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Products: UHERO Working Papers

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Valuing Indirect Ecosystem Services: the Case of Tropical Watersheds

Mitigating the harmful effects of development projects and industries (negative environmentalism) is inadequate, especially in resource-dependent economies whose resources are at risk from other forces. While positive environmentalism includes conservation projects, the non-market benefits of such projects are difficult to evaluate. This paper provides and illustrates a method for evaluating the indirect, watershed benefits of a tropical forest, without resorting to survey methods. The conservation of trees prevents a reapportionment from groundwater recharge to runoff that would otherwise occur. The value of the water saved is then valued at the shadow prices obtained from an optimizing model. An illustration of the model shows that watershed conservation projects may have very high payoffs, even before assessing existence values and other forest amenities.

working paper

Control of Invasive Species: Lessons from Miconia in Hawai'i

 The threat of invasive species stems from their ability to rapidly and irreversibly change ecosystems and degrade the value of ecosystem services. Optimal control of a pre-established exotic pest minimizes the costs of population reduction plus the residual damages from the remaining pest population. The shrubby tree, Miconia calvescens, is used to illustrate dynamic policy options for a forest invader. Potential damages to Hawaii's forest ecosystems are related to decreased aquifer recharge, biodiversity, and other ecosystem values. We find that population reduction is the optimal management policy for the islands of Oahu, Maui, and Hawaii. On the island of Kauai, however, optimal policy calls for deferring control expenditures until the (larger) steady state population is reached.

working paper

Tourism’s Forward and Backward Linkages

This article proposes linkage analysis as a complement to the traditional tourism-impact analysis to examine tourism’s economic imprints on a destination’s economy. The starting point of tourism-impact analysis is final demand; impact analysis measures the direct and indirect impacts of tourist spending on the local economy. The starting point of linkage analysis is the tourism sector; the analysis examines the strengths of the inter-sectoral forward (FL) and backward (BL) relationships between the tourism sector and the nontourism industries. The FL measures the relative importance of the tourism sector as supplier to nontourism industries in the economy, whereas the BL measures its relative importance as demander. Directly applying conventional linkage analysis to tourism is not straightforward because tourism is not a defined industry. Thus, we develop a methodology to calculate tourism’s forward and backward linkages using national, regional, or local input-output tables and demonstrate its utility by applying it to Hawaii.

Published:  Cai, J., Leung, P. and Mak, J., 2006. Tourism's forward and backward linkages.  Journal of Travel Research, 45 (1), 36-52.

working paper version

The Impact of 9/11 and Other Terrible Global Events on Tourism in the United States and Hawaii

This article reviews recent trends in travel and tourism in the United States and Hawaii to ascertain how the terrorist attacks of 9/11 and subsequent terrible global events affected tourism flows. United States tourism has not recovered fully from 9/11 and other international shocks; indeed, recovery may be a long way off. By contrast, Hawaii tourism is enjoying robust growth in the aftermath of 9/11 as growth in tourist arrivals from the mainland has offset declines in international visitors. We suggest that Hawaii’s current tourism boom is explained in part by the diversion of United States travel from foreign travel. The article demonstrates the usefulness of vector error correction models to generate dynamic visitor forecasts, which we use to determine whether tourism in Hawaii has recovered fully from 9/11 and other terrible international events. The article considers policy options for facilitating the recovery of international tourism to the United States.

Published: Bonham, C., Edmonds, C. and Mak, J., 2006. The impact of 9/11 and other terrible global events on tourism in the United States and Hawaii.  Journal of Travel Research, 45 (1), 99-110.

working paper version

Rationality and Heterogeneity of Survey Forecasts of the Yen-Dollar Exchange Rate: A Reexamination

This paper examines the rationality and diversity of industry-level forecasts of the yen-dollar exchange rate collected by the Japan Center for International Finance. In several ways we update and extend the seminal work by Ito (1990). We compare three specifications for testing rationality: the ”conventional” bivariate regression, the univariate regression of a forecast error on a constant and other information set variables, and an error correction model (ECM). We find that the bivariate specification, while producing consistent estimates, suffers from two defects: first, the conventional restrictions are sufficient but not necessary for unbiasedness; second, the test has low power. However, before we can apply the univariate specification, we must conduct pretests for the stationarity of the forecast error. We find a unit root in the six-month horizon forecast error for all groups, thereby rejecting unbiasedness and weak efficiency at the pretest stage. For the other two horizons, we find much evidence in favor of unbiasedness but not weak efficiency. Our ECM rejects unbiasedness for all forecasters at all horizons. We conjecture that these results, too, occur because the restrictions test sufficiency, not necessity. In our systems estimation and micro- homogeneity testing, we use an innovative GMM technique (Bonham and Cohen (2001)) that allows for forecaster cross-correlation due to the existence of common shocks and/or herd effects. Tests of micro-homogeneity uniformly reject the hypothesis that forecasters across the four industries exhibit similar rationality characteristics.

Published: Richard Cohen, Carl Bonham and Shigeyuki Abe. "Rationality and Heterogeneity of Survey Forecasts of the Yen-Dollar Exchange Rate: A Reexamination." Handbook of Financial Econometrics and Statistics. Ed. Cheng-Few Lee and John C. Lee. New York: Springer, 2015. Print and eReference.

working paper

On the Garden Path: an economic perspective on prevention and control policies for an invasive species


Published: Kaiser, B. A., 2006. On the Garden Path: an economic perspective on prevention and control policies for an invasive species.  Choices: The Magazine of Food, Farm, and Resource Issues. 21 (3), 139-142.

Planning for Sustainable Tourism in Hawai‘i: Economic and Environmental Assessment Modeling Study


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Determinants of Success in High School Economics: Lessons from the Field

Recently, the Hawaii Council on Economic Education conducted a survey of high school seniors to gauge their understanding of basic economic concepts. Based on these results, we conduct a series of case studies, consisting of interviews with principals and economics teachers at eight Hawaii public high schools. We summarize the qualitative and quantitative results of these interviews. We then use these and other data to estimate the effects of school, demographic, and other characteristics on average student achievement on the survey. We find that the improvement in student test scores as a result of a one semester economics course is modest, but that the single greatest determinant of achievement is overall school quality. Based on these and other findings, we present recommendations for policy and further research.

working paper

Prevention, Eradication, and Containment of Invasive Species: Illustrations from Hawaii

Invasive species change ecosystems and the economic services such ecosystems provide. Optimal policy will minimize the expected damages and costs of prevention and control. We seek to explain policy outcomes as a function of biological and economic factors, using the case of Hawaii to illustrate. First, we consider an existing invasion, Miconia calvescens, a plant with the potential to reduce biodiversity, soil cover, and water availability. We then examine an imminent threat, the potential arrival of the Brown Treesnake (Boiga irregularis). The arrival of the snake to Guam has led to native bird extirpations, power outages, and health costs.

Published: Burnett, K., Kaiser, B., Pitafi, B. A., Roumasset, J., 2006.  Prevention, eradication, and containment of invasive species: Illustrations from Hawaii.  Agricultural and Resource Economics Review, 35 (1), 63-77.

working paper version

State Financing of Research Universities: The Role of State and University Characteristics

This study estimates the effect of underlying determinants on state funding of Doctoral/Research-Extensive Universities (DREU) in the U.S. Using panel data on 98 DREU over the period from 1987 to 2002, we estimate the effect of a variety of DREU and state characteristics while controlling for institutional level unobserved heterogeneity. Unlike previous studies, we focus solely on DREU, so our estimation results are driven by the within variation of DREU, not by the between variation across different types of universities and colleges. We consider determinants not previously studied such as the competitiveness of programs and quality of students, the mix of degree programs and professional schools, the degree of research orientation of a university, the effects of economies of scale (number of students), the cost of providing education services, and other state characteristics. Not surprisingly, we find that these variables are important factors determining state funding of DREU. Finally, we provide four case studies to illustrate the use of our model in evaluating the funding position of various universities.

working paper

Discontinuous extraction of a nonrenewable resource

This paper examines the sequence of optimal extraction of nonrenewable resources in the presence of multiple demands. We provide conditions under which extraction of a nonrenewable resource may be discontinuous over the course of its depletion.

Published:  Im, E. I., Chakravorty, U. and Roumasset, J., 2006, Discontinuous extraction of a nonrenewable resource. Economics Letters, 90 (1), 6-11.

Sustainable Growth with Environmental Spillovers

In this paper, we apply the approach of Ramsey and Koopmans to the problem of optimal and sustainable growth. Under plausible assumptions, intertemporal neutrality implies that the optimal growth path is sustainable without the contrivance of a sustainability constraint. The model is extended to cases involving environmental disamenities. The solutions equivalently solve the problem of maximizing net national product adjusted for depreciation in natural capital and environmental effects. Green net national product in this framework is constant over time, thus avoiding the paradox of declining sustainable income.

Published: Endress, L. H., Roumasset, J. A. and Zhou, T., 2005. Sustainable growth with environmental spillovers.  Journal of Economic Behavior & Organization, 58 (4), 527-547.

Impact of Population Aging on Japanese International Travel to 2025

In this article, the authors forecast Japanese international travel to 2025. In addition to the usual economic variables, their model also captures both population aging and birth cohort effects on Japanese travel abroad. They predict the number of future Japanese overseas trips for males and females separately by 5-year age groups and in 5-year increments and conclude that the Japanese will continue to travel abroad in increasing numbers but that population aging will dramatically slow the rate of growth of future Japanese overseas travel. Although the number of overseas trips taken by “seniors” is predicted to increase sharply, the authors foresee fewer trips taken by the Japanese in the 20s and early 30s age groups. Finally, they examine the responses of the industry and the public sector in Japan to implications of a rapidly aging population on future international travel.

Published:  Mak, J., Carlile, L. and Dai, S., 2005.  Impact of population aging on Japanese international travel to 2025.  Journal of Travel Research, 44 (2), 151-162.

Specialization and non-renewable resources: Ricardo meets Ricardo

The one-demand Hotelling model fails to explain the observed specialization of non renewable resources. We develop a model with multiple demands and resources to show that specialization of resources according to demand is driven by Ricardian comparative advantage while the order of resource use over time is determined by Ricardian absolute advantage. An abundant resource with absolute advantage in all demands must be initially employed in all demands. When each resource has an absolute advantage in some demand, no resource may be used exclusively. The two-by-two model is characterized. Resource and demand-specific taxes are shown to have significant substitution effects.

Published: Chakravorty, U., Krulce, D., and Roumasset, J., 2005.  Specialization and non-renewable resources: Ricardo meets Ricardo.  Journal of Economic Dynamics and Control, 29 (9) 1517-1545.

Tourism Demand and Output in the U.S. Tourism Satellite Accounts: 1998-2003

The Bureau of Economic Analysis’s (BEA) latest estimates of the U.S. travel and tourism satellite accounts for 1998-2003 do not account for changes in the prices of travel goods and services. This brief article estimates real travel and tourism output and demand by using a travel price index computed by the Travel Industry Association of America. The article shows that after accounting for price changes, U.S. tourism output and demand in 2003 did not surpass their pre-2001 peaks, as was suggested by the BEA.

Published: Mak, J., 2005.  Tourism demand and output in the U.S. Tourism Satellite Accounts: 1998-2003.  Journal of Travel Research, 44 (1), 4-5.

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