I’m an economist, I know nothing

One of the most difficult things about working in resource economics is being supposed to say something about stuff you actually haven’t a clue about. Does bottom trawling wreck the benthic ecosystem? How high are discard rates? Is the Plaice Box working? I don’t know, but to make an economic analysis I should.

It’s not like economics can’t deal with uncertainty. Sure, in the ideal situation we know everything: if A causes B, and we know the costs and benefits of A and B, we can do a cost-benefit analysis to tell whether A is a good idea. This is when the relation between A and B is deterministic. But mostly the relation between A and B is not.

The natural scientists could say “well, we don’t know for sure whether A leads to B, but what we can tell you is that the probability that A leads to B is 20%”. Most of the environmental economics textbooks call this risk, as opposed to uncertainty, which I will explain below. Risk is something we can deal with. For example, if B costs €100 then the expected value of the “B costs” of doing A is €20. You can also take into account that people don’t like risk, so perhaps they are willing to pay €25 to prevent B from happening if we do A. Note that this is €5 more than the expected value of the B costs; hence the costs of risk bearing are €5.

The natural scientists could also say “sorry, we have no idea. A could lead to B; it may also have no relation to B at all. We simply don’t know, and we can’t give you any probabilities either.” This is what the textbooks call uncertainty. Uncertainty is nastier to deal with (and, unfortunately, also more widespread) than risk. Under uncertainty all we could say is something like “if you do A, the worst that can happen is B; the best that can happen is no B.” There are strategies like maximin (choose the best of all worst outcomes), maximax (choose the best of all best outcomes), and minimax regret (choose the outcome that gives you, in the worst case, the least explaining to do), but that’s about all you can do.

The natural scientists could also say “it depends on who you ask. Some scientists say A probably leads to B, but others are not so sure. This is an ongoing debate in our field.” This is not so different from the previous case, and we could treat it similarly to uncertainty. Let’s call it a case of competing hypotheses.

The worst case, however, is where some scientists tell you “all the evidence suggests that A leads to B, and don’t let those evil impostors from the A institute tell you otherwise. They are paid by the A industry to deny our science.” No surprise that the A institute tells you that the idea that A could possibly lead to B is preposterous, and that anyone who claims that A leads to B is a leftist bureaucrat out to vilify the poor, hard-working entrepreneurs in the A industry, if not to establish an anti-A-ist communist state. Let’s call it a case of polarised hypotheses. Examples abound: genetically modified organisms, climate change, bottom trawling, MPAs.

The problem with polarised hypotheses is that the moment you choose to include a hypothesis in your uncertainty analysis you imply it is something to be taken seriously. I have no idea of climate science, and I don’t have the time to acquire all the knowledge that would enable me to distinguish the genuine scientists from the flat earthers. But I’m convinced that it is easy to take advantage of my ignorance, and that there are a lot of folks out there who try to do so. Is it a coincidence that one of the most prominent climate skeptics was once paid lavishly by the tobacco industry to deny the harmful effects of second-hand smoke? On the other hand, I’ve seen sufficient nonsense in the news (100 cod in the North Sea, all fish gone by 2048, dolphin meat in canned tuna) to be equally skeptical of the toxic combination of overzealous NGOs and lazy journalism.

So what do you do, as an ignorant economist who cannot fully judge the arguments? You check the messenger. Where does this person work? How much has he or she published, and in which journals? What is the disciplinary background of this person? (For example, one of the more prominent Dutch climate skeptics is an economist whose only peer-reviewed publications were in a journal specifically established to give climate skeptics the stage they can’t get elsewhere.) How much of what this person does is science and how much is advocacy? (I’m allergic to the kind of advocacy dressed as science that was behind, for example, the nonsensical claim that the planet’s ecosystem is worth $33 trillion every year. You can’t estimate this value, period.) I tend to pay much attention to contradictions: The Economist, for example, is an economically liberal newspaper that used to play down the threat of climate change, but nowadays it argues in favour of limiting greenhouse gas emissions. As far as I know Richard Tol, who is often quoted by climate skeptics, does not deny that greenhouse gas emissions are a problem. Funnily the skeptics never quote him on that; they only do so when he bashes wind power.

Yes, I know science is not made by majority votes, but that doesn’t mean that I should take into account every pseudoscientist with an opinion. And I know that reputation isn’t everything, and that many revolutionary insights were first ridiculed, but I can’t be a master of all. So I have little choice but to listen to the mainstream.

Mapping marine economics (4): Fishers are not alone anymore

One of the major attractions of Scheveningen (if you can pronounce that you’ve successfully adapted to Dutch culture) is a 360 degrees painting by the Dutch painter Hendrik Willem Mesdag. It depicts the North Sea coast near Scheveningen in the nineteenth century, long before its neighbouring city, The Hague, absorbed this coastal fishing village in one big agglomeration. Mesdag created an illusion that worked surprisingly well: there appears to be depth in the painting and you feel like standing on a dune watching over the beach, or looking down on the village with its neat little houses, or the villas where rich city folk spent their free time. What is also striking is the dominance of fishing, together with transport, in the coastal zone. You see some sunbathers, but they are easily outnumbered by fishers and other workers in the fishery, such as the horsemen towing the bomschuiten (flat-bottomed fishing vessels, a bit like the pink).

How different is it nowadays. International trade has mushroomed. We have largely replaced sails and steam engines by combustion engines running on oil and gas, scattering drilling platforms all over the North Sea to get to the stuff. Wind is making a come-back as wind turbines are forming entire forests in the open sea. Meanwhile, fishing has become something to limit rather than promote: in Mesdag’s days the British scientist Thomas Henry Huxley called fishery resources “inexhaustible”, but for numerous stocks we have actually found those limits and are now concerned about crossing them. And we’re not only concerned for edible species, but also for marine life in general: enter marine protected areas.

So many uses, so many users, so little resource
Like the North Sea, many marine and coastal ecosystems have many different uses, many different users, and many different ways to meet the users’ needs. Mangrove forests provide coastal protection, a nursery ground for wild fish, a source of juvenile shrimp for extensive shrimp farming systems, and a fascinating ecosystem to float through for tourists. Likewise, other coastal ecosystems like mudflats and coral reefs provide a variety of goods and services to a variety of users. And none of these biomes are limitless.

Given this variety of uses it is not surprising that policy makers need to make many tradeoffs. How far are we willing to limit fishing for an extra gigawatt of wind energy? How do we trade off port capacity against tourism? Does the income generated by an extra hectare of intensive shrimp aquaculture offset the loss in biodiversity and coastal protection?

All these examples are tradeoffs between uses, but also within one and the same use policy makers have to make difficult choices. What is worse, a small flood every year or a big flood every ten years? How do we rebuild fish stocks if local communities depend so much on fishing that they cannot miss a single year of it?

Note that simply putting a price tag on services may not be enough: the average per hectare value of a mangrove forest may be low when the forest is large, but once we have cut most of it the last few remaining hectares will be much more valuable. Moreover, aggregating monetary values over all stakeholders and over time may give you a single figure (the net present value), but this simplicity obscures problems of poverty and income distribution. So we may need to consider the entire tradeoff.

Tradeoff analyses and bioeconomic modelling
I have done tradeoff analyses of dairy farming and biodiversity conservation in my PhD thesis, and I recently submitted a paper with a former MSc student of ours, Matteo Zavalloni, and fisheries ecologist Paul van Zwieten where we analyze the tradeoff between shrimp aquaculture and mangrove conservation in a coastal area in Viet Nam. Both analyses are spatially explicit, i.e. we analyze not only how much of something can or should be done, but also where. The “where” question is quite important as many uses of marine areas (shipping, fishing, aquaculture) have a spatial dimension.

So this will be one of my major focus points: developing tools to make quantitative tradeoff analyses of coastal and marine ecosystems. I’m very much a bioeconomic modeller. I guess it’s the geek in me: I’ve always been terrible at practical technical stuff (the holes my house’s walls and the crappy paint jobs on my window panes bear witness to that), but I enjoy the patient development of a complicated quantitative model, or an insightful analytical model. I also enjoy the interdisciplinary nature of this work: you need to collaborate intensively with other scientists, mainly ecologists, to do it right.

Yes, sometimes I agree with the critics of PES – but not always

Richard Conniff puts some question marks over PES in this piece. Most of it draws from an earlier article by Kent Redford in Conservation Biology, so let me go over the arguments laid out (rephrased in my own words – hoping I get it right) in this article. Be prepared: I actually agree with most of it, although I wholeheartedly disagree with some of it.

PES risks crowding out moral justifications for conservation
This is a risk. The risk is similar to the risk associated with social cost-benefit analysis, namely that the difference between monetised costs and benefits will become the only decision criterion so that non-economic arguments lose their voice in the political debate. This was the case when the USA (under Reagan) adopted its notorious Executive Order 12291, which stated that “Regulatory action shall not be undertaken unless the potential benefits to society for the regulation outweigh the potential costs to society.” No wonder this put a stop to a lot of environmental policy, the benefits of which are most difficult to quantify. So yes, we should keep reminding our students, including economics students, that money is not the only argument in public decisions.

Pro-PES conservationists wrongly believe that all ecosystem services are good
Let me add to that: they even believe ecosystem services are good enough, i.e. good enough to justify conservation. But ecosystem services might not be good enough, and in that sense pro-PES conservationists should be careful what they wish for. But there the article makes an interesting statement (and now I do quote):

Nevertheless, not all ecosystem processes sustain and fulfill human life. Processes such as fire, drought, disease, or flood work against this goal, yet they are vital for ecosystem function, structuring landscapes, and providing vital services and regulatory functions to nonhumans. There is a danger that an economically driven focus on those “services” that are valuable to humans in their nature, scope, and timing may lead to calls to “regulate” ecosystem services to times and in flows that match human needs.

I would like to see Mr Redford explain to Zimbabwean farmers why they should learn to live with themselves, their children, and their cattle getting sick or even dying from sleeping sickness. I’m sure tse tse flies are valuable for some reptile species I should have heard of, but in this case my sympathy is with Homo Sapiens.

Some services may be better provided by species with nasty side-effects
Of course you should take into account nasty side effects, and then the outcome may be that you should still, or should not, use that exotic turbo species to provide the service. Indeed, you may not know the side effects, so precaution is mostly warranted in such cases.

PES may become an incentive to engineer ecosystems towards service provision, which may have nasty side effects
See above. Engineering an ecosystem towards provision of a single service can indeed increase the ecosystem’s brittleness, like monoculture is efficient on the short term but very vulnerable to disease on the long term.

The methods currently used to establish monetary value are problematic
Tell me about it: the economic literature is rife with reasons why putting a price tag on nature can go wrong. But here is another interesting quote from the article:

Where markets do exist, the value of the services from different ecosystems will not reflect their diversity, but their desirability to human consumers.

Now we get to the hidden assumption made by a lot of biologists: ecosystem value = ecosystem diversity. This is a gap between biology and not just economics, but all of social science: social scientists argue that ‘value’ is, well, a value judgement – something that cannot be established objectively, period. Conservationists like to say we should preserve nature because it has ‘intrinsic value’, but what they should really be saying is that they think, or feel, or find that nature has intrinsic value. I hate to say this, but nature having intrinsic value is not a fact; it’s an opinion. A very valid opinion, but there are many others in this whole conservation debate and the way it is being pushed by conservationists smacks of a dictatorial sort of self-righteousness.

PES can have terrible repercussions for (mostly poor) locals
Absolutely. One of the driving forces of deforestation is that nobody knows who owns the forest: is it the state, is it the logging company, or is it the native tribe living in it? Assign any of these three the property rights over the forest and this new rightful owner has the right to exclude all the others. And he will do so, especially when there is money to made! The new allocation may be efficient according to our economics textbooks but it may come at the price of unimaginable social disruption in the lives of local communities.

Property rights may not be able to deal with climate impacts
The argument is like this: if you assign property rights over some species to some owner, this owner may have a strong incentive to stop the species from wandering off when its climate zone starts shifting. Of course, in a well-working market, this owner would be better off buying land elsewhere to let his species neatly follow the change in climate zones, blah blah blah. But land markets are notorious for their institutional problems. Land use regulations, spatial externalities, transaction costs, and all kinds of other problems will throw sand in the machine. This is an interesting issue I hadn’t thought of before. It reflects an interaction between institutional-economic problems and ecological dynamics I might want to look deeper into.

One on the house: paying people not to do nasty stuff
I didn’t find the argument in the article, nor in Conniff’s piece, but it is a problem: a lot of PES is actually paying people not to be nasty. For instance, Conniff gives an example of Vittel-Nestlé paying farmers to not pollute the environment. But pollution is a negative externality: it is a cost imposed by farmers on Vittel. Paying farmers to stop polluting may solve Vittel’s problems on the short term, but it still artificially boosts the farming sector to a size bigger than optimal. The whole world might be better off with farmers doing their business in places where they do less damage, but this solution will actually draw farmers to this area: they get paid not to pollute, what more do you want?

PES is a neoliberal sellout of our democracy to big business
Of course I save the best for last: it is the remark made by the man I would love to see in a cage fight with James Delingpole. Of course I am talking about George Monbiot:

When governments and PES proponents talk about employing marketplace solutions instead of traditional regulatory approaches, [Monbiot] says, “what they are really talking about is shrinking democracy, shrinking public involvement in decision making, shrinking transparency and accountability. By handing it over to the market you are in effect handing it over to corporations and the very rich,” and to “a very plutocratic” decision-making process.

There you have it: more market inevitably means less democracy. Of course, everybody knows you can only have a fully functional democracy under socialism, isn’t it?