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Spencer Payne
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I read this World Bank report last year in Environmental and Natural Resource Economics, but after taking this course and a Geology lab it felt like I was reading this paper for the first time. Three main questions permeated my thoughts as I was reading it: (a) what responsibility developed countries must bear for rising sea levels, (b) how efficiently are developed countries combating malnutrition, malaria, and respiratory disorders in developing countries, and (c) how dedicated are developed countries like the United States to raising long-term welfare in the developing world? More specifically, my first question asks what responsibility must developed countries take for their actions that have caused sea levels to rise at a historic rate. For if oceans continue to rise, many developing island nations will no longer be above water. When that point approaches, is the developed world just going to allow those places to flood? Will it take efforts like building large flood walls to prevent the devastation for a short period? Or will developed countries allow these “sea level refugees” to immigrate into their communities? I am not sure what the answer is, but I think planning ahead would be wise. The efficiency with which developed countries are combating issues that we have already discussed and read about such as malnutrition, malaria, and respiratory disorders is also something that this paper got me thinking about. I might characterize the situation as perversely comical. We have developed countries like the United States pouring serious amounts of money into efforts that increase the access and affordability of fresh drinking water, bed nets, and medical care. Yet, these countries are, at the same time, polluting at such a high level that the global climate has gotten warmer — creating conditions conducive for crop failures (increasing malnutrition), malaria (as a result of increased humidity), and respiratory disorders (as a result of high smog levels). Sadly, it appears that developed countries are hindering the effectiveness of their assistance in their constant effort to maximize GDP. All of this leads me to my last question: how dedicated are developed countries to raising long-term welfare in the developing world? This may be an incredibly cynical position, but I suspect very little. At their current rate of depletion, natural resources are a zero sum game, and developed countries are winning. They do not really seem to care that the social costs associated with their deleterious actions are disproportionally affecting developing countries half the world away. Sure, they will throw some money into programs that might increase the accessibility of bed nets. But if developed countries polluted less, less bed nets would be needed all together. If we are serious about the welfare of developing countries, we need to reduce our carbon footprint in addition to sustaining assistance efforts. Hopefully, as its first line suggests, this report shocks the developed world out of its inequitable complacency and into action.
Even though we have already discussed the Latest Findings from Randomized Evaluations of Microfinance, I wanted to write my blog post about something that occurred to me after class. Many of the findings presented in the paper are interesting. However, I was particularly intrigued by the fact that default rates were the same regardless of whether loans relied on individual liability or group liability. I think this says a lot about (1) why those seeking microfinance default on loans and (2) their social values. Regarding point one, I assume that default rates are a function of the risk associated with the way in which people choose to spend and/or invest the money they attain from a loan. And, for the sake of argument, I also assume that the loan conditions (e.g. interest rate, grace period, etc.) are the same across individual and group liability loans. Given these two caveats, I do not think it would be unreasonable to suggest that loan-seekers predominantly default for reasons out of their control. After all, when we assume that default rates correlated with investment risk, comparable default rates imply that people are investing similarly regardless of whether their loan is predicated on the notion of individual or group liability. But perhaps more importantly, comparable default rates suggest that a loan-seeker’s motivation to pay off his/her loan does not waver in the case of a group liability arrangement. This leads me to my second point — that it appears the peer-pressure principle overrides the free-rider principle in the case of microfinance. By this, I mean that loan-seekers feel such a strong social responsibility to pay off their loans that they appear to be unwilling to take additional risk at their group’s expense. I think this implication is fascinating, because I doubt we would see a similar trend in more developed countries. And I would be curious to see if any literature examines question further.
Toggle Commented Nov 16, 2016 on Readings for this week at Jolly Green General
The two statements that I found most profound in “The Economics of Being Poor” are that I. Poor people are no less concerned about improving their lot and that of their children than rich people are, and II. Standard economic theory is just as applicable to scarcity problems that confront low income countries as to the corresponding problems of high income countries. As Americans, we sometimes have this feeling that those living in serious poverty are drastically different from us — that they are neither as intelligent nor as motivated to a good life for their families. And we would be wrong. Sure, this lecture acknowledges that those in poor areas face steeper challenges than those in wealthier areas, but it also demonstrates how developing active policies (like Sen suggests) will, in time, facilitate conditions that will allow the disadvantaged to prosper. It was refreshing to learn that those living in poverty have the intellect and the ambition to improve their lives — that they want, in political jargon, a hand up not a hand out. And it was comforting to discover that spurring economic growth does not necessitate the generation of a new model. Reading this piece gave me hope for the future of developing countries. Therefore, it is now my sincere hope that steps are taken to ensure that education is attained, crops are produced, and health is achieved at their respective socially optimal levels. I would also argue that enacting policy that increases human health should be of first priority, though I guess no one asked me.
Toggle Commented Nov 2, 2016 on Readings for Thursday at Jolly Green General
I would like to start by saying that this paper opened my eyes to a lot of the struggles that women face, and that I firmly believe that all nations should make serious efforts to increase women’s empowerment. However, I would like to focus my comments on one area that Duflo discusses in this paper: political quotas. Duflo says that evidence provides support for the idea of “reservations” or quotas for women in policy-making positions, and that an international target has been set at about 30 percent. But while I certainly agree that women should be involved in policy-making discussions, I question two aspects of the quota system: how the percentage of representation is determined and how feasible a political quota system is. In my opinion, determining the “socially optimal” political engagement ratio would be difficult. For while it may seem that a 50-50 ratio of men and women become involved in policymaking would be ideal, in theory, I question whether that ratio would be supported by deeper analysis. Everyone’s preferences are different, so perhaps the spread should be 60-40 or 40-60. We just do not know without deriving some indifference curves. It could be the case that, holding all else equal, men are more interested in pursuing political careers than women, or vice versa. My next question is about the feasibility of establishing political quotas, using the United States as an example. In class, we said that women comprise about 20 percent Congress — a figure that does not even meet international target of female representation. However, I question how a political quota would function in the United States. If we operate under the assumption that, say, half of congressional politicians should be women, how would the quota work? Perhaps every state could be required to have one male and one female senator, but I wonder how representation in the House could be determined. Would each district be required to have two representatives (thereby doubling the size of the House), or would some districts be required to elect male representatives while others would be required to elect female representatives? And, in the latter case, would districts be required to elect a representative of the same gender in perpetuity, or would there be some kind of gender rotation system? All this is to say that determining a country’s “socially optimal” political engagement ratio is difficult and, even if discovered, implementing policy that facilitates that ratio is challenging. Doing so might even necessitate that a country restructures its political model. I certainly believe that such change is worth it, but it seems unlikely that it can happen overnight.
Toggle Commented Oct 19, 2016 on Reading for Thursday at Jolly Green General
I completely agree with Cara on the point that the author did a nice job dismissing the "'one size fits all approach' to development economics." Sure, Rodrik said that protection of property rights, market-based competition, and macroeconomic stability are first-order economic principles that drive economic growth, but he does not suggest that there is only one policy package to accomplish these ends. I liked the fact that he acknowledged differences in social preferences and culture need to be taken into account when developing policy, in light of the fact that “countries that developed their formal legal orders internally, adapted imported local codes to local conditions, or had familiarity with foreign codes ended up with much better legal institutions than those that simply transplanted foreign legal orders from abroad.” As he explained, what worked for China, would likely fail in sub-Saharan Africa. This nuance, or a “growth strategy relativism” or sorts, contradicts the Washington Consensus of the 1980’s, and reminded me of the way in which the Magic Bullet Theory fell out of favor in the media industry. This theory suggested that people are, according to Shearon Lowry, uniformly controlled by their biologically-based instincts and react more or less uniformly to whatever stimuli comes along. In other words, this theory argued that all people responded to media messages in the same way. Developed in the 1930’s, this theory was dismissed just one decade later, when new research came to the fore. It was replaced by the notion that people respond to media messages differently based on their age, political views, etc., suggesting that the media could not just communicate one message and expect to incite a uniform response — just like Rodrik argues that liberalization of markets does not yield unambiguous economic expansion.
Toggle Commented Oct 5, 2016 on Reading for Thursday at Jolly Green General
This paper covers a lot of ground and provides a good overview of the history of Development Economics. However, I would like to focus my thoughts on the degree to which research impacts policy. Krugman said that high development theory was dismissed for a time because it lacked formal modeling. The theory challenged standard assumptions, including the existence of a perfectly competitive market and constant returns to scale, which rarely hold in practice. But in the absence of equations and graphs, the theory simply lacked the persuasiveness to gain widespread approval. As a result, Krugman added that the traditional “constant-returns, perfect-competition view of reality took over the development literature, and eventually via the World Bank and other institutions much of real-world development policy as well.” I found this reality interesting in light of my experience last summer, when I interned for a political consulting firm in Washington, DC. Our bipartisan firm specialized in education and workforce issues, and frequently advised organizations on how to respond to new legislation. As such, one of my responsibilities was to attend congressional hearings and brief my supervisor on what was accomplished. What I observed frustrated me, and often did not resemble the manner in which I imagine the high development was dismissed by policy institutions like the World Bank. I often listened to congressmen propose legislation about a certain issue without seemingly any data to support their stance. In an effort to get out in front of a potential conflict or change the status quo, politicians seemed fine with abandoning old policies and instituting new, untested ones. All this is to say, that Krugman’s paper got me thinking about the history of development economics and led me to believe that the high development theory would have impacted public policy sooner had the political climate in the mid-1900s resembled that of today.
I must admit, before reading Sen, I had a fairly skeptical take on those in poverty. Frankly, thoughts that very poor people could do more to improve their financial standing and their quality of life often entered my head. After all, as an economics major, I have been taught that the free market is supposed to lead to the most efficient outcomes for years. But Sen’s introduction illuminated a fact that I had never considered: access to the free market — whether it be a labor, goods, or services market — is often not granted to those in poverty. That shocked me. I simply cannot imagine such a place where I would be unable to buy what I please because I have either been isolated from or blocked from entering the free market. As Sen put it, “the freedom to participate in economic exchange has a basic role in social living,” and I could not agree more. The story of Kader Mia really drove home this point for me. Because he was unable to enter the “normal” labor market, he had to search for work in an unsafe area because he and his family had nothing to eat. He had no choice. But in doing so, he was badly injured one day, costing him his life. So for me, what I take away from this reading is that steps must be taken to ensure that everyone has access to the marketplace. For the free market could never yield the socially optimal outcome if only some are able to enter it. Of course, this likely is not the solution to eliminating poverty but, in my opinion, it would be a good place to start.
As someone who has never taken a Poverty class, Banerjee and Duflo illuminated many facets of poor people’s lives that I had never considered. But while I found their discussion valuable, I want to focus my comments on one issue in particular: migration. While I recognize that my stance may a bit controversial, I would like to declare out the outset that, in my opinion, a gradual migration away from seriously disadvantaged areas is imperative to raising the poor out of poverty. Let me explain. A worker’s real wage equates to his or her marginal product of labor — that is, the amount of money that someone earns is a function of the value of the product(s) that he or she produces. Therefore, to earn more, economic theory urges workers to increase their productivity. With this in mind, Banerjee and Duflo suggest a solution, citing a study that finds “some improvements in nutrition have been credibly linked to increase productivity” as it is also linked to improved overall health (Thomas et al, 2004). Only I do not agree that a change in diet alone will lead to higher wages for those in poor communities. Instead, I would argue that the only way poor people can raise their real wage is to increase their productivity and then migrate permanently. Like the authors say, many of these poor communities are isolated, particularly those in rural areas. So even if we suppose that eating better increases productivity, I would argue that the labor markets in extremely poor countries would be unable to reward such behavior. Short-run demand is likely constant in countries like Tanzania, meaning that if an entrepreneur is able to produce more of a product, holding all else equal, more product will not be purchased because everyone’s budget constraint will have remained constant. I therefore suggest that those living in poverty act in a way to increase their human capital and then migrate to a labor market that can adequately compensate them for their skills. Eat well, invest in education, and — for the most productive Tanzanians — perhaps consider moving to Kenya.
Toggle Commented Sep 14, 2016 on ECON 280 Reading for Thursday at Jolly Green General
Aldy, Ley, and Parry say that “the cost-effectiveness condition can be met if all countries impose the same tax rate on CO2 — and the same tax on other GHG’s and credits for sequestration — and that tax rate rises at the rate of interest over time.” However, they acknowledge that while it would be ideal for all agents to face the same absolute emissions price, exchange rates would make that impossible. Thus, they advocate instead for a rate to be defined in U.S. dollars and converted into other currencies, so countries around the world incur the “same” cost to emit CO2. This idea is sound in theory, but I think it is a bit too simplistic. The authors fail to account for something that, in my opinion, must be controlled for: fossil fuel expenditure as a percentage of GDP. Relative to the United States, a smaller, less wealthy country like Ecuador likely cannot pay the same amount for fuel. Currently, the average gas price in Ecuador is $1.85, according to World Bank indicators, while prices average $2.81 in the United States. Dramatically increasing gas prices in Ecuador would greatly reduce its fossil fuel consumption, a goal of this Pigouvian tax. But I would argue that, given the fact that less wealthy countries have significantly less access to energy alternatives, dramatically increasing the price of filling up in Ecuador could grind its economy to a halt. Companies might see transportation costs skyrocket, employees might not be able to get to work, and socioeconomic gaps would probably increase. For these reasons, I think Aldy, Ley, and Parry should nuance their policy suggestion. I do not believe that perfect tax-equality is fair, in this case. Countries have different economic structures and varying levels of fossil fuel dependence. Therefore, these characteristics — for which fossil fuel expenditure as a percentage of GDP could serve as a proxy — must be considered during policy discussions.
Toggle Commented Mar 30, 2016 on ECON 255 for next Thursday at Jolly Green General
The Schrag paper and the Harvard Magazine article seem to prescribe the first step in combating global climate change. To begin, both suggest — like we have discussed in class — that moral suasion is simply not an effective way to influence consumer behavior, saying that “…global warming is already linked to a pattern of record floods, droughts, heat, and other extreme events around the globe, and is expected to lead to extinctions of some plants and animals. But such news from the natural world has done little to galvanize political will.” With this in mind, the question therefore becomes: how do we decrease environmental damage if a number of people are unwilling to listen to the facts? Both pieces then advocate for a similar, prudent approach — one that, in many ways, is centered on the economic principle of comparative advantage. The idea is simple: no one alternative to fossil fuels (e.g. wind, solar, nuclear, etc.) is the silver bullet. Rather, as Shrag suggests, “we are going to need everything [all energy production methods] — and then over time we will see how the economics sort out.” Because this proposal seems logical and feasible, it put me at ease. Obviously, we have a long way to go before climate change is under control. But I think recognizing the total costs and total benefits associated with each energy production method, as both pieces touch on, is a key first step in determining what percentage of the energy production market each method should comprise. For if we are truly going to need every energy production method, we need such information to achieve efficiency.
Toggle Commented Mar 16, 2016 on ECON 255 for next Thursday at Jolly Green General
I would like to declare at the outset that I am going to take a different stance on the implications of this paper than many of those who have posted previously. For while I recognize that this paper vigorously outlines the myriad of negative externalities brought about as a result of extracting, transporting, processing, and combusting coal, I do not believe that its findings incriminate the coal industry as much as some may suggest. This paper makes it very clear that the social costs associated with using coal are very high, approximately $345 billion, due to pollution and irrevocable environmental damage, among other things. Epstein et al. even say that 41 percent of global CO2 emissions in 2005 can be attributed to coal harvest and consumption. To combat these issues, the authors suggest that measures to negate the negative effects (e.g. poor water quality) linked to coal use and to improve energy substitutes should be undertaken. But while I too am concerned about the detrimental spillover effects of the coal industry and believe that its problems must be addressed, I am not convinced that increasing coal severance tax rates in an effort to drastically reduce coal consumption, as Epstein et al. suggest, is of immediate policy concern. Based on the facts presented and questions that remain unanswered, it can be argued that we lack sufficient information to further restrict the coal industry. For one, this paper is somewhat limited. Although I acknowledge that it would be difficult to accomplish, Epstein et al. do not address the abatement costs associated with coal consumption. Based on this paper’s findings, can we definitively say that having people use less coal would have a more desirable net effect on society than if people are able to consume coal at their current rate? Who really knows? If we suppose that everyone on the margin would consume natural gas if coal severance tax rates rise, that change in behavior would likely prompt increased natural gas production, which could actually harm society and the environment more than if people are incentivized to change their behavior. This concern leads me to my next point. The reason we do not know really if deterring coal consumption is the best way to combat current threats to biodiversity is because there is little to no literature available that outlines the social costs associated with other energy sources, like this paper does. In my opinion, this lack of information diminishes the strength of the authors’ recommendations and coal policy amendment proposals in general. And finally, the fact that “as levels of mining increase, so do poverty rates and unemployment rates, while educational attainment rates and house hold income decline” is somewhat comforting. This reality implies that there is, in fact, a disincentive to harvest coal in the existing market and therefore, in theory, that the market could be capable of facilitating the optimal amount of coal production and consumption. For these reasons, I believe that the implications of this paper should be modest. The paper is somewhat limited and, in the absence of more information about the social costs associated with other energy sources, should be cited carefully in policy discussions. Improving biodiversity is important, but — in my opinion — developing plans to achieve that goal must be supported by very strong evidence.
Toggle Commented Mar 9, 2016 on ECON 255 for Thursday at Jolly Green General
One trend that caught my attention while reading this paper was the fact that “biodiversity continues to decline, even though worldwide conservation efforts are increasing.” To explain why, the authors take the stance that there are significant issues with current conservation programs. In an effort not to repeat what everyone has said, I will not say more about these issues and the three tiers that the authors support. I will instead begin by discussing one challenge that, in my opinion, conservation efforts must overcome to improve biodiversity. Like I said before, biodiversity continues to decrease despite the fact that conservation efforts are on the rise. But while I agree with the authors that knowledge gaps, exogenous shocks, and inefficient policies contribute to the fact that current efforts are experiencing serious shortcomings, I think that another reality must be considered when seeking to explain the challenges facing conservation efforts. The fact that, according to the U.S. Census Bureau, the world population has grown by more that one billion since 2000 certainly makes a difference. This considerable population increase means that, inherently, demand for and consumption of resources have increased dramatically. With that in mind, it is almost understandable that increased conservation efforts have not yielded positive effects on biodiversity. The population increase has simply created a larger drag on biodiversity than even increased conservation efforts could combat. Therefore, it is important that we ask: Are we convinced that running every existing conservation program at high efficiency would truly be enough improve biodiversity? If we are, improving the efficiency/effectiveness of existing policy should be our focus. But if not, we must both improve existing policy and develop new conservation programs.
Toggle Commented Mar 2, 2016 on ECON 255 for Thursday at Jolly Green General
I found Kahn’s discussion of aquaculture interesting. For while he says that increasing aquaculture may decrease the amount of natural fishing, he argues that policy should not necessarily encourage the creation of fish farms because they are associated with negative environmental externalities (e.g. a forest may need to be cleared to create space for aquaculture). That may be so, but I would ask Kahn if empirical evidence suggests that the drawbacks associated with fish farms are greater than those associated with excessive natural fishing because, at least to me, it seems like encouraging aquaculture would harm the environment less than allowing exorbitant natural fishing to continue.
Toggle Commented Feb 10, 2016 on More Chapters from Kahn at Jolly Green General
This paper carefully considers many factors that contribute to SCUBA divers’ willingness to pay for marine biodiversity. The authors go to great lengths to identify that divers, in general, are prepared to pay more for reef attributes than they are currently being charged. By identifying statistically significant relationships within their sample, they are largely successful. This paper therefore suggests that increasing diver fees in areas where tourism is a major foreign exchange earner could help countries like Barbados capture previously forgone economic surplus and generate funds to help slow their reefs depletion. But while I take no issue with the former suggestion, I do not necessarily agree with the latter. I think more questions must be answered before I can be convinced that increasing diver fees will lead to increased economic surplus. One question that I believe must be considered originates from the fact that, according to theory, raising the price of SCUBA diving will decrease the number of people who choose to do so. This result would have both positive and negative effects on economic surplus. On one hand, by fewer people going diving, marine biodiversity will deteriorate at a slower rate — a positive for conservationists and divers alike. While on the other, fewer divers would result in lower tourism revenue in countries like Barbados and create a drag on its GDP. So is raising diving costs, as this paper suggests, a good idea, given that we cannot be sure that the environmental benefits gained from higher diving costs overshadow inevitable revenue losses? A second question that I believe must be asked is: what percentage of revenue generated by SCUBA diving can be attributed to locals (i.e. people who live within an x mile radius of a reef)? Learning that information would be valuable because that would help determine the degree to which the sample in this paper reflects diver preferences. Nearly 80% of the survey consisted of vacation travelers. Therefore, if we know that, say, 40% of divers are local to the area, this sample would suggest policy implications that may not necessarily be optimal for the population. For if we assume that locals have a lower willingness to pay for diving than travelers and we determine that 40% of divers are locals, increasing diving price would likely have a more jarring impact on countries with jurisdiction over marine biodiversity than this paper suggests. Besides, I imagine that it would be difficult for a country to justify a policy that would render SCUBA diving prohibitively expensive to its citizens.
Toggle Commented Feb 3, 2016 on ECON 255 for next Thursday at Jolly Green General
I really enjoyed reading Hardin’s article about how the tragedy of the commons principle applies to global population challenges. His logic and reasoning is grounded in economic thought, and he certainly makes a strong case for passing child-capping legislation. I especially liked the part of the article where says that even though his proposal would further infringe on the commons, it is no different than previous restrictions that are accepted — that “it is [only] the newly proposed infringements that we vigorously oppose; cries of "rights" and "freedom" fill the air.” This passage legitimizes his assertions and encourages his critics to keep an open mind. But while I was reading Hardin’s article, I could not help but think that his views on natural resources are a bit dated. He argues that they are finite — which, to a degree, they are. However, I do not believe that a growing population will create conditions such that everyone’s consumption behaviors must be tightly regulated even some 50 years after this article was written. This shortcoming can likely be explained by the fact that Hardin, like Will said, did not expect food production technology to improve to the degree that it has. Of course, that is not to say that the fact that Hardin’s article was published in 1968 renders it completely passé. For while his argument for limiting births on the grounds that an exorbitant population will consume all of the Earth’s natural resources falls flat because of today’s technological advancements, it may have merit on the grounds that limiting the world’s population may help reduce global pollution. Perhaps the best way to test this hypothesis would be to study China’s annual emissions over the next few years. Using data from before the “one-child” policy was lifted as a benchmark, empirical studies down the road may be able to determine that an increase in the Chinese population is strongly correlated with an increase in its pollution — which would certainly suggest that limiting population is a means to combat global emissions struggles.
Toggle Commented Jan 21, 2016 on ECON 255 for Friday at Jolly Green General
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Jan 21, 2016