Environmental preferences or willingness to pay (WTP) values tend to be heterogeneous and evolving over time. Attitudes and related theories worked as an alternative observation scope to the more conventional sociodemographic characteristics, explaining preference heterogeneity in environmental economics. Perception as a concept, on the other hand, is too illusive to be exclusively examined so is better treated as an attitude. Although not popular in mainstream environmental economics, the research interest in the attitude–WTP relationship has continued since the late 1990s and has increased and been relatively steady between 2006 and 2020. According to the lessons from the established behavioral models, attitudes are normally categorized as either general or specific. General attitudes are situation-invariant and slow to change, whereas specific attitudes are situational and quick to change. The early pioneering studies of the attitude–WTP relationship used mostly ad hoc measures for environmental attitudes roughly from 1990, followed by the studies of more systematic representation roughly from 2000, and by those of hybrid models roughly from 2010. There were segmentation-based and parameterization-based approaches to incorporating attitudinal characteristics into valuation models. In particular, parameterization has appeared in three generations: indirect inclusion of indicators, sequential estimation using factor analysis, and integrated hybrid models. As future prospects, first, general environmental attitudes might play an important role in the coming decade because of their relative stability (i.e., situation invariant), comparability, and wide influence, determining environmental preferences and behaviors. Second, a potential difference between the segmentation-based and parameterization-based approaches requires further investigation. Third, the role of hybrid models and the payment parameter that is arbitrarily constrained demand more studies for accurate estimation of mean WTP values. The evolving nature of human preferences could be understood only when the observation scope for latent attitudes is enlightened enough to guide studies of environmental economics, to lead environmental policies, and to accomplish sustainable development.
Article
How Do Attitudes and Perceptions Affect Environmental Preferences?
Andy Sungnok Choi
Article
How Environmental Degradation Impoverishes the Poor
Edward B. Barbier
Globally, around 1.5 billion people in developing countries, or approximately 35% of the rural population, can be found on less-favored agricultural land (LFAL), which is susceptible to low productivity and degradation because the agricultural potential is constrained biophysically by terrain, poor soil quality, or limited rainfall. Around 323 million people in such areas also live in locations that are highly remote, and thus have limited access to infrastructure and markets. The households in such locations often face a vicious cycle of declining livelihoods, increased ecological degradation and loss of resource commons, and declining ecosystem services on which they depend. In short, these poor households are prone to a poverty-environment trap. Policies to eradicate poverty, therefore, need to be targeted to improve the economic livelihood, productivity, and income of the households located on remote LFAL. The specific elements of such a strategy include involving the poor in paying for ecosystem service schemes and other measures that enhance the environments on which the poor depend; targeting investments directly to improving the livelihoods of the rural poor, thus reducing their dependence on exploiting environmental resources; and tackling the lack of access by the rural poor in less-favored areas to well-functioning and affordable markets for credit, insurance, and land, as well as the high transportation and transaction costs that prohibit the poorest households in remote areas to engage in off-farm employment and limit smallholder participation in national and global markets.
Article
How to Make Individual Transferable Quotas Work Economically, Socially, and Environmentally
Rashid Sumaila
The economic tool of individual transferable quotas (ITQs) gives their owners exclusive and transferable rights to catch a given portion of the total allowable catch (TAC) of a given fish stock. Authorities establish TACs and then divide them among individual fishers or firms in the form of individual catch quotas, usually a percentage of the TAC. ITQs are transferable through selling and buying in an open market. The main arguments by proponents of ITQs is that they eliminate the need to “race for the fish” and thus increase economic returns while eliminating overcapacity and overfishing. In general, fisheries’ management objectives consist of ecological (sustainable use of fish stocks), economic (no economic waste), and social (mainly the equitable distribution of fisheries benefits) issues. There is evidence to show that ITQs do indeed reduce economic waste and increase profits for those remaining in fisheries. However, they do not perform well in terms of sustainability or socially. A proposal that integrates ITQs in a comprehensive and effective ecosystem-based fisheries management system that is more likely to perform much better than ITQs with respect to ecological, economic, and social objectives is presented in this article.
Article
The Impacts of Environmental Regulation on the U.S. Economy
Ann E. Ferris, Richard Garbaccio, Alex Marten, and Ann Wolverton
Concern regarding the economic impacts of environmental regulations has been part of the public dialogue since the beginning of the U.S. EPA. Even as large improvements in environmental quality occurred, government and academia began to examine the potential consequences of regulation for economic growth and productivity. In general, early studies found measurable but not severe effects on the overall national economy. Although price increases due to regulatory requirements outweighed the stimulative effect of investments in pollution abatement, they nearly offset one another. However, these studies also highlighted potentially substantial effects on local labor markets due to the regional and industry concentration of plant closures.
More recently, a substantial body of work examined industry-specific effects of environmental regulation on the productivity of pollution-intensive firms most likely to face pollution control costs, as well as on plant location and employment decisions within firms. Most econometric-based studies found relatively small or no effect on sector-specific productivity and employment, though firms were less likely to open plants in locations subject to more stringent regulation compared to other U.S. locations. In contrast, studies that used economy-wide models to explicitly account for sectoral linkages and intertemporal effects found substantial sector-specific effects due to environmental regulation, including in sectors that were not directly regulated.
It is also possible to think about the overall impacts of environmental regulation on the economy through the lens of benefit-cost analysis. While this type of approach does not speak to how the costs of regulation are distributed across sectors, it has the advantage of explicitly weighing the benefits of environmental improvements against their costs. If benefits are greater than costs, then overall social welfare is improved. When conducting such exercises, it is important to anticipate the ways in which improvements in environmental quality may either directly improve the productivity of economic factors—such as through the increased productivity of outdoor workers—or change the composition of the economy as firms and households change their behavior. If individuals are healthier, for example, they may choose to reallocate their time between work and leisure. Although introducing a role for pollution in production and household behavior can be challenging, studies that have partially accounted for this interconnection have found substantial impacts of improvements in environmental quality on the overall economy.
Article
Industrial Policy as an Environmental Policy: Forest Preservation and the Industrialization of Manaus
Alexandre A.F. Rivas and James R. Kahn
The world is experiencing a major dilemma between the need to reduce global warming and to promote economic development. Brazil has the largest tropical rainforest on the planet, which plays an important role in this scenario. In the heart of this forest there is a special economic zone (SEZ), the Manaus Free Trade Zone. Studies indicate that there is a positive relationship between this economic activity and the level of forest conservation in the state of Amazonas, where the Manaus Free Trade Zone is located. There is important literature on SEZs, examining their economic and environmental impact in general, and specifically examining the Manaus Free Trade Zone. There is also a proposal to turn this SEZ into a major Brazilian economic initiative to protect the Amazon rainforest.
Article
Input–Output Models Applied to Environmental Analysis
Joaquim J.M. Guilhoto
Input–Output (I–O) models and analysis were originally conceived by the Nobel Prize winner Wassily Leontief in the 1930s as a tool that can be used by economists and economic policy makers to help in their decision process. The I–O models provide a “picture” of how the economy works, that is, what are the necessities to produce goods and services, how this production generates income, profits and taxes, and how this income is spent. In a simplified way the I–O models can be seen as the model implementation of the economy circular-flow diagrams usually shown in economics introductory courses. Associated with the theory behind I–O models and analysis, I–O tables contain the empirical information necessary to implement these models and theory.
Taking, for example, the production of computer screens:
• On the production side, the I–O models have information on: (a) how much is spent on the inputs, goods and services necessary to produce the screens; (b) whether these inputs have their origin in the domestic market or are imported; (c) how much was paid in tax to the government; (d) what was the total amount paid in wages and salaries; (e) what were the profits of the producing firms; (f) how many computer screens are sold on the domestic market or on the international market (exported); and (g) whether they are sold directly to the final consumer or are used as a production input, that is, incorporated into other goods, for example, a refrigerator with a computer screen;
• On the demand side, the I–O models, taking into consideration the total income received by the different players in the economy, that is, households, firms, and government, have information on: (a) how the income of these players is spent on goods and services, and whether it is used for consumption or investment; (b) whether these goods and services were produced domestically or abroad (imported); and (c) how much consumer tax was paid.
From the aforementioned structure of I–O models, and using economic mathematical models, it is possible to measure the direct and indirect inputs needed to produce goods and services in the economy, for example, to produce a car there is no need for agricultural goods as a direct input for production, but the fabric used in the car seats or on the car carpets could have come from cotton, which is an agricultural good, so, cotton is an indirect input used in car production.
I–O models, by their capability to show a complete picture of the economic system, and tracing of the origin of direct and indirect inputs used in the production process, can be used in environmental studies by linking economic and environmental variables, on the production and consumption sides. From the production side it is possible to measure, by considering the direct and indirect inputs used, how many natural resources were used and how much pollution was generated in producing the goods and services. On the demand side it is possible to measure the environmental variables, natural resources, and pollution, embodied in the goods and services consumed in the economy. Expanding I–O models to a global scale, that is, using inter-country I–O models, it is possible to measure the environmental impacts, and contents, of the goods and services by country of origin of production and by countries of consumption.
Article
Interface Urban Forest Management in an Urbanizing Landscape
Maria A. Cunha-e-Sá and Sofia F. Franco
Although forests located near urban areas are a small fraction of the forest cover, a good understanding of the extent to which —wildland-urban interface (WUI) forest conversion affects local economies and environmental services can help policy-makers harmonize urban development and environmental preservation at this interface, with positive impact on the welfare of local communities. A growing part of the forest resource worldwide has come under urban influence, both directly (i.e., becoming incorporated into the interface or located at the interface with urban areas) and indirectly (as urban uses and values have come to dominate more remote forest areas). Yet forestry has been rather hesitant to recognize its urban mandate. Even if the decision to convert land at the WUI (agriculture, fruit, timber, or rural use) into an alternative use (residential and commercial development) is conditional on the relative magnitude and timing of the returns of alternative land uses, urban forestry is still firmly rooted in the same basic concepts of traditional forestry. This in turn neglects features characterizing this type of forestland, such as the urban influences from increasingly land-consumptive development patterns. Moreover, interface timber production-allocated land provides public goods that otherwise would be permanently lost if land were converted to an irreversible use. Any framework discussing WUI optimal rotation periods and conversion dates should then incorporate the urban dimension in the forester problem. It must reflect the factors that influence both urban and forestry uses and account for the fact that some types of land use conversion are irreversible.
The goal is to present a framework that serves as a first step in explaining the trends in the use and management of private land for timber production in an urbanizing environment. Our framework integrates different land uses to understand two questions: given that most of the WUI land use change is irreversible and forestry at this interface differs from classic forestry, how does urban forestry build upon and benefit from traditional forestry concepts and approaches? In particular, what are the implications for the Faustmann harvesting strategy when conversion to an irreversible land use occurs at some point in the future?
The article begins with a short background on the worldwide trend of forestland conversion at the WUI, focusing mostly on the case of developed countries. This provides a context for the theoretical framework used in the subsequent analysis of how urban factors affect regeneration and conversion dates. The article further reviews theoretical models of forest management practices that have considered either land sale following clear-cutting or a switch to a more profitable alternative land use without selling the land. A brief discussion on the studies with a generalization of the classic Faustmann formula for land expectation value is also included. For completeness, comparative statics results and a numerical illustration of the main findings from the private landowner framework are included.
Article
The Life Satisfaction Approach to Environmental Valuation
Christopher Fleming and Christopher Ambrey
The method and practice of placing monetary values on environmental goods and services for which a conventional market price is otherwise unobservable is one of the most fertile areas of research in the field of natural resource and environmental economics. Initially motivated by the need to include environmental values in benefit–cost analysis, practitioners of nonmarket valuation have since found further motivation in national account augmentation and environmental damage litigation. Despite hundreds of applications and many decades of refinement, shortcomings in all of the techniques remain, and no single technique is considered superior to the others in all respects. Thus, techniques that expand the suite of options available to the non-market valuation practitioner have the potential to represent a genuine contribution to the field.
One technique to recently emerge from the economics of happiness literature is the “experienced preference method” or “life satisfaction approach.” Simply, this approach entails the inclusion of non-market goods as explanatory variables within micro-econometric functions of life satisfaction along with income and other covariates. The estimated coefficient for the nonmarket good yields, first, a direct valuation in terms of life satisfaction and, second, when compared to the estimated coefficient for income, the implicit willingness to pay for the non-market good in monetary terms.
The life satisfaction approach offers several advantages over more conventional non-market valuation techniques. For example, the approach does not ask individuals to directly value the non-market good in question, as is the case in contingent valuation. Nor does it ask individuals to make explicit trade-offs between market and non-market goods, as is the case in discrete choice modeling. The life satisfaction approach nonetheless has some potential limitations. Crucially, self-reported life satisfaction must be regarded as a good proxy for an individual’s utility. Furthermore, in order to yield reliable non-market valuation estimates, self-reported life satisfaction measures must: (1) contain information on respondents’ global evaluation of their life; (2) reflect not only stable inner states of respondents, but also current affects; (3) refer to respondents’ present life; and (4) be comparable across groups of individuals under different circumstances. Despite these conditions, there is growing evidence to support the suitability of individual’s responses to life satisfaction questions for non-market valuation. Applications of the life satisfaction approach to the valuation of environmental goods and services to date include the valuation of air quality, airport noise, green space, scenic amenity, floods, and drought.
Article
Macroeconomics and the Environment
Partha Sen
Macroeconomics deals with economics at the aggregate level. This could be at a national level or that of the interaction between nations. Production of output necessarily involves pollution and degrading the environment. Therefore, environmental issues inevitably are a factor. Some problems that have been highlighted in the literature are surveyed here. It has been argued that a poor country deliberately lowers its environmental standards to steal jobs from other countries. What is the theoretical underpinning and the evidence for this assertion? The evidence is very weak in support of this. Moreover, in the fight against climate change, poorer countries claim exemption from tightening their emissions norms because of their poverty. Similarly, although equity demands this, it could pose serious challenges to fighting climate change—oil producers would pump oil faster if they foresaw it becoming useless. A piecemeal approach will not work. A more basic question is how to introduce natural resource use in national income accounts to give meaning to the notion of sustainability. National income accounts do not take into account non-market activities. Some progress has been made in the theory and empirical implementation of sustainability by including non-market activities. A lot of work has been done but a lot more still needs to be done in this area.
Article
The Mirage of Supply-Side Development: The Hydraulic Mission and the Politics of Agriculture and Water in the Nile Basin
Harry Verhoeven
In an era of calamitous climate change, entrenched malnutrition, and the chronic exclusion of hundreds of millions of people from access to affordable energy, food, and water, evaluating the policy options of African states to address these challenges matters more than ever. In the Nile Basin especially, a region notorious for its poverty, violent instability and lack of industrialisation, states have invested their scarce resources and political capital in a “hydraulic mission” in the belief that they can engineer their way out of international marginalization. Incumbents have bet on large-scale hydro-infrastructure and capital-intensive agriculture to boost food production, strengthen energy security, and deal with water scarcity, despite the woeful track-record of such a supply-side approach to development.
While ruling elites in the Nile Basin have portrayed the hydraulic mission as the natural way of developing the region’s resources—supposedly validated by the historical achievements of Pharaonic civilization and its mastery over its tough environment—this is a modern fiction, spun to justify politically expedient projects and the exclusion of broad layers of the population. In the last two hundred years, the hydraulic mission has made three major political contributions that underline its strategic usefulness to centralizing elites: it has enabled the building of modern states and a growing bureaucratic apparatus around a riverain political economy; it has generated new national narratives that have allowed unpopular regimes to rebrand themselves as protectors of the nation; and it has facilitated the forging of external alliances, linking the resources and elites of Egypt, Ethiopia, and Sudan to global markets and centers of influence. Mega-dams, huge canals and irrigation for export are fundamentally about power and the powerful—and the privileging of some interests and social formations over others. The one-sided focus on increasing supply—based on the false premise that this will allow ordinary people to access more food and water—transfers control over livelihoods from one (broad) group of people to (a much narrower) other one by legitimizing top-down interventionism and dislocation. What presents itself as a strategy of water resources and agricultural development is really about (re)constructing hierarchies between people. The mirage of supply-side development continues to seduce elites at the helm of the state because it keeps them in power and others out of it.
Article
Moving to General Equilibrium: The Role of CGEs for Economic Analysis of Water Infrastructure Projects
Kenneth M. Strzepek and James E. Neumann
The desire of policymakers and public finance institutions to understand the contribution of water infrastructure to the wider economy, rather than the value of project-level outputs in isolation, has spawned a multidisciplinary branch of water resource planning that integrates traditional biophysical modeling of water resource systems with economy-wide models, including computable general equilibrium models. Economy-wide models include several distinct approaches, including input–output models, macro-econometric models, hybrid input–output macro-econometric models, and general equilibrium models—the term “economy-wide” usually refers to a national level analysis, but could also apply to a sub-national region, multi-nation regions, or the world. A key common characteristic of these models is that they disaggregate the overall economy of a country or region into a number of smaller units, or optimizing agents, who in turn interact with other agents in the economy in determining the use of inputs for production, and the outcomes of markets for goods. These economic agents include industries, service providers, households, governments, and many more. Such a holistic general equilibrium modeling approach is particularly useful for understanding and measuring social costs, a key aim in most cost–benefit analyses (CBAs) of water infrastructure investments when the project or program will have non-marginal impacts and current market prices will be impacted and an appropriately detailed social accounting matrix is available. This article draws on examples from recent work on low- and middle-income countries (LMICs) and provides an outline of available resources that are necessary to conduct an economy-wide modeling analysis. LMICs are the focus of larger water resource investment potential in the 21st century, including large-scale hydropower, irrigation, and drinking water supply. A step-by-step approach is illustrated and supports the conclusion that conditions exist to apply these models much more broadly in LMICs to enhance CBAs.
Article
National Parks in Developed Countries
Leslie Richardson and Bruce Peacock
Economics plays an important role not only in the management of national parks in developed countries, but also in demonstrating the contribution of these areas to societal well-being. The beneficial effect of park tourism on jobs and economic activity in communities near these protected areas has at times been a factor in their establishment. These economic impacts continue to be highlighted as a way to demonstrate the benefit and return on investment of national parks to local economies. However, the economic values supported by national parks extend far beyond local economic benefits. Parks provide unique recreation opportunities, health benefits, preservation of wildlife and habitat, and a wide range of ecosystem services that the public assigns an economic value to. In addition, value is derived from the existence of national parks and their preservation for future generations. These nonmarket benefits can be difficult to quantify, but they are essential for understanding and communicating the economic importance of parks. Economic methods used to estimate these values have been refined and tested for nearly seven decades, and they have come a long way in helping to elucidate the extent of the nonmarket benefits of protected areas.
In many developed countries, national parks have regulations and policies that outline a framework for the consideration of economic values in decision-making contexts. For instance, large oil spills in the United States, such as the Exxon Valdez spill of 1989 and the Deepwater Horizon spill of 2010, highlighted the need to better understand public values for affected park resources, leading to the extensive use of nonmarket values in natural resource damage assessments. Of course, rules and enforcement issues vary widely across countries, and the potential for economics to inform the day-to-day operations of national parks is much broader than what is currently outlined in such policies. While economics is only one piece of the puzzle in managing national parks, it provides a valuable tool for evaluating resource tradeoffs and for incorporating public preferences into the decision-making process, leading to greater transparency and assurance that national parks are managed for the benefit of society. Understanding the full extent of the economic benefits supported by national parks helps to further the mission of these protected areas in developed countries.
Article
Payments for Ecosystem Services: Program Design and Participation
Natasha James and Erin Sills
Payments for ecosystem or environmental services (PES) are broadly defined as payments (in kind or in cash) to participants (often landowners) who volunteer to provide the services either to a specific user or to society at large. Payments are typically conditional on agreed rules of natural resource management rather than on delivery of the services. The rules range from protection of native ecosystems to installation of conservation practices. The earliest proponents of PES were economists who argued that they are a cost-effective way to conserve forests, manage watersheds, and protect biodiversity. Political support for PES rests on the claim that these programs can alleviate poverty among participants as well as protect the environment. More recent literature and experience with PES reveals barriers to achieving cost-effectiveness and poverty alleviation, including many related to the distribution of participation. The Costa Rican experience illustrates the choices that must be made and the potential for innovation in the design of PES programs.
Article
Payments versus Direct Controls for Environmental Externalities in Agriculture
Alfons Weersink and David Pannell
The production of food, fiber, and fuel often results in negative externalities due to impacts on soil, water, air, or habitat. There are two broad ways to incentivize farmers to alter their land use or management practices on that land to benefit the environment: (1) provide payments to farmers who adopt environmentally beneficial actions and (2) introduce direct controls or regulations that require farmers to undertake certain actions, backed up with penalties for noncompliance. Both the provision of payments for environmentally beneficial management practices (BMPs) and a regulatory requirement for use of a BMP alter the incentives faced by farmers, but they do so in different ways, with different implications and consequences for farmers, for the policy, for politics, and consequently for the environment. These two incentive-based mechanisms are recommended where the private incentives conflict with the public interest, and only where the private incentives are not so strong as to outweigh the public benefits. The biggest differences between them probably relate to equity/distributional outcomes and politics rather than efficiency. Governments often seem to prefer to employ beneficiary-pays mechanisms in cases where they seek to alter farmers’ existing practices, and polluter-pays mechanisms when they seek to prevent farmers from changing from their current practices to something worse for the environment. The digital revolution has the potential to help farmers produce more food on less land and with fewer inputs. In addition to reducing input levels and identifying unprofitable management zones to set aside, the technology could also alter the transaction costs of the policy options.
Article
Performance Bonding for Environmental Protection
Olli-Pekka Kuusela
Performance bonds are a widely used enforcement and assurance mechanism in extractive activities and large-scale projects that are associated with clearly defined environmental liabilities. They are especially effective and useful in conditions where the judgment-proof problem is a pervasive challenge. Bonds provide an assurance for the regulator that funds are available to complete the decommissioning activities and the termination of operations under contingencies where the operator fails to follow the contractual obligations or becomes insolvent. Applications of bonding are found in oil and gas drilling, surface mining, renewable energy projects, and timber concessions. However, real bonding systems are not without issues and limitations. Defining a sufficiently high enough bond has been especially challenging in conditions with limited information about costs and environmental risks and where smaller operators may not be able to secure access to required funds or financial services for posting the bond. The use of surety companies, bond pools, and blanket bonds provides a solution to these problems, albeit not without issues of their own. Furthermore, to keep up with the technological developments in extractive industries and with the inescapable uncertainties related to reclamation costs and environmental damages, the regulator should continually review and update bonding instruments based on new available information. Regulatory rules and statistical models that have been developed to adjust the required bonds, based on observable risk factors, provide some encouraging examples for how to design more responsive and effective bonding systems.
Article
Review of the State of the Art in Analysis of the Economics of Water Resources Infrastructure
Marc Jeuland
Water resources represent an essential input to most human activities, but harnessing them requires significant infrastructure. Such water control allows populations to cope with stochastic water availability, preserving uses during droughts while protecting against the ravages of floods. Economic analysis is particularly valuable for helping to guide infrastructure investment choices, and for comparing the relative value of so called hard and soft (noninfrastructure) approaches to water management.
The historical evolution of the tools for conducting such economic analysis is considered. Given the multimillennial history of human reliance on water infrastructure, it may be surprising that economic assessments of its value are a relatively recent development. Owing to the need to justify the rapid deployment of major public-sector financing outlays for water infrastructure in the early 20th century, government agencies in the United States—the Army Corps of Engineers and the Bureau of Reclamation—were early pioneers in developing these applications. Their work faced numerous technical challenges, first addressed in the drafting of the cost-benefit norms of the “Green Book.” Subsequent methodological innovation then worked to address a suite of challenges related to nonmarket uses of water, stochastic hydrology, water systems interdependencies, the social opportunity cost of capital, and impacts on secondary markets, as well as endogenous sociocultural feedbacks. The improved methods that have emerged have now been applied extensively around the world, with applications increasingly focused on the Global South where the best infrastructure development opportunities remain today.
The dominant tools for carrying out such economic analyses are simulation or optimization hydroeconomic models (HEM), but there are also other options: economy wide water-economy models (WEMs), sociohydrological models (SHMs), spreadsheet-based partial equilibrium cost-benefit models, and others. Each of these has different strengths and weaknesses. Notable innovations are also discussed. For HEMs, these include stochastic, fuzz, and robust optimization, respectively, as well as co-integration with models of other sectors (e.g., energy systems models). Recent cutting-edge work with WEMs and spreadsheet-based CBA models, meanwhile, has focused on linking these tools with spatially resolved HEMs. SHMs have only seen limited application to infrastructure valuation problems but have been useful for illuminating the paradox of flood management infrastructure increasing the incidence and severity of flood damages, and for explaining the co-evolution of water-based development and environmental concerns, which ironically then devalues the original infrastructure. Other notable innovations are apparent in multicriteria decision analysis, and in game-theoretic modeling of noncooperative water institutions.
These advances notwithstanding, several issues continue to challenge accurate and helpful economic appraisal of water infrastructure and should be the subject of future investigations in this domain. These include better assessment of environmental and distributional impacts, incorporation of empirically based representations of costs and benefits, and greater attention to the opportunity costs of infrastructure. Existing tools are well evolved from those of a few decades ago, supported by enhancements in scientific understanding and computational power. Yet, they do appear to systematically produce inflated estimations of the net benefits of water infrastructure. Tackling existing shortcomings will require continued interdisciplinary collaboration between economists and scholars from other disciplines, to allow leveraging of new theoretical insights, empirical data analyses, and modeling innovations.
Article
The Role of Tourism in Sustainable Development
Robert B. Richardson
Sustainable development is the foundational principle for enhancing human and economic development while maintaining the functional integrity of ecological and social systems that support regional economies. Tourism has played a critical role in sustainable development in many countries and regions around the world. In developing countries, tourism development has been used as an important strategy for increasing economic growth, alleviating poverty, creating jobs, and improving food security. Many developing countries are in regions that are characterized by high levels of biological diversity, natural resources, and cultural heritage sites that attract international tourists whose local purchases generate income and support employment and economic development. Tourism has been associated with the principles of sustainable development because of its potential to support environmental protection and livelihoods. However, the relationship between tourism and the environment is multifaceted, as some types of tourism have been associated with negative environmental impacts, many of which are borne by host communities.
The concept of sustainable tourism development emerged in contrast to mass tourism, which involves the participation of large numbers of people, often in structured or packaged tours. Mass tourism has been associated with economic leakage and dependence, along with negative environmental and social impacts. Sustainable tourism development has been promoted in various ways as a framing concept in contrast to these economic, environmental, and social impacts. Some literature has acknowledged a vagueness of the concept of sustainable tourism, which has been used to advocate for fundamentally different strategies for tourism development that may exacerbate existing conflicts between conservation and development paradigms. Tourism has played an important role in sustainable development in some countries through the development of alternative tourism models, including ecotourism, community-based tourism, pro-poor tourism, slow tourism, green tourism, and heritage tourism, among others that aim to enhance livelihoods, increase local economic growth, and provide for environmental protection. Although these models have been given significant attention among researchers, the extent of their implementation in tourism planning initiatives has been limited, superficial, or incomplete in many contexts.
The sustainability of tourism as a global system is disputed among scholars. Tourism is dependent on travel, and nearly all forms of transportation require the use of non-renewable resources such as fossil fuels for energy. The burning of fossil fuels for transportation generates emissions of greenhouse gases that contribute to global climate change, which is fundamentally unsustainable. Tourism is also vulnerable to both localized and global shocks. Studies of the vulnerability of tourism to localized shocks include the impacts of natural disasters, disease outbreaks, and civil unrest. Studies of the vulnerability of tourism to global shocks include the impacts of climate change, economic crisis, global public health pandemics, oil price shocks, and acts of terrorism. It is clear that tourism has contributed significantly to economic development globally, but its role in sustainable development is uncertain, debatable, and potentially contradictory.
Article
Sea Level Rise and Coastal Management
James B. London
Coastal zone management (CZM) has evolved since the enactment of the U.S. Coastal Zone Management Act of 1972, which was the first comprehensive program of its type. The newer iteration of Integrated Coastal Zone Management (ICZM), as applied to the European Union (2000, 2002), establishes priorities and a comprehensive strategy framework. While coastal management was established in large part to address issues of both development and resource protection in the coastal zone, conditions have changed. Accelerated rates of sea level rise (SLR) as well as continued rapid development along the coasts have increased vulnerability. The article examines changing conditions over time and the role of CZM and ICZM in addressing increased climate related vulnerabilities along the coast.
The article argues that effective adaptation strategies will require a sound information base and an institutional framework that appropriately addresses the risk of development in the coastal zone. The information base has improved through recent advances in technology and geospatial data quality. Critical for decision-makers will be sound information to identify vulnerabilities, formulate options, and assess the viability of a set of adaptation alternatives. The institutional framework must include the political will to act decisively and send the right signals to encourage responsible development patterns. At the same time, as communities are likely to bear higher costs for adaptation, it is important that they are given appropriate tools to effectively weigh alternatives, including the cost avoidance associated with corrective action. Adaptation strategies must be pro-active and anticipatory. Failure to act strategically will be fiscally irresponsible.
Article
State of the Art of Contingent Valuation
Tim Haab, Lynne Y. Lewis, and John Whitehead
The contingent valuation method (CVM) is a stated preference approach to the valuation of nonmarket goods. It has a 50+-year history beginning with a clever suggestion to simply ask people for their consumer surplus. The first study was conducted in the 1960s and over 10,000 studies have been conducted to date. The CVM is used to estimate the use and non-use values of changes in the environment. It is one of the more flexible valuation methods, having been applied in a large number of contexts and policies. The CVM requires construction of a hypothetical scenario that makes clear what will be received in exchange for payment. The scenario must be realistic and consequential. Economists prefer revealed preference methods for environmental valuation due to their reliance on actual behavior data. In unguarded moments, economists are quick to condemn stated preference methods due to their reliance on hypothetical behavior data. Stated preference methods should be seen as approaches to providing estimates of the value of certain changes in the allocation of environmental and natural resources for which no other method can be used. The CVM has a tortured history, having suffered slings and arrows from industry-funded critics following the Exxon Valdez and British Petroleum (BP)–Deepwater Horizon oil spills. The critics have harped on studies that fail certain tests of hypothetical bias and scope, among others. Nonetheless, CVM proponents have found that it produces similar value estimates to those estimated from revealed preference methods such as the travel cost and hedonic methods. The CVM has produced willingness to pay (WTP) estimates that exhibit internal validity. CVM research teams must have a range of capabilities. A CVM study involves survey design so that the elicited WTP estimates have face validity. Questionnaire development and data collection are skills that must be mastered. Welfare economic theory is used to guide empirical tests of theory such as the scope test. Limited dependent variable econometric methods are often used with panel data to test value models and develop estimates of WTP. The popularity of the CVM is on the wane; indeed, another name for this article could be “the rise and fall of CVM,” not because the CVM is any less useful than other valuation methods. It is because the best practice in the CVM is merging with discrete choice experiments, and researchers seem to prefer to call their approach discrete choice experiments. Nevertheless, the problems that plague discrete choice experiments are the same as those that plague contingent valuation. Discrete choice experiment–contingent valuation–stated preference researchers should continue down the same familiar path of methods development.
Article
State of the Art of Hedonic Pricing
Dennis Guignet and Jonathan Lee
Hedonic pricing methods have become a staple in the environmental economist’s toolkit for conducting nonmarket valuation. The hedonic pricing method (HPM) is a revealed preference approach used to indirectly infer the value buyers and sellers place on characteristics of a differentiated product. Environmental applications of the HPM are typically focused on housing and labor markets, where the characteristics of interest are local environmental commodities and health risks. Despite the fact that there have been thousands of hedonic pricing studies published, applications of the methodology still often grapple with issues of omitted variable bias, measurement error, sample selection, choice of functional form, effect heterogeneity, and the recovery of policy-relevant welfare estimates.
Advances in empirical methodologies, increased quality and quantity of data, and efforts to link empirical results to economic theory will surely further the use of the HPM as an important nonmarket valuation tool.
