DO ALL THE RESOURCE PROBLEMS IN THE WEST BEGIN IN THE EAST?

Economics can make good policy better and bad policy go away- a message often constrained by the political realities surrounding federal resource policy toward the West. This essay responds to these challenges to economic reasoning based on the lessons learned after a stay at the Council of Economic Advisers. My goal is to help make apolitical economists more effective advocates of efficiency.Agricultural and Food Policy,

EXPERIMENTAL MARKETS AND ENVIRONMENTAL POLICY

Experimental markets can be a useful tool to guide and evaluate environmental policy. This paper reviews four experiments to illustrate. Two institutional experiments are considered-Coasian bargaining with positive transaction costs, and a gaming experiment of dynamic choice in a conflict. Two valuation experiments are also discussed-the impact of sequential reduction mechanisms on the value of risk, and experimental auction markets to elicit the value of safer food.Environmental Economics and Policy,

Unprotected Resources and Voracious World Markets

The Theory of the Second Best implies that any country with less-than-ideal resources can lose from international trade. Recently it has been suggested this means the South (poor countries) are better off suppressing trade with the North, especially trade in natural resource products, since the North has better developed rights to protect its natural resources. Here we show that the suppression of such trade may also impede the development of property rights in the South, but that even taking this into account, trade liberalization need not improve Southern welfare. We find that within a cone of world prices on the boundary of which lies the South’s autarky price vector, welfare losses still occur even when local governments in the South make optimal choices to enclose the hinterlands. Corollary to the losses, the South can gain from tariffs or quotas and, within a proper subset of the cone of loss, can suffer when the prices of its exports rise.International Trade; Property Rights; Natural Resources; Environment; Second Best; Institutional Change; Development

How Trade Politics Affect Invasive Species Control

Trade has become the main mode of transport for many invasive species including diseases and agricultural pests. Most species are brought to their new homes unintentionally, which constitute a market failure rooted in international trade. Unless it is practical to drive invasion risk to zero, the external costs may justify a tariff. In this paper we analyze the political process likely to govern the formation of tariffs so justified, using a straightforward incorporation of an invasive species externality into Grossman and Helpman’s well-known political economy model. We show our measure of disguised protectionism—the gap between the optimal tariff and that set in the equilibrium of the political economy game—is equal to the tariff that would be set if there were no invasive species and no international disciplines on trade policy. The informational needs required to distinguish disguised protectionism from legitimate public-goods protection are formidable.invasive species, protectionism, tariff, political economy

Climate Change Policy

Having risen from relative obscurity as few as ten years ago, climate change now looms large among environmental policy issues. Its scope is global; the potential environmental and economic impacts are ubiquitous; the potential restrictions on human choices touch the most basic goals of people in all nations; and the sheer scope of the potential response—a significant shift away from using fossil fuels as the primary energy source in the modern economy—is daunting. In this paper, we explore the economics of climate change policy. We examine the risks that climate change poses for society, the benefits of protection against the effects of climate change, and the costs of alternative protection policies. We organize our discussion around three broad themes: why costs and benefits matter in assessing climate change policies, as does the uncertainty surrounding them; why well-designed, cost-effective climate policies are essential in addressing the threat of climate change; and why a coherent architecture of international agreements is key to successful policy implementation. We conclude the paper with a summary of key policy lessons and gaps in knowledge.

Implementing the Efficient Auction: Initial Results from the Lab

The efficient auction is designed to induce truthful bidding for bidders with affiliated values. Herein we implement the auction in the lab, and observe that inexperienced people can bid systematically in this more complex environment, albeit yielding a flatter bid function than the truthful.Key Words: auction, affiliation, experiments, valuation

Incomplete Preferences in Choice Experiments: A note on avoidable noise and bias in welfare estimates

How does a choice experiment (CE) model derived under standard preference axioms perform for respondents with incomplete preferences? Using simulated data, we show how such miss-specification results in unnecessary noise and bias in welfare estimates, and can be avoided.Choice experiment, Ordered Logit, Bias, Preference Axioms

Loss Aversion in Water Markets

Resource /Energy Economics and Policy,

Benefits & costs of Kyoto

The 1998 Kyoto protocol signalled a new earnestness of international intent toward addressing the perceived risk of climate change. Kyoto demands that developed nations turn their economies so as to hit differentiated, sub-1990 level carbon emission targets within the next decade or so. But when thinking of the Kyoto protocol imagine trying to turn a battleship on a dime with a third of the crew on-board. Improbable, but doable...but for what benefit...and at what cost? The magnitude depends on what you choose to believe about the answer to these questions: Are we on the cusp of a catastrophe? Will developing countries ever participate? What will we do with any revenues that are raised in a trading system? Should nations be forced to reduce some fixed percentage of emissions at home? Can carbon sinks reduce costs? Will people adopt new energy-efficient technologies without a price hike in energy? The answers to these questions from economic analysis say that the catastrophes have to be exceedingly likely for Kyoto to make sense