Thursday, February 07, 2008

A Glorified Chatlog

I had an interview with the school newspaper about Environmental Economics the other day. The following is the edited version that appeared in print.

Nate Maxwell: What would you say are the 1 or 2 most interesting insights scholars in the field have contributed?

Professor Mike Hammock: At the optimal amount of pollution, the marginal damage from pollution will be equal to the marginal benefit of polluting. This sounds very technical, but it is actually quite intuitive. It really just means that we should keep cleaning up pollution up until the point at which the benefits of doing more clean up are less than the costs of doing more clean up. If we impose a tax on a polluter to make the polluter “feel” the damage caused, then the polluter will emit only the efficient amount, and no more. However, actually measuring the benefits and costs of pollution is difficult.

The second insight is the realization that markets can fail--we have terms for these failures such as “Externalities” and “The Tragedy of the Commons”. Our contribution is that we have found ways to take advantage of the ways that markets work to create regulation that can effectively protect resources. So, for example, economists favor pollution taxes, but dislike CAFE standards. Economists like tradeable fish quotas, but dislike command-and-control regulations of fishing technology.

NM: What would be your suggestion for students who care about environmental issues?

MH: Students who care about environmental issues are in a difficult position. On the one hand, everyone wants to do good and there are many people who tell us to be environmentally conscious in our everyday lives. On the other hand, it is hard to know what does the most good, or whether a particular action does good at all when one weighs the costs. Furthermore, this kind of individual action is not enough. We simply won’t get enough reduction in greenhouse gases to make a difference if we simply ask people to “please not emit so much methane and carbon dioxide”.

So instead of trying to individually trying to make a difference in the environmental state of the world, it might make more sense to push for policies that could have a real effect. Support carbon taxes or tradeable permits instead of CAFE standards, for example. These policies will affect everyone, encouraging significant conservation at a (relatively) low cost. Of course, this suggestion suffers from the same coordination problem as asking everyone to “be green”. It relies on everyone taking costly action--participating in politics--with low personal benefits.

2 comments:

Nick said...

-Is there a generalized theory of incentives, I'm wondering what sources can cause these poor incentives. What incentive causes incentives!

-A fancy term I hear thrown around is asymmetric information, how does this concept apply, if at all, to the labor market

-Could you touch on some big topics: Housing melt down, stimulus package, those recent rate cuts.

-Shacks are a good investment

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