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Annual Review of Resource Economics - Volume 6, 2014
Volume 6, 2014
- Preface
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A Conversation with Irma Adelman
Vol. 6 (2014), pp. 1–16More LessIrma Adelman was born in Czernowitz, Romania, in March of 1930. Her father was a Jewish businessman with socialist leanings, and although her mother was educated to be a lawyer, she never practiced and thus concentrated her energies on her only daughter, Irma. Despite Irma’s Jewish background, she was educated by French Catholic nuns, and her family lived in affluence in her early life. It was not long before her family encountered anti-Semitism and discrimination in the late 1930s, her father foresaw the dark shadow of World War II, and the family immigrated to Palestine in 1939. Irma attended high school in Palestine and also fought in the Israeli war of independence. After the war, she immigrated to the United States, where she enrolled as an undergraduate at the University of California, Berkeley (UC Berkeley), as a business administration major. Soon after her arrival at Berkeley, she met and married her husband, an American physics PhD candidate. They decided to settle in the United States and had one son, Alex.
After her undergraduate studies, Irma enrolled at UC Berkeley as a PhD student in economics. Given her strong quantitative skills, she benefited from training by Robert Dorfman in mathematical models in economics and from courses in econometrics and statistics offered by George Kuznets in the Department of Agricultural Economics. Her classmates in Kuznets's courses included Arnold Zellner, Zvi Griliches, and Yair Mundlak.
After graduating at the top of her class in 1955, Irma faced considerable difficulties in landing a tenure-track academic position, which was typical of the discrimination against professional women at the time. She held various nontenure appointments at UC Berkeley, at Mills College, and at Stanford for several years. During this period, she published her first book (Adelman & Morris 1973), the classic Klein-Goldberger paper (Adelman & Adelman 1959), and the pathbreaking hedonic pricing paper (Adelman & Griliches 1961), as well as many other publications in leading journals. Yet she was still unable to land a tenure-track position in the Bay Area. She and her husband decided to relocate due to her husband’s job offer, and thus she moved to Washington, DC, where she obtained a regular associate professorship at John Hopkins University. There she also met Cynthia Taft Morris, who would later become a lifelong friend and collaborator. While in Washington, DC, she became acquainted with agencies such as USAID and the World Bank. In 1966, she moved to Chicago for a position at Northwestern University, where she stayed until 1971. In 1973, she joined the World Bank along with having a professorship at the University of Maryland. From Maryland, in 1979 she returned to UC Berkeley’s Department of Agricultural Economics, where she stayed until her early retirement in 1995. She has been a professor emeritus of the Graduate School ever since.
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Measuring the Wealth of Nations
Vol. 6 (2014), pp. 17–31More LessIn this article, I review—and to an extent further develop—a normative theory that offers a unified language for both sustainability and policy analyses. The theory shows that by economic growth we should mean growth in wealth, which is the social worth of an economy’s entire stock of capital assets, not growth in GDP or improvements in the many ad hoc indicators of human development that have been proposed in recent years. Concurrently, the theory shows that by poverty we should mean a low level of wealth, not income, and that the distribution of well-being ought to be judged in terms of the distribution of wealth, not income or education or the many indicators that are currently in use. I show that the concept of wealth invites us to extend the notion of assets and the idea of investment well beyond conventional usage. This perspective has radical implications for the way that national accounts are prepared and interpreted. I then sketch a recent publication that has put the theory to work by studying the composition of wealth accumulation in contemporary India.
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Optimal Control in Space and Time and the Management of Environmental Resources
Vol. 6 (2014), pp. 33–68More LessWe present methods and tools that can be used to study dynamic environmental resource management in a spatial setting, to explore spatially dependent regulation, and to understand pattern formation. In particular, we present the maximum principle and its use in the context of the emerging frontier of applications of optimal control of diffusive transport processes to environmental and resource economics. We show how optimal spatiotemporal control induces pattern formation and how deep uncertainty with a spatial structure can be handled with spatial robust control methods. Finally, we show how models with diffusive transport can be extended to allow for long-range effects and more general transport mechanisms.
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Natural Resources and Violent Conflict
Vol. 6 (2014), pp. 69–83More LessWe discuss the literature on natural resources and violent conflict. The theoretical literature is rich and ambiguous, and the empirical literature is equally multifaceted. Theory predicts that resource booms or discoveries may attenuate or accentuate the risk of conflict, depending on various factors. Regression analyses also produce mixed signals and point to a plethora of mechanisms linking resources to conflict. The empirical literature is gradually evolving from cross-country conflict models to micro-level analyses, explaining variation in local intensity of conflict. This transition has resulted in more credible identification strategies and in an enhanced understanding of the complex relation between resources and conflict.
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Regime Shifts in Resource Management
Vol. 6 (2014), pp. 85–104More LessResource management has to take account of the possibility of tipping points and regime shifts in ecological systems that provide the resources. This article focuses on the typical model of regime shifts in the ecological literature and analyzes optimal management and common-property issues when trade-offs occur between the loss of ecosystem services and the benefits of the activities that may lead to a regime shift. Regime shifts are uncertain. This article also analyzes optimal management in the case of a potential future regime shift. Research on regime shifts is rapidly developing, and the issue is studied from many different angles. This article is restricted to some standard economic analyses, but in the presence of regime shifts. It focuses on examples like lakes, fisheries, and climate change but provides a framework of analysis that can be used for many environmental issues facing us today.
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Fiscal Rules and the Management of Natural Resource Revenues: The Case of Chile
Vol. 6 (2014), pp. 105–132More LessOver the past quarter-century, Chile has proven that the unthinkable is possible: A middle-income, natural resource–producing nation can have a fiscal policy that is both stable and sustainable. The core of this policy has been very simple: Act responsibly, design policy for the long run, and accumulate enough fiscal space so that fiscal policy can play a stabilizing role in the short run. The approach implies saving during periods of high copper prices and using those accumulated resources during a global economic crisis. Shifting from a procyclical to a mildly countercyclical fiscal stance has helped to smooth public investment and social expenditures across the cycle. One example of this countercyclical policy was Chile’s reaction to the 2008–2009 world financial crisis. Thus, this article argues that Chile’s approach contains ideas and practices that may be useful in the design of fiscal policies and institutions in other commodity-producing nations.
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Oil Price Shocks: Causes and Consequences
Vol. 6 (2014), pp. 133–154More LessResearch on oil markets conducted during the last decade has challenged long-held beliefs about the causes and consequences of oil price shocks. As the empirical and theoretical models used by economists have evolved, so has our understanding of the determinants of oil price shocks and of the interaction between oil markets and the global economy. Some of the key insights are that the real price of oil is endogenous with respect to economic fundamentals and that oil price shocks do not occur ceteris paribus. As a result, one must explicitly account for the demand and supply shocks underlying oil price shocks when studying their transmission to the domestic economy. Disentangling cause and effect in the relationship between oil prices and the economy requires structural models of the global economy including the oil market.
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The Economics of Energy Security
Vol. 6 (2014), pp. 155–174More LessEnergy security is the ability of households, businesses, and government to accommodate disruptions in supply in energy markets. This survey considers the economic dimensions of energy security and political and other noneconomic security concerns and discusses policy approaches that could enhance US energy security. A number of points emerge. First, energy security is enhanced by reducing consumption, not imports. A policy to eliminate oil imports, for example, will not enhance US energy security, whereas policies to reduce energy consumption can improve energy security. Second, energy security is distinct from considerations of energy externalities. Energy security taxes are appealing on political grounds but are more difficult to justify on economic grounds. Finally, the contrasting concerns over energy security between policy makers and economists are striking. The article notes some possible reasons for these differing views and suggests possible research opportunities in this area.
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Auctioning Resource Rights
Vol. 6 (2014), pp. 175–190More LessWe review the issues involved in designing a mechanism for allocating resource rights. We focus on the case of exploration and development rights for oil and gas leases in US federal lands to highlight the trade-offs at play. The main issues concern the design of the lease contract, the design of the auction, and the supply of leases. A distinguishing feature of oil and gas leases is that the mechanism must solve not only the adverse selection problem of selecting the bidder with the highest valuation but also the moral hazard problem of ensuring that right holders make efficient investment decisions.
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Carbon Markets: Past, Present, and Future
Vol. 6 (2014), pp. 191–215More LessCarbon markets are substantial and expanding. There are many lessons from experience over the past 9 years: fewer free allowances, careful moderation of low and high prices, and a recognition that trading systems require adjustments that have consequences for market participants and market confidence. Moreover, the emerging international architecture features separate emissions trading systems serving distinct jurisdictions. These programs are complemented by a variety of other types of policies alongside the carbon markets. This architecture sits in sharp contrast to the integrated global trading architecture envisioned 15 years ago by the designers of the Kyoto Protocol and raises a suite of new questions. In this new architecture, jurisdictions with emissions trading have to decide how, whether, and when to link with one another, and policy makers must confront how to measure both the comparability of efforts among markets and the comparability between markets and a variety of other policy approaches.
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What Do We Know About Short- and Long-Term Effects of Early-Life Exposure to Pollution?
Vol. 6 (2014), pp. 217–247More LessEvidence shows that pollution exposure early in life is detrimental to near-term health, and an increasing body of evidence suggests that early-childhood health influences health and human capital outcomes later in life. This article reviews the economic research that brings these two literatures together. We begin with a conceptual model that highlights the core relationships across the life cycle. We then review the literature concerned with such estimates, focusing particularly on identification strategies to mitigate concerns regarding endogenous exposure. The nascent empirical literature provides both direct and indirect evidence that early-childhood exposure to pollution significantly impacts later-life outcomes. We discuss the potential policy implications of these long-lasting effects and conclude with a number of promising avenues for future research.
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Valuing Morbidity in Environmental Benefit-Cost Analysis
Vol. 6 (2014), pp. 249–272More LessFor benefit-cost analysis of policies with respect to environmental and natural resources, economic researchers often require monetized values of households’ willingness to pay for reductions in risks to human life and health. I briefly recap some of the main issues in the related task of valuing reductions in the risk of death. These issues also account for our considerably smaller literature on valuing reductions in morbidity risks. An important distinction is the issue of valuation in the space of illnesses versus valuation in the space of illness attributes. I compare the requirements for environmental benefit-cost analysis with the limitations of the standard approaches taken in cost-effectiveness analysis in health economics, and I highlight some areas that are ripe for further research.
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The Long-Run Discount Rate Controversy
Vol. 6 (2014), pp. 273–295More LessThe choice of the rate at which one should discount the long-term benefits of mitigating climate change is highly controversial. Both the level and the slope of the term structure of discount rates have been discussed intensively in relation to the determination of the social cost of carbon. Although some of the parameters of the problem are ethical and outside the scope of economic analysis, we claim that there are converging and convincing arguments in favor of using an annual real risk-free discount rate going from approximately 4% to approximately 1% for maturities going from zero to infinity. Investing in climate mitigation yields highly uncertain future benefits. Such uncertainty should also be taken into account in the selection of the discount rate, although the appropriate approach is highly controversial.
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Consumption- Versus Production-Based Emission Policies
Vol. 6 (2014), pp. 297–318More LessEmission leakage could potentially undermine the effectiveness of unilateral climate policies. Significant emission transfers from developing countries to developed countries in the form of emissions embodied in trade have been interpreted as an indication of such leakage. To reduce leakage and provide an appropriate picture of countries’ responsibility for global emissions, an alternative proposal is to attribute emissions on the basis of consumption instead of production. However, as one unit of imported emissions generally cannot be equated with a corresponding increase in emissions released to the atmosphere, putting a price on emissions embodied in imports equal to the social cost of these emissions (e.g., by means of consumption-based emission pricing) is not an optimal policy. Hence, one should consider a broad scope of trade measures to reduce leakage, focusing on a few highly traded, emission-intensive industries. Finally, the optimal policy portfolio to address leakage may also contain free allocation of emission permits and sectoral approaches.
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Economic Experiments and Environmental Policy
Vol. 6 (2014), pp. 319–337More LessWe summarize and review the literature on two types of economic experiments. First, we explore the consequences for environmental policies of the vast body of literature refuting the assumption that humans are concerned only with their own private welfare. We review the literature addressing whether government intervention is always necessary to protect the environment and whether it is always effective in doing so. Second, we discuss the use of experimental laboratories to testbed market solutions to issues in environmental policy. We concentrate on experiments with one- and two-sided markets and on applications in the domains of water allocation and tradable permit systems.
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The Economics of Environmental Monitoring and Enforcement
Vol. 6 (2014), pp. 339–360More LessWithout monitoring and enforcement, environmental laws are largely nonbinding guidance. Although economists and philosophers have thought seriously about the broader public enforcement of law since at least the eighteenth century, environmental monitoring and enforcement remain both understudied and controversial. This article reviews what we do and do not know about the subject. I review common environmental enforcement institutions, prescriptive and descriptive theories, empirical evidence on regulator behavior, and empirical evidence on deterrence effects.
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Payment for Ecosystem Services from Forests
Vol. 6 (2014), pp. 361–380More LessEvery year from 2000 to 2010, our planet lost native forests roughly the size of Costa Rica (FAO 2010). This rapid deforestation has dramatically changed the chemical composition of the world’s atmosphere, the level of biodiversity, and the presence of vegetation key to maintaining watershed function and preventing landslides. There has been a boom in the design of local and international policy instruments to prevent further deforestation and to encourage forest growth. This article reviews the theory and evidence surrounding forest-related payment for ecosystem services (PES) schemes intended to slow and reverse deforestation. We cover the most recent work touching on a range of issues related to PES programs, including research on targeting, contract design, environmental effectiveness, challenges to program implementation, spillovers, and distributional considerations of conditional cash transfers. We also highlight areas of potential future research.
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Consumer Acceptance of New Food Technologies: Causes and Roots of Controversies
Vol. 6 (2014), pp. 381–405More LessThe literature abounds with evidence that consumers are critical of many new technologies used in modern food production. Influenced by the work on risk perception and technology acceptance in the 1980s, research has aimed to better understand the controversy around new food technologies. Whereas early contributions focused on risk perception and the lay-expert divide in objective and subjective risk perception, more recent research has turned to the role of emotions, moral judgments, and worldviews. This article takes stock of the theory and findings in this literature. In addition to providing an overview of the developments in the economic and sociopsychological literature, the review discusses selected topics related to consumer preferences for food technology and the determinants of food technology acceptance.
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The Economics of Voluntary Versus Mandatory Labels
Vol. 6 (2014), pp. 407–427More LessLabels address a market failure—asymmetric information—through costly expenditures borne by consumers, firms, and taxpayers. In this review, we explore when mandatory and voluntary labeling policies may be socially optimal. Although the analysis ostensibly revolves around simple comparisons of labeling costs and the subsequent benefits from improved information symmetry, more symmetric information may alter social welfare in other ways, e.g., by altering the production of externalities, the exercise of market power, or expenditures on rent-seeking activities. We review work that contributes to a more complete analysis of the relative merits of mandatory and voluntary labeling; that assesses the distribution of welfare effects across affected groups; and that discusses political economy issues, particularly in the context of voluntary labels in international trade. We summarize key patterns of results concerning the relative desirability of mandatory and voluntary labels and discuss likely future directions in this evolving literature.
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