Posts Tagged ‘everyday economics’

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A shipping lane is being proposed which would go through the Great Barrier Reef so as to improve access to a mining complex.

We must ask some questions that help decide whether the proposed lane should go through the reef or not. Who will benefit or lose out in each scenario, when, and for how long, and by how much?

In economic analysis, as £1 now is worth more than £1 in the future, future costs and benefits are discounted to create a Present Value for each impact, which you can then weigh against each other.  For a project to be recommended on economic analysis grounds only, its benefits over time need to outweigh its costs. In economic terminology Net Present Value (benefits minus costs) > 0 or Benefit Cost Ratio > 1. There are of course many other considerations in making a decision about a project that economic analysis can capture. But let’s see how we can think about this project if we were attempting to do an economic analysis (cost benefit analysis in this case).

Let’s briefly look at the case where the shipping lane does go through the reef. This will not cost the company anything extra than they had already planned. It may, however, have an economic cost to society (a negative externality); reef damage, caused by the ships, will reduce tourism in the area- a huge source of local GDP and employment in Queensland.

We can also look at the case where the shipping lane is diverted to avoid the reef. The tourist numbers and revenues don’t change, but the diversion would cost extra money to the mining and shipping companies in the form of fuel and time.

The comparison of cost of diversion and avoided damage (benefit of diversion) to the reef can conclude:

(a)    if the cost of diverting ships is less than the lost money from tourism and other marketable impacts, the shipping lane should be diverted.

(b)   if the cost of diverting ships outweighs the lost money from tourism and other marketable impacts; the direct lane should go ahead on efficiency grounds.

But hang on a minute, it’s not that simple!

We have to think about the characteristics of the reef that generate values other than the market price and revenues. It’s these social values that are not paid for in a market that are often most important to people and are what make the Great Barrier Reef, well, GREAT.

It’s not that different to what people care about when their house burns down. Do people care about the games console or the expensive pair of new jeans? No, it’s the family photos, the postcards from friends, and the paintings your son made when he was 4 years old that hang in the kitchen.

The same goes for the reef; it’s the bio-diversity, cultural heritage, national pride, the wonder and mystery, and the sheer size of it that are the most ‘valuable’.

These characteristics lead to types of value that cannot be bought, such as: Option value (I may be willing to pay to have the option to see the Reef in the future, even though I have no intention going now); Existence value (I may be willing to pay for the knowledge that the Reef exists without any intention to ever see); and Bequest value (I may be willing to pay so that my descendants can see the Reef).

By including these values, we can build a better understanding of the Total Economic Value of the Reef. ‘But how do you measure them if we can’t buy or sell them?’ I hear you cry. This is where environmental economists earn their money; they realise that these values may be hidden within the price of another good/service that is bought and sold and thus can extract it. Another method is to survey people’s preferences of different scenarios regarding the environmental asset and their associated income in each scenario.

By eliciting these values, we can monetise damage done to the reef that isn’t seen through the market and incorporate it into the decision process.

Accounting for some leeway either side, if the true cost of having a lane directly through the reef i.e. losing all values associated with reef damage, is more than the cost to companies of circumventing the reef, then there is a compelling argument that the direct lane should be shelved.

So what if, even after including these non-marketed values, the damage to the reef is less costly than the cost to the companies of bypassing it?

In reality, we can’t monetise everything and we are never 100% certain what the consequences of reef damage is in the long term; perhaps, with data only available in the future, the costs are found to be so much more than previously thought. In that case, instead of attempting to put a market value on certain attributes, we could just say that, ‘some things are critical for nature and for the people, both now and in the future, and should be protected’.

Yes, economic development may bring us monetary wealth, but perhaps we lose immaterial wealth in the process in terms of wellbeing, morals and principles. Some things are irreplaceable, and should remain that way.

Here is a link to the online petition against the lane.

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I was watching an old Big Bang Theory episode the other day; it was the one where Penny buys Sheldon and Leonard (Star Trek enthusiasts) a Spock Transporter each from the comic book store.

Penny wants to open them up and play with them, which stuns the boys; Leonard says, ‘Once you open the box, it loses its value.’ (Watch the 2 minute clip here)

Here, Sheldon and Leonard realise that things don’t always have a ‘use’ value in the traditional sense of consuming them. They recognise that the toys have an embedded value in leaving them in the box untouched i.e. mint in box. Neither of them may even consider selling them in the future, despite the toys being ‘worth’ more.

Instead, they enjoy looking at them in their pristine condition (a non-consumptive direct use value) and, also, may want to pass them on to their children – if Sheldon knows how to make a child – or donate them to a museum so that others can see them in their original state (a bequest value).

Perhaps, then, we can learn something from comic book enthusiasts and apply their ‘mint in box’ mentality to the environment. Policy-makers now take into account these direct and indirect use and non-use values into project appraisal by considering a project’s total economic value.

People wouldn’t pay as much to visit Yosemite National Park if it wasn’t kept looking beautiful, as they would not derive as much value. Therefore, it makes sense to keep it looking beautiful (see picture below).

Another non-consumptive direct use value that can be compared to the Big Bang Theory example would be improving bathing water standards. People don’t go to beaches to drink the sea water, which would be a consumptive use value. Instead, they derive value from playing in the water. If the water is not safe, then people cannot play in it; therefore there is a benefit (amongst many others) from improving it that doesn’t have a market price.

Later on in the episode, Spock comes to Sheldon in a dream and asks him what the purpose of a toy is. Sheldon replies by saying, ‘to be played with’ and thus comes to the conclusion to open it and play with it. Therefore, we need to think about what the purpose of the environment is before making decisions to change it.

The herd has done some head-scratching over this topic, and we would appreciate your input- do you agree or disagree, can you think of other analogies?


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Lately, I can be found in my lunch hour to be taking a break from environmental economics and exploring the literature of the Beat Generation. In the last 8 weeks I have finished 8 books by Jack Kerouac, whose descriptions of solitude and self-discovery have left me contemplating my own relationship with tranquility and what exactly produces it. I now find myself on an uncertain road having just finished university, and I seek tranquility to help me come to terms with this fact, whilst also using it to fuel my own reading and writing hobbies.

The Campaign to Protect Rural England (CPRE) has created a national tranquility map, making it possible to assess the likelihood of finding tranquility in the UK. The CPRE’s tranquility map is made up of layers of information based on what people say adds to and detracts from finding tranquility. Surveys were used to determine what tranquility means to people, and the different factors which determine ‘tranquility’. For example, the top survey responses to defining tranquility include seeing a natural landscape, hearing birdsong (as we discovered at envecon 2013 this year) and seeing the sea.

The search for tranquility is why 49% of us visit the countryside, according to the same survey. In fact, many people in the UK pay hundreds and even thousands of pounds to escape on holiday and to find tranquility. I have enjoyed many holidays in Cornwall and would describe my experiences as tranquil and happy. In Cornwall I can find peace and quiet and I can see and smell the sea every day. I can’t find phone signal however, but this all adds to the flavour of finding tranquility in what is a beautiful part of the UK.

On the contrary, the CPRE’s tranquility map suggests that seeing towns, cities, airplanes and light pollution deters tranquility. This would suggest that investment in Green Infrastructure could be a waste of time as tranquility cannot be found in urban locations. I argue the opposite however. Since finishing my exams, three friends and I recently scaled Nunhead reservoir, an abandoned green space in Peckham which provides a view over London more beautiful than that from Primrose Hill. We sat to watch the sunset, seeing the city’s lights come on and followed airplane contrails for miles. It was one of the happiest feelings I have experienced and despite what the CPRE tranquility map suggests I had found tranquility in a place which according to the map should really detract from tranquility.

I argue that tranquility, however you imagine it and wherever you find it is an invaluable experience. It is a very personal moment and cannot simply be standardised or measured by the characteristics of the surrounding environment. It can be found and experienced anywhere. The value of tranquility is how it makes you feel and what it inspires you to do and think. Whilst desolation is a strong term to describe my current life phase, I found myself coming down from my education peak in Peckham smiling from ear to ear and happier than ever.

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Is that blood on my hands? No, it is just blackberry juice staining my skin.

Everybody loves a nice walk in the country, especially when there are some blackberry bushes to pick at (being careful not to pick any within a dog’s reach).

Years ago, along my usual walk, I detoured down a small hidden pathway that I knew nobody else took- as the entrance was covered by stinging nettles. This secret path led to some blackberry bushes. When the season was right, I would take berries home to enjoy, ensuring that I only picked the ripest blackberries off the bushes. This went on for years; I would pick ripe berries and leave those that were not ready to pick for the following evenings.

However, this all changed one evening last year when the nettles covering the entrance were removed.

On my usual detour, I saw, to my horror, other people ‘trespassing’ on my secret path- how dare they?! Not only that, they were plundering berries from my usual stash. By the time I arrived to the bush, I found that there were very few ripe berries to be had.

I gathered the remaining ripe berries and went, not-so merrily, on my way.

The following day, I found there to be no ripe blackberries at all. I picked the berries that were as close to being ripe as possible, however I found that these were not as enjoyable. The following day, there were even fewer of these berries; therefore I picked even less-ripe ones, which were definitely not to my satisfaction. This, unfortunately, has been the case ever since.

The fact is, these bushes have enough berries for me (and even a few others, if I’m not being selfish) to be sustainable and replenish each evening with ripe berries. However, as there is nothing stopping the rest of the public accessing these bushes, my efforts to limit myself to only picking the ripest berries is useless because anybody else can pick the ones that I restrained from taking.

People take unripe berries, just because they know that if they don’t, somebody else will and there won’t be any by the time the blackberries would have been ripe. Therefore, it makes sense to the rest of the public to take them now, even if they are not ripe.

My experience here is a trivial example of the ‘tragedy of the commons’. My once-private supply of blackberries was opened up to the rest of the public, whom gladly took the opportunity to pick the berries I had once enjoyed- leaving the resource depleted. As no-one owns this resource, boundaries or exclusion zones cannot be created…and I (usually) have better things to do than to stand guard counting how many blackberries people take.

Nevertheless, I may not have to go searching for a new secret blackberry bush just yet.

Ostrom’s critique of the subject argues that the tragedy of the commons is less prevalent and less difficult to solve than initially thought when a community owns the resource. This is because communities are able to solve the problem amongst themselves. This is promising as I live in a tight-knit, community-orientated, village where few ‘outsiders’ will come walking through. Therefore, if I cross paths with the other foragers, I shall voice my concerns to them and perhaps we can come to some kind of agreement. I may also bring up my issues to the parish council, which will be able to email information to its mailing list or mention it in the local newsletter; however, this may attract people to the blackberry bushes who previously did not know about them, thus potentially exacerbating the problem. Perhaps, then, I will stick to a good old-fashioned sign tied to the bushes explaining the situation and rely on people’s good nature to pick sustainably.

Despite some potential free-riders, this solution could benefit everyone involved as we will have ripe berries to enjoy once again…but maybe just a few less than we’d ideally like.

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