Download/RFF-DP-98-29.pdf

Comments

  1. The closing remark of Fullerton and Stavins’ article resonated with me, as I have often stumbled through economic papers employing confusing jargon that complicates, rather than elucidates, my understanding of economic arguments. Overall, I appreciated the clarity they tried to provide, but I think they may have oversimplified some of the solutions to these complex problems. For example, they note that the way to fix one market is to “essentially by introducing another,” yet they admit that these secondary markets also frequently fail to achieve efficiency. Do they believe that we should thus continue to create new markets ad infinitum until an efficient one is established? Another example of insufficient problem-solving was their assertion that, to correct for failures, governments may try to “restrict pollutant emissions or limit access to open access resources,” but they fail to discuss how governments do or have done that. Perhaps this omission was in the interest of brevity, but it is a good illustration of the potential issues that come with oversimplification of solutions to complex problems.

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  2. While busting the first listed myth, Stavins claims, “If the market is left to itself, too many pollution-generating products get produced.” I do agree with this statement but I was curious about the extent to which these products are actively being prevented from being produced. The most obvious example that comes to mind is the production of boats and cars. Are there any regulating factors that come into play other than the supply and demand when dealing with the production of cars, boats, planes, and any other type of vehicle that burns fossil fuels? Or is Stavins claiming that there are currently too many of these “pollution-generating products” already present?
    While reading about myth #3, I really enjoyed Stavins’ explanation as to why economists attempt to put everything into monetary terms. I had never really thought of a great way to compare disparate values such as the ones mentioned in the reading but using the dollar as a common unit of measure is actually very efficient.

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  4. Fullerton and Stavins raise an important point when they recognize that there is no cookie cutter solution that would solve most environmental problems. Indeed, these problems are incredibly complex and vary depending on which location is being studied. I found the locality issue with acid rain very interesting. This problem illustrates that even if some regions do adopt permit systems for various emissions, they may end up helping another region, while theirs is only marginally impacted. This problem again distorts incentives and disrupts the market. Therefore, if a market solution is chosen, it must somehow account for these differences in location.

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  5. I do not completely agree with Fullerton and Stavins' argument against the tendency of economists to quantify outcomes, goals, etc. The scholars hold that "benefit-cost analysis of environmental policies [. . .] cannot rely exclusively on market prices" (5). I am of the opinion that economists, politicians, and governments need to focus more on evidence based policy making, not less. With the U.S. deficit widening year after year, policies that focus on numerical outcomes rather than simply the amount of money invested in a program can help ensure that future environmental policies are an effective use of tax payer dollars. Although putting everything in monetary terms will never completely capture the total value of a policy or program and should not serve as the sole method of analyzation, it serves as an efficient way to simplify sometimes complex stories so that policy makers and others without expert knowledge can understand a given topic.

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  6. I think this essay is a good introduction to the ways that economics can be misunderstood in its applications (whether that is to economic policy, education policy, health policy, what have you). However, I found Fullerton and Stavins' stance to be a bit defensive throughout their essay. First they term each area of focus a "myth" and at the end state that "we close by acknowledging that our profession bears some of the responsibility for the existence of these and other misunderstandings about economics." I wouldn't say these are necessarily myths as markets and the rational, self-interest actor are at the root of economic theory, for better or for worse. I think economists themselves need to take more responsibility for the perpetuation of these "myths" that ultimately can be traced back to economics' rational, self-interested model of human behavior that is totally unlike real human behavior. Further dispelling of these myths and steps towards interdisciplinary work need to be taken because today many policy makers make decisions based on the homo economicus/free market model. This can lead to dangerous outcomes with domino-like effects (some example of which the authors discuss). Just like any other science, economic theory can be taken out of context and misapplied; however, I don't think Fullerton and Stavins go far enough to take responsibility for this.

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  7. This paper was published in 1998 and I would be interested to see if the four myths identified by the authors are still as relevant now after 20 years have passed. My feeling is that economics today is no longer as focused on the free market being a perfect solution, but rather the profession has moved toward identifying the myriad of market failures and trying to figure out how to model those in creating solutions. Behavioral economics in particular, which has increasingly become mainstream looks at why we often act so irrationally. With that in mind, I think that myth #1 is not really relevant any more. Myth #2 makes a good point about the situations where markets fail, but again, I think economist have moved away from such rigid thinking. For myth #3 I don't see why this method should offend non-economists. The authors make a good point about how there needs to be some method of comparing apples to oranges and market prices do a pretty decent job. Myth #4 is especially interesting to me for the point it raises with are we more concerned with individuals or society. It's more of a philosophical question, and one that I don't have an answer to. Overall I found the paper interesting, but as I mentioned early, am not sure how relevant a fair amount of it is anymore. I would be curious to see an updated version about the new issues outsiders have with economists.

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  8. The authors discuss the challenges associated with valuing natural resources. Economist may use market prices in cost-benefit analyses in order to compare various policies, but the field is criticized for translating hard-to-measure concepts into monetary terms. Some may be alarmed to see a price tag put on a forest for example. But the authors argue that this is the most effective way to make comparisons, and it is important to use monetary terms when making arguments to policymakers who would provide funding. The authors acknowledge that the economic value encompasses broader considerations than the pure financial value. They assert that a forest has more value than its "financial value as a repository of future pharmaceutical products," such as other environmental services it provides surrounding communities or the atmosphere. However they don't go into much detail in discussing how an economists actually works to account for the more nuanced value that nature provides.

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  9. I thought one interesting takeaway from the reading is that in economics, and environmental economics specifically, you need to measure the unmeasurable and observe the unobservable. One quote on this that stuck with me particularly was when the authors note that "The bottom line is that no specific policy instrument, or even set of policy instruments is a panacea." When explaining their counterpoints to the myths, it was interesting to read about the flaws of a system such as cap-and-trade or the nuances of deforestation. The show that no policy is perfect and can solve all issues, but also argue that this fact does not de-value policy as a whole. The externalities and public nature of environmental resources includes unavoidable inefficiencies into the market. I think that of all of the myths, the first one may be the least true or holds the least ground. I think since the publishing of this paper nearly 20 years ago, there has become a distrust of markets that I believe dissuade blanket market solutions for all problems.

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  10. I agree with Fullerton and Stavins in that effective communication between the most relevant disciplines in the natural and social sciences is crucial in the process of developing successful policies. Hence, I found the intent of this paper very thoughtful. However, I think the authors could have gone into more detail in some parts of the paper to more effectively clarify doubts for non-economics scholars. This happens when Fullerton and Stavins discuss “Myth #1”, which I consider the most relevant misconception. Most of the explanation falls into why the market does not always solve all the problems, but I would have liked to see specific recommendations on how to deal with the unsolved problems. Even though “Myth #2” goes into more detail, “Myth #1” could have been refuted in a more effective way by providing some economists’ recommendations, hence showing economists not always just let the market solve everything. The only part where it happens is in the last two sentences, but they lack strong and detailed solutions to specific problems.

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  11. The authors did a great job of describing the thought process of an economist in a situation that is not purely economic. As Keynes said, economics is an apparatus of the mind, and the authors explain clearly how economists have been utilizing economic tools to discuss the problem surrounding the environment in a productive way. I found that their discussion about myth #2 was a great description of a thought process that utilizes opportunity cost in the decision to implement a tradable-permit market. They did not refer to opportunity cost specifically, but their breakdown of benefits and costs associated with a few different scenarios where tradable-permits could be a solution clearly used this economic concept, and it provided a basis of understanding of this concept for those in other disciplines. Overall, the paper uses fairly basic economic concepts in its arguments, but considering that this paper was written for a non-economist audience, it makes sense that the authors did not go more in depth with their analysis.

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  12. I connected Myth #4 with the theory of the tragedy of the commons in the sense that there is a balance between equity and efficiency, much like there is one between rationality and commonwealth. I thought the authors could have provided concrete examples of how distributional equity is improved, whether it be privatization of lands or imposing governmental solutions to regulate and control equity. All of this would hopefully occur with the end goal of improving individuals’ knowledge of the impacts of their actions on their community. Although with larger scale issues, which may have been the authors’ intended focus, these solutions are not as rational. When evaluating market feasibility, I think there was some neglect of how citizens impact that process. Political feasibility obviously plays a role in how the government can implement and control certain programs, but it leads to bigger questions of how we value resources like water, air, forests, etc. The relationship between people and their resources is integral to how we value them, but quantifying those relationships is where things become more difficult. I thought the authors did a good job encapsulating how there is not a "convenient" way to carry out cost-benefit calculations.

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  13. I agree with both Fullerton and Stavis, and Professor Casey that inter-disciplines are crucial when explaining the markets and looking for market solutions. It was interesting how when explaining myth #1, they made sure to analyze the cost to society. Producers sometimes do not take into consideration the total cost to society as a whole, when making decisions for the best interest of the company. The explanation of pollution is a perfect example for this scenario. While it may be less expensive to keep polluting the environment, there are other externalities that affect the consumers which could potentially offset the reward for saving that money on positive environmental actions. It may not be immediately relevant to the company, but looking at future numbers and other unrelated markets may improve their decision making, or at least make decision-makers aware of possible consequences. In this case, the argument for government intervention is crucial, because most companies are looking for immediate, and gratifying profits.

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  14. One of the arguments the authors make is that economists do not necessarily believe that the market solves all problems, especially not in the environmental domain. Furthermore, the authors claim that the government ought to take different actions to correct such market failures. However, due to competing political interests and multiple other reasons, the government does not always do the right thing, whether that is to limit open access resources, restrict pollutant emissions, etc. This is especially the case in underdeveloped and developing countries where protecting the environment is not always a priority on their agenda. One example that comes to my mind is the major clearance threat that mangroves are experiencing in Belize. As tourism continues to rise in Belize, a large amount of mangroves have been cleared to provide land for expanding developments. Hence, how much environmental damage are we willing to tolerate for economic growth?
    Furthermore, market-based approaches to environmental protection are not always effective. I believe that the best solutions are the ones that emerge from a multidisciplinary point of view, thus taking into account other factors that economists might not necessarily be aware of.

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  15. In an attempt to be clarify much of the miscommunication between economists and other scientists, Fullerton and Stavins seem to have rejected many of the proposed solutions for reducing environmental costs. They start off by making it clear that a laissez-faire approach to the market will not solve pollution/other environmental issues, and they go on to reject a market solution due to a number of “distortions” that would render the market less than optimal and inefficient. As a reader I’m left wondering what an economist would propose as a clear and effective solution to environmental pollution. While a market solution seems to be the simplest, the authors introduce problems of distribution, monopoly, and more. I think the authors’ attempt to remedy some of the false assumptions about economic environmentalists could have been improved by proposing new solutions in place of past failed ones.

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  16. I found what the authors said to be extremely interesting as they're trying to measure seemingly immeasurable things. While i want to totally buy in to what they're saying, I'm not sure how much it is really practiced. It seems that any sort of environmental economics, natural resource economics, and even public policy economics to some extent always take a backseat to "economists in business schools." I think they do make an important overarching point in that the success of these different types of economics aren't mutually exclusive. They make it very clear that social and environmental efficiency as well as economic efficiency can be reached simultaneously. It is imperative that this misconception be more widely understood so to increase the welfare of people, the economy, and the environment.

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  17. Something that I found very interesting about this essay is the way Fullerton and Stavins refer to the misunderstanding that economists have made even though Fullerton is an economist himself. In other words, I was surprised to see how much Fullerton and Stavins separate themselves from what it seems like all other economists because they are environmental economists. It made me think about how studying the environmental and natural resources side of the economy could teach students to think about the economy in a completely different way that could go against many things learned in other economics classes. Overall, I thought this was a fascinating read and great introduction to this class because of how it lays out a unique mindset of an environmental economist using several examples and how it differs from many other interdisciplinary economists.

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  18. I appreciate Fullerton and Stavins’ clarification of how money is just a common unit utilized in benefit-cost analysis. I agree that money is a pragmatic method of valuation and helpful when assessing environmental and resource decision-making. This method was used in a case where the U.K. looked at whether to raise speed limits from 70 to 80mph. This would undoubtedly lead to an increase of crash-related deaths, but a lot of time saved on the road. Ultimately, it was decided how many saved hours of driving constitute one life. This example is similarly complex and controversial as many environmental and ethical questions of today. This paper does a good job of demonstrating that economists aren’t “concerned only with the financial value of things,” as Fullerton and Stavins write. This clarification is an important one to make, especially when discussing controversial tasks such as valuing of life or morbidity. Money is used to value statistical life and represent important “non-use value” aspects of goods, services, resources, and ecosystems. Environmental resources would fall under “non-use value” maybe more than physical resources, but nonetheless need to be accounted for properly. Fullerton and Stavins site wilderness areas and endangered species as two examples of “non-use value” that economists have been valuing for their protection with money. In economics, money is one way to express the importance of some of the price-less aspects of this world.

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  19. In the article the authors state, while discussing myth #1, that “Indeed, in the environmental domain, perfectly functioning markets are the exception, rather than the rule.” With personally little educational environmental background up to this point, I found myself wondering what instances exist in which markets do perfectly function. It is easy to theorize and come up with a variety of scenarios where markets fail, and the text references a number of different examples throughout as well. Though I am curious as to what circumstances would result in a perfectly functioning market in the environmental realm.

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  20. I really appreciated this reading as it's one of the first times that I've heard economic theories actually being applied/ analyzed in the context of environmental policy/ environmentalism. When I first took Econ 101 and we discussed externalities, I remember very clearly that negative externalities in regards to the environment and in terms of pollution and damage to the environment were not mentioned at all. Even after I raised the question, discussion continued to be completely focused on the two people in the example rather than the overall issue/ how it could negatively affect all parties. I think that Fullerton and Stavins do an effective job of walking the reader through the four myths. Reading through their explanations of the myths, I wasn't expecting many of the answers they gave. I thought the article would lean strongly towards completely debunking the myths or completely supporting them, but instead I was provided with a lot of insight on why economists think the way they do at the same time it was an explanation on how they should think. They willingly admit that many of the issues in the way environmental economic policy is thought about is due to economists themselves, but acknowledgement is one of the first steps to finding solutions and creating more effective policies.
    -Kitanna Hiromasa

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  21. The author's comments on the non-use value of environmental amenities is, in my opinion, one of the aspects of conservation that most people never think about. It is easy to simply look at an environmental amenity, consider the dollar value of that amenity in terms of market value (say, trees --> lumber), and then label this dollar value as the cost of conserving the resource. This one-sided approach to valuing natural amenities is likely to cause gains in the short term and losses in the long term. The big problem that environmental economists face involves quantifying the non-use value of amenities in a way that can be brought to market -- it is near impossible to put an dollar figure on a resource like the Amazon or the Everglades, so any figures that economists come up with will likely be inaccurate and met with tough scrutiny. My belief is that because of this disconnect, economists are not going to be the ones to convince the public of the necessity of conservation--this job will be left to the biologists and other scientists who can present hard evidence on the impacts of destroying natural habitats (i.e. coral reef destruction).

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  22. I thought this was a particularly relevant and interesting article to read considering the interdisciplinary nature of environmental and natural resource economics. In order to implement effective and sustainable policy, there must be a clear set of guiding principles that are agreed upon by economists, psychologists, sociologists, and scientists of the natural world. This article reminded me of an inflammatory (and innately erroneous) video I once saw of Geneticist and climate activist, David Suzuki, arguing that Economics as a field of study is a form of "brain damage" because it neglects to consider the physical natural world within which markets operate and economies function. Suzuki claims that economists consider important environmental services as "externalities" and replaceable by produced goods. While there are many errors in David Suzuki's attack on economics, his misperceptions and ignorance highlight the need for better and clearer communication between economists and natural scientists. If scientists and economists don't understand the fundamentals of each discipline, little will likely be agreed upon and few environmental solutions will be reached. I have included a link to a video of Suzuki's rant. Beware: extreme illogic lies ahead...
    https://www.youtube.com/watch?v=1Jlyv1hCTr0

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  23. Overall I found Fullerton and Stavin's argument to be very intuitive and easy to follow. I found their final conclusion to Myth #1 that ultimately many issues require government intervention to further highlight their main goal discussed in the abstract. Fullerton and Stavin provide substantial evidence disproving the idea that "Economists believe that the market solves all problems," however they include a very small conclusion paragraph in which they vaguely refer to government interaction as a conclusion. This weak conclusion speaks volumes to the problem at hand with economists and natural-scientists failing to communicate ideas properly. They do not address the miscommunication between the economists and the government whom they suggest help from with finding solutions, which clearly occurs with each market failure. The rest of the myths have substantial evidence to suggest that they are indeed not correct. I particularly enjoyed the evidence given for Myth #2 about how introducing a new market would not prevent high level of pollutions in at risks locations, using Benzene as an example of a gas that causes a "hot spot." Finally, the concluding paragraph effectively disproved each myth, and was a great example of the level of clear communication desired between economists and non-economists.

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  24. While Fullerton and Stavins focused on clarifying “myths” regarding the way economists think about the natural environment, I found the article proposing the limitations associated with the economist framework. Specifically, Myth #3 describes the shortcomings when evaluating non-market solutions by assigning monetary terms to disparate goods and services. It seems a cost-benefit is simply the most convenient solution in the valuation of natural resources. As an example, when oil companies perform oil extraction, how do you value man-made disasters such as earthquakes? While monetary valuations are the best way to “add apples and oranges” it is clear that policy cannot rely on solely applying monetary equivalents to all aspects of natural resources. Therefore, emphasizing the importance of interdisciplinary valuation, such as more scientific approaches, in addition to monetary valuations.

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  25. I found the article thought-provoking in a number of ways, but particularly with regard to myth number three. While Fulerton and Stavins are right to point out that apples simply must be compared to oranges, the scope of environmental economics is orders of magnitude larger, which (to me) somewhat nullifies that metaphor. They admit that cost-benefit analysis in environmental policy cannot rely exclusively on market prices, but they also admit immediately afterward that economists insist on making monetary conversions. Other than informing us that they - Fullerton and Stavins - are aware of the difficulties involved in environmental valuation, they do little to actually address the problem. More so than the other three discussions in the essay, myth number three reinforces the importance of an interdisciplinary approach to environmental questions. Ultimately, yes, a dollar value will have to be assigned to whatever is being bargained for, e.g. a natural or environmental resource. However, it is clearly beyond the economist's expertise to assess all things, and with something so precious as the environment (we've only got one), I think it's extremely important to have as comprehensive an evaluation as possible.

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  26. In their paper, Fullerton & Stavins address and attempt to dispel four myths about economists. I did not have issue with the first three dissents, however the pair are not particularly convincing when it comes to dispelling Myth #4. Following two long paragraphs explaining why social scientists focus on the net effects of economic policy, the authors state, “a good analysis will also identify important distributional consequences”. It’s hard not to be skeptical of Fullerton & Stavins’ defense and attempted disproving of the myth that economists only look at the whole instead of the respective parts when creating new policy. The US’s new tax bill, for example, attempts to drive economic growth through tax cuts aimed mostly at wealthy individuals and corporations – this despite income inequality in the United States nearing highs not seen since the age of the robber baron. One has to wonder if the economists structuring that bill were truly concerned with “distributional consequences” – perhaps there were no economists staffed on the project at all.

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  27. I thought this paper does an excellent job of making the point that economics is a method of thinking rather than simply the study of trade or business activity. This fits seamlessly with what we discussed in our first class. Through dispelling the four myths mentioned in the article, Fullerton and Stavins posit that economists use markets as a laboratory to study human behavior and the consequences of that behavior. I think that making this point is crucial to establishing economics as a legitimate arena in which to study the environment among the other sciences. In order to work with experts from other fields, economists need to create a sense of trust that their methods and policy prescriptions are concerned with more than just monetary values and market efficiency. The quote from the article regarding the use of monetary values as a tool for adding "apples to oranges" exemplifies the overall argument authors in a succinct and clear way.

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  28. While I had not heard these myths flat-out before reading this article, a topic covered in all of the environmental studies courses I have taken is the battle with economists. This is one reason as to why the course interested me in general, as I want to see how the two topics work together, rather than against each other. This article was the beginning of the connection between the two. I had certainly been persuaded prior to reading this article that assigning monetary values to environmental resources was a large issue for the environment itself. For example, it is hard to place a monetary value on certain benefits like rejuvenation from time spent in nature. Because of this, it is easy to brush over such a benefit that comes from wildlife and therefore not consider it when making decisions about the resource. I am fascinated by the concept of watching what people do rather than what they say to assign monetary values to resources and the environment. This seems like an efficient method to measure the benefits of such, particularly in comparison to asking respondents how much they value a specific resource. In Professor Cooper's Environmental Ethics Course, we discussed the dilemma of House Mountain: should more trees be cleared to create more parking (and benefit a timber company), or should it be left as it is with the value of seclusion from the world being maintained. Cooper brought up the point that asking people how much they would pay to keep the mountain preserved is not a very practical measurement; so I am now wondering how the observations discussed in the non-market solutions of Myth #3 could be applied to this particular case.

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  29. Regarding Myth #3, Fullerton and Stavins state the reasons why economists use market prices and monetary valuations when evaluating courses of action. I found this explanation helpful in understanding why a cost-benefit analysis is still the preferred method of evaluation, even though many factors that may be considered are extremely difficult to perceive in monetary terms. They explain how economists prefer to observe instead of ask people how much they are willing to pay for something, because when asked, people’s responses may not reflect their actions. However, I still found this explanation problematic because there are instances in which observing people reveal for preferences is difficult or impossible. For example, when the Office of Management and Budget (OMB) performed a cost-benefit analysis of the use of asbestos and the impact on human health, they reached the conclusion that a human life would be worth about $200,000. Resultingly, the costs they calculated were greater than the benefits. Fullerton and Stavins’ commentary can be improved if they expanded more on their reasoning towards examples like this. Although they do mention that a set of units better than monetary values does not exist, I wonder how economists and politicians can better incorporate factors that cannot be easily monetized into their decision-making.

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  30. As a student of both Economics and English, I understand well the skepticism of non-Economists toward the dismal science, and appreciated Fullerton and Stavin’s commitment to improving interdisciplinary discourse. More importantly, I appreciated that rather than blaming misperceptions of the field on outsiders’ ignorance, they acknowledged statements by economists that may have provoked those misconceptions in the first place.

    The section of the article I found most interesting was “Myth #3,” which addressed the criticism of economists’ use of market prices in evaluating non-market solutions. In research for my English Thesis, which uses an economic critical approach, I’ve come across several theories useful for discussing this concept, including Marx’s notion of the “commodity fetish” and Michael Sandel’s argument in What Money Can’t Buy: The Moral Limits of Markets. Both pursue the same line of thought: If we put a price on something invaluable (or priceless), do we threaten its long-term existence?

    Though these criticisms are not levied toward economists, but rational economic actors at large, I believe they nuance Fullerton and Stavin’s argument on this pricing issue. They offer a pragmatic reason for pricing in economic assessment (dollar figures offer a highly standardized point of comparison), but don’t address the point where cost evaluation impedes holistic assessment.

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  31. I found the first two myths addressed by the authors to be the most interesting compelling dissections of the 4 put forth by the authors. In breaking down the first myth the authors address the divide among economists in different sub-fields of economics and how each specific background informs how the economists thinks about markets and market solutions. I think that identifying those differences is very helpful to readers who often think of economists as one entity rather than a whole field of thinkers that have a different backgrounds and ways to see the world. Often I think that critics of economists misunderstand the basis for faith in the markets and that smart economists do understand the weakness of the market model. By addressing this issue in the first myth and then expounding on it in when addressing the second, the authors inform the reader of economists own acknowledgement of the weakness of markets and the infeasibility of finding a market solution for each problem. I think that breaking down these myths is critical to the authors main point and is the largest barrier to understanding how economists may solve problems to the average critic.

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