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Third week. Twenty weeks, counting spring break, to go. Holy shit.

Aside from a highly relaxing and fun trip to Minneapolis to visit Andrew and Lindsay last weekend, I’ve been busy with the usual stuff. My only strictly new class this quarter is Environmental Economics. I have a love-hate relationship with the class, because I have a love(or)hate relationship with the two professors that take turns teaching it. The senior professor on the tag-team is… uh, senior. “Emeritus faculty.” I can only speculate that the hour and twenty minutes that we all doodle, groan, play hearts on laptops, and tap our watches through must go by in the blink of an eye for him; the end of the class always catches him by surprise. I wish I could tell you anything he’s said in the three lecture/discussions he’s lead so far, but I can’t, mostly because I usually can’t hear him. (The TA brought a microphone yesterday, but he pretended he didn’t see it. Or maybe he didn’t see it.)

On the other hand, when the other professor is leading the class, I’m thoroughly engaged. At the start of the quarter, I said this:

I’m currently leaning towards [taking] Environmental Economics, but I can already predict how the first (and subsequent) class will go: “It’s not really possible to put a price on the environment. But we don’t know how to model without price, so we’re going to assume the price is $k. Let’s start modeling.” Maybe/hopefully I’ll be proven wrong.

I have and I haven’t. The central theme of the class, much like in Development Economics last quarter, is market failure. It is best illustrated in this example from The Tragedy of the Commons, an early environmental economics essay by Garrett Hardin in 1968.

The tragedy of the commons develops in this way. Picture a pasture open to all. It is to be expected that each herdsman will try to keep as many cattle as possible on the commons. Such an arrangement may work reasonably satisfactorily for centuries because tribal wars, poaching, and disease keep the numbers of both man and beast well below the carrying capacity of the land. Finally, however, comes the day of reckoning, that is, the day when the long-desired goal of social stability becomes a reality [ie the number of cattle on the commons provides enough cattle for the society without---yet---overcrowding the commons]. At this point, the inherent logic of the commons remorselessly generates tragedy.

As a rational being, each herdsman seeks to maximize his gain. Explicitly or implicitly, more or less consciously, he asks, “What is the utility to me of adding one more animal to my herd?” This utility has one negative and one positive component.

1) The positive component is a function of the increment of one animal. Since the herdsman receives all the proceeds from the sale of the additional animal, the positive utility is nearly +1.

2) The negative component is a function of the additional overgrazing created by one more animal. Since, however, the effects of overgrazing are shared by all the herdsmen, the negative utility for any particular decision-making herdsman is only a fraction of 1.

Adding together the component partial utilities, the rational herdsman concludes that the only sensible course for him to pursue is to add another animal to his herd. And another; and another. . . . But this is the conclusion reached by each and every rational herdsman sharing a commons. Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit—in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all.

This example is representative of a lot of environmental worries that face the world today: too many coal plants, too many cars on the roads, and, indeed, too many methane-producing cows. Because the costs to society for any individual’s coal plant in China, car in Los Angeles, or cow in Kansas are not placed directly on the individual, nobody willingly changes their behavior. This is where what I said earlier comes in: “It’s not really possible to put a price on the environment … so we’re going to assume the price is $k.” The first part is still openly acknowledged in the class. How do you value reductions in CO₂ emissions? How do you value saving a human life? These are the external costs that are not being absorbed by various polluters, but there would be swift changes if we could somehow make them pay these costs. Nonetheless, measuring them is not straightforward. Where this class has surprised me is that, despite being the easy (and boring) option, we are not just going to assume a certain cost. Instead, we are learning techniques and specifically environmental considerations that will help us make estimates of the costs and benefits behind all kinds of policy changes.

I didn’t intend for this post to be a gush about Environmental Econ. Nonetheless, the things we’ve read and learned about in the first three weeks have really heartened me. Groups like the Nature Conservancy have really adopted this kind of economic approach to environmentalism. Before, I cynically believed that most nature conservancies spent their (donated) money lobbying Congress (against industry lobbies). While that certainly still happens, the Nature Conservancy has economists on staff who determine what they’re willing to pay to buy land. An article from the New York Times a few months ago:

In 2002, the conservancy worked with the Great Northern Paper Company to protect 241,000 acres of forest near Mount Katahdin in Maine. The conservancy bought $50 million of loans to Great Northern, retired $14 million and refinanced the rest. In return, the company transferred 41,000 acres to the conservancy and placed a conservation easement on 200,000 acres that allows some logging but guards sensitive habitat.

Everyone wins; the conservancy can protect land for its patrons, the company gets loans and builds its green credentials, and a large swath of CO₂-absorbing forest is preserved. I’m sure I’ll write more as I start working on my final paper: a full cost-benefit analysis of a congestion tax in downtown Chicago.

Time to get ready to power hour.