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Environmental & Resource Economics

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Energy and Climate

In a recent analysis, Rutherford and co-authors argue that in the absence of cooperative international climate policy (such as the Kyoto Protocol), with countries pursuing national self interest, carbon emissions trading can nonetheless generate substantial environmental gains. Among several important results of the analysis are that often the primary incentive to participate in carbon trading is the opportunity to impact the terms of trade for other goods (rather than to generate environmental gains), and that smaller trade groups of developed and developing countries may generate greater carbon reductions than large groups of trading partners.
As an energy-intensive sector, agriculture has traditionally linked to the energy industry through input channels. The emergence of large-scale production of biofuels in the U.S. fuel market substantially reshapes the relationship between energy and agriculture. The increased use of corn as ethanol feedstock has exposed agricultural markets to both input-related supply shocks stemming from rising energy prices and demand-side shifts based on biofuel’s role as a petroleum substitute. The strengthened linkage between energy and agricultural markets is indicated by the strong co-movements of ethanol, gasoline, and corn prices. In a recent paper, Du and a co-author conclude that since 2008 corn, ethanol, and gasoline prices have significant and positive impacts on each other. In each market a significant and relatively large share of the price variation could be explained by the price changes in the other two markets.
Analysis of the geography of crop yield distributions provides insights to interactions between climate, technical change and policy on the one hand and land use on the other hand. In a recent study, Du and co-authors provide theoretical arguments that crop yield distributions become more negatively skewed when growing conditions become more benign. In an empirical analysis using a large farm-level dataset of corn, soybean, and wheat yields, they examine the impact of a number of exogenous geographic and climate-related factors on the mean, variance and skew of yield distributions. They find significant impacts of several exogenous geographic and climate-related factors on crop yield distribution, which should have important implications for farmers’ crop insurance choices and land use decision

Property Rights and Resources

Under what circumstances does the assignment of property rights ameliorate the misallocation of natural resources? This is a perennial issue in resource economics, and the focus of recent work by AAE faculty. A textbook solution to the problem of open access fisheries is to assign catch-shares to individual fishermen, but as Parker and his co-authors point out in a recent paper, such assignments frequently fail because of political opposition and special interests. They examine an alternative management regime in which catch-shares are assigned to groups of fishermen who agree to form profit-sharing cooperatives. Empirical evidence from an Alaskan salmon fishery indicates that cooperative fishermen significantly outperformed their independent counterparts by coordinating their resources and ultimately delivering a higher quality product at lower costs.
Even when catch-shares are politically feasible, an important practical question is how they should be structured to maximize the value of the fishery resource. In the first empirical study of its kind, Grainger and a co-author examine the relationship between the structure of catch-shares and their value to fishermen for a large number of fisheries managed via catch-shares. The authors find that stronger property rights lead to higher values for catch shares. While the aggregate value of fisheries may increase substantially due to property rights, some individuals may rationally oppose catch shares unless initial allocations take into account historical profits. In a second study, Grainger and a co-author examine how the transition to property rights affects the distribution of income across individual fishermen.

Valuation of Environmental Goods and Services

What is the value of cleaner air? What is the value of preventing the spread of an invasive species? The valuation of environmental goods and services is a significant issue in environmental policy because markets do not directly price many of these goods, and yet sound decisions with regard to environmental policy must account for the social benefits of these goods. For many years AAE has been a leader in the development of methods in the valuation of environmental goods, and a recent paper by Phaneuf and co-authors continues this tradition of excellence. In an examination of the value of remediation of a contaminated site in Buffalo, NY, they combine two very different valuation methods –one based on housing prices and one based on a choice experiment presented in a survey–in a statistical analysis that exploits the strengths of each. The method solves a significant hurdle in using housing market data to value non-marginal environmental improvements.
Invariably studies of the value of environmental goods are "snapshots" estimating the value of a good at one point in time. But do these values change over time due to changing preferences for environmental goods? In a unique study funded by the NSF Long Term Ecological Research (LTER) network, Provencher is examining this question. The long-term study enlists a panel of residential properties along northern Wisconsin lakeshores. Among several research questions to be addressed are whether preferences for environmental goods change as individuals age, and whether turnover of residential ownership at a location causes the valuation of environmental goods at the location to rise or fall more rapidly over time than it would otherwise —and if this is generally true, whether the household sorting it implies is a positive feedback to environmental change.

Distributional Effects of Environmental Regulation and Policy

Is it the case that environmental regulation and policy tends to favor the rich? A growing literature addresses this issue, and AAE has several faculty leading the way. In a recent 2011 paper, Alix-Garcia and co-authors examine whether the Kabila National Park in Uganda created a “poverty trap” for local residents by restricting access to resources that were formerly available to them. The authors do not find evidence that the park generated a poverty trap. In a recent evaluation of Mexico’s payments for hydrological services program to mitigate deforestation, Alix-Garcia and co-authors find that the program does an excellent job in enrolling though the poor, though its poverty alleviation impacts are negligible.
A recent paper by Grainger examines whether renters or landlords are the beneficiaries of air quality improvements in the U.S. generated by the 1990 Clean Air Act amendments. If landowners are able to pass on the capitalized value of a pollution decrease (in the form of higher rent), low-income renters may not receive any net benefit from the change in air quality. The verdict: about half of the value of the improvement is captured by property owners via higher rents.

Economics of Landscape Change

AAE is involved in a number of research projects that concern the spatial and temporal affects of environmental policy. In all cases, the availability of GIS spatial data, and the development of new econometric methods to take advantage of this data, has provided the opportunity to examine research questions that were inaccessible only a decade ago. Some examples of this work:
  • Phaneuf and colleagues examine how open space preservation in urban areas affects the sorting of households within the area, and the implication of this sorting for local housing prices. They find that the social welfare effect of open space preservation is at least partially offset by the rise in housing prices generated by the supply-side effect of creating new open space.
  • The effectiveness of land conservation programs depends in part on the extent of “slippage”–the increase in resource exploitation on land that is not conserved, due to capital substitution or price effects. Alix-Garcia and colleagues recently found that a forest preservation program in Mexico to preserve water supplies is at least partially offset by slippage.
  • Parker is studying two striking trends that dominate American land conservation: the growth of land trusts and their acquisition of nearly 20 million acres in conservation easements over the past 25 years. His findings indicate that the spatial decision of where to conserve – and therefore the ecological quality of conservation efforts – is impacted by adjacent government conservation programs and also by federal and state tax codes.
  • An NSF project led by Provencher examines the role of recreational boaters on the spread of aquatic invasive species in the lake-rich landscape of northern Wisconsin. Lake-level policies to control the spread can inadvertently increase the rate of spread through a region, by re-directing boater traffic to ecologically vulnerable lakes that were previously visited infrequently.
  • Barham and colleagues are examining whether farmer interactions are important to the adoption of organic farming. A twist on this work is that it compares and contrasts the role of farmer interactions for both dairy farming in Wisconsin and maize production in Bolivia.
Last updated on Fri, Jul 4, 2008 7:15am