Entitlements, missing markets, and environmental uncertainty: Reply

At one level Dore and Ward seem intent on immunizing received doctrine. They say that I did not prove that rights violated Nozick's principles of justice, and that I did not prove that missing markets were the problem. More telling, they allege I did not prove that my story was better than the particular story favored by Dore and Ward. That is, they argue that : “ … there is an alternative approach, based on the theory of public economics, which is indeed operational.”³ They then use the bulk of their comment to explain and defend this alternative model. They hope to convince the reader that the model of “public economics” survives intact in the face of my alternative model. To the extent that their model allows one to define the problem away, it is not difficult to see why they find it so compelling.More seriously, Dore and Ward fail to make a coherent argument about the concept of rights and duties and the logic of a particular rights structure that happens to prevail. They seem concerned that my article was tampering with some sacred social construct—the status quo rights structure—and that my article threatened the received wisdom of both “public economics” and Paretian-Walrasian bliss. Indeed, theirs seems to be a genuine fear that if economists release their grip on the certitude of received orthodoxy the floodgates will be open to all manner of bumbling regulators seeking to shift rights and wealth positions across generations. My article is apparently threatening because it seems to suggest that the received wisdom may, at times, be misleading.     

A goal interval programming model for resource allocation in a marine environmental protection program

A multidimensional “goal programming” model is developed to aid resource allocation decisions in the U. S. Coast Guard's Marine Environmental Protection (MEP) program. It is then extended to a model of “goal interval programming” (GIP ) type where exact values for the indicated goals, as in ordinary goal programming, are replaced by ranges. Deviations outside these ranges are also accommodated by piecewise linear functions with slopes that vary with distance from the goal intervals. Uses and generalizations are discussed in the context of applications to allocating manhours and planning the activities of the Coast Guard's MEP program.     

Evolutionary diversity and spatiotemporal dynamics of a spatial game

In this paper, the evolution of cooperation is studied by a spatially structured evolutionary game model in which the players are located on a two-dimensional square lattice. Each player can choose one of the following strategies: “always defect” (ALLD), “tit-for-tat” (TFT), and “always cooperate” (ALLC). Players merely interact with four immediate neighbors at first and adjust strategies according to their rewards. First, the evolutionary dynamics of the three strategies in non-spatial population is investigated, and the results indicate that cooperation is not favored in most settings without spatial structure. Next, an analytical method, which is based on comparing the local payoff structures, is introduced for the spatial game model. Using the conditions derived from the method as criteria, the parameter plane for two major parameters of the spatial game model is divided and nine representative regions are identified. In each parameter region, a distinct spatiotemporal dynamics is characterized. The spatiotemporal dynamics not only verify that the spatial structure promote the evolution of cooperation but also reveal how cooperation is favored. Our results show that spatial structure is the keystone of the evolution of intraspecific diversity.     

Selecting parameters for calibration via sensitivity analysis: An individual-based model of mosquitofish population dynamics

A stochastic individual-based model (IBM) of mosquitofish population dynamics in experimental ponds was constructed in order to increase, virtually, the number of replicates of control populations in an ecotoxicology trial, and thus to increase the statistical power of the experiments. In this context, great importance had to be paid to model calibration as this conditions the use of the model as a reference for statistical comparisons. Accordingly, model calibration required that both mean behaviour and variability behaviour of the model were in accordance with real data. Currently, identifying parameter values from observed data is still an open issue for IBMs, especially when the parameter space is large. Our model included 41 parameters: 30 driving the model expectancy and 11 driving the model variability. Under these conditions, the use of “Latin hypercube” sampling would most probably have “missed” some important combinations of parameter values. Therefore, complete factorial design was preferred. Unfortunately, due to the constraints of the computational capacity, cost-acceptable “complete designs” were limited to no more than nine parameters, the calibration question becoming a parameter selection question. In this study, successive “complete designs” were conducted with different sets of parameters and different parameter values, in order to progressively narrow the parameter space. For each “complete design”, the selection of a maximum of nine parameters and their respective n values was carefully guided by sensitivity analysis. Sensitivity analysis was decisive in selecting parameters that were both influential and likely to have strong interactions. According to this strategy, the model of mosquitofish population dynamics was calibrated on real data from two different years of experiments, and validated on real data from another independent year. This model includes two categories of agents; fish and their living environment. Fish agents have four main processes: growth, survival, puberty and reproduction. The outputs of the model are the length frequency distribution of the population and the 16 scalar variables describing the fish populations. In this study, the length frequency distribution was parameterized by 10 scalars in order to be able to perform calibration. The recently suggested notion of “probabilistic distribution of the distributions” was also applied to our case study, and was shown to be very promising for comparing length frequency distributions (as such).     

Decentralized regulation of a common property renewable resource industry with irreversible investment

The effectiveness of output controls for rationalizing a common property renewable resource has been called into question by the theoretical work of J. R. Gould [Economica, Nov., 383–402 (1972)]. A proper examination of this question requires an intertemporal analysis, one that takes into account that asymmetries between persistent factors of production (“immaleable capital”) and factors that are instantaneously consumed (“labor” or ldharvest effort”). We present here a nonlinear intertemporal model of a renewable resource industry, under conditions of irreversible capital investment, and undertake to analyze its dynamics, both at open access and under centralized optimal management. We then examine the theoretical possibility of decentralized regulation by Pigouvian taxes, and reconsider the proposition of Gould.     

Putting free-riding to work: A Partnership Solution to the common-property problem

The common-property problem results in excessive mining, hunting, and extraction of oil and water. The same phenomenon is also responsible for excessive investment in R&D and excessive outlays in rent-seeking contests. We propose a “Partnership Solution” to eliminate or at least mitigate these excesses. Each of N players joins a partnership in the first stage and chooses his effort in the second stage. Under the rules of a partnership, each member must pay his own cost of effort but receives an equal share of the partnership's revenue. The incentive to free-ride created by such partnerships turns out to be beneficial since it naturally offsets the excessive effort inherent in such problems. In our two-stage game, this institutional arrangement can, under specified circumstances, induce the social optimum in a subgame-perfect equilibrium: no one has a unilateral incentive (1) to switch to another partnership (or create a new partnership) in the first stage or (2) to deviate from socially optimal actions in the second stage. The game may have other subgame-perfect equilibria, but the one associated with the “Partnership Solution” is strictly preferred by every player. We also propose a modification of the first stage which generates a unique subgame-perfect equilibrium. Antitrust authorities should recognize that partnerships can have a less benign use. By organizing as competing partnerships, an industry can reduce the “excessive” output of Cournot oligopoly to the monopoly level. Since no partner has any incentive to overproduce in the current period, there is no need to deter cheating with threats of future punishments.     

A criterion validity test of the contingent valuation method: comparing hypothetical and actual voting behavior for a public referendum

This study pursues external validation of contingent valuation by comparing survey results with the voting outcome of a Corvallis, Oregon, referendum to fund a riverfront improvement project through increased property taxes. Survey respondents hypothetically make a voting decision—with no financial consequences—on the upcoming referendum. The survey sample consists of respondents verified to have voted in the election. We use available precinct-level election data to compare the proportion of “yes” survey and referendum votes as well as estimate voting models and mean willingness to pay (WTP) based on the two sets of data. We find that survey responses match the actual voting outcome and WTP estimates based on the two are not statistically different. Contrary to similar studies, our statistical results do not depend on re-coding the majority of “undecided” survey responses to “no.” Furthermore, such a re-coding of responses may be inappropriate for our data set.     

Modeling the impact of uncertainty in emissions trading markets with bankable permits

The various forms of uncertainty that firms may face in bankable emission permit trading markets will affect firms’ decision making as well as their market performance. This research explores the effect of increased uncertainty over future input costs and output prices on the temporal distribution of emission. In a dynamic programming setting, the permit price is a convex function of stochastic prices of coal and electricity. Increased uncertainty about future market conditions increases the expected permit price and causes a risk neutral firm to reduce ex ante emissions in order to smooth out marginal abatement costs over time. Finally, safety valves, both low-side and high-side, are suggested to reduce the impact of uncertainty in bankable emission trading markets.     

Market responses to hurricanes

This paper uses one of the strongest hurricanes to hit the US, Andrew in 1992, to define a quasi-random experiment that permits estimation of the responses of housing values to information about new hurricanes. Lee County, Florida did not experience damage from Andrew. The storm was a “near-miss.” We hypothesize that Andrew conveyed risk information to homeowners in the county. A difference-in-differences (DND) framework identifies the effect of this information on property values in areas likely to experience significant storm damage. The DND findings indicate at least a 19 percent decline in property values.     

Deforestation and Development in a Small Open Economy

Our economy faces world prices and starts with a large endowment of land in forest and a small endowment of land in agriculture. Clearing of forested land yields marketable timber and a unit of land for agriculture. Early, the high price of agricultural land drives the clearing process. Later, the profit from marketing timber from the cleared land drives the process. Dates of “phase transitions” are endogenous. We also set out a submodel of perpetual cyclic clearing and reforesting, and show that it when cyclical harvesting—regrowing is optimal, the extent of clearing can be relatively large.     

Do microbial processes regulate the stability of a coral atoll's enclosed pelagic ecosystem?

Complex marine ecosystems contain multiple feedback cycles that can cause unexpected responses to perturbations. To better predict these responses, complicated models are increasingly being developed to enable the study of feedback cycles. However, the sparseness of ecological data often limits the direct empirical parameterization of all model parameters. Here we use a Bayesian inverse analysis approach to synthesize empirical data and ecological theory derived from published studies of a coral atoll's enclosed pelagic ecosystem (Takapoto Atoll, French Polynesia). We then use the estimates of flux magnitudes to parameterize probabilistic compartment models with two forms of heterotrophic consumption: (1) “bottom-up” donor-controlled heterotrophic consumption and (2) “top-down” mass-action heterotrophic consumption. We explore how the flux magnitudes affect the ecosystem's stability properties of resilience, reactivity, and resistance under both assumptions for heterotrophic consumption. The models suggest that the microbial uptake of dissolved organic carbon (DOC) regulates the long term rate of return to steady state following a temporary or pulse perturbation (resilience), and the cycling of carbon between abiotic pools and heterotrophic compartments regulates the short-term response (reactivity). In the bottom-up process model, the sensitivity of steady state masses following a sustained or press perturbation (resistance) is highest for the DOC pool following a sustained change to the microbial uptake rate of DOC. Further, a change in the microbial uptake of DOC propagates through the ecosystem and affects the steady state values of zooplankton. The analysis suggests that the food web is highly dependent on the recycling between the abiotic and biotic carbon pools, particularly as mediated by the microbial consumption of DOC, and this recycling determines how the ecosystem responds to perturbations.     

Stochastic bycatch, informational asymmetry, and discarding

The existing literature (i) examines bycatch and discard behavior in a static framework and (ii) treats bycatch as a deterministic process uniform across vessels. Using a dynamic representative agent model in a two-stock resource, this paper explores strategic interactions between a social planner and two groups of harvesters, one of which imposes a stochastic “technological externality” (bycatch) on the other. In addition to limitations on entry and the number of trips taken in each industry, three bycatch control instruments are compared to the unconstrained case: taxes, trip limits, and value-based quotas. Implementation and enforcement costs aside, taxes dominate both types of quota, and value limits outperform trip limits by eliminating one type of discarding. In simulations, relative performance depends upon variance in the bycatch process, differences in the ex vessel prices of stocks, relative efficiency of the harvester types, and fixed costs on the trip and industry margins.     

Endogenous Monitoring and Enforcement of a Transferable Emissions Permit System

The literature on noncompliant firms in transferable emissions permit systems offers little guidance to policymakers that must determine how to commit resources to monitor firms and punish violations in such systems. We consider how a budget-constrained enforcement authority that seeks to minimize aggregate noncompliance in a transferable emissions permit system should allocate its monitoring and enforcement efforts among heterogeneous firms. With a conventional model of firm behavior in a transferable permit system, we find that differences in the allocation of monitoring and enforcement effort between any two types of firms should be independent of differences in their exogenous characteristics.     

The Optimal Allocation of Conservation Funds

This paper presents a framework to evaluate alternative designs of conservation programs and their implications for the allocation of conservation funds. We show that the efficient allocation of conservation funds must consider two important “pooling” effects—cumulative effects and interrelationships among alternative environmental benefits. Ignoring the cumulative effects of environmental benefits may cause conservation funds to be overly dispersed geographically and, as a result, may result in minimum environmental benefits when the budget is small. Ignoring the interrelationships among alternative environmental benefits may result in not only misallocation of conservation funds among geographical areas, but also incorrect resources being targeted for conservation practices. Implications of these results for the design of conservation programs are discussed.     

A Review of WTA/WTP Studies

Willingness to accept (WTA) is usually substantially higher than willingness to pay (WTP). These constructs have been studied for roughly 30 years and with a wide variety of goods. This paper reviews those studies. We find that the less the good is like an “ordinary market good,” the higher is the ratio. The ratio is highest for non-market goods, next highest for ordinary private goods, and lowest for experiments involving forms of money. A generalization of this pattern holds even when we account for differences in survey design: ordinary goods have lower ratios than non-ordinary ones. We also find that ratios in real experiments are not significantly different from hypothetical experiments and that incentive-compatible elicitation yields higher ratios.     

Optimal pollution permit endowments in markets with endogenous emissions

In a permit market with endogenous emissions, both firms and citizens purchase permits. Presented here are static and dynamic models of pollution permit markets with endogenous emissions. The optimal permit endowments are characterized when the regulator faces uncertainty about damages and uncertainty about the severity of the citizens’ collective action problem. Due to the possibility of learning over time, the regulator issues a larger number of permits in the first period of the dynamic model than in the static model.     

Creation and preservation of vegetation patterns by grazing

Structural patterns of tall stands (“tussock”) and short stands (“lawn”) are observed in grazed vegetation throughout the world. Such structural vegetation diversity influences plant and animal diversity. A possible mechanism for the creation and preservation of such patterns is a positive feedback between grazing and plant palatability. Although some theoretical studies have addressed this point in a non-spatial setting, the spatial consequences of this feedback mechanism on the stability and spatial characteristics of vegetation structure patterns have not been studied.We addressed this issue by analyzing a spatially explicit individual-based plant-grazer simulation model, based on published empirical relations and the assumption of optimal foraging.In the model, the selection by the grazer of short stands (that have a higher energy content and are more palatable) is affected by traveling costs and the spatial organization of swards. Nevertheless, the most selected biomass in this type of short stands was the optimal biomass predicted by cropping and digestion constraints. As a result of the optimal foraging strategy, the grazers displayed Lévy-flight traveling behavior during the simulations with characteristic exponent μ ≈ 2.Patterns of short and tall stands created by grazing were preserved for at least a decade. Even in seasonal habitat, the spatial organization of the patterns remained relatively constant, despite fluctuations in the area of short stands. Heterogeneity of initial vegetation increased heterogeneity of the grazing-induced pattern, but did not affect its stability.The area of short stands that was preserved by grazing scaled with the herbivore mass to the power 0.4 and with the carrying capacity of the vegetation to the power −0.75.Patterns of tall and short stands can be created and perpetuated by optimally grazing ruminants, irrespective of possible underlying soil patterns. The simulations generate predictions for the stability and spatial characteristics of such structural vegetation patterns.     

Pollution control in a simplified general-equilibrium model with production externalities

Pollution externalities of the producer-producer type are considered in a positive two-sector model with stationary capital and labor. By assumption, output from the polluting sector can be diverted to pollution abatement. Environmental authorities attempt to control the level of pollution to some minimum “acceptable” standard by requiring polluters to depollute through the mechanism of a uniform tax on production. Following discussion of short-run considerations, the stability of the tax-adjustment scheme is examined and the dynamic nature of growth paths in the economy is explored.     

The role of technological change

We develop an optimal growth model that includes several important new features. First, technological change is endogenously related to the growth of “knowledge.” Investment may be directed either towards physical capital or knowledge (or both). Knowledge becomes an effective substitute for scarce resources by increasing the technical efficiency of resource utilization both for consumption and in capital. Nevertheless, a finite quantity resource must be embodied in capital and a finite flow is required for depreciation. Thus, there is an upper limit to technical efficiency and economic growth is thus ultimately limited by the availability of renewable resources. For a simple aggregate production function it is shown that technical efficiency never approaches unity on an optimal path.     

North–South Investment Flows and Optimal Environmental Policies

In the context of a simple North–South model that focuses on the international movement of capital, we show how neglect of pollution-generating effects of foreign investment may lead to distorted and misleading policy recommendations. Such a neglect has recently received emphasis in the empirical literature on East Asian economies, as in Bello and Rosenfeld (1990, “Dragons in Distress: Asia's Miracle Economics in Crisis,” Food First, San Francisco), and was shown to overlook resulting tendencies in these economies toward specialization, away from agriculture and toward manufacturing. Our simple model formalizes this observation and allows us to show that even for an unspecialized capital-poor, resource-rich South, such pollution-generating effects provide incentives for the North to encourage, rather than to discourage, foreign investment abroad and strengthen Southern incentives to restrict foreign investment more sharply than is conventionally assumed. In a nutshell, it brings out the implications of Northern capital “creating its own demand” as a consequence of its adverse impact on the Southern resource base. Despite its simplicity, the model thus sheds light on three interrelated aspects of international trading relations: production asymmetry, incomplete markets, and monopolistic advantage.