Tuesday, January 11, 2011

Stavins for Thursday

Please read and comment by 8am Thursday.

The Myth of the Universal Market

The Myth of Simple Market Solutions

One last Myth

50 comments:

Mackenzie Doss said...

Environmentalist Barry Commoner has written that: "The origin of the environmental crisis can be
traced back to the capitalist precept that the choice of production technology is to be governed solely by private interest in profit maximization". Admittedly, at first glance, I found it difficult to imagine that the goals of environmentalism and economics could be reconciled. While I have been exposed to many texts that argue that the capitalist mode of production is ultimately self-destructive in the environmental realm, I find that Stavins and others introducing the "economic perspective" debunk this myth. It is possible that the free market itself is responsible for cleaner environmental conditions: first, by providing incentives for businesses to reduce costly waste (there are no laws mandating in-house recycling in companies or reducing packaging but both efforts have been made because they reduce cost and make companies more competitive). The free market also gives individuals a vested interest in their land (arguably, someone who owns the land will care more about it) by allocating property rights. In these and other basic ways, I think it is possible to give our (capitalist) economy credit for environmental "cleanliness". While Stavin is correct in concluding that the market cannot solve ALL of our problems, I have a much different perspective on the compatibility of environmental and economic goals in achieving effective and efficient policy.

Mackenzie Doss said...

Environmentalist Barry Commoner has written that "The origin of the environmental crisis can be
traced back to the capitalist precept that the choice
of production technology is to be governed solely by private interest in profit maximization". Admittedly, at first glance, I found it difficult to see that the goals of environmentalists and economists could be reconciled. Having been exposed to readings that blamed our capitalist economy for our environmental crisis and degradation, going so far as to call our economy "markedly self-destructive" in the environmental realm, I am glad to have been offered the economic perspective through Stavin and others. I now have an understanding that while the market cannot solve ALL of our problems, it is also possible to attribute cleaner environmental conditions to the free market. For example, the market encourages pollution reduction by encouraging businesses to reduce their costly waste. This is evident in businesses undertaking steps such as in-house recycling efforts and reduction of packaging. Waste products can also be sold to other companies to be manufactured into other consumer products. These efforts are NOT mandated by any law but simply undertaken because they reduce costs and make businesses more competitive. Because of property rights, individuals have a vested interest in their own land and will arguably "care" more about it, further discouraging pollution. While these may be the most basic "exceptions" to the rule that Stavin speaks of, it was important for me to gain a better understanding that economics and environmentalism are not two separate and competing entities but can be used and improved upon by the government to develop policies that will improve welfare and efficiency.

Amy said...

Stavin examines three general "myths" about economics as perceived by the general public. First, he addresses the myth that economists believe the market solves all problems. He also refutes the myths that simple market solutions are always recommended for market problems, and finally that non-market solutions are only evaluated in terms of market prices.

Economists are often misunderstood, in part because of the lack of communication between disciplines, but also in part to an economist's dependence on models. In seeking solutions to real world problems, economists use models of the world to simplify situations. Assumptions are made, such as perfect competition and perfect knowledge, which allow the models to function, but are unrealistic in real world terms. The use of these models and assumptions, when not fully understood, are often a source of irritation to policy makers. Models, however, as argued by Dani Rodrik among others, are incredibly useful in formulating potential market or government solutions.

Environmental and natural resource issues cannot be solved only through market solutions, but must adapt a multi-faceted approach. Environmental economics is attempting to tie together economic theory, natural sciences, and political circumstances to facilitate solutions.

Ryan Hanson said...

Stavins points out in his three columns that economists are often misunderstood, thus resulting in a plethora of myths. He first looks into the myth that "economists believe that the market solves all problems." While Adam Smith's laissez-faire system can prove useful, Stavins points out that "perfectly functioning markets are the exception, not the rule." There are conditions that must hold true in economics to produce a desired outcome. However, especially in environmental economics, there can be market failures. This is where the government must play a role.

He next looks at the myth of "simple market solutions for market problems." He asserts that market-based solutions are merely part of the bigger picture. "No particular form of government intervention is appropriate for all problems." In development economics last term, we stressed the idea that models are MODELS. They are not ALWAYS going to work in every situation. Additionally, there can be unintended consequences.

The third myth discussed is that "when non-market solutions are considered, economists use only market prices to evaluate them." While initially this seems true, Stavins points out that one must use monetary equivalents in the absence of a "more convenient unit." The use and non-use values, however, are taken into consideration in valuing a non-market good.

Finally, Stavins addresses the idea that "economic analyses are concerned only with efficiency rather than distribution." While economic analysis is concerned with efficiency as it is easily measurable, distribution is not neglected. According to Stavins, it is rather an issue of what "constitutes improvement in distributional equity."

Katie Garratt said...

Stavins’ second point that economists do not often provide simple market solutions for market problems intuitively makes sense because there is rarely a simple solution to a complex problem. Simplified models can help illustrate why something is happening, but they are intended to provide insights not necessarily solutions. Often a solution in the model that seems simple, such as taxing the price for gasoline in a developing country to curb pollution, has much more complicated effects in reality. In a developing country, many low income people take public transportation, so they may feel the effect of the tax through higher bus fares. This could create further problems if people cannot get to work because they cannot afford the bus fares. Thus, solutions to market problems are often very complex because of additional effects they may have and cannot be solved by a simple market solution.

Wendelbo said...

Stavin makes a point not only for environmental and resource economics, but for economics in general. The myths are much more heavily tied to regular micro theory than they are to the field we are studying now. That said, the value of Stavin’s work here – for me – is the recognition that environmental markets cannot strictly be treated as simple-good markets like those of DVD’s, milk or camel rides. The few cases where they are optimal on their own are exceptions! Now, I don’t take that as a carte blanche to let governments intervene and regulate any way they may see fit – even moderately failed markets are still better than bad intervention. But there is a case for regulation when that regulation will bring private marginal benefit outward toward marginal social benefit (In so far as MSB is in fact larger than MPB, of course).
Stavin defends that economics are generally more concerned with aggregate wellbeing (the fourth myth). In fact, he does little to suggest that it is a myth – he simply notes that distribution is thoroughly considered by some. In environmental economics though, I would like to argue that we should be much more concerned with distributional issues than simply with aggregate wellbeing. In most of economics the growth in one area does not mean an absolute decline in another. Because of the nature of environmental goods and services, however, much consumption of certain goods DOES mean the decline in the ability to consume another. Kahn gives us several examples: the consumption of salmon may damage an eco-system which may then not provide as it could, ecological services. The Amazon forest, if it is cut down, can no longer provide oxygen or esthetic beauty as it used to and so on. Which is more important depends on your regard for distribution and beneficiaries which I think Stavin misses in an otherwise convincing few pieces. That is, you can imagine that if our scale is the world, the Amazon forest may hold much more value as “the lungs of the world”, but if one looks solely on the Amazonian economy, one could imagine that overall wellbeing is better derived from the financial value timber, tourism and cattle ranching holds – all of which are detrimental to the overall wellbeing of the whole world to some extent. Morals are then introduced of course, making this a great place to stop .

Siwan said...

I believe that Stavins’s main goals for writing the columns were to clarify misconceptions about economic thinking on environmental issues and to emphasize the importance of interdisciplinary communication, the lack of which is responsible for such misconceptions or “myths”

Stavins takes issue with the long assumed paradox between environmental studies and economics - he emphasizes the fact that these two disciplines are not opposing subjects, but rather closely related and a thorough understanding of economics CAN help alleviate environmental problems.

Stavins is writing in defense of sound economic analysis and calls for collaboration between the disciplines because that is the only way effective beneficial policies can be achieved. By pointing out the fact that it is economists in particular who understand and deal with market imperfections, mismatches of total costs of production and public goods’ values to consumers, etc., Stavins further emphasizes that economists are simply applying economics as a TOOL, being well aware of its disadvantages and imperfections (i.e. when attempting to convert disparate values into monetary terms). Despite these imperfections of economic analysis, reflected use of economics is often the “lesser evil” as we often lack the availability of a more precise tool.

Hence, Stavins reminds us of the ENDS and to not concentrate on the means only. Everyone (presumably) wants to protect the environment for the benefit of all, which can only be achieved by interdisciplinary work. For the study of most contemporary problems, especially those of global governance it seems to me that sometimes it is more helpful to divide scholars into “faculties” by their interest areas, rather than their respective disciplines.

The author knows that misconceptions are prevalent and does not only want to correct them, but also “appease” critics and take “preventive action” by explaining what and how economists REALLY think and how these concepts converge with other disciplines.

Van Nguyen said...

Coming from an Economic and Business academic training, at first I did not find myself contradicting with Stavins' reasoning and evidence to demystify the four myths about economics and its application in environment, among them are the myth of the universal market, of simple market solutions, of market prices, and of market efficiency. Nonetheless, I find his reasoning increasingly more interesting as he points out the fundamental (sometimes sole) approaches taken by economists in order to understand environmental problems.

His discussion on the tradable emission permits is rather naive. Assuming that there is a trade permit market that satisfies the conditions that Stavins outlines (numerous buyers and sellers, perfect information, low transaction costs, high volume of trades, rights of ownership, etc.) in the imaginable country of Utopia, the issue of locality is still not resolved. Even if the trade permit market in Utopia satisfies the conditions to be an efficient market, the interconnected nature of our global world through trade would shift some of the benefits resulted from the cost-bearing behavior of Utopian citizens to the rest of the world. Meanwhile, all the cost/benefits associated with any actions that can potentially affect the environment (globally and locally) would not be captured in its entirety; therefore, the price signal mechanism that economists rely on to allocate resources efficiently is not achieved. The Clean Air Act Amendments of 1990 maybe have been able to cut acid rain down by 50 percent, but it does not equitably spread the cost and benefits of these policies to the correct bearers. Stavins' stance on the issue of "uniform mixing" is rather convincing considering how locality implies there are direct and assigned bearers of the cost and benefits of certain individual and collective actions, yet in many scenarios, identifying the affected parties is just as hard as solving the problem. Mackenzie Doss' point on property rights assignment is interesting, but only applied to private and tradable goods. Coase Theorem provides an alternative solution that by not assigning property rights, a better overall outcome actually is achieved as opposed to assigning arbitrary rights of ownership to either parties. I think it is appropriate to point out the current status of Renewable Energy Credit system which is established via SREC (http://www.srectrade.com/) in which there are only two areas that allow a market-based tradefloor for renewable energy credits which are in Pennsylvania and Washington, D.C. areas. These markets are not efficient by defaults considering the lack of information on supply and demand and low trade volumes.

Van Nguyen said...

Coming from an Economic and Business academic training, at first I did not find myself contradicting with Stavins' reasoning and evidence to demystify the four myths about economics and its application in environment, among them are the myth of the universal market, of simple market solutions, of market prices, and of market efficiency. Nonetheless, I find his reasoning increasingly more interesting as he points out the fundamental (sometimes sole) approaches taken by economists in order to understand environmental problems.

His discussion on the tradable emission permits is rather naive. Assuming that there is a trade permit market that satisfies the conditions that Stavins outlines (numerous buyers and sellers, perfect information, low transaction costs, high volume of trades, rights of ownership, etc.) in the imaginable country of Utopia, the issue of locality is still not resolved. Even if the trade permit market in Utopia satisfies the conditions to be an efficient market, the interconnected nature of our global world through trade would shift some of the benefits resulted from the cost-bearing behavior of Utopian citizens to the rest of the world. Meanwhile, all the cost/benefits associated with any actions that can potentially affect the environment (globally and locally) would not be captured in its entirety; therefore, the price signal mechanism that economists rely on to allocate resources efficiently is not achieved. The Clean Air Act Amendments of 1990 maybe have been able to cut acid rain down by 50 percent, but it does not equitably spread the cost and benefits of these policies to the correct bearers. Stavins' stance on the issue of "uniform mixing" is rather convincing considering how locality implies there are direct and assigned bearers of the cost and benefits of certain individual and collective actions, yet in many scenarios, identifying the affected parties is just as hard as solving the problem. Mackenzie Doss' point on property rights assignment is interesting, but only applied to private and tradable goods. Coase Theorem provides an alternative solution that by not assigning property rights, a better overall outcome actually is achieved as opposed to assigning arbitrary rights of ownership to either parties. I think it is appropriate to point out the current status of Renewable Energy Credit system which is established via SREC (srectrade.com) in which there are only two areas that allow a market-based tradefloor for renewable energy credits which are in Pennsylvania and Washington, D.C. areas. These markets are not efficient by defaults considering the lack of information on supply and demand and low trade volumes.

Van Nguyen said...

Coming from an Economic and Business academic training, at first I did not find myself contradicting with Stavins' reasoning and evidence to demystify the four myths about economics and its application in environment, among them are the myth of the universal market, of simple market solutions, of market prices, and of market efficiency. Nonetheless, I find his reasoning increasingly more interesting as he points out the fundamental (sometimes sole) approaches taken by economists in order to understand environmental problems.

His discussion on the tradable emission permits is rather naive. Assuming that there is a trade permit market that satisfies the conditions that Stavins outlines (numerous buyers and sellers, perfect information, low transaction costs, high volume of trades, rights of ownership, etc.) in the imaginable country of Utopia, the issue of locality is still not resolved. Even if the trade permit market in Utopia satisfies the conditions to be an efficient market, the interconnected nature of our global world through trade would shift some of the benefits resulted from the cost-bearing behavior of Utopian citizens to the rest of the world. Meanwhile, all the cost/benefits associated with any actions that can potentially affect the environment (globally and locally) would not be captured in its entirety; therefore, the price signal mechanism that economists rely on to allocate resources efficiently is not achieved. The Clean Air Act Amendments of 1990 maybe have been able to cut acid rain down by 50 percent, but it does not equitably spread the cost and benefits of these policies to the correct bearers. Stavins' stance on the issue of "uniform mixing" is rather convincing considering how locality implies there are direct and assigned bearers of the cost and benefits of certain individual and collective actions, yet in many scenarios, identifying the affected parties is just as hard as solving the problem. Mackenzie Doss' point on property rights assignment is interesting, but only applied to private and tradable goods. Coase Theorem provides an alternative solution that by not assigning property rights, a better overall outcome actually is achieved as opposed to assigning arbitrary rights of ownership to either parties. I think it is appropriate to point out the current status of Renewable Energy Credit system which is established via SREC in which there are only two areas that allow a market-based tradefloor for renewable energy credits which are in Pennsylvania and Washington, D.C. areas. These markets are not efficient by defaults considering the lack of information on supply and demand and low trade volumes.

Van Nguyen said...

Coming from an Economic and Business academic training, at first I did not find myself contradicting with Stavins' reasoning and evidence to demystify the four myths about economics and its application in environment, among them are the myth of the universal market, of simple market solutions, of market prices, and of market efficiency. Nonetheless, I find his reasoning increasingly more interesting as he points out the fundamental (sometimes sole) approaches taken by economists in order to understand environmental problems.

His discussion on the tradable emission permits is rather naive. Assuming that there is a trade permit market that satisfies the conditions that Stavins outlines (numerous buyers and sellers, perfect information, low transaction costs, high volume of trades, rights of ownership, etc.) in the imaginable country of Utopia, the issue of locality is still not resolved. Even if the trade permit market in Utopia satisfies the conditions to be an efficient market, the interconnected nature of our global world through trade would shift some of the benefits resulted from the cost-bearing behavior of Utopian citizens to the rest of the world. Meanwhile, all the cost/benefits associated with any actions that can potentially affect the environment (globally and locally) would not be captured in its entirety; therefore, the price signal mechanism that economists rely on to allocate resources efficiently is not achieved. The Clean Air Act Amendments of 1990 maybe have been able to cut acid rain down by 50 percent, but it does not equitably spread the cost and benefits of these policies to the correct bearers. Stavins' stance on the issue of "uniform mixing" is rather convincing considering how locality implies there are direct and assigned bearers of the cost and benefits of certain individual and collective actions, yet in many scenarios, identifying the affected parties is just as hard as solving the problem. Mackenzie Doss' point on property rights assignment is interesting, but only applied to private and tradable goods. Coase Theorem provides an alternative solution that by not assigning property rights, a better overall outcome actually is achieved as opposed to assigning arbitrary rights of ownership to either parties. I think it is appropriate to point out the current status of Renewable Energy Credit system which is established via SREC Trade in which there are only two areas that allow a market-based tradefloor for renewable energy credits which are in Pennsylvania and Washington, D.C. areas. These markets are not efficient by defaults considering the lack of information on supply and demand and low trade volumes.

Van Nguyen said...

Secondly, I find Stavin's justification for converting all "use" and "non-use" values in term of monetary unit for comparison is extremely interesting. In Health Economics, QALY (Quality-Adjusted Life Years), a fascinating measurement for comparison, is used when it comes to assess cost and benefits of any proposed healthcare policy. QALY is defined as the additional year that a particular healthcare policy in proposed can add to the patient's life, after being adjusted for his or her physical and mental suffering. The adjustment puts a scale on almost all possible diseases known to human kind in order to capture the patient's quality of life. The proposed policy is then measured and compared in term of how much money has to be invest in order to save one QALY. This comparison is directly similar to economists' usage of monetary terms to compare policy proposals. Most of us would want to do the right for our generation and the generations to come, but scarcity prevents us to do so and economics observe the way rational agents reveal their value and maximize their resources given their set of information. Thus, even though there are many things that cannot be captured singly in terms of number, Stavin makes a lot of sense to state that we need to convert our comparison unit in order to maximize our resources when it comes to cost and benefit analysis.

Van Nguyen said...

Coming from an Economic and Business academic training, at first I did not find myself contradicting with Stavins' reasoning and evidence to demystify the four myths about economics and its application in environment, among them are the myth of the universal market, of simple market solutions, of market prices, and of market efficiency. Nonetheless, I find his reasoning increasingly more interesting as he points out the fundamental (sometimes sole) approaches taken by economists in order to understand environmental problems.

His discussion on the tradable emission permits is rather naive. Assuming that there is a trade permit market that satisfies the conditions that Stavins outlines (numerous buyers and sellers, perfect information, low transaction costs, high volume of trades, rights of ownership, etc.) in the imaginable country of Utopia, the issue of locality is still not resolved. Even if the trade permit market in Utopia satisfies the conditions to be an efficient market, the interconnected nature of our global world through trade would shift some of the benefits resulted from the cost-bearing behavior of Utopian citizens to the rest of the world. Meanwhile, all the cost/benefits associated with any actions that can potentially affect the environment (globally and locally) would not be captured in its entirety; therefore, the price signal mechanism that economists rely on to allocate resources efficiently is not achieved. The Clean Air Act Amendments of 1990 maybe have been able to cut acid rain down by 50 percent, but it does not equitably spread the cost and benefits of these policies to the correct bearers. Stavins' stance on the issue of "uniform mixing" is rather convincing considering how locality implies there are direct and assigned bearers of the cost and benefits of certain individual and collective actions, yet in many scenarios, identifying the affected parties is just as hard as solving the problem. Mackenzie Doss' point on property rights assignment is interesting, but only applied to private and tradable goods. Coase Theorem provides an alternative solution that by not assigning property rights, a better overall outcome actually is achieved as opposed to assigning arbitrary rights of ownership to either parties. I think it is appropriate to point out the current status of Renewable Energy Credit system which is established via SREC in which there are only two areas that allow a market-based tradefloor for renewable energy credits which are in Pennsylvania and Washington, D.C. areas. These markets are not efficient by defaults considering the lack of information on supply and demand and low trade volumes.

Jennie Norcini said...

Stavins first addresses the myth that the market solves all problems but these problems and scenarios are limited; they must meet many conditions for this theory to apply. One of the qualifications is that there are no externalities which creates an inherent conflict between economists’ theory of welfare economics and environmental economics because the latter is focused on externalities. If a perfect market functions to provide the greatest good for the greatest number but does not factor in environmental variables the definition “good” in this sense is limited. Stavins elaborates on this by discussing how unrestricted, market-driven production could produce social costs such as pollution. While it is possible to determine metrics for pollution it is difficult to add into the theorem of welfare economics and to calculate the total cost. It would be interesting to examine how to quantify social costs and to factor them into econometric equations for the total cost of a product.

In his second article about the myth of simple solutions Stavins discusses to possible answers to excessive pollution. It seems that the first option, of creating the market for emissions permits would be embraced by more people because it offers a free market solution to an environmental problem. Both sides of the spectrum should be able to find a middle ground based on this idea. This will not be a simple policy because it must account for all of the issues, which Stavins highlighted, that can arise out of a permit market policy.

In the third article Stavins examined one way to measure how people value environmental factors my measuring the premium people are willing to pay for a house in an area with clean air. The issue with this measurement system is that it assumes people are knowledgeable about those factors. It also does not factor in a comprehension of the future affects of pollution or other externalities. Stavins admits that the goal is to measure the total value of the loss that individuals incur but this task seems to be immeasurable due to the complexity and amount of factors.

Jennie said...

Stavins first addresses the myth that the market solves all problems but these problems and scenarios are limited; they must meet many conditions for this theory to apply. One of the qualifications is that there are no externalities which creates an inherent conflict between economists’ theory of welfare economics and environmental economics because the latter is focused on externalities. If a perfect market functions to provide the greatest good for the greatest number but does not factor in environmental variables the definition “good” in this sense is limited. Stavins elaborates on this by discussing how unrestricted, market-driven production could produce social costs such as pollution. While it is possible to determine metrics for pollution it is difficult to add into the theorem of welfare economics and to calculate the total cost. It would be interesting to examine how to quantify social costs and to factor them into econometric equations for the total cost of a product.

In his second article about the myth of simple solutions Stavins discusses to possible answers to excessive pollution. It seems that the first option, of creating the market for emissions permits would be embraced by more people because it offers a free market solution to an environmental problem. Both sides of the spectrum should be able to find a middle ground based on this idea. This will not be a simple policy because it must account for all of the issues, which Stavins highlighted, that can arise out of a permit market policy.

In the third article Stavins examined one way to measure how people value environmental factors my measuring the premium people are willing to pay for a house in an area with clean air. The issue with this measurement system is that it assumes people are knowledgeable about those factors. It also does not factor in a comprehension of the future affects of pollution or other externalities. Stavins admits that the goal is to measure the total value of the loss that individuals incur but this task seems to be immeasurable due to the complexity and amount of factors.

michelle said...

As previous students mentioned, Stavin's column intended to clarify the common myth about economists, which resulted mainly from the lack of clear communication across discipline. It is interesting how often policy makers or people of different discipline neglect others' knowledge, thinking they each have all they need for a decision. But often times, people of other discipline bring a fresh, and often, a more efficient perspective to the issue at hand. As expected, the policies and actions of economists are more complicated than common perception. There is no easy solution to any environmental issue, because so many conditions must to be meet. But a solution is still possible, especially with interdisciplinary policies. With the many restrictions for a perfectly functioning policy, it is essential to engage in better communication, whether to have efficient policies that improve welfare or to be able to mold the policy to the specific issue being examined.

David Dennis said...

Robert Stavins recognizes that there are several myths about how economists view environmental issues. His understands that it is mostly due a lack of communication and hopes to bridge the lack of knowledge by crossing into other disciplines. The first myth he wants to address is that economists believe a market will solve all problems. This view obviously can be wrong in a number of situations not only for environmental problems but also most aspects of life. The externalities can exceed barriers if the market is left without government intervention. But even interventions may not fully correct the problems so a constant shift has to be attained in which new problems can be mitigated. Stavins gives the example of tradeable-permits to keep pollution levels down but points out how one area that is susceptible to the harsh consequences of pollution may not be able to bear pollution from nearby companies. The second myth that Stavins says is that “economists always recommend simple market solutions for market problems” is therefore not true since not policy can cover all problems. They recognize that there are market failures that lead to inefficiencies.

The third myth that economists use only market prices to evaluate non-market solutions is also refuted by Stavins. He points out that the “goal is to measure the total value of the loss that the individuals incur” including aspects that don’t necessarily have a monetary value. Estimations have to be made and the dollar unit is just a convenient way of exchanging goods/services. Stavins addresses a fourth myth that economists only care about total efficiency and not particular areas that incur losses. The reason is that it is easier to just find the total net benefit but Stavins concedes that economists do “reveal much about the distribution of the benefits and the costs of environmental policies”. He knows that economists are mostly to blame for allowing these myths and aims to help correct the discrepancies by interacting with other fields.

Levi said...

On the whole, the Stavins' series of articles do a good job in putting 4 common myths regarding markets in lei-man's terms. Although, I do agree with Morton (Wendelbo) regarding the 4th myth, where Stavins really provides no evidence for his argument that economic analysis are concerned with distribution other than that some economists do analyze it thoroughly. Furthermore, I feel that a quick example of a non-market solution with non-monetary units would have greatly strengthened his argument in the 3rd myth, regarding market prices.

Furthermore, I feel that Stavins could have either added a supplement to to the 2nd myth (simple market solutions) or entirely new myth altogether, in that, theory is a guide, not a solution in itself for correcting for market failure. By including this, I feel that his argument for the complexity of markets (environmental or otherwise), in that a great deal of analysis of each individual market is required before either economic theory or government intervention can be applied.

Graham Sheridan said...

The three articles by Robert Stavis follow a logical progression. The first lays out basic market theory while the second and third explain how markets are imperfect and the consequences of the imperfection.
In the second piece Stavins discusses the range of opinions and possibilities available to correct market failures. Not only does the market not always work, correcting what is wrong with the market is not always possible. One can see this especially about externalities- few people intentionally pollute the atmosphere, it just happens when they drive to the supermarket. Even with greater information- most people know that their cars pollute- people continue with their business because they do not see the harm their driving does. As the saying goes “no snowflake in an avalanche feels guilty.” So, a solution besides increased information must be found to prevent car-based pollution.
This comes mainly because, for many environmental problems, the money price of the item does not include the whole cost. As in the driving example, the full cost of using one’s car is not captured in the price of gasoline. Economists and others must think of market correcting solutions, and other solutions to aid environmental protection.

George Brooke said...

Stavins' first article sets the most general problem that Environmental Economists focus on. He refutes the myth that the market solves all problems. He describes a long list of conditions that must be met for a market to be perfectly efficient. Obviously, these conditions are are almost never met all at the same time. Environmental economists take in to account the negative externalities that create a larger social cost than consumer value, making the market inefficient. The second myth is that the negative externalities in one market can be reduced or eliminated by creating another market. But the conditions for this market to be perfectly efficient will rarely all be met, and it will not be cost effective. So even when there are simple market solutions, they will not completely solve the problem. The third article explains how although economists are usually only concerned with the financial value of things, they also consider the "non-use value". Stavins refutes the last myth that economists are only concerned with efficiency by stating that they also consider the proper allocation and distribution of resources. Although I admire Stavins' statements that these myths are not true, it seems that he and other Environmental Economists are a special exception to the rest of economists.

Van Nguyen said...

Coming from an Economic and Business academic training, at first I did not find myself contradicting with Stavins' reasoning and evidence to demystify the four myths about economics and its application in environment, among them are the myth of the universal market, of simple market solutions, of market prices, and of market efficiency. Nonetheless, I find his reasoning increasingly more interesting as he points out the fundamental (sometimes sole) approaches taken by economists in order to understand environmental problems.

His discussion on the tradable emission permits is rather naive. Assuming that there is a trade permit market that satisfies the conditions that Stavins outlines (numerous buyers and sellers, perfect information, low transaction costs, high volume of trades, rights of ownership, etc.) in the imaginable country of Utopia, the issue of locality is still not resolved. Even if the trade permit market in Utopia satisfies the conditions to be an efficient market, the interconnected nature of our global world through trade would shift some of the benefits resulted from the cost-bearing behavior of Utopian citizens to the rest of the world. Meanwhile, all the cost/benefits associated with any actions that can potentially affect the environment (globally and locally) would not be captured in its entirety; therefore, the price signal mechanism that economists rely on to allocate resources efficiently is not achieved. The Clean Air Act Amendments of 1990 maybe have been able to cut acid rain down by 50 percent, but it does not equitably spread the cost and benefits of these policies to the correct bearers. Stavins' stance on the issue of "uniform mixing" is rather convincing considering how locality implies there are direct and assigned bearers of the cost and benefits of certain individual and collective actions, yet in many scenarios, identifying the affected parties is just as hard as solving the problem. Mackenzie Doss' point on property rights assignment is interesting, but only applied to private and tradable goods. Coase Theorem provides an alternative solution that by not assigning property rights, a better overall outcome actually is achieved as opposed to assigning arbitrary rights of ownership to either parties. I think it is appropriate to point out the current status of Renewable Energy Credit system which is established via SREC (srectrade.com) in which there are only two areas that allow a market-based tradefloor for renewable energy credits which are in Pennsylvania and Washington, D.C. areas. These markets are not efficient by defaults considering the lack of information on supply and demand and low trade volumes.

Paige Gance said...

Robert Stavins addresses several prevalent myths about economists in his writings. While he easily refutes these myths, it is easy to see where they come from. Even non-economists have heard of Adam Smith with his invisible and the concept of laissez-faire markets. This can lead to the misconception that economist praise the free market as the perfect model for society. But it is just that, a model. And by definition, economists realize that models are simplified versions of reality that help explain how decisions are made but cannot fully match reality. Ideal conditions, especially with regards to the environment, he says are exceptions rather than the rule. It is also easy to see why the myth of simple market solutions exists. Why wouldn’t economists want to solve problems by economic means, i.e. a new market? But these educated individuals clearly realize that no one-size-fits all solution exists to cure all the complex problems of society. The second two myths deal mainly with economists’ methods of analysis: the use of market-price valuations and aggregate welfare. The first arises because revealed preferences tend to be more accurate than stated preferences, but that does not mean economists ignore values with no market price. The last myth is refuted by the attention economists have paid to welfare distribution in countries when determining quality of life or other ratings.

colin elliott said...

Initially, Stavins addresses the myth that private markets are perfectly efficient with no outside interference from government, externalities, etc. However, as is the focus of this course, the inefficiency of the market or market failures can be improved by government intervention. Certain goods and activities leave, without interference, marginal private benefit greater than marginal social benefit. For example, driving a car and spending X dollars on gas does not factor in the pollution caused from driving a car and consequential environmental deterioration in the price of gas. Thus, to maximize efficiency, either an increase in the price of the gas, the specific good causing MSB to be less than MPB, or a permit system limiting the amount of the good could create greater efficiency than the traditional laissez-faire approach. In the Clean Air Act Amendments of 1990, electricity generators had to have a permit for each ton of sulfur dioxide they emitted. This approach, decreased the amount of sulfur dioxide in the air by controlling the quantity emitted and thus decreasing acid rain. While objections to this method may include unfair distribution of permits and an unsafe concentration of emission per area, universal regulations would account for this. Instead of using permits, the benefit-cost model in terms of money would also justify an increase in market price to increase efficiency. Stavins' columns illustrate the relationship between economics and environmental health and exemplify the ability to increase efficiency economically by increasing economic protection.

Sarah said...

Stavins begins by blaming misconceptions regarding the role of economics in environmental issues on lack of communication between professions. He feels that economists tend to share ideas solely between their peers leading, in his opinion, to four generalized myths. These include the myth that the market solves all problems, the myth that economists always recommend simple market solutions, the myth that only market prices are used as tools of evaluation, and lastly, the myth that analyses focus only on efficiency and not distribution. The environmental issues that Stavins discusses in the articles such as pollution and acid rain cannot possibly be solved with economic solutions alone. Communication between professions is necessary to provide feasible solutions that are neither skewed toward cost effectiveness nor require irresponsible spending during implementation. Stavins outlines how economists fail to represent their actual methods and goals to others working in separate fields to resolve the same environmental issues. This is the only fault he finds with economists, however, and he provides no advice for collaboration. His articles seem like an attempt to absolve economists from blame regarding failed environmental policies.

Gabriela Sampaio said...

As the other students said before, the articles written by Stavins talks in general about the common myths regarding market. It’s works as a continuous idea and show us a flow of how the economy is interconnected, especially in the environmental ideas. First he explain the different economists views about the market, and what in the part caught my attention was that the economists doesn’t worry so much whit the efficient of the complex model.

A relevant idea founded is about the externalities. I think that the author could show us the positive externalities as well, because the environment can be good stuff, and can has a kind of benefit for the human beings, like for example, an industry produces some goods and if the rest of the raw material will spilled into a river, will be a negative externality, because will generate social costs, but if the use this raw material in a fertilizer, it could be a positive externality.

Something that I though really interesting was “many economists do give more attention to aggregate social welfare than to the distribution of the benefits and costs of policies among members of society”. I have to agree whit the author. Where I come from (Brazil) it really happens. Nowadays the country is undergoing an optimal phase, especially economic. And all the resources accumulated aren’t accessed by the hole society. The resources are divides between the minority class. Besides, the costs of policies are also not divided equally, because the high classes has the same as the low classes, and the division is being inhuman.

Ben Fass said...

Stavins brings up several very important introductory points defending the use of economic theory in environmental issues. This is an important task because if used correctly the discipline of economics can greatly benefit the environment. I think that his last article highlighting the myths of market prices was the most important. There are many academics that have no desire to put a monetary price on things that seem almost impossible to calculate in dollar terms. The example that he gives is what lawyers call pain and suffering.

With many intangible negative externalities people feel that it is simply immoral to put a price on certain things. There could be some things that are virtually priceless. In my econometrics class last year we discussed this exact issue. Unfortunately, statistical models simply need to be made to come up with certain predictions. When making econometric models real number values need to be put in a data set.

Lastly, I think that the column on the myth of simple market solutions was very important. Government policy should not be made with only one system. Both economists and scientists must understand this important point. The introduction of new market systems can work together to both improve efficiency in the economy and to slow environmental degradation that results from industry.

Sarah said...

Stavins begins by blaming misconceptions regarding the role of economics in environmental issues on lack of communication between professions. He feels that economists tend to share ideas solely between their peers leading, in his opinion, to four generalized myths. These include the myth that the market solves all problems, the myth that economists always recommend simple market solutions, the myth that only market prices are used as tools of evaluation, and lastly, the myth that analyses focus only on efficiency and not distribution. The environmental issues that Stavins discusses in the articles such as pollution and acid rain cannot possibly be solved with economic solutions alone. Communication between professions is necessary to provide feasible solutions that are neither skewed toward cost effectiveness nor require irresponsible spending during implementation. Stavins outlines how economists fail to represent their actual methods and goals to others working in separate fields to resolve the same environmental issues. This is the only fault he finds with economists, however, and he provides no advice for collaboration. His articles seem like an attempt to absolve economists from blame regarding failed environmental policies.

Jeff Stirling said...

Stavins discusses different myths with regard to economists and their way of thinking. It seemed that these myths were true but only to a certain extent, as things are not as black and white as they appear. The first myth clarifies that not all economists are the same, and they all have different views on how a market should work, giving different types of economists as examples. If we were living in the 19th century, I could understand why this would be a myth, with regard to Adam Smith's invisible hand theory, but nevertheless Stavins still writes important information on the different types of economists and why they think a certain way. Lack of communication through different types of economists, social workers, and other disciplines is where these myths come into play. The other myths also bring up important clarifications that can be misunderstood by the uneducated. The main point of this article is that without proper communication, there is fewer efficiency. If proper communication is addressed, than things like pollution and acid rain can be reduced. Even businesses can cut costs with better communication while reducing pollution at the same time.

Joe Moravec said...

I found Robert Stavins column to be particularly informative in light of Kahn's chapter that we read for Thursday. Together, they both utilize the idea of market failure to describe the markets inability to protect the environment. Because of the nature of public goods, the "resource is depleted too quickly." This results from the individual's failure to recognize that the maginal social cost is far higher than the benefits. I don't know enough about the specifics of environmental policy to provide a solution for the market's failure to protect the environment, but sometimes it seems common sense, that if we destroy the atmosphere, no matter how productive the coal plant is, the workers will not be able to breath. This doesn't seem to need any economic model to realize that eventually, the environment will not be capable of sustaining the quest for maximized private benefit. In his second column, Stavins further recognizes the failure of individual environmental policy to protect all environmental factors. This is a concern to me to say that nothing we can do politically or economically will really solve the environment problem unless people change individual behavior rather than seeking the maximum private benefit. This idea is unrealistic, but it seems as though this is Stavin's only long-term solution. All other solutions are just "part of the available environmental policy portfolio," able to help slow environmental degredation, but not actually reverse it.

Parker Pritchett said...

I have to agree with Kenzie and say that I also ,at first, found a problem in reconciling the often differing interests and approaches of environmentalists and economists. However, Stavins manages to very convincingly address this supposed disconnect by discussing three common misconceptions about economists. I particularly found his explanation for why economists frequently fall back on converting "disparate values into monetary terms" an enlightening point. He explains that it is not for a lack of ability to understand that valuation of goods must extend beyond monetary values that spur economists to often use money as a measure of value, but rather because it is "a common unit of measure" that allows people to more easily compare and understand the value of goods. This helps eliminate the myth that economists cannot see beyond pure monetary valuations and shows that they are able to recognize the influence of negative externalities when considering the cost of a good. This is an important concept for people to grasp in order for the often imaginary gap between environmentalists and economists to be universally eliminated in order to move forward with compromising policies that maximize environmental consciousness as well as economic benefit.

J.P. Sauer said...

Stavin's dismissal of these myths serves as a defense of the market system. Some blame capitalism and the market system for environmental problems, while Stavins explains that the market system can be a solution to the problem with the introduction of further markets to regulate. Market failures are the basis of the study of environmental economics and Stavins does a good job of explaining how these failures can be righted by the addition of another market on top of an existing one. He goes on to explain how the trading of emission credits is an example of this, and how this trading is not a perfect system. But, potentially this application of the market system along with some government regulations could help solve some problems. I guess this is all dependent upon the improving of communications between economists and other academics.

Guilherme fernandes said...

Stavins's articles and his four "myths" offer an interesting introductory approach on how economists think about the environment (even though I find it unrealistic to consider such a heterogeneous group as if all its members thought alike).
I found it particularly interesting the amount of faith he has on market-based instruments (MBIs). For me, MBIs, as everything which tries to regulate a market, depend entirely on being well designed. Thus, having one extra option on the "available environmental portfolio" is just not enough. Stavins is very proud to mention the reduction of acid rain in the U.S., but what about what happened to the Chicago Climate Exchange? It has largely failed and people did not seem to give it the proper attention.
Finally, Stavins implicitly advocates using prices to quantify "use" and "non use" values "because a common unit of measure is needed". Is cap-and-trade actually a good idea? How feasible is it to "fix one market by introducing another", considering that the first market was already a failure? It would be interesting to have some case studies about this.
It might sound corny and idealistic, but the truth is: as long as people do not shift their own material perspective to a broader, higher standpoint of life, there will be no sustainable, substantial changes in the long-term, regardless of what economists think.

Bobby Gorman said...

Stavins is convincing in his argument for the validity of the economic approach to the environment. Surely economics can be very usesful in dealing with environmental issues, but I had some problems with his argument nonetheless.

My main concern has to do with his defense of the use of monetary values as a medium of measurement. His argument is based on the myth that economists are interested only in the financial value of things. He goes on to denounce this myth by stating that it is not the financial value that is important to the economist, but it is the ability to make comparisons. Placing a monetary value on things allows economists to make comparisons between things that are otherwise not comparable. And placing monetary values on everything is therefore justified. I would argue that it is not justified. How can an economist, or anybody for that matter, place any sort of meaningful monetary value on a natural environment of potentially infinite value? I understand that this would make things easier if we could compare the monetary benefits of cutting down the forest to the monetary benefits of keeping the forest. But we have no idea what the value of the forest is, and have no idea how valuable it will be in the future if we leave it as is. Maybe the value of the forest simply cannot be compared to the monetary value of chopping the lumber. Stavins says, "The dollar in a benefit-cost analysis is nothing more than a yardstick for measurement and comparison." I would argue, however, that the environment cannot be measured with this yardstick. It is ineffective to try to guess at a potential monetary value of something that cannot really be measured in monetary terms in order to compare it to something of definite monetary value.

sturgesa12 said...

The Myth of the Universal Market

Mr. Robert Stavins attempts to answer the question: how do economists think about the environment? He starts by discussing the "first theorem of welfare economics" that states markets solve all problems by being perfectly efficient. This high level of efficiency does not occur often, the stock market is one of the few examples of this type of market. There are many stipulations to be a private market and perfectly efficient. Since these are rarely met simultaneously, the market fails. Environmental economists are also interested in externalities in the market, which are consequences of consuming or producing that are not represented in the model. If these externalities are ignored, they have a negative impact of social well being, thus making the market fail.
Environmental Economists are also interested in the rate of extraction of resources and the open access to these resources. The people who are extracting the resources are generally inefficient and deplete the resource too quickly. Governments can step in with policy to limit the extraction of natural resources and fix these market failures.


The second myth Mr. Stavins discusses is that economists always recommend simple market solutions for market issues. In many instances, a market failure is fixed by introducing a whole new market. An example is a permit for a limited amount of pollution. This helps the emission problem in the market by introducing a market for buying and selling permits. The Clean Air Act Amendments of 1990 is a good example of when this system worked well. The implementation of permits for sulfur dioxide emissions led to a large decrease in the amount of pollution and the new permit market rarely fails. However, there is no perfect fix for problems are the market. Different situations call for varying approaches, and simple market approaches are not always the best option.

The third myth that Mr. Stavins discusses is when non-market solutions are considered. Economists generally prefer to use prices to evaluate benefits and costs of an action. However, generally with environmental aspects, it is difficult to put a value for the cost. Economist try to measure the total benefit or loss and one part of it has a numeric value. Wilderness areas have value that is categorized as "non-use value". These values are very difficult to assign a numeric value. Therefore, it is very difficult to compare the cost of something that will lower pollution to the benefits that will come out of it,
The fourth myth Stavins talks about is that economists are only interested in efficiency and not distribution. Many economists focus more on distribution and look at distributional consequences in benefit-costs analysis.

Matt Benson said...

In dispelling myths about how economists view the environment Robert Stavins highlights several ways in which economists do view the environment. According to Stavins economists view the environment as a domain in which markets rarely if ever do not fail, for whose problems there is no one size fit all market solution. Furthermore, he contends economists use monetary equivalents for valuing non-financial considerations, and that economic models despite seeking efficiency, can still give a plethora of information about the costs and benefits of environmental policies.

In his first article Stavins explains that markets alone cannot solve environmental problems, and he concedes that a free market may lead to pollution, a negative externality. I wholeheartedly agree that market failure is almost inevitable when it comes to the environment, and that proper government regulation is the most efficient method to correct problems with the market models. His second article delves into this point and he explains that not all government intervention is good and that there is no simple or singular policy solution to the many market problems concerning the environment. Once again I fully agree with Stavins that government policies regulating markets in concern to the environment almost need to be addressed on a case by case basis to determine the most efficient solutions to the problems. In his final column Stavins dispels the myth that economists only concern their analysis to financial considerations and that economists need to better communicate across disciplinary lines in order to quell some of the misunderstandings about economists and the environment. I too believe economists could better communicate across interdisciplinary lines to prevent myths about economists from arising, and to spark a better understanding of the markets in which the environment is concerned. I understand why when placing non financial components of an issue into a model that some monetary values have to be estimated, and believe that doing so gives the most possible efficiency to the models.

In conclusion I would just like to say that I agree with Stavins arguments counter to the myths. However, I am left with the thought that if the markets having to do with the environment are prone to failure due to externalities then is there another way besides government policy to correct the markets? I think that firms capable of developing closed system markets in which externalities are greatly mitigated or negated altogether could provide a solution that is more efficient than current models. I know of one company Cradle to Cradle that actually advises and overhauls firms to be more environmentally efficient and eliminate waste from the production process where possible.

Matt Benson said...

In dispelling myths about how economists view the environment Robert Stavins highlights several ways in which economists do view the environment. According to Stavins economists view the environment as a domain in which markets rarely if ever do not fail, for whose problems there is no one size fit all market solution. Furthermore, he contends economists use monetary equivalents for valuing non-financial considerations, and that economic models despite seeking efficiency, can still give a plethora of information about the costs and benefits of environmental policies.
In his first article Stavins explains that markets alone cannot solve environmental problems, and he concedes that a free market may lead to pollution, a negative externality. I wholeheartedly agree that market failure is almost inevitable when it comes to the environment, and that proper government regulation is the most efficient method to correct problems with the market models. His second article delves into this point and he explains that not all government intervention is good and that there is no simple or singular policy solution to the many market problems concerning the environment. Once again I fully agree with Stavins that government policies regulating markets in concern to the environment almost need to be addressed on a case by case basis to determine the most efficient solutions to the problems. In his final column Stavins dispels the myth that economists only concern their analysis to financial considerations and that economists need to better communicate across disciplinary lines in order to quell some of the misunderstandings about economists and the environment. I too believe economists could better communicate across interdisciplinary lines to prevent myths about economists from arising, and to spark a better understanding of the markets in which the environment is concerned. I understand why when placing non financial components of an issue into a model that some monetary values have to be estimated, and believe that doing so gives the most possible efficiency to the models.
I conclusion I would just like to say that I agree with Stavins arguments counter to the myths. However, I am left with the thought that if the markets having to do with the environment are prone to failure due to externalities then is there another way besides government policy to correct the markets? I think that firms capable of developing closed system markets in which externalities are greatly mitigated or negated altogether could provide a solution that is more efficient than current models. I know of one company Cradle to Cradle that actually advises and overhauls firms to be more environmentally efficient and eliminate waste from the production process where possible.

Matt Benson said...

In his first article Stavins explains that markets alone cannot solve environmental problems, and he concedes that a free market may lead to pollution, a negative externality. I wholeheartedly agree that market failure is almost inevitable when it comes to the environment, and that proper government regulation is the most efficient method to correct problems with the market models. His second article delves into this point and he explains that not all government intervention is good and that there is no simple or singular policy solution to the many market problems concerning the environment. Once again I fully agree with Stavins that government policies regulating markets in concern to the environment almost need to be addressed on a case by case basis to determine the most efficient solutions to the problems. In his final column Stavins dispels the myth that economists only concern their analysis to financial considerations and that economists need to better communicate across disciplinary lines in order to quell some of the misunderstandings about economists and the environment. I too believe economists could better communicate across interdisciplinary lines to prevent myths about economists from arising, and to spark a better understanding of the markets in which the environment is concerned. I understand why when placing non financial components of an issue into a model that some monetary values have to be estimated, and believe that doing so gives the most possible efficiency to the models.

In conclusion I would just like to say that I agree with Stavins arguments counter to the myths. However, I am left with the thought that if the markets having to do with the environment are prone to failure due to externalities then is there another way besides government policy to correct the markets? I think that firms capable of developing closed system markets in which externalities are greatly mitigated or negated altogether could provide a solution that is more efficient than current models. I know of one company Cradle to Cradle that actually advises and overhauls firms to be more environmentally efficient and eliminate waste from the production process where possible.

gioioson12 said...

In these three articles, Stavins discusses the common misconceptions that arise from the lack of coherent communication by economists about how they think about the environment to scientists, lawyers, politicians, and those who implement solutions to environmental issues. He discusses his first “myth,” the first welfare theorem, which states that private markets are efficient on their own, and that by creating a market, one will be able to provide a fix for market failures. However, markets are often inefficient when left alone, so Stavins examines these market failures and government responses that seek to correct them.

He examines a second “myth,” that economists always seek a simple market solution to environmental problems, and looks at the possibilities and past implementations of tradeable permits and Pigovian taxes. He finds that, although in some cases these fixes are effective, in others environmental characteristics can actually deteriorate. As with nearly everything in economics, one can only apply a conditional “sometimes” to the effectiveness of these solutions, due to the necessity of the fulfillment of certain assumptions tied to each.

Stavins also argues that economists quantify monetarily the values of different environmental factors that are difficult to measure, much in the same way that economic costs are calculated. It may be difficult for researchers from other disciplines to see how the value of priceless parts of nature can be quantified in money, but this is a third “myth,” since it is the most convenient manner by which economists can assess the costs and benefits of certain policies.

Finally, a fourth “myth” is dispelled as Stavins explains that economists do realize these simple market solutions may not always be best for the environment, and know that more complex solutions may be necessary to reach solutions that are both economically efficient and that benefit the environment distributionally and aggregately.

In these articles, I found most interesting the idea that continuous miscommunication among researchers and leaders in many different fields has resulted in a slow and confused response to threats to the environment. This class and the field of Environmental and Natural Resource economics, by including students and professionals from many different disciplines, could help to repair some of these lines of communication through greater knowledge of multiple sides of the issues.

Kelsey Sizer said...

In his set of articles, Stavins outlines four common myths about how economists view and approach environmental issues. The first myth Stavins addresses is that economists trust the market to solve all problems. Just as he states, perfectly efficient markets are rare, especially in regard to the environmental sector. Economists recognize these market failures, but they cannot, for the most part, be simply solved, even with government intervention and policies. Stavins' second point seems perfectly logical and simple to me: that no specific policy or government intervention will address all environmental issues. Economists look towards simple market solutions first, as they are often the most cost-effective, but also understand that they may not always provide the answer. In Stavins' third myth, it makes sense that economists attempt to use monetary equivalents to include things like "non-use value," but that leaves the big, ever-present question: is it possible to put a numerical value on things like the Amazon rainforest beyond their use value? Stavins' articles recognize the shortcomings of economics when used to address environmental issues. His suggestion to increase interdisciplinary communication, though, is a logical idea and is going to be crucial for the future improvement and preservation of the environment.

Becca Bolton said...

Stavins tries to clarify how many economists view the environment in these 3 columns. As we have learned in class, an interdisciplinary approach is extremely important when discussing environmental issues. I think that this is a major reason why Stavins is trying to clear up any misunderstandings that people may have about economists. The first myth that Stavins discusses is that economists believe that the market solves all problems. He points out that private markets are efficient only if certain conditions are met. Many times these conditions are not met which can sometimes cause market failure. After reading Kahn’s book and these articles, pollution is certainly one of the main externalities that environmental economists discuss. He points out that if the market is not controlled, there will be too much pollution, and this will create great social costs. He also points out that markets that are involved in a common property or resource are usually inefficient as well. I completely agree with these statements, and I am glad that he was able to clarify the economic perspective.
I was very interested in Stavin’s 2nd column about how government intervention can help regulate and decrease pollution levels. I like the idea of trading permits for emissions, but I think that this method will need a lot of enforcement to be effective. Stavins notes that this solution is a market solution, so it will only work if certain conditions are met as well. There definitely could be some problems, but I think it is a good way to begin reducing our emissions. It worked in reducing the amount of acid rain, so I don’t see why it could not work for other types of pollution. I think that there should be a limit to how much a group can emit to insure that “hotspots” do not occur. Stavins admits that the market cannot be the solution to every environmental problem, but if it can solve at least one, I think it is worth a try.
Stavins’s third column is about the myth that “when non-market solutions are considered, economists use only market prices to evaluate them." Economists usually try to put a price or value on an entity and some things just can’t be valued. I have read many environmental pieces that are extremely put off by the valuation of the environment or of ecological services. Many people believe that some things are priceless and that economists are doing a disservice by quantifying something. Stavins recognizes this difficulty, but stresses that this is the only way to create a common unit of measurement for cost-benefit analysis. I agree that some things are priceless, but in this day and age, money may be the only way to educate others about environmental problems. Stavins tries to dispel a fourth myth about distribution, but I think that he needs to provide more evidence and information in this section.

Becca Bolton said...

Stavins tries to clarify how many economists view the environment in these 3 columns. As we have learned in class, an interdisciplinary approach is extremely important when discussing environmental issues. I think that this is a major reason why Stavins is trying to clear up any misunderstandings that people may have about economists. The first myth that Stavins discusses is that economists believe that the market solves all problems. He points out that private markets are efficient only if certain conditions are met. Many times these conditions are not met which can sometimes cause market failure. After reading Kahn’s book and these articles, pollution is certainly one of the main externalities that environmental economists discuss. He points out that if the market is not controlled, there will be too much pollution, and this will create great social costs. He also points out that markets that are involved in a common property or resource are usually inefficient as well. I completely agree with these statements, and I am glad that he was able to clarify the economic perspective.
I was very interested in Stavin’s 2nd column about how government intervention can help regulate and decrease pollution levels. I like the idea of trading permits for emissions, but I think that this method will need a lot of enforcement to be effective. Stavins notes that this solution is a market solution, so it will only work if certain conditions are met as well. There definitely could be some problems, but I think it is a good way to begin reducing our emissions. It worked in reducing the amount of acid rain, so I don’t see why it could not work for other types of pollution. I think that there should be a limit to how much a group can emit to insure that “hotspots” do not occur. Stavins admits that the market cannot be the solution to every environmental problem, but if it can solve at least one, I think it is worth a try.
Stavins’s third column is about the myth that “when non-market solutions are considered, economists use only market prices to evaluate them." Economists usually try to put a price or value on an entity and some things just can’t be valued. I have read many environmental pieces that are extremely put off by the valuation of the environment or of ecological services. Many people believe that some things are priceless and that economists are doing a disservice by quantifying something. Stavins recognizes this difficulty, but stresses that this is the only way to create a common unit of measurement for cost-benefit analysis. I agree that some things are priceless, but in this day and age, money may be the only way to educate others about environmental problems. Stavins tries to dispel a fourth myth about distribution, but I think that he needs to provide more evidence and information in this section.

Becca Bolton said...

Stavins tries to clarify how many economists view the environment in these 3 columns. As we have learned in class, an interdisciplinary approach is extremely important when discussing environmental issues. I think that this is a major reason why Stavins is trying to clear up any misunderstandings that people may have about economists. The first myth that Stavins discusses is that economists believe that the market solves all problems. He points out that private markets are efficient only if certain conditions are met. Many times these conditions are not met which can sometimes cause market failure. After reading Kahn’s book and these articles, pollution is certainly one of the main externalities that environmental economists discuss. He points out that if the market is not controlled, there will be too much pollution, and this will create great social costs. I completely agree with these statement, and I am glad that he was able to clarify the economic perspective.
I was very interested in Stavin’s 2nd column about how government intervention can help regulate and decrease pollution levels. I like the idea of trading permits for emissions, but I think that this method will need a lot of enforcement to be effective. Stavins notes that this solution is a market solution, so it will only work if certain conditions are met as well. There definitely could be some problems, but I think it is a good way to begin reducing our emissions. It worked in reducing the amount of acid rain, so I don’t see why it could not work for other types of pollution. I think that there should be a limit to how much a group can emit to insure that “hotspots” do not occur. Stavins admits that the market cannot be the solution to every environmental problem, but if it can solve at least one, I think it is worth a try.
Stavins’s third column is about the myth that “when non-market solutions are considered, economists use only market prices to evaluate them." Economists usually try to put a price or value on an entity and some things just can’t be valued. I have read many environmental pieces that are extremely put off by the valuation of the environment or of ecological services. Many people believe that some things are priceless and that economists are doing a disservice by quantifying something. Stavins recognizes this difficulty, but stresses that this is the only way to create a common unit of measurement for cost-benefit analysis. I agree that some things are priceless, but in this day and age, money may be the only way to educate others about environmental problems. Stavins tries to dispel a fourth myth about distribution, but I think that he needs to provide more evidence and information in this section.

Becca Bolton said...

Stavins tries to clarify how many economists view the environment in these 3 columns. As we have learned in class, an interdisciplinary approach is extremely important when discussing environmental issues. I think that this is a major reason why Stavins is trying to clear up any misunderstandings that people may have about economists. In clarifying the first myth, he points out that private markets are efficient only if certain conditions are met. Many times these conditions are not met which can sometimes cause market failure. After reading Kahn’s book and these articles, pollution is certainly one of the main externalities that environmental economists discuss. He points out that if the market is not controlled, there will be too much pollution, and this will create great social costs. I completely agree with these statement, and I am glad that he was able to clarify the economic perspective.
I was very interested in Stavin’s 2nd column about how government intervention can help regulate and decrease pollution levels. I like the idea of trading permits for emissions, but I think that this method will need a lot of enforcement to be effective. Stavins notes that this solution is a market solution, so it will only work if certain conditions are met as well. It worked in reducing the amount of acid rain, so I don’t see why it could not work for other types of pollution. I think that there should be a limit to how much a group can emit to insure that “hotspots” do not occur. Stavins admits that the market cannot be the solution to every environmental problem, but if it can solve at least one, I think it is worth a try.
Stavins’s third column is about the myth that “when non-market solutions are considered, economists use only market prices to evaluate them." Economists usually try to put a price or value on an entity and some things just can’t be valued. I have read many environmental pieces that are extremely put off by the valuation of the environment or of ecological services. Many people believe that some things are priceless and that economists are doing a disservice by quantifying something. Stavins recognizes this difficulty, but stresses that this is the only way to create a common unit of measurement for cost-benefit analysis. I agree that some things are priceless, but in this day and age, money may be the only way to educate others about environmental problems. Stavins tries to dispel a fourth myth about distribution, but I think that he needs to provide more evidence and information in this section.

Becca Bolton said...

Stavins tries to clarify how many economists view the environment in these 3 columns. As we have learned in class, an interdisciplinary approach is extremely important when discussing environmental issues. I think that this is a major reason why Stavins is trying to clear up any misunderstandings that people may have about economists. In clarifying the first myth, he points out that private markets are efficient only if certain conditions are met. Many times these conditions are not met which can sometimes cause market failure. After reading Kahn’s book and these articles, pollution is certainly one of the main externalities that environmental economists discuss. He points out that if the market is not controlled, there will be too much pollution, and this will create great social costs. I completely agree with these statement, and I am glad that he was able to clarify the economic perspective.
I was very interested in Stavin’s 2nd column about how government intervention can help regulate and decrease pollution levels. I like the idea of trading permits for emissions, but I think that this method will need a lot of enforcement to be effective. Stavins notes that this solution is a market solution, so it will only work if certain conditions are met as well. It worked in reducing the amount of acid rain, so I don’t see why it could not work for other types of pollution. I think that there should be a limit to how much a group can emit to insure that “hotspots” do not occur. Stavins admits that the market cannot be the solution to every environmental problem, but if it can solve at least one, I think it is worth a try.
Stavins’s third column is about the myth that “when non-market solutions are considered, economists use only market prices to evaluate them." Economists usually try to put a price or value on an entity and some things just can’t be valued. I have read many environmental pieces that are extremely put off by the valuation of the environment or of ecological services. Many people believe that some things are priceless and that economists are doing a disservice by quantifying something. Stavins recognizes this difficulty, but stresses that this is the only way to create a common unit of measurement for cost-benefit analysis. I agree that some things are priceless, but in this day and age, money may be the only way to educate others about environmental problems.

curriee13 said...

The most interesting point that Stavins makes about economists perspectives pertaining to the environment (beyond identifying the myths he outlines in his articles) he addresses in his second article which is the efficiency of these second markets that are set up by the government to fix the inefficiencies (in this case external costs concerning the environment) of the original markets in the first place. It is impossible to know the extent of the inefficiencies of these second markets without trying them out in the real marketplace. With a first glance at the articles’ topics this is something that I originally overlooked, but then realized that Stavin’s point was not only valid, but completely necessary in why these two-market systems either work/don’t work in a particular situation.
Although Stavins makes a convincing argument that environmental economists realize the severity of the external costs of these markets and it effect on its inefficiencies and that they do not believe in the myths addressed in his articles, I still wonder how many economists are actually concerned and seriously consider solutions for them. I also wonder how influential their ideas actually are on policies that effect these markets.

Alli Shearin said...

I thought it was interesting when Stavins discussed different ways in which the market can fail in his first article. First, Stavins pointed out that Environmental economists are interested in externalities like pollution, because these externalities can make the social cost exceed the value. For example, if there is too much pollution, maximum welfare cannot be reached, and so the market is inefficient. In his second example, Stavins discusses how natural resource economists are interested in common property. Common property is tricky, because everyone can access it, and each person only considers the individual costs caused by them, and not the total potential costs. In this case, the market is inefficient as well.
I thought these two examples were a great way to show that the market does not solve all problems, and can hardly ever be perfectly efficient. As Stavins points out, governments can try to correct these market failures by restricting pollutant emissions or limiting access to common property. It is easy to see why this can be difficult, however. For example, the government can limit pollutant emissions, but it is impossible for them to monitor every single company at all times. If one or a few companies decide to continue to release an abundance of pollutant emissions, they obviously don't only pollute their air, but the air for everyone. Even if many people/companies cooperate, a few can release enough emissions to negatively affect the air for everyone. If this happens, there will also be little incentive for the companies who originally cooperated to continue to cooperate. They might consider that the companies who aren't following the rules are polluting the air anyway, so they might as well release more emissions as well. A similar situation would occur with common property, and air could even be considered common property.

Cailin said...

I think that Stavins does a good job in addressing common myths of how economists think about the environment as well as introducing ways in which most environmental markets deviate from the ideal perfectly efficient market structure. I also think that it would have been useful if he had put a little more emphasis on the scope of the economist's role in the process, being to analyze and then prescribe policy without considering its political feasibility. This is especially important to consider when talking about such a debated and politically divided topic like the environment. I enjoyed Stavins' example of the Clean Air Act as an example of a permit market being implemented as a market solution, but it may have been useful to introduce a concrete example of how such market solutions can fail to achieve their intended remedy. All in all this series seems as if it could be extremely successful in breaking down some barriers between academic disciplines, permitting a more interdisciplinary discussion of the topic.

Bobby R. said...

Robert Stavins, in his series of columns in The Environmental Forum, invalidates four key misunderstandings that people have with regard to environmental economics. While I agree that the lay person might believe that economists are all advocates for free-market policies (especially with the criticism the profession received in the midst of the recession), I feel that most people with a basic understanding of economics know that the economist rarely agree. Still, Stavins’s discourse does an excellent job of illustrating the divide in the field. I found the discussion of market efficiency to be particularly informative. Most introductory microeconomics courses focus on market efficiency. They provide an underlying set of assumptions that must be true in order for efficiency to be true. Stavins’s reminds us that these assumptions (no public goods, no externalities, no monopolies, etc) are unrealistic. He states that economist focus on efficiency because it is easy to measure and evaluate. But equally important is distribution and allocation, which are certainly highly contentious subjects.

Ben Bartlett said...

While Stavins addresses a number of common economic misconceptions, I think his segment about valuing public goods is particularly interesting. He uses the example of the Amazon rainforest in order to illustrate the ways in which value often cannot be arrived at by taking a simple “sum of the parts” approach. In this case, the value of a portion of the rainforest is not only a factor of its “use value,” such as its medicinal or ecotourism value, but must also include an analysis of its “non-use value,” such as the social and health benefits represented by its wilderness areas and endangered species, for instance. While this point is quite interesting in it own right, it is equally interesting to think about within the context of a more broad economic framework. In other words, Stavins uses this simplified example to illustrate the necessary presence of externalities in economic analysis and thus his example may be thought of as a microcosm of the general concept of economic externalities.

Ben Bartlett said...

While Stavins addresses a number of common economic misconceptions, I think his segment about valuing public goods is particularly interesting. He uses the example of the Amazon rainforest in order to illustrate the ways in which value often cannot be arrived at by taking a simple “sum of the parts” approach. In this case, the value of a portion of the rainforest is not only a factor of its “use value,” such as its medicinal or ecotourism value, but must also include an analysis of its “non-use value,” such as the social value represented by its wilderness areas and endangered species, for instance. While this point is quite interesting in it own right, it is equally interesting to think about within the context of a more broad economic framework. In other words, Stavins uses this simplified example to illustrate the necessary presence of externalities in economic analysis and thus his example may be thought of as a microcosm of the general concept of economic externalities.