Getting REDDy Understanding and Improving Domestic Policy Impacts on Forest Loss
December 2011 – by Alexander Pfaff, Gregory S. Amacher, and Erin O. Sills

Many constraints upon REDD+ policies’ ability to reduce forest loss are common across settings, inherent in the fact that agents making key choices respond also to other factors that influence the overall incentive to clear or to degrade a forest instead of conserving it. The record is mixed, at best, with regard to past public interventions to reduce forest loss, signaling the need to disseminate and to improve conceptual models of policy responses. We summarize three distinct models employed by economists to assess policy effectiveness: (1) producer profit maximization in choosing spatial extent and distribution of land uses, given complete markets; (2) rural household optimization given both incomplete markets and varied household assets and tastes; and (3) public optimization within interconnected choices about concessions, corruption, and decentralization, all important for degradation (‘D+’ in REDD+). Each model’s perspective on impact leads to a review of the evidence. We consider the impacts of forest-conservation and forest-relevant development policies for the settings, decisions, and scales for which each of the models best applies. Theory and evidence suggest options to increase the impacts of domestic REDD policies.

Beyond Belts and Suspenders Promoting Private Risk Management in Offshore Drilling
December 2011 – by Lori S. Bennear

This paper critically examines existing policies for regulating offshore drilling. It argues that historical regulations based on requiring significant redundancy in safety systems—“belts and suspenders”—is ineffective because the risks of safety system failures are not independent. New regulations require detailed safety and environmental planning and can be broadly classified as management-based regulations (MBR). The paper evaluates the theory of management-based regulations as it applies to offshore drilling and presents the existing evidence on MBR effectiveness. The results indicate that MBR is theoretically well suited to regulate offshore drilling, but there is limited empirical evidence of the effectiveness of MBR in regulating low-probability, high-consequence events. The paper ends with a proposal for an alternative regulation called a deposit-discount-refund system that is designed to better promote private risk management by creating incentives for both the creation and implementation of risk management plans.

Participation Incentives, Rebound Effects and the Cost- Effectiveness of Rebates for Water-Efficient Appliances
December 2011 – by Lori S. Bennear, Jonathan M. Lee, and Laura O. Taylor

Rebate programs for retrofitting residential properties with water-efficient appliances have become a common conservation policy tool for local municipalities. Engineering estimates of water savings from rebate programs can be systematically biased because they assume all subsidized appliance replacements would not have occurred in the absence of the subsidy and because they fail to account for potential rebound effects. Using a unique database that combines water use data over a three-year period for all households that participated in the utility’s high efficiency toilet (HET) rebate program, water use data for a matched sample of neighbors, and a survey of rebate participants, this paper evaluates whether rebates are a cost-effective means for water utilities to promote water conservation, accounting for both selection and rebound effects.

U.S. Shrimp Market Integration
October 2011 – by Frank Asche, Lori S. Bennear, Atle Oglend, and Martin D. Smith

Recent supply shocks in the Gulf of Mexico—including hurricanes, the Deepwater Horizon oil spill, and the seasonal appearance of a large dead zone of low-oxygen water (hypoxia)—have raised concerns about the economic viability of the U.S. shrimp fishery. The ability for U.S. shrimpers to mediate supply shocks through increased prices hinges on the degree of market integration, both among shrimp of different sizes classes and between U.S. wild caught shrimp and imported farmed shrimp. We use detailed data on shrimp prices by size class and import prices to conduct a co-integration analysis of market integration in the shrimp industry. We find significant evidence of market integration, suggesting that the law of one price holds for this industry. Hence, in the face of a supply shocks, prices do not rise and instead imports of foreign farmed fish increase.

Measuring Welfare Losses from Hypoxia: The Case of North Carolina Brown Shrimp
October 2011 – by Ling Huang, Lauren A.B. Nichols, J. Kevin Craig, and Martin D. Smith

While environmental stressors such as hypoxia (low dissolved oxygen) are perceived as a threat to the productivity of coastal ecosystems, policy makers have little information about the economic consequences for fisheries. Recent work on hypoxia develops a bioeconomic model to harness microdata and quantify the effects of hypoxia on North Carolina’s brown shrimp fishery. This work finds that hypoxia is responsible for a 12.9 percent decrease in North Carolina brown shrimp catches from 1999 to 2005 in the Neuse River Estuary and Pamlico Sound, assuming that vessels do not react to changes in abundance. The current paper extends this work to explore the full economic consequences of hypoxia on the supply and demand for brown shrimp. Demand analysis reveals that the NC shrimp industry is too small to influence prices, which are driven entirely by imports and other domestic U.S. harvest. Thus, demand is flat and there are no measurable benefits to shrimp consumers from reduced hypoxia. On the supply side, we find that the shrimp fleet responds to variation in price, abundance, and weather. Hence, the supply curve has some elasticity. Producer benefits of reduced hypoxia are less than a quarter of the computed gains from assuming no behavioral adjustment.

Prices and Quantities to Control Overfishing
July 2011 – by Martin D. Smith and Sathya Gopalakrishnan

Economists have long promoted fishery rationalization programs, but individual transferable quotas (ITQs) may fail to address the ecological consequences of fishing. Of particular concern is that economic incentives to harvest larger fish (due to size-dependent pricing or quota-induced discarding) can destabilize fish populations or lead to evolutionary changes. A substantial theoretical literature in economics has explored incentive problems in ITQ fisheries but has treated highgrading as part of the stock externality. We provide an alternative viewpoint in that the stock externality and the size-based incentives are two distinct externalities and thus require two distinct policy instruments. In this paper, we show that if managers know the price-by-size distribution and the size distribution of the population, total revenues and total catch (in weight) by vessel are sufficient statistics to design a schedule of revenue-neutral individualized landings taxes that eliminate the incentive to highgrade in an ITQ fishery. Landings taxes can be used to address the ecological consequences of fishing while using ITQs to address the open access stock externality.

Incorporating Evaluation into the Regulatory Process
July 2011 – by Lori S. Bennear and Katherine Dickinson

For the last two decades substantial attention and resources have been devoted to increasing evaluation of government programs in an effort to promote evidenced-based and performance-based policies. However, federal efforts to promote evaluation through the Government Performance and Results Act and the Performance Assessment Rating Tool have had limited success. This paper seeks to evaluate the recent efforts at evaluation and provide guidance for how future efforts can be shaped. It provides a stylized model for evaluation in the regulatory process that is consistent with prior federal initiatives. It then examines four categories of barriers to implementation of this stylized model—cognitive, social/cultural, organizational, and incentive—and presents suggestions for how future evaluation efforts can be formulated to better overcome these barriers.

Measuring Improvement in the Energy Performance of the U.S. Cement Industry
May 2011 – by Gale Boyd and Gang Zhang

Recognizing the potential of energy efficiency to reduce CO2 emissions, the U.S. Environmental Protection Agency launched ENERGY STAR for Industry to educate manufacturers on steps to improve their energy efficiency. Energy management strategy is a key component of the ENERGY STAR approach. This paper focuses primarily on development of an updated ENERGY STAR industrial Energy Performance Indicator (EPI) for the Cement industry and the change in the energy performance of the industry observed when the benchmarking system was updated from the original benchmark year of 1997 to the new benchmark of 2008.

Success or Selection? An Economic Perspective on Fisheries Co-Management
April 2011 – by Lori S. Bennear and Martin D. Smith

This paper comments on a recent paper published in the journal Nature that claims that fisheries co-management causes successful outcomes in fisheries. We outline theoretical arguments in favor of and against co-management as an approach to solving fisheries-commons problems. We argue that the principal claims of the authors are not supported by their data and analysis. Spurious inference about effectiveness of co-management runs the risk of undermining rather than advancing the policy process.

Preliminary Analysis of the Distributions of Carbon and Energy Intensity for 27 Energy Intensive Trade Exposed Industrial Sectors
April 2011 – by Gale Boyd, Tatyana Kuzmenko, Béla Személy, and Gang Zhang

It is well documented that different manufacturing sectors require different amounts of energy. Primary materials conversion, e.g., iron ore and scrap into steel, limestone and sand into cement and glass, or wood and other fibers into paper, tend to be the most energy-intensive in the production process, while final consumer products like electronics and clothing require the least energy. This leads to something like the 80-20 rule, where a large portion of energy use is in a small number of industries. For example, the 2006 Manufacturing Energy Consumption Survey (MECS) reported that 75 percent of fuel use arises from only five of the 21 three-digit industries, using the North American Industry Classification System (NAICS). These five sectors are a small share of the total U.S. economy. The energy intensity for different industrial sectors is easily measured using published government statistics, but the plants within these industries are not homogeneous entities. This report measures the differences in energy use and associated CO2 emissions as a first step to understanding the within-sector heterogeneity of energy use.

Efficiency Gains from Pre-Investment Resource Queues: Coordinating Investment under Resource Uncertainty
April 2011 – by Miguel A. Fonseca, Alexander Pfaff, and Daniel Osgood

Farmers make investments before knowing how much water they will receive later in the season. The costs of the inefficiently high or low investment that may result can be significant. A spot market that efficiently allocates water once quantity is realized is unlikely to coordinate simultaneous efficient investments earlier in the season. This paper compares pre-established queues to a post-investment-and-resource-realization market in coordinating investment whose productivity depends on having the uncertain resource.

Hazardous Waste Hits Hollywood: Superfund and Housing Prices in Los Angeles
January 2011 – by Ralph Mastromonaco