Category Archives: Fisheries Policy

On the Origins of Research

In response to my last essay at this web site, “On Becoming an Environmental Economist,” several readers suggested that someday I should write about the origins of my various research initiatives over the past 25 years.  Today, I’m doing that sooner than anyone might have expected!

This is feasible because — also quite recently — I was asked by my colleague, Hannah Riley Bowles, the instructor in the Harvard Kennedy School’s Doctoral Research Seminar, to make a presentation to the first-year students in the Ph.D. program in public policy on how research programs develop.  To prepare for this, I reflected on my research projects over the past 25 years since receiving my PhD in economics at Harvard and joining the Kennedy School faculty, and as I began to write some notes for my presentation, a flow chart of research origins, subjects, and products started to emerge.  You can view my PowerPoint presentation (you need to use Slide Show mode to see the animation) here.

In this essay, I describe the elements of that flow chart of research sources, topics, and selected publications (and provide some screen shots of the PowerPoint deck).

As will probably be apparent, I found the process of preparing for Professor Bowles’s seminar valuable, because it forced me – for the first time in 25 years – to step back and reflect systematically on the origins of my research projects and the connections among them.  So, I recommend this process to other researchers, as I think you may find it rewarding.  And, for would-be researchers, that is, PhD students, I hope the results below will be informative.

An Ex Post Exploration of How Research Programs Develop

In carrying out this ex post exploration of how research programs may develop, I identified eleven types of sources of research ideas and projects.  In approximate chronological order (but not necessarily in order of importance), these are:

      • Dissertation
      • Involvement with the Policy World
      • Picking Up on Someone Else’s Work
      • Conferences
      • Funders
      • Student Interest
      • Responding to Others’ Work
      • Teaching
      • Consulting
      • Class Assignment
      • Invitation

I begin with how my dissertation research subsequently led to several avenues of further research and writing.

Dissertation — Analyzing Land Use

My 1988 Ph.D. thesis examined econometrically the factors that had led to the dramatic depletion of forested wetlands in the southern United States over the previous five decades.  Before commenting on how my dissertation stimulated my subsequent research, I should acknowledge that my dissertation topic itself grew of out of some consulting work I was doing at the time for the Environmental Defense Fund, in particular an analysis for James T. B. Tripp of how U.S. Army Corps of Engineers flood control projects were providing economic incentives for landowners to convert their forested wetlands to agricultural croplands.

My dissertation led directly to a pair of journal articles published in 1990 in the American Economic Review (with Adam Jaffe) and the Journal of Environmental Economics and Management.  But more striking – given the theme of this essay – is that several years later I realized that the general econometric approach and simulation model could be applied to a very different question, namely, analyzing the anticipated costs of biological carbon sequestration as a means of reducing net concentrations of carbon dioxide (CO2) in the atmosphere, linked with global climate change.  That recognition led to another article in the American Economic Review (1999), and then to a series of other, related projects on carbon sequestration (with Richard Newell 2000, and with Ruben Lubowski and Andrew Plantinga 2006, both in the Journal of Environmental Economics and Management), as well as a broader research initiative on factors affecting land-use decisions (with Plantinga and Lubowski in the Journal of Urban Economics in 2002 and Land Economics in 2008).  More recent work with Andrew Plantinga and Robin Cross (that does not appear in the schematic below) has involved an econometric analysis of the concept and reality of “terroir” associated with the production of premium wines (American Economic Review 2011, Journal of Wine Economics 2011).

A Less Direct Legacy of Dissertation:  Economics of Technological Change

A fundamental aspect of the econometric modeling involved in some of the land-use models above, including my dissertation research, was the estimation of the parameters of an empirical distribution of some heterogeneous attribute of land parcels, such as potential crop revenue (due to varying land quality, for example).  As costs of production fall, for example, that distribution would be swept, with various parcels going into production at various points in time.  Adam Jaffe and I hoped that this same sort of model could be applied to the process of technological diffusion, that is, the process of gradual adoption of some new technology over time.

As it turned out, however, the model was less useful than we first thought it would be for analyzing the factors affecting technology diffusion, and so we abandoned it for that purpose.  But this led us to explore other conceptual and empirical approaches to assessing the factors that lead to the diffusion of environmental technologies.  We developed a new framework for comparing empirically the effects of alternative environmental policy instruments on the diffusion of new technology, including Pigouvian taxes, technology adoption subsidies, and technology standards, with an empirical application to the diffusion of thermal insulation in new home construction, comparing the effects of energy prices, insulation cost, and building codes (Journal of Environmental Economics and Management 1995).  Related work with Nolan Miller and Lori (Snyder) Bennear followed in 2003 (American Economic Review).

Given our interest in the diffusion (adoption) of energy-efficiency technologies, it was natural to think about exploring the factors that affect the innovation (commercialization) of such technologies.  A very different model was developed — with Richard Newell taking the lead as part of his Harvard dissertation research — and an empirical application was made to analyzing the innovation of specific household energy-consuming durable goods (such as water heaters and air conditioners).  This work appeared in the Quarterly Journal of Economics in 1999.

More broadly, our interest in the innovation and diffusion energy efficiency technologies led us to explore in a series of articles the so-called “energy paradox” of apparently slow diffusion of technologies that appear to pay for themselves, as well as other issues related to energy-efficiency technological change (Energy Journal 1994, Resource and Energy Economics 1994, Energy Policy 1994, Elsevier Handbook of Economics 2003, Ecological Economics 2005, Energy Economics 2006, and many others).  And, recently, with a resurgence of interest in the energy paradox in the context of global climate change, Richard Newell and I have launched a new research initiative, with support from the Alfred P. Sloan Foundation.

Because I’ve sought to describe the origins of my research somewhat chronologically, I began with my dissertation research.  The fact that several strands of research — some directly related and some indirectly related to my dissertation — subsequently emerged will surely not surprise academic readers of this essay.  However, a considerably greater influence (indeed, the most important influence) on my research portfolio has come from my involvement — not with fellow scholars — but with practitioners in the world of public policy.  That may come as a surprise to some readers, and it is to this illustration of the two-way street between research and practice to which I now turn.

Involvement with the Policy World

A phone call I received in the late spring of 1988 — a week before my Harvard graduation — from Senator Timothy Wirth (D-Colorado), and a meeting shortly thereafter in Washington with Senator Wirth and his long-time friend and colleague, Senator John Heinz (R-Pennsylvania) led to an agreement that I would direct for them a study intended to inform the Presidential debates on environmental policy in that election year — Project 88:  Harnessing Market Forces to Protect the Environment (and a follow-up study in 1991, Project 88 — Round II, Incentives for Action: Designing Market-Based Environmental Strategies).

Many pages could be written — and, indeed, many have been written — about the influence that Project 88, sponsored by Senators Wirth and Heinz, subsequently had on policy developments at the federal level in Washington (including the path-breaking SO2 allowance trading program in the 1990 Clean Air Act amendments), within many states, and internationally in locations ranging from the European Union to China.  But my purpose in this essay is to examine the origins of my research portfolio, and so I will turn instead to reflect on the ways my experience with Project 88 (and related policy engagements with the White House, the Congress, and others) stimulated new paths of my scholarly research.

One path of research activity soon focused on normative analysis of alternative policy instruments, including work on:  transaction costs in cap-and-trade markets (Journal of Environmental Economics and Management 1995), the effects of correlated uncertainty on the choice between price and quantity instruments (Journal of Environmental Economics and Management 1996), vintage-differentiated regulations (Stanford Environmental Law Journal 2006), and policy instruments in second-best settings (with Lori Bennear, Environmental and Resource Economics 2007).  [The work on correlated uncertainty also illustrates an example of another source of research ideas, namely picking up on research by someone else, because this work was directly inspired by a footnote in Professor Martin Weitzman‘s classic work on “Prices vs. Quantities” (Review of Economic Studies 1974).]

Another area of work on normative analysis of policy instruments focused broadly on market-based instruments (with Robert Hahn, American Economic Review 1992; with Richard Newell, Journal of Regulatory Economics 2003; and the Elsevier Handbook of Environmental Economics 2003).  Other work focused more specifically on cap-and-trade systems (Journal of Economic Perspectives 1998; with Robert Hahn, Journal of Law and Economics 2011; and with Richard Schmalensee, Journal of Economic Perspectives 2013).

A conceptually distinct path of research that also found its origins in my work on Project 88 has involved examinations of the positive political economy of environmental policy (with Robert Hahn, Ecology Law Quarterly 1991; with Nathaniel Keohane and Richard Revesz, Harvard Environmental Law Review 1998; with Robert Hahn and Sheila Olmstead, Harvard Environmental Law Review 2003).

Even this extensive set of research projects and publications that derive from my work on Project 88 — depicted in the figure above — understates the influence that my work on Project 88 with Senators Wirth and Heinz has had on my scholarly research over the years.  This is because much of my work on global climate change policy, for example, has in fact focused on the potential use of market-based instruments in that realm, but for purposes of this essay, I associate that later work on climate policy with two other origins, namely, conferences and funders.

Conferences and Funders

Gradually over the 25 years since receipt of my PhD, my research has evolved from diverse work across environmental and natural resources economics, to more and more focus each year on various aspects of global climate change and related public policies.

“Climate skeptics” and other opponents of action to address climate change have sometimes accused the research community of focusing on climate change because “that is where the money is.”  Although there are sound reasons for focusing on climate change other than the availability of funds (such as the importance of the problem, and the methodological challenges it poses), there is some partial truth to the accusation.  Indeed, numerous national governments and major philanthropic foundations have made it their goal to stimulate research (and action) on climate change.

One part of my work in this realm has been research on national and sub-national climate policy instruments, often focused on the design of market-based instruments, including but not limited to cap-and-trade mechanisms (Brookings Institution 2007; Harvard Environmental Law Review 2008; Oxford Review of Economic Policy 2008; and my work on the Intergovernmental Panel on Climate Change, Second, 1995, and Third, 2001, and Fifth Assessment Reports.

An invitation from the Doris Duke Charitable Foundation to propose and eventually direct an international research and outreach project on international climate policy architecture led to much (but not all) of my work on international climate policy cooperation (with Joseph Aldy and Scott Barrett, Climate Policy 2003; with Scott Barrett, International Environmental Agreements 2003: with Sheila Olmstead, American Economic Review 2006; three books with Joseph Aldy published by Cambridge University Press 2007, 2009, 2010; an article with Judson Jaffe and Matthew Ranson, Ecology Law Quarterly 2010; and ongoing work on the IPCC Fifth Assessment Report 2010-2014; and much more).

Student Interest

Many professors who are reading this essay will not be the least bit surprised to learn that another origin of research ideas has been interest expressed by graduate students.  Three important examples stand out in my case.

One I have already written about above.  When Richard Newell (my very first PhD student) came to Harvard for graduate school in 1993, he brought with him an abiding interest in the relationship between science, technology, and policy.  At the time, Adam Jaffe and I were continuing our work on the diffusion of energy-efficiency technologies, and then the U.S. Department of Energy (DOE) solicited proposals for research that could improve the modeling of technological change in integrated assessment models of climate change (so this covers two other origins — involvement with the policy world, and potential funding).  All of this came together in a joint research initiative, funded by DOE, which supported Newell’s dissertation research on factors affecting the pace and direction of energy-efficiency technology innovation.  This led to a subsequent publication with Jaffe and Newell (Quarterly Journal of Economics 1999), as well as series of other collaborations with Newell, which are on-going to this day.

In 1999, Sheila (Cavanagh) Olmstead came to the Harvard PhD program in public policy with a strong background and keen interests in water resources and water policy.  I brought on board Michael Hanemann, then a professor at the University of California at Berkeley, as a collaborator, and together we applied (successfully) to the National Science Foundation for a grant that supported Sheila’s dissertation research on econometrically estimating demand for municipal water in the presence of block-rate pricing schedules.  Not only did that lead directly to some published work (with Olmstead and Hanemann, Journal of Environmental Economics and Management 2007), but led indirectly to other research on water pricing(with Olmstead, Water Resources Research 2009).

The work on carbon sequestration and land use described above with Ruben Lubowski and Andrew Plantinga (Journal of Environmental Economics and Management 2006; Journal of Urban Economics 2002; Land Economics 2008) also deserves mention in this part of the essay, because it all grew out of Ruben Lubowski‘s PhD dissertation research at Harvard.

Responding to Others’ Work

I mentioned above an example of picking up on someone else’s work (in a positive sense), namely a footnote in Marty Weitzman’s classic 1974 article on “Prices vs Quantities” in which he noted that he was assuming statistical independence between marginal benefits and marginal costs, which stimulated me to relax that assumption and pursue the analysis (which led to my article on the effects of correlated uncertainty in 1996 in the Journal of Environmental Economics and Management).

By contrast, sometimes researchers can be stimulated to do work in order to question others’ previous work (and related conventional wisdom).  This was the case with my collaborative work examining the topic of “corporate social responsibility,” an area of scholarship that some colleagues and I believed was populated by research and writing that generated more heat than light.  A conference we organized at Harvard led to a subsequent book that examined Environmental Protection and the Social Responsibility of Firms:  Perspectives from Law, Economics, and Business (with Harvard Law School professor, Bruce Hay, and Harvard Business School professor, Richard Vietor, 2005).  Later, I took the next step with a follow-up article with Vietor and his Harvard Business School colleague, Forest Reinhardt (Review of Environmental Economics and Policy 2008), and another with Reinhardt (Oxford Review of Economic Policy 2010).


Classroom teaching can itself provide inspiration for research.  In 2002, I was teaching a small “reading and research course” for PhD students interested in environmental economics, and lamented one day that the increasingly popular concept of “sustainability” seemed to lack a clear definition or interpretation that made sense in economic terms.  I offered a possible economic interpretation in class, and within a week, two students — Gernot Wagner and Alexander Wagner (unrelated) — had written out a mathematically formalized version of my interpretation.  We collaborated on writing a brief article that provided background as well as further exploration (Economic Letters 2003).


It may (or may not) come as a surprise that consulting (work I do outside of my Harvard responsibilities, sometimes for compensation, sometimes not) can also lead to interesting research ideas.  In my case, this has led to my thinking more carefully — with collaborators — about the analytical methods that surround net present value analysis (also called, benefit-cost analysis).

This has led to a series of papers on various dimensions of net present value analysis in the environmental realm, including such topics as:  the meaning, limits, and value of the Kaldor-Hicks criterion (with Kenneth Arrow and others, Science 1996); the role of discounting (with Lawrence Goulder, Nature 2002); new benefit-estimation methods (with Paul Portney, Journal of Risk and Uncertainty 1994; and with Lori Bennear and Alexander Wagner, Journal of Regulatory Economics 2005); and the use of Monte Carlo analysis to incorporate uncertainty in regulatory impact analysis (with Judson Jaffe, Regulation and Governance 2007).

Also, as I mentioned at the outset, my 1988 dissertation topic had grown out of some consulting work I was doing at the time for the Environmental Defense Fund.

Class Assignments

Many of my PhD students over the years have written term papers for courses that led to manuscript that were eventually published in academic journals.  But in my own case, because my PhD training in economics at Harvard did not include any courses in environmental economics (none existed at the time, as you may have noted in my previous essay, “On Becoming an Environmental Economist”), the only example I can provide of this origin of research is in a different area, namely economic history.  This is an area in which I took two wonderful courses from Professor Jeffrey Williamson (about which I wrote in my previous post).  An econometric analysis I carried out for one of those courses — “A Model of English Demographic Change: 1573-1873” was subsequently published (Explorations in Economic History 1988).

Invitations (and other origins)

There’s a clear positive correlation between the onset of grey hair and the frequency of invitations to write articles (or books) for publication.  These have included:  an article with Don Fullerton on how economists view the environment in Nature (1998); an article on common property resources in the American Economic Review (2011); my ongoing column, “An Economic Perspective” in The Environmental Forum (2006-present); my blog, “An Economic View of the Environment,” which was launched in 2009; two books of my collected works, 1988-1999 and 2000-2011 (Edward Elgar 2001, 2013); and three editions of a book of selected readings in environmental economics (W. W. Norton 2000, 2005, 2012).

Results of an Ex Post Exploration of Research Origins

Putting all of that together in a single flow chart results in the figure below, which is much clearer in a PDF version.  You can also view the entire PowerPoint presentation (you need to use Slide Show mode to see the animation) here.

As I said at the outset, I found the process of preparing this slide deck for Professor Bowles’s seminar valuable, because it enabled me to step back and reflect systematically on the origins of my research initiatives over the years and the relationships among them.  I recommend this process to other academics, because I believe it can be rewarding.  And, for academics in-the-making, that is, PhD students, I hope this essay may be informative.

On Becoming an Environmental Economist

My essay this month represents a departure from my standard blog posts about a contemporary environmental policy issue.  Rather, it is of a more personal nature, and stems from the fact that the second volume of my collected papers has just been published by Edward Elgar, Economics of Climate Change and Environmental Policy:  Selected Papers of Robert N. Stavins, 2000-2011 (2013), a successor to the first volume, published in 2000, Environmental Economics and Public Policy:  Selected Papers of Robert N. Stavins, 1988-1999.

When the publisher invited me to collect my papers in these edited volumes, it was suggested that I write a personal introduction in which I might reflect on the professional path that led to my research and writing.  I did this, and the introductory chapter of the second volume contains my latest reflections on that path.  This essay essentially consists of an abbreviated version.  My hope is that some readers will find it of interest, particularly students and others who aspire to work in this exciting and growing field.

A Professional Path

Over the past two decades, environmental and resource economics has evolved from what was once a relatively obscure application of welfare economics to a prominent field of economics in its own right.  The number of articles on the natural environment appearing in mainstream economics periodicals has continued to increase, as has the number of economics journals dedicated exclusively to environmental and resource topics.  Likewise, the influence of environmental economics on public policy has increased significantly, particularly as greater use has been made of market-based instruments for environmental protection.

In retrospect, my own professional path may now appear somewhat direct, if not altogether linear, but it hardly seemed so as I traveled along it.  The path I describe below took me back and forth across the United States and to several continents, and it took me from physics to philosophy, to agricultural extension, to international development studies, to agricultural economics, and eventually to environmental economics.  It culminated in my receipt in 1988 of a Ph.D. degree in economics at Harvard University, where I have since been a faculty member at the John F. Kennedy School of Government.  During this time, much has changed in the profession.

Early Days at Harvard

The early ascendency of the field of environmental economics, during the period from 1970 to 1990, was centered within departments of agricultural and resource economics, mainly at U.S. universities, and at Resources for the Future (RFF), the Washington research institution.  Within most economics departments, however, environmental studies remained a relatively minor area of applied welfare economics.  So, when I enrolled in the Ph.D. program in Harvard’s Department of Economics in 1983, and when I received my degree five years later, no field of study was offered in the field of environmental or resource economics.

Fortunately, Harvard permitted its graduate students to develop an optional, self-designed field as one of two “special fields” on which they were to be examined orally before proceeding to dissertation research.  Without an active environmental economist in the Department of Economics (Robert Dorfman had retired, and Martin Weitzman had yet to move to Harvard from the Massachusetts Institute of Technology), I developed an outline and reading list of the field through correspondence with leading scholars from other institutions, most prominently Kerry Smith, then at North Carolina State University.  My proposal to prepare for and be examined in the special field of environmental and resource economics (along with econometrics) was approved by the Department’s director of graduate study, Dale Jorgenson.  So began my entry into the scholarly literature.

A Nurturing Environment at Cornell

But my interest in environmental economics pre-dated by a considerable number of years my matriculation at Harvard.  Like many others before and since, I came to the field because of a personal interest in the natural environment (the origin of which I describe below).  This personal interest evolved into a professional one while I was studying for an M.S. degree in agricultural economics at Cornell University in the late 1970’s, where my thesis advisor and mentor was Kenneth Robinson.  I had originally gone to Cornell to study for a professional degree in international development, but found agricultural economics more appealing, largely because of the opportunity to examine social questions with quantitative methods within a disciplinary framework.

The faculty at Cornell and the care given to graduate students (including masters students like me) were both outstanding.  Ken Robinson, my first mentor within the economics profession, became my ongoing role model for intellectual integrity.  It was a very sad day in 2010 when Professor Robinson passed away.

A course in linear algebra, brilliantly taught by S. R. Searle, inspired me to pursue quantitative methods of analysis, and I was fortunate to then have the opportunity to study econometrics with Tim Mount.  One summer I had the great privilege of learning comparative economic systems in a small workshop setting from George Staller of the Cornell Department of Economics.   Working with Bud Stanton, I had my first experience teaching at the university level, and with Olan Forker, I had my first try at serious writing.  All of this led to research and writing of an M.S. thesis, “Forecasting the Size Distribution of Farms:  A Methodological Analysis of the Dairy Industry in New York State.”  The methodology in question was a variable Markov transition probability matrix, the cells of which were estimated econometrically in a multinomial logit framework.  Much to my surprise, this work subsequently received the Outstanding Master’s Thesis Award in the national competition of the American Agricultural Economics Association.

A Defining Move from Ithaca to Berkeley

Armed with my M.S. degree, I moved from Cornell to Berkeley, California, where I eventually met up with Phillip LeVeen, who had until shortly before that time been a faculty member in the Department of Agricultural and Resource Economics at the University of California, Berkeley.  Phil was another superb mentor, and from him I learned the power of using simple models — by which I mean a set of supply and demand curves hastily drawn on a piece of scrap paper — to develop insights into real-world policy problems.  He introduced me to a topic that was to occupy me for the next few years — California’s perpetual concerns with water allocation.  I remember many afternoons spent working with Phil at his dining room table on questions of water supply and demand.

This work with Phil LeVeen led to a consultancy and then a staff position with the Environmental Defense Fund (EDF), the national advocacy group consisting of lawyers, natural scientists, and — then almost unique among environmental advocacy organizations — economists.  At EDF, I was able to experience for the first time the use of economic analysis in pursuit of better environmental policy.  With W. R. Zach Willey, EDF’s senior economist in California, as a role model, and Thomas Graff, EDF’s senior attorney, as my mentor, I thrived in EDF’s collegial atmosphere, while thoroughly enjoying life in Berkeley’s “gourmet ghetto,” as my neighborhood was called.  Sadly, Tom Graff — without whose mentorship I would not be where I am today — passed away in 2009 after a heroic battle with cancer.

Although I found the work at EDF exceptionally rewarding, I worried that I would eventually be constrained — either within the organization or outside it — by my limited education.  So, like many others in similar situations, I considered a law degree as the next logical step.  In fact, I came very close to enrolling at Stanford Law School, but instead, in 1983, I accepted an offer of admission to the Department of Economics at Harvard, moved back east to Cambridge, Massachusetts, and began what has turned out to be a long-term relationship with the University.

Origins of Interest in Environmental Economics

But where did my interest in the natural environment begin?  Not at Cornell; it was present long before those days.  But it had not yet arisen when I was studying earlier at Northwestern University, from which I received a B.A. degree in philosophy, having departed from my first scholarly interest, astronomy and astrophysics.

Rather, the origins of my affinity for the natural environment and my interest in resource issues are to be found in the four years I spent in a small, remote village in Sierra Leone, West Africa, as a Peace Corps Volunteer, working in agricultural extension (in particular, paddy rice development).  It was there that I was first exposed both to the qualities of a pristine natural environment and the trade-offs associated with economic development.

So, I had begun in astrophysics, moved to philosophy (both at Northwestern), then to agricultural extension in a developing country (Sierra Leone), then to international development studies and subsequently to agricultural economics (both at Cornell), then to environmental economics and policy (EDF), and eventually to graduate study in economics at Harvard.

From Berkeley to Cambridge

My dissertation research at Harvard was directed by a committee of three faculty members:  Joseph Kalt, Zvi Griliches, and Adam Jaffe.  Joseph Kalt was the first faculty member at the Department of Economics to validate my interest in environmental and resource issues, and he was unfailingly generous to me and many other graduate students in making his office (and computer, then a rather scarce resource) available at all hours.  Now a colleague at the Kennedy School, Joe provided examples never to be forgotten — that economics could be a meaningful and enjoyable pursuit, and that excellence in teaching was a laudable goal.

Zvi Griliches was not only my advisor and mentor, but my spiritual father as well.  Generations of Harvard graduate students would offer similar testimony.  My own father had died only a year before I entered Harvard, and Zvi soon filled for me many paternal needs.  It is now more than a decade since Zvi himself passed away.  I felt as if I had lost my father a second time.

If Zvi Griliches provided caring and inspiration, Adam Jaffe provided invaluable day-to-day guidance.  It was Adam who convinced me not to go on the job market in my fourth year with what would have been a mediocre dissertation, but to put in another year and do it right.  That turned out to be some of the best professional advice I have ever received.  Our intensive faculty-student relationship from dissertation days subsequently evolved into a very productive professional (and personal) one that continues to this day.  The name of Adam Jaffe appears frequently in my curriculum vitae as a co-author; he has been and continues to be much more than that.

Although they were not members of my thesis committee, I should acknowledge two other faculty members at the Harvard Department of Economics who played important roles in my education.  I was fortunate to take two courses in economic history (a department requirement) from Jeffrey Williamson, who had recently arrived from the University of Wisconsin.  Williamson’s class sessions were as close as anything I have witnessed to being an economic research laboratory.  In class after class, we would carefully dissect one or more articles — examining hypothesis, theoretical model, data, estimation method, results, and conclusions.  If there was any place where I actually learned how to carry out economic research, it was in those classes.

The other name that is important to highlight is that of Lawrence Goulder, then a faculty member at Harvard, and now a professor at Stanford.  I say this not simply because he was willing to be my examiner in my chosen field of environmental and resource economics, nor because he subsequently became such a close friend.  Rather, what is striking about my professional relationship with Larry is the degree to which he has been an unnamed collaborator on so many projects of mine.  Although he and I have co-authored no more than a few articles, his name probably appears more frequently than anyone else’s in the acknowledgments of papers I have written.  There is no one whose overall judgement in matters of economics I trust more, and no one who has been more helpful.

First Steps for a Newly-Minted Ph.D. Recipient

When I began graduate school at Harvard in 1983, it was my intention to return to EDF as soon as I received my degree.  But by my third year in the program, I had decided to pursue an academic career, although one that was heavily flavored with involvement in the real world of public policy.  Within the context of this professional objective, it was not a difficult decision to accept the offer I received in February, 1988, to become an Assistant Professor at the Kennedy School.  Although some of the other offers I received at that time were also very attractive, the choice for me was obvious, and I have never regretted it — not for a moment.

I remain at the Kennedy School today, where I was promoted to Associate Professor in 1992 (an untenured rank at Harvard), and to a tenured position as Professor of Public Policy in 1997.   In 1998, I accepted an appointment as the Albert Pratt Professor of Business and Government.

Twenty-Five Years on the Harvard Faculty

Two years later, I launched the Harvard Environmental Economics Program, which today brings together — from across the University — thirty Faculty Fellows and twenty-five Pre-Doctoral Fellows, who are graduate students studying for the Ph.D. degree in economics, political economy and government, public policy, or health policy.  The Program, which I continue to direct, forms links among faculty and graduate students engaged in research, teaching, and outreach in environmental, natural resource, and energy economics and related public policy, by sponsoring research projects, convening workshops, and supporting graduate (and undergraduate) education.

A key reason why the Program — and its various projects, including the Harvard Project on Climate Agreements — have been so successful is the superb administrative leadership and staff support  it enjoys.  Everyone who has been involved in virtually any way has come away impressed by our Executive Director, Robert Stowe, and Program Manager, Jason Chapman.

At the Kennedy School, I have had an excellent mentor, William Hogan, and a superb advisor and friend, Richard Zeckhauser.  Over the years, five successive deans have provided leadership, guidance, and support (including abundant time for my research and writing) — Graham Allison, Robert Putnam, Albert Carnesale, Joseph Nye, and David Ellwood.  At Harvard more broadly, I have benefitted from regular interactions with Daniel Schrag, director of the Harvard University Center for the Environment, and Martin Weitzman of the Department of Economics.  For two decades, Marty and I have co-directed a bi-weekly Seminar in Environmental Economics and Policy, which has provided me with frequent opportunities to learn both from seminar speakers and from Marty’s questions and comments.  I will refrain from naming the many others at Harvard and elsewhere from whom I continue to learn — including my many co-authors — only because the list of such valued colleagues and friends is so long.  Included have been a most remarkable set of Ph.D. students, many of whom have gone on to productive — indeed illustrious — careers.

Along the way, I have had my share of administrative responsibilities at Harvard, including serving as Director of Graduate Studies for the Doctoral Program in Public Policy and the Doctoral Program in Political Economy and Government, and Co-Chair of the Harvard Business School-Harvard Kennedy School Joint Degree Programs.  Outside of Harvard, I have had the privilege of being a University Fellow of Resources for the Future, a Research Associate of the National Bureau of Economic Research, and the founding Editor and now Co-Editor of the Review of Environmental Economics and Policy, as well as a member of the Board of Directors of Resources for the Future, the Scientific Advisory Board of the Fondazione Eni Enrico Mattei, and numerous editorial boards. I must also note that I serve as an editor of the Journal of Wine Economics.  In 2009, I was elected a Fellow of the Association of Environmental and Resource Economists.

Working with the “Real World”

What originally attracted me to the Kennedy School was the possibility of combining an academic career with extensive involvement in the development of public policy.  I have not been disappointed.  Indeed, a theme that emerges from my collected papers is the interplay between scholarly economic research and implementation in real-world political contexts.  This is a two-way street.   In some cases, my policy involvement has come from expertise I developed through research, following a path well worn by academics.  But, in many other cases, my participation in policy matters has stimulated for me entirely new lines of inquiry.

What I have characterized as involvement in policy matters is described at the Kennedy School as faculty outreach, recognized to be of great institutional and social value, along with the two other components of our three-legged professional stool — research and teaching.  Because they relate to a number of the papers collected in this volume, I should note that my outreach efforts fall into five broad categories:  advisory work with members of Congress and the White House (for example, Project 88, a bipartisan effort co-chaired by former Senator Timothy Wirth and the late Senator John Heinz, to develop innovative approaches to environmental and resource problems); service on federal government panels (for example, my role as Chairman of the Environmental Economics Advisory Committee of the U.S. Environmental Protection Agency Science Advisory Board); on-going consulting — often on an informal basis — with environmental NGOs (most frequently, the Environmental Defense Fund) and private firms; advisory work with state governments; and professional interventions in the international sphere, such as service as a Lead Author for the Second and the Third Assessment Reports and a Coordinating Lead Author for the Fifth Assessment Report of the Intergovernmental Panel on Climate Change, professional roles with the World Bank and other international organizations, and advisory work with foreign governments.

Finally, because my two books of collected papers focus on my articles, not my books, I should note that over the years I have been privileged to be co-editor with Joseph Aldy of Post-Kyoto International Climate Policy:  Implementing Architectures for Agreement (Cambridge University Press, 2010), Post-Kyoto International Climate Policy:  Summary for Policymakers (Cambridge University Press, 2009), and Architectures for Agreement: Addressing Global Climate Change in the Post-Kyoto World (Cambridge University Press, 2007); editor of three editions of Economics of the Environment (W. W. Norton, 2000, 2005, 2012); co-editor with Bruce Hay and Richard Vietor of Environmental Protection and the Social Responsibility of Firms:  Perspectives from Law, Economics, and Business (Resources for the Future, 2005); editor of The Political Economy of Environmental Regulation (Edward Elgar, 2004), co-editor with Paul Portney of Public Policies for Environmental Protection (Resources for the Future, 2000); and author of Environmental Economics and Public Policy: Selected Papers of Robert N. Stavins, 1988-1999 (Edward Elgar, 2000).

The New Volume

That last book is the predecessor of the new volume.  Whereas the first volume (Stavins 2000) included selected papers from the period 1988 through 1999, the second volume covers the period from 2000 through 2011.  To prepare this new book, I selected 26 articles from the (many more) published papers I wrote  — frequently with co-authors — over the past decade.  Making this selection was not an easy task, but it was a rewarding one, because choosing the papers and organizing them has forced me to step back and reflect on the set of research endeavors in which I have been engaged over this decade, and thus to think more clearly about current and possible future directions.

The book is divided into seven parts.  The papers in Part I provide an overview of environmental and resource economics, treating broadly several key topics, including economic views of:  the problem of the commons (Stavins, American Economic Review, 2011); the history of U.S. environmental regulation (Hahn, Olmstead, and Stavins, Harvard Environmental Law Review, 2003); and corporate social responsibility (Reinhardt, Stavins, and Vietor, Review of Environmental Economics and Policy, 2008).

The articles in Part II deal with methods of environmental policy analysis, focusing, respectively, on:  interpreting sustainability in economic terms (Stavins, Wagner, and Wagner, Economic Letters, 2003); the use of discounting in net present value analysis (Goulder and Stavins, Nature, 2002); the development of a new revealed-preference method for inferring environmental benefits (Bennear, Stavins, and Wagner, Journal of Regulatory Economics, 2005); and the value of formal assessment of uncertainty (that is, Monte Carlo analysis) in regulatory impact analysis (Jaffe and Stavins, Regulation and Governance, 2007).

Part III turns to economic analysis of alternative environmental policy instruments, with examinations of: vintage-differentiated environmental regulation (Stavins, Stanford Environmental Law Journal, 2006); cost heterogeneity and the potential savings from employing market-based environmental policies (Newell and Stavins, Journal of Regulatory Economics, 2003); the effects of allowance allocations on the performance of cap-and-trade systems (Hahn and Stavins, Journal of Law and Economics, 2011); and second-best theory and the use of multiple policy instruments (Bennear and Stavins, Environmental and Resource Economics, 2007).

Part IV focuses on a topic that also received considerable treatment in the predecessor to this volume, namely the economics of technological change.  Here the articles include: a survey of the literature on environmental policy and technological change (Jaffe, Newell, and Stavins, Environmental and Resource Economics, 2002); an analysis of the interaction of environmental and technological market failures (Jaffe, Newell, and Stavins, Ecological Economics, 2005); an empirical assessment of the effect of environmental regulation on technology diffusion in the case of chlorine manufacturing (Miller, Snyder, and Stavins, American Economic Review Papers and Proceedings, 2003); and the effects of economic and policy incentives on carbon mitigation technologies (Jaffe, Newell, and Stavins, Energy Economics, 2006).

Part V consists of three articles in the area of natural resource economics dealing with land and water resources:  an analysis of the factors driving land-use change in the United States (Lubowski, Plantinga, and Stavins, Land Economics, 2008); an econometric examination of the significance of terroir, the notion that wine quality is primarily determined by location (Cross, Plantinga, and Stavins, American Economic Review Papers and Proceedings, 2011); and an assessment of urban water demand under alternative pricing structures (Olmstead, Hanemann, and Stavins, Journal of Environmental Economics and Management, 2007).

Part VI consists of four articles on domestic (national and sub-national) climate change policy, beginning with a description and assessment of a comprehensive U.S. cap-and-trade system for carbon dioxide and other greenhouse gas emissions (Stavins, Oxford Review of Economic Policy, 2008), and followed by:  an examination of the interactions of national and sub-national climate policies (Goulder and Stavins, American Economic Review Papers and Proceedings, 2011); an econometric study of the carbon-sequestration supply function (Lubowski, Plantinga, and Stavins, Journal of Environmental Economics and Management, 2006); and an assessment of the factors that affect the costs of biological carbon sequestration (Newell and Stavins, Journal of Environmental Economics and Management, 2000).

Finally, Part VII focuses on the international dimensions of climate change policy, and consists of four articles:  a comparison of alternative global climate change policy architectures (Aldy, Barrett, and Stavins, Climate Policy, 2003); an assessment of the Kyoto Protocol (Stavins, Milken Institute Review, 2005); an examination of a promising post-Kyoto international climate regime (Olmstead and Stavins, American Economic Review Papers and Proceedings, 2006); and a detailed examination of a key element of emerging international climate policy architecture, namely the linkage of regional, national, and sub-national tradable permit systems (Ranson, Jaffe, and Stavins, Ecology Law Quarterly, 2010).

Reflections on Common Themes

Selecting the essays for this second volume of my papers permitted me to take note of some common themes that emerge from this decade of research and writing.  First, there is the value — or at least, the potential value — of economic analysis of environmental policy.  The cause of virtually all environmental problems in a market economy is economic behavior (that is, imperfect markets affected by externalities), and so economics offers a powerful lens through which to view environmental problems, and therefore a potentially effective set of analytical tools for designing and evaluating environmental policies.

A second message, connected with the first, is the specific value of benefit-cost analysis for helping to promote efficient policies.  Economic efficiency ought to be one of the key criteria for evaluating proposed and existing environmental policies.  Despite its limitations, benefit-cost analysis can be useful for consistently assimilating the disparate information that is pertinent to sound decision making.  If properly done, it can be of considerable help to public officials when they seek to establish or assess environmental goals.

Third, the means governments use to achieve environmental objectives matter greatly, because different policy instruments have very different implications along a number of dimensions, including abatement costs in both the short and the long term.  Market-based instruments are particularly attractive in this regard.

Fourth, an economic perspective is also of considerable value when reflecting on the use of natural resources, whether land, water, fisheries, or forests.  Excessive rates of depletion of these resources are frequently due to the nature of the respective property-rights regimes, in particular, common property and open-access.  Economic instruments — such as ITQ systems in the case of fisheries — can and have been employed to bring harvesting rates down to socially efficient levels.

Fifth and finally, policies for addressing global climate change — linked with emissions of carbon dioxide and other greenhouse gases — can benefit greatly from the application of economic thinking.  On the one hand, the long time-horizon of climate change, the profound uncertainty in links between emissions and actual damages, and the possibility of catastrophic climate change present significant challenges to conventional economic analysis.  But, at the same time, the ubiquity of energy generation and use in modern economies means that only market-based policies — essentially carbon pricing regimes — are feasible instruments for achieving truly meaningful emissions reductions.  Hence, despite the challenges, an economic perspective on this grandest of environmental threats is essential.

Final Words

On a personal level, the professional path I have taken offers some confirmation that research can influence public policy, and it also illustrates that involvement in public policy can stimulate new research.  The quest — both professional and personal — that took me from Evanston, Illinois, to Sierra Leone, West Africa, to Ithaca, New York, to Berkeley, California, and finally to Cambridge, Massachusetts suggests some consistency of purpose and even function.  I continue to find myself doing similar things, but in different contexts.  It is fair to say that my professional life has taken me along a path that has brought me home.  The words of T. S. Eliot (1943) ring true:

                                        We shall not cease from exploration
                                        And the end of all our exploring
                                        Will be to arrive where we started
                                        And know the place for the first time.

Selecting the papers for this volume forces me to reflect on the past and think more clearly about the future.  The twenty-six articles that comprise this book and the twenty-two essays that comprised the predecessor volume are the product of twenty-three wonderful years on the faculty of the Harvard Kennedy School.  During this time, I have continued to learn about environmental economics and related public policy from colleagues, collaborators, students, friends, and inhabitants of the ”real world” of public policy, individuals from government, private industry, advocacy groups, and the press.  I hope that my learning will continue.

Economics of the Environment

The Sixth Edition of Economics of the Environment: Selected Readings has just been published by W. W. Norton & Company of New York and London.  Through five previous editions, Economics of the Environment has served as a valuable supplement to environmental economics texts and as a stand-alone book of original readings in the field of environmental economics.  Nearly seven years have passed since the previous edition of this volume was published, and it is now more than three decades since the first edition appeared, edited by Robert and Nancy Dorfman.  The Sixth Edition continues this tradition.

Motivation and Audience

Environmental economics continues to evolve from its origins as an obscure application of welfare economics to a prominent field in its own right, which combines elements from public finance, industrial organization, microeconomic theory, and many other areas of economics.  The number of articles on the environment appearing in mainstream economics periodicals continues to increase, and more and more economics journals are dedicated exclusively to environmental and resource topics.

There has also been a proliferation of environmental economics textbooks for college courses.  Many are excellent, but none can be expected to provide direct access to timely and original contributions by the field’s leading scholars.  As most teachers of economics recognize, it is valuable to supplement the structure and rigor of a text with original readings from the literature.

Scope and Style

With that in mind, this new edition of Economics of the Environment consists of thirty-four chapters that instructors will find to be of great value as a complement to their chosen text and their lectures.  The scope is comprehensive, and the list of authors is a veritable “who’s who” of environmental economics, including:  Joseph Aldy, Kenneth Arrow, Trudy Cameron, Ronald Coase, Maureen Cropper, Peter Diamond, George Eads, Jeffrey Frankel, Rick Freeman, Don Fullerton, Lawrence Goulder, John Graham, Robert Hahn, Michael Hanemann, Jerry Hausman, Steven Kelman, Nathaniel Keohane, Alan Krupnick, Lester Lave, John Livernois, Eric Maskin, Leonardo Maugeri, Gilbert Metcalf, Richard Newell, Roger Noll, William Nordhaus, Wallace Oates, Sheila Olmstead, Elinor Ostrom, Karen Palmer, Ian Parry, Carl Pasurka, Robert Pindyck, William Pizer, Michael Porter, Paul Portney, Forest Reinhardt, Richard Revesz, Milton Russell, Michael Sandel, Richard Schmalensee, Steven Shavell, Jason Shogren, Kerry Smith, Robert Solow, Nicholas Stern, Laura Taylor, Richard Vietor, and myself.

The articles are timely, with more than 90 percent published since 1990, and half since 2005.  There are two completely new sections of the book, “Economics of Natural Resources” and “Corporate Social Responsibility,” and all of the chapters in the section on global climate change are new to the sixth edition.

In order to make the readings in Economics of the Environment accessible to students at all levels, one criterion I use in the selection process is that articles should not only be original and well written — and meet the highest standards of economic scholarship — but also be non-technical in their presentations.  Hence, readers will find virtually no formal mathematics in any of the book’s 34 chapters throughout its 733 pages.

The Path Ahead

Environmental economics is a rapidly evolving field.  Not only do new theoretical models and improved empirical methods appear on a regular basis, but entirely new areas of investigation open up when the natural sciences indicate new concerns or the policy world turns to new issues.  Therefore, this book remains a work in progress.  I owe a great debt to the teachers and students of previous editions who have sent their comments and suggestions for revisions.  Looking to future editions, I invite all readers — whether teachers, students, or practitioners — to send me any thoughts or suggestions for improvement.

In the meantime, if you’re interested finding out more about the book, immediately below is a chapter-by-chapter summary of the book.  Alternatively, you can check out the W. W. Norton or Amazon web sites.


Appendix:  A Summary of Economics of the Environment, Sixth Edition

Part I of the volume provides an overview of the field and a review of its foundations.  Don Fullerton and I start things off with a brief essay about how economists think about the environment (Nature 1998).  This is followed by the classic treatment of social costs and bargaining by Ronald Coase (Journal of Law and Economics 1960), and a new article by Jason Shogren and Laura Taylor on the important, emerging field of behavioral environmental economics (Review of Environmental Economics and Policy 2008).

The Costs of Environmental Protection

Part II examines the costs of environmental protection, which might seem to be without controversy or current analytical interest.  This is not, however, the case.  This section begins with a survey article by Carl Pasurka that reviews the theory and empirical evidence on the relationship between environmental regulation and so-called “competitiveness” (Review of Environmental Economics and Policy 2008).

A somewhat revisionist view is provided by Michael Porter and Class van der Linde, who suggest that the conventional approach to thinking about the costs of environmental protection is fundamentally flawed (Journal of Economic Perspectives 1995).  Karen Palmer, Wallace Oates, and Paul Portney provide a careful response (Journal of Economic Perspectives 1995).

The Benefits of Environmental Protection

In Part III, the focus turns to the other side of the analytic ledger — the benefits of environmental protection.  This is an area that has been even more contentious — both in the policy world and among scholars.  Here the core question is whether and how environmental amenities can be valued in economic terms for analytical purposes.

The book features a provocative debate on the stated-preference method known as “contingent valuation.”  Paul Portney outlines the structure and importance of the debate, Michael Hanemann makes the affirmative case, and Peter Diamond and Jerry Hausman provide the critique (all three articles are from the Journal of Economic Perspectives 1994).

In the final article in Part III, the book turns to a concept that is both very important in assessments of the benefits of environmental regulations and is also very widely misunderstood — the value of a statistical life.  In an insightful essay, Trudy Cameron seeks to set the record straight (Review of Environmental Economics and Policy 2010).

There are two principal policy questions that need to be addressed in the environmental realm:  how much environmental protection is desirable; and how should that degree of environmental protection be achieved.  The first of these questions is addressed in Part IV and the second in Part V.

The Goals of Environmental Policy:  Economic Efficiency and Benefit-Cost Analysis

In an introductory essay, Kenneth Arrow, Maureen Cropper, George Eads, Robert Hahn, Lester Lave, Roger Noll, Paul Portney, Milton Russell, Richard Schmalensee, Kerry Smith, and I ask whether there is a role for benefit-cost analysis to play in environmental, health, and safety regulation (Science 1996).

Then, Lawrence Goulder and I focus on an ingredient of benefit-cost analysis that non-economists seem to find particularly confusing, or even troubling — intertemporal discounting (Nature 2002).  Next, Robert Pindyck examines a subject of fundamental importance — the role of uncertainty in environmental economics (Review of Environmental Economics and Policy 2007).  Steven Kelman provides an ethically-based critique of benefit-cost analysis, which is followed by a set of responses (Regulation 1981).

Part IV concludes with an up-to-date essay by John Graham on the critical role of the U.S. Office of Management and Budget in federal regulatory impact analysis (Review of Environmental Economics and Policy 2008).

The Means of Environmental Policy:  Cost Effectiveness and Market-Based Instruments

Part V examines the policy instruments — the means — that can be employed to achieve environmental targets or goals.  This is an area where economists have made their greatest inroads of influence in the policy world, with tremendous changes having taken place over the past twenty  years in the reception given by politicians and policy makers to so-called market-based or economic-incentive instruments for environmental protection.

Lawrence Goulder and Ian Parry start things off with a broad-ranging essay on instrument choice in environmental policy (Review of Environmental Economics and Policy 2008).  Following this, I examine lessons that can be learned from the innovative sulfur dioxide allowance trading program, set up by the Clean Air Act Amendments of 1990 (Journal of Economic Perspectives 1998).  Finally, Michael Sandel provides a critique of market-based instruments, with responses offered by Eric Maskin, Steven Shavell, and others (New York Times 1997).

Economics of Natural Resources

Part VI consists of three essays on a new topic for this book — the economics of natural resources.  First, John Livernois examines the empirical significance of a central tenet in natural resource economics, namely the Hotelling Rule — the proposition that under conditions of efficiency, the scarcity rent (price minus marginal extraction cost) of natural resources will rise over time at the rate of interest (Review of Environmental Economics and Policy 2009).

Essays by Leonardo Maugeri (Review of Environmental Economics and Policy 2009) and Sheila Olmstead (Review of Environmental Economics and Policy 2010), respectively, examine two particularly important resources:  petroleum and water.

The next four sections of the book treat some timely and important topics and problems.

Corporate Social Responsibility and the Environment

Part VII examines corporate social responsibility and the environment, discussion of which has too often been characterized by more heat than light.  Forest Reinhardt, Richard Vietor, and I provide an overview of this realm from the perspective of economics, examining the notion of firms voluntarily sacrificing profits in the social interest.  In a second essay, Paul Portney provides a valuable empirical perspective (both are from the Review of Environmental Economics and Policy 2008).

Global Climate Change

Part VIII is dedicated to investigations of economic dimensions of global climate change, which may in the long term prove to be the most significant environmental problem that has arisen, both in terms of its potential damages and in terms of the costs of addressing it.  First, a broad overview of the topic is provided in a survey article by Joseph Aldy, Alan Krupnick, Richard Newell, Ian Parry, and William Pizer (Journal of Economic Literature 2010).

Next, William Nordhaus critiques the well-known Stern Review on the Economics of Climate Change, and Nicholas Stern and Chris Taylor respond (both are from Science 2007).  In the final essay in this section, Gilbert Metcalf examines market-based policy instruments that can be used to address greenhouse gas emissions (Journal of Economic Perspectives 2009).

Sustainability, the Commons, and Globalization

Part IX begins with Robert Solow’s economic perspective on the concept of sustainability.  This is followed by Elinor Ostrom’s development of a general framework for analyzing sustainability (Science 2009), and my own historical view of economic analysis of problems associated with open-access resources (American Economic Review 2011).  Then, Jeffrey Frankel draws on diverse sources of empirical evidence to examine whether globalization is good or bad for the environment (Council on Foreign Relations 2004).

Economics and Environmental Policy Making

The final section of the book, Part X, departs from the normative concerns of much of the volume to examine some interesting and important questions of political economy.  It turns out that an economic perspective can provide useful insights into questions that might at first seem to be fundamentally political.

Nathaniel Keohane, Richard Revesz, and I utilize an economic framework to ask why our political system has produced the particular set of environmental policy instruments it has (Harvard Environmental Law Review 1998).  Myrick Freeman reflects on the benefits that U.S. environmental policies have brought about since the first Earth Day in 1970 (Journal of Economic Perspectives 2002).  Lastly, Robert Hahn addresses the question that many of the articles in this volume raise:  what impact has economics actually had on environmental policy (Journal of Environmental Economics and Management 2000)?

Reflecting on a Century of Progress and Problems

As the first decade of the twenty-first century comes to a close, the problem of the commons is more important to our lives – and more central to economics – than a century ago when the first issue of the American Economic Review appeared, with an examination by Professor Katharine Coman of Wellesley College of “Some Unsettled Problems of Irrigation” (1911).  Since that time, 100 years of remarkable economic progress have accompanied 100 years of increasingly challenging problems.

As the U.S. and other economies have grown, the carrying-capacity of the planet – in regard to natural resources and environmental quality – has become a greater concern, particularly for common-property and open-access resources.  In an article that appears in the 100th anniversary issue of the American Economic Review (AER) “The Problem of the Commons:  Still Unsettled After 100 Years” – I focus on some important, unsettled problems of the commons.

100 Years of Economic Progress and More Challenging Environmental Problems

Within the realm of natural resources, there are special challenges associated with renewable resources, which are frequently characterized by open-access.  An important example is the degradation of open-access fisheries.  Critical commons problems are also associated with environmental quality, including the ultimate commons problem of the twenty-first century – global climate change.

Small communities frequently provide modes of oversight and methods for policing their citizens, a topic about which Professor Elinor Ostrom of Indiana University has written extensively.  But as the scale of society has grown, commons problems have spread across communities and even  across nations.  In some of these cases, no over-arching authority can offer complete control, rendering commons problems more severe.

Although the type of water allocation problems of concern to Coman have frequently been addressed by common-property regimes of collective management, less easily governed problems of open-access are associated with growing concerns about air and water quality, hazardous waste, species extinction, maintenance of stratospheric ozone, and – most recently – the stability of the global climate in the face of the steady accumulation of greenhouse gases.

Whereas common property resources are held as private property by some group, open-access resources are non-excludable.  My article in the AER focuses exclusively on the latter, and thereby reflects on some important, unsettled problems of the commons.  It identifies both the contributions made by economic analysis and the challenges facing public policy.

The article begins with natural resources, highlighting the difference between most non-renewable natural resources, pure private goods that are both excludable and rival in consumption, and renewable natural resources, many of which are non-excludable.

Some of these are rival in consumption but characterized by open-access.  An example is the degradation of ocean fisheries. An economic perspective on these resources helps identify the problems they present for management, and provides guidance for sensible solutions.

The article then turns to a major set of commons problems that were not addressed until the last three decades of the twentieth century – environmental quality.  Although frequently characterized as textbook examples of externalities, these problems can also be viewed as a particular category of commons problems:  pure public goods, that are both non-excludable and non-rival in consumption.

A key contribution of economics has been the development of market-based approaches to environmental protection, including emission taxes and tradable rights.  These have potential to address the ultimate commons problem of the twenty-first century, global climate change.

Themes That Emerge

First, economic theory – by focusing on market failures linked with incomplete systems of property rights – has made major contributions to our understanding of commons problems and the development of prudent public policies.

Second, as our understanding of the commons has become more complex, the design of economic policy instruments has become more sophisticated, enabling policy makers to address problems that are characterized by uncertainty, spatial and temporal heterogeneity, and long duration.

Third, government policies that have not accounted for economic responses have been excessively costly, often ineffective, and sometimes counter-productive.

Fourth, commons problems have not diminished.  While some have been addressed successfully, others have emerged that are more important and more difficult.

Fifth, environmental economics is well positioned to offer better understanding and better policies to address these ongoing challenges.


Although I hope you will read the full article – which is very accessible — I will summarize its conclusions here.

Problems of the commons are both more widespread and more important today than when Coman wrote about unsettled problems in the first issue of the American Economic Review 100 years ago.  A century of economic growth and globalization have brought unparalleled improvements in societal well-being, but also unprecedented challenges to the carrying-capacity of the planet.  What would have been in 1911 inconceivable increases in income and population have come about and have greatly heightened pressures on the commons, particularly where there has been open access to it.

The stocks of a variety of renewable natural resources – including water, forests, fisheries, and numerous other species of plant and animal – have been depleted below socially efficient levels, principally because of poorly-defined property-right regimes.  Likewise, the same market failures of open-access – whether characterized as externalities, following A. C. Pigou (1920), or public goods, following Ronald Coase (1960) – have led to the degradation of air and water quality, inappropriate disposal of hazardous waste, depletion of stratospheric ozone, and the atmospheric accumulation of greenhouse gases linked with global climate change.

Over this same century, economics – as a discipline – has gradually come to focus more and more attention on these commons problems, first with regard to natural resources, and more recently with regard to environmental quality.  Economic research within academia and think tanks has improved our understanding of the causes and consequences of excessive resource depletion and inefficient environmental degradation, and thereby has helped identify sensible policy solutions.

Conventional regulatory policies, which have not accounted for economic responses, have been excessively costly, ineffective, or even counter-productive.  The problems behind what Garrett Hardin (1968) characterized as the “tragedy of the commons” might better be described as the “failure of commons regulation.”  As our understanding of the commons has become more complex, the design of economic policy instruments has become more sophisticated.

Problems of the commons have not diminished, and the lag between understanding and action can be long.  While some commons problems have been addressed successfully, others continue to emerge.  Some – such as the threat of global climate change – are both more important and more difficult than problems of the past.

Fortunately, economics is well positioned to offer better understanding and better policies to address these ongoing challenges.  As the first decade of the twenty-first century comes to a close, natural resource and environmental economics has emerged as a productive field of our discipline and one that shows even greater promise for the future.

Using Markets to Make Fisheries Sustainable

Around the world, over-fishing is leading to severe depletion of valuable fisheries.  This is as true in U.S. coastal waters as it is in many other parts of the world.  In New England waters, for example, after two decades of ever more intensive fishing, the groundfish fishery has essentially collapsed.  But, we are not alone.  According to the United Nations Environment Program, fully 25 percent of fisheries worldwide are in jeopardy of collapse due to over-fishing.  Clearly, something needs to be done.  Yet, what has long been considered the obvious answer – restrictions on fishing – has been shown time and time again to be the wrong answer.  The right answer is enlightened use of markets.

The fundamental cause of the depletion of fish stocks is well known to economists:  virtually all ocean fisheries are “open-access,” that is, fishermen – small operations or large corporations – can fish all they want.  These individuals and companies are no more greedy than the rest of us, but because no one holds title to fish stocks in the open ocean, everyone races to catch as much as possible.  Each fisherman receives the full benefit of aggressive fishing (that is, a larger catch), but none pay the full cost (an imperiled fishery for everyone).  One fisherman’s choices have an effect on other fishermen (of this generation and the next), but in an open-access fishery – unlike a privately-held copper mine, for example – these impacts are not taken into account.  What is individually rational adds up to collective foolishness, as the shared resource is over-exploited.  This is the “tragedy of the commons.”  What to do?

Government intervention is, alas, required.  Fishermen don’t welcome such regulation in their economic sphere any more than anyone else does.  And they have a point.  Conventional regulatory approaches have driven up costs, but not solved the problem.  And we know why.  If the government limits the season, fishermen put out more boats.  If the government limits net size, fishermen use more labor or buy more costly sonar.  Economists call this over-capitalization.  Costs go up for fishermen (as resources are squandered), but pressure on fish stocks is not relieved.

The answer is to adopt in fisheries management the same type of innovative policy that has been used for decades in the realm of pollution  control – tradeable permits, called “Individual Transferable Quotas” ( ITQs) in the fisheries realm.  Sixteen countries – some with economies much more dependent than ours on fishing – have adopted such systems with great success.  New Zealand regulates virtually its entire commercial fishery this way.  It’s had the system in place since 1986, and it’s been a great success, putting a brake on over-fishing and restoring stocks to sustainable levels ­- while increasing fishermen’s profitability!

There are several ITQ systems already in operation in the United States, including for Alaska’s pacific halibut and Virginia’s striped-bass fisheries.  More important, the time is ripe for broader adoption of this innovative approach, because a short-sighted ban imposed by the U.S. Congress on the establishment of new ITQ systems has expired.

The first step in establishing an ITQ system is to establish the “total allowable catch.”  The next step – and a crucial one – is to allocate shares of that total limit to fishermen in individual quotas that are theirs and theirs alone (read:  well-defined property rights).  Setting the individual quotas will not be easy.  The guiding principle should be simple pragmatism – using the allocations to build political support for the system.  Making the quotas transferable eliminates the problem of overcapitalization and increases efficiency, because the least efficient fishing operations find it more profitable to sell their quotas than to exploit them through continued fishing.  If you can’t catch your whole share, you can sell part of your quota to someone else, instead of buying a bigger boat.

In addition, these systems improve safety by reducing incentives for fishermen to go out (or stay out) when weather conditions are dangerous.  And it was just such perverse incentives of conventional fisheries regulation that were blamed for the tragic loss of life when a fishing boat was lost in a storm off the New England coast just a few winters ago.

Further, because ITQ systems eliminate the motivation for government to limit the duration of the fishing season, supplies available to consumers improve in quality.  Prior to the establishment of an ITQ system for Alaskan halibut, for example, the government had reduced the fishing season to just two days, but subsequent to the introduction of the system, the season length grew to more than 200 days.

A decade ago, environmental advocates – led by the Environmental Defense Fund – played a central role in the adoption of the sulfur dioxide allowance trading program that’s cut acid rain by half and saved electricity generators and rate-payers nearly $1 billion annually, compared with conventional approaches.  The time has come for environmentalists to join forces with progressive voices in the fishing industry and in government to set up ITQ systems that can keep fishermen in business while moving fisheries onto sustainable paths.