conversableeconomist

Putting a Value on State Parks

In the latest issue of Resources magazine, from Resources for the Future, Juha Siikamäki inquires into \”State Parks: Assessing Their Benefits.\”

\”Each year, more than 700 million visits are made to America’s 6,600 state parks. … Using conventional economic approaches to estimate the value of recreation time combined with relatively conservative assumptions, the estimated an annual contribution of the state park system is around $14 billion. That value is considerably larger than the annual operation and management costs of state parks.\”

Siikamäki\’s approach goes like this. Start with estimates of how people use their time. Combining data from a number of time use surveys over time provides this overall pattern for hours of nature recreation per person.

This data on time use can be broken down to the state level. Siikamäki then also created a data base on how state parks have changed over time. \”Between 1975 and 2007, about 3,000 new parks totaling about 2 million acres were established in the United States, increasing the total area of the state park system by nearly one-quarter.\” It\’s then possible to try to determine the relationship between how changes in state parks affect the how nature recreation time changes in a certain state–using statistical methods to try to hold constant other possible confounding factors.

The Resources article is a highly readable overview of this work. Those who want the gory details need to turn to Siikamäki\’s more technical article in article in the Proceedings of the National Academy of Sciences, August 23, 2011, \”Contributions of the US state park system to nature recreation.\” Here\’s the result of the calculation:

 \”This expansion of the state parks is estimated to contribute about 9 percent of all current time use for nature recreation. Overall in the United States, this equals annually about 600 million additional hours of nature recreation, or about 2.7 hours of nature recreation per capita. … Valuing recreation time monetarily requires determining the opportunity cost of time. To illustrate the potential magnitude of recreation’s time value, I used a conventional and commonly adopted approach where recreation time is valued at one-third the wage rate. … Extrapolating from the above results, I estimate about 33 percent of current time use for nature recreation can be attributed to the U.S. state park system. This equals annually about 9.7 hours of nature recreation per capita, or about 2.2 billion hours of nature recreation in total in the United States. The estimated time value of nature recreation generated by the entire U.S. state park system is about $14 billion annually (about $62 per person annually, on average).\”

Of course, these results, like all statistical results, need to be handled with care. Even if state parks encourage considerable recreation on average, it is surely still true that some state parks have bigger payoffs while others have smaller payoffs. It could be that states where the citizens had a high demand for nature recreation are also the states  that are more likely to add to the state park system–and perhaps the quantity of nature activities would have risen in those states even without the expansion of the state parks. Even if the state parks had not been expanded, people would have done something with their time, so the value of the state parks should be the marginal increase over that alternative use–an inevitably tricky task.

On the other side, by measuring the benefits of state parks purely in terms of recreation benefits leaves out other benefits and thus underestimates total social benefits from state parks.  Siikamäki concludes: \”Nature recreation represents only a partial assessment of the full range of ecosystem services produced by natural areas. Examples of other potentially relevant ecosystem services include carbon sequestration and storage through biological processes, contributions to surface and groundwater services, and benefits from preserving endangered and threatened species. A full assessment of ecosystem services from state parks should consider these nonrecreation contributions, yielding an even more comprehensive—and presumably larger—estimate of the value of America’s state park system.\”

conversableeconomist

Saving Jaguars and Elephants with Property Rights and Incentives

When it comes to saving endangered species, many people have the instinctive reaction that that the policy answer is to pass a law that forbids disturbing or hurting the species. Economists have long pointed out that while such a law may be a useful first step, the incentives of those who live locally to avoid hurting the animal and to protect its habitat matter a lot. If finding an endangered species on your land means that you are deprived of the use of that land, there is a counterproductive incentive, as the old saying goes, to \”shoot, shovel, and shut up.\” In low-income countries, in particular, protecting endangered species and their habitat will require active cooperation of nearby villages and farmers.

A classic example is whether to allow hunting of elephants in Africa. Terry Anderson  and Shawn Regan provide a lively and opinionated overview last June in \”Shoot an Elephant, Save a Community.\”  

\”Anti-hunting groups succeeded in getting Kenya to ban all hunting in 1977. Since then, its population of large wild animals has declined between 60 and 70 percent. The country’s elephant population declined from 167,000 in 1973 to just 16,000 in 1989. Poaching took its toll on elephants because of their damage to both cropland and people. Today Kenya wildlife officials boast a doubling of the country’s elephant population to 32,000, but nearly all are in protected national parks where poaching can be controlled. With only 8 percent of its land set aside as protected areas, it is no wonder that wildlife in general and elephants in particular have trouble finding hospitable habitat. …

\”In sharp contrast to Kenya, consider what has happened in Zimbabwe. In 1989, results-oriented groups such as the World Wildlife Fund helped implement a program known as the Communal Areas Management Programme for Indigenous Resources or CAMPFIRE. This approach devolves the rights to benefit from, dispose of, and manage natural resources to the local level, including the right to allow safari hunting. Community leaders with local knowledge about wildlife and its interface with humans help establish sustainable hunting quotas. Hunting then provides jobs for community members, compensation for crop and property damage, revenue to build schools, clinics, and water wells, and meat for villagers … By granting local people control over wildlife resources, their incentive to protect it has strengthened. As a result, poaching has been contained and human-wildlife conflicts have been reduced. While challenges remain, especially from the current political climate in Zimbabwe, CAMPFIRE has quietly produced results with strikingly little activist rhetoric. … Ten years after the program began, wildlife populations had increased by 50 percent. By 2003, elephant numbers had doubled from 4,000 to 8,000. The gains have not just been for wildlife, however. Between 1989 and 2001, CAMPFIRE generated more than $20 million in direct income, the vast majority of which came from hunting. During that period, the program benefitted an estimated 90,000 households and had a total economic impact of $100 million. 
Wildlife imposes real costs on African communities. Those communities need the right incentives to protect wildlife and its habitat. The results go beyond the CAMPFIRE areas. Between 1989 and 2005, Zimbabwe’s total elephant population more than doubled from 37,000 to 85,000, with half living outside of national parks. Today, some put the number as high as 100,000.\”

A more recent example focuses less on hunting, and more on a combination of tourism and property rights as the local incentive. The October 2011 issue of Smithsonian magazine has an article about \”The Jaguar Freeway: A bold plan for wildlife corridors that connect populations from Mexico to Argentina could mean the big cat\’s salvation.\”  The article discusses an effort to connect existing jaguar habitats from Mexico to Argentina with corridors in which the jaguars could travel, in an attempt to preserve their biodiversity and to prevent the animals from being confined in nature preserves. Here\’s a map of the plan, where the green areas are jaguar population centers, the yellow lines are corridors that are pretty likely, and the red lines are jaguar corridors at risk: 



This article isn\’t written by or for economists, but the negotiations with government, local landowners and farmers over whether to create these jaguar corridors often refer to incentives for tourism. Here is a scattering of comments from the article: 

\”[I]n 1984, Belize’s Cockscomb Basin became the world’s first jaguar preserve. Now en­compassing about 200 square miles, it is part of the largest contiguous forest in Central America. Jaguars are now thriving in Belize, where ecotourism has made them more valuable alive than dead.\”

Here\’s a description of two \”conservation ranches\” in Brazil: \”The ranches straddle two preserves, making them an important link in the corridor chain and together creating 1,500 square miles of protected habitat. …
These ranches are expected to be more successful than others by using modern husbandry and veterinary  techniques, such as vaccinating cattle herds. Because disease and malnutrition are among the leading killers of cattle in this region, preventing those problems more than makes up for the occasional animal felled by a jaguar. “My vision was to ranch by example,” Kaplan says, “to create ranches that are more productive and profitable and yet are truly jaguar-friendly.”\”

\”In Belize, where jaguars serve increasingly as an attraction for ecotourists, Maya who once killed the animals are now their protectors. “It’s not born-again enlightenment,” says Rabinowitz. “It’s economics.” Jaguar tourism is also bringing money into the Pantanal [in Brazil]. Carmindo Aleixo Da Costa, a 63-year-old rancher, says that hosting a few foreign tourists doubles his annual income. “Now is the time of the jaguar!” he says, beaming.\”


conversableeconomist

Costs of Air Pollution in the U.S.

What costs does air pollution impose on the U.S. economy? Nicholas Z. Muller, Robert Mendelsohn, and William Nordhaus tackle that question in the August 2011 issue of the American Economic Review. AER articles are typically available only by subscription to the journal, but their article, \”Environmental Accounting for Pollution in the United States,\” is publicly available. I\’ll start here by summarizing some of their findings, and then backtrack to offer a quick overview of their methodology.

Total \”gross external damages\” the six \”criterion\” air pollutants in 2002–sulfur dioxide, nitrogen oxides, volatile organic compounds, ammonia, fine particulate matter,and coarse particulate matter–was $182 billion. Since GDP was about $10.5 trillion in 2002,  the cost of air pollution was a bit under 2% of the total.\”The effects included in the model calculations are adverse consequences for human health, decreased timber and agriculture yields, reduced visibility, accelerated depreciation of materials, and reductions in recreation services.\” This total does not include costs of carbon emissions, for which comprehensive sector-by-sector, place-by-place data are not available in 2002.

The sectors with the biggest air pollution costs measured in terms of \”gross external damages\” (GED) (counting the same six pollutants but again not counting carbon emissions) are utilities, agriculture/forestry, transportation, and manufacturing. If one looks at the ratio of gross economic damages to value-added in the sector, agriculture/forestry and utilities lead the way by far with ratios above one-third. Manufacturing has fairly high gross external damages, but the GED/VA ratio for the sector as a whole is only 0.01.

If one breaks down sectors into specific, here is a list of all industries that have either more than $4 billion in gross external damages from air pollution or a GED/VA ratio (gross external damages divided by value added) of more than 0.45. In particular, coal-fired power generation jumps off the list to me, with its very large GED and a GED/VA ratio of 2.2.

If pollution taxes or tradeable pollution permits were imposed, so that industry was required to take the social costs of pollution into account, the value of the gross external damages caused by air pollution would be reduced by about four-fifths.

Taking carbon emissions into account, which they do for the electric power industry, makes a relatively small difference to the harms of coal-fired plants, but a larger relative difference for natural gas power plants. Coal-fired power plants already have gross external damages of $53.4 billion, and adding the costs of carbon (priced at $27/ton of emissions) raises that total to $68.7 billion. However, natural gas power plants emit relatively small levels of the six \”criteria\” pollutants and have gross external damages of only $0.9 billion. For them, adding costs of carbon emissions nearly quadruples their gross external damages to $3.4 billion–and raises their GED/VA ratio from a worrisome 0.34 to an eyebrow-raising 1.30.

The methodology behind these estimates is quite reasonable, which means of necessity that it is also comprehensive and complex. The basic approach in this kind of work is to choose what you think are the most plausible estimates, but also to compare them with other data sources, other models, and other estimates, so that you can continually double-check the reasonableness of your choices.

They start with an inventory of all U.S. air pollution emissions published by the Environmental Protection Agency, covering emissions in 2002. It includes 10,000 emissions sources, including 656 point sources (individual facilities) and then area sources, like vehicles and other stationary sources, at the county level. The source of these emissions is distinguished by height–which affects their environmental costs–and also categorized by six-digit industry code. Thus, these authors use the Air Pollution Emission Experiments and Policy model to look at how these emissions spread. However, they cross-check this approach by looking at another model, the Community Multiscale Air Quality model. They look at particular studies for how each of these pollutants affects health and other costs–and compare their chosen studies to others that are available.
They use a value of a statistical life for an average worker of $6 million, but also do illustrative calculations using $2 million and $10 million.  The overall result is like building up a mosaic one tile at a time: even if you disagree with the placement or color of an individual tile here or there, the overall picture is persuasive.

To me, a lesson that emerges from these calculations is that the costs of air pollution and of burning fossil fuels are very high, both in absolute terms and compared to the value-added of certain industries, even without taking carbon emissions into account. Environmentalists who are discouraged by their inability to persuade more people of the risks of climate change might have more luck in reducing carbon emissions if they deemphasized that topic–and instead focused on the costs of these old-fashioned pollutants. 

conversableeconomist

Bruce Yandle on environmental economics

David A. Price of the Richmond Fed has an interview with Bruce Yandle.

On the difference between a “systems approach” and a “process approach” to environmental policy issues: 
\”A systems approach is where the “brightest and best” get together and look at a problem and come up with
what they believe to be the best solution. They describe the system that can be installed that will lead to a solution of the problem and so it tends to be top-down.  In a process approach, you identify goals and outcomes, develop some rules of the game, and then let the process take hold, holding accountability with respect to outcome. You don’t tell people how to do things; you say this is the outcome that must be achieved, or it’s going to be costly for you.\”

On problems of transactions costs:
\”Transaction costs are large under either approach. The transaction costs are high in a technology-based

systems approach on the input side. The difficulty is no one is keeping score on the output side and we literally
have rivers that come close to dying, even though every discharger is meeting the requirements of the law. So you have a community of legal polluters killing a river. You can say we saved a lot of transaction costs. Well, I would say, “But you didn’t save the river!” Should we be concerned with transaction costs or outcomes? You do have a trade-off there.  I looked at the level of litigation under common law and statute law. We looked at the amount of litigation in the post-1970 world and the pre-1970 world and it looks like you get about the same amount of litigation with the statutes as you do at common law. It’s not an apples-to-apples comparison because all we’re looking at are counts of cases that are brought. Statute law generates a huge amount of litigation, and litigation costs are transaction costs in a way. That’s an important consideration, but I think the more important consideration is outcomes, and then to look, in some way, at the costs.\”

The start of the \”environmental saga\”:
\”From 1970 through last year, we had 2.5 million pages of the Federal Register published during that period; from 1940 to 1970, about 350,000. What I call the environmental saga begins in the United States in about
1970 and that’s when the world changes dramatically.\”

On  \”bootlegger and Baptist\” coalitions: 

\”That was the story of two groups who favor restrictions on the sale of alcoholic beverages on Sunday. The Baptists take the moral high ground; they would like to see a diminution in the consumption of alcoholic beverages. The bootlegger just wants to get rid of competition one day a week. I called it bootlegger and Baptists  for alliterative purposes. It could  have been called “bootlegger and Methodists” and you would have the same story. … I was working on the White House staff reviewing newly proposed regulations during the end of the Ford administration and the first part of the Carter administration, in a unit of the Council on Wage and Price Stability. My beat was the EPA. I reviewed the copper smelter standards. I would get their big regulatory bundles and review them, and we would make comments in an attempt to try to reduce the cost of accomplishing the goal. EPA had an excellent economic analysis. The last section said when this regulation becomes final, there will never be another copper smelter built in the United States of America. How would you feel if you had a copper smelter? You’d just been told you will never have any new competition.\”

For a short and readable recent article by Yandle, see my post of July 1 on \”The Accumulation of Regulations.\”