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Benefit-Cost Analysis of Watershed Conservation
The objectives of this report are (1) to review studies that estimate the relationship between watershed conservation activities and groundwater recharge in Hawai‘i and (2) to estimate the volume of freshwater yield saved per dollar invested in conservation at several sites on Hawai‘i Island. We conclude from the literature review that more work should be done to integrate information from smaller-scale studies of invasive-native water use differences into regional water balance models. This would help to inform decisions related to watershed conservation activities statewide. Using budget information obtained from the Nature Conservancy and the Division of Forestry and Wildlife as well as publicly available landcover and evapotranspiration (ET) data, we estimate the gallons of freshwater yield saved per dollar invested in watershed conservation. Under baseline conditions—a 3 percent discount rate and a 10 percent rate of spread for existing invasive plant species—roughly 400 gallons are saved on average across management sites per dollar invested. In other words, about $2.50 in present value terms is required to protect every one thousand gallons of freshwater over a 50 year time horizon. Annual benefits increase continuously as the avoided loss of freshwater yield rises over time, while conservation costs tend to be front-loaded, as a result of high fence installation and ungulate removal costs. Thus, it is important to consider the long run when comparing the benefits and costs of conservation activities.
An Economic and GHG Analysis of LNG in Hawaii
Hawaii currently meets the majority of its electricity needs through costly oil-fired generation causing rates to be nearly four times the national average (EIA, 2013a). The "shale gas revolution" has led to rapidly declining natural gas prices within the continental U.S. The emergence of a natural gas market that is de-linked from oil prices has renewed Hawaii's interest in natural gas imports. Potentially lower natural gas prices as well as the view that it will help to reduce green house gas (GHG) emissions and increase energy supply security through domestic sourcing are major reasons why the State and key stakeholders are deliberating over importing large amounts of natural gas in liquefied form (liquefied natural gas or LNG). This study uses detailed models of Hawaii's electric sector and overall economy to estimate the impacts of Hawaii importing LNG for use in the electric sector.
Why Does Real-Time Information Reduce Energy Consumption?
A number of studies have estimated how much energy conservation is achieved by providing households with real-time information on energy use via in-home displays. However, none of these studies tell us why real-time information changes energy-use behavior. We explore the causal mechanisms through which real-time information affects energy consumption by conducting a randomized-control trial with residential households. The experiment disentangles two competing mechanisms: (i) learning about the energy consumption of various activities, the “learning effect”, versus (ii) having a constant reminder of energy use, the “saliency effect”. We have two main results. First, we find a statistically significant treatment effect from receiving real-time information. Second, we find that learning plays a more prominent role than saliency in driving energy conservation. This finding supports the use of energy conservation programs that target consumer knowledge regarding energy use.
Published version: Lynham, J., Nitta, K., Saijo, T., & Tarui, N. (n.d.). Why does real-time information reduce energy consumption? Energy Economics. http://doi.org/http://dx.doi.org/10.1016/j.eneco.2015.11.007
A Hurricane’s Long-Term Economic Impact: the Case of Hawaii’s Iniki
The importance of understanding the macro-economic impact of natural disasters cannot be overstated. Hurricane Iniki, that hit the Hawaiian island of Kauai on September 11th, 1992, offers an ideal case study to better understand the long-term economic impacts of a major disaster. Iniki is uniquely suited to provide insights into the long-term economic impacts of disaster because (1) there is now seventeen years of detailed post-disaster economic data and (2) a nearby island, Maui, provides an ideal control group. Hurricane Iniki was the strongest hurricane to hit the Hawaiian Islands in recorded history, and wrought an estimated 7.4 billion (2008 US$) in initial damage. Here we show that Kauai’s economy only returned to pre-Iniki levels 7-8 years after the storm; though 17 years later, it has yet to recover in terms of its population and labor force. As we document, these long-term adverse impacts of disasters are ‘hidden.’ They are not usually treated as ‘costs’ of disasters, and are ignored when cost-benefit analysis of mitigation programs is used, or when countries, states, and islands attempt to prepare, financially and otherwise, to the possibility of future events.
In the Eye of the Storm: Coping with Future Natural Disasters in Hawaii
Hurricane Iniki, that hit the island of Kauai on September 11th, 1992, was the strongest hurricane that hit the Hawaiian Islands in recorded history, and the one that wrought the most damage, estimated at 7.4 billion (in 2008 US$). We provide an assessment of Hawaii’s vulnerability to disasters using a framework developed for small islands. In addition, we provide an analysis of the ex post impact of Iniki on the economy of Kauai. Using indicators such as visitor arrivals and agricultural production, we show that Kauai’s economy only returned to pre-Iniki levels 7-8 years after the storm. Today, it has yet to recover in terms of population growth. As an island state, Hawaii is particularly susceptible to the occurrence of disasters. Even more worrying, Hawaii’s dependence on tourism, narrow export base, high level of imports and relatively small agricultural sector make Hawaii much more likely to struggle to recover in the aftermath. By thoroughly learning from Kauai’s experience and the state’s vulnerabilities, we hope we can better prepare for likely future disaster events.
Incentivizing interdependent resource management: watersheds, groundwater, and coastal ecology
Managing water resources independently may result in substantial economic losses when those resources are interdependent with each other and with other environmental resources. We first develop general principles for using resources with spillovers, including corrective taxes (subsidies) for incentivizing private resource users. We then analyze specific cases of managing water resources, in particular the interaction of groundwater with upstream or downstream resource systems.
Published version: Burnett, Kimberly, Sittidaj Pongkijvorasin, James Roumasset, and Christopher A. Wada. "Incentivizing interdependent resource management: watersheds, groundwater and coastal ecology". Handbook of Water Economics. Cheltenham, UK: Edward Elgar Publishing, 2015. Print.
Groundwater Economics without Equations
In many parts of the world, irrigation and groundwater consumption are largely dependent on groundwater. Minimizing the adverse effects of water scarcity requires optimal as well as sustainable groundwater management. A common recommendation is to limit groundwater extraction to maximum sustainable yield (MSY). Although the optimal welfare-maximizing path of groundwater extraction converges to MSY in some cases, MSY generates waste in the short and medium term due to ambiguity regarding the transition to the desired long-run stock level and failure to account for the full costs of the resource. However, the price that incentivizes optimal consumption often exceeds the physical costs of extracting and distributing groundwater, which poses a problem for public utilities facing zero excess-revenue constraints. We discuss how the optimal price can be implemented in a revenue-neutral fashion using an increasing block pricing structure. The exposition is non-technical. More advanced references on groundwater resource management are also provided.
The Good, Bad, and Ugly of Watershed Management
Efficient management of groundwater resource systems requires careful consideration of relationships — both positive and negative — with the surrounding environment. The removal of and protection against “bad” and "ugly" natural capital such as invasive plants and feral animals and the enhancement of “good” capital (e.g. protective fencing) are often viewed as distinct management problems. Yet environmental linkages to a common groundwater resource suggest that watershed management decisions should be informed by an integrated framework. We develop such a framework and derive principles that govern optimal investment in the management of two types of natural capital — those that increase recharge and those that decrease recharge — as well as groundwater extraction itself. Depending on the initial conditions of the system and the characteristics of each type of natural capital, it may make sense to remove bad capital exclusively, enhance good capital exclusively, or invest in both activities simultaneously until their marginal benefits are equal.
Optimal Joint Management of Interdependent Resources: Groundwater vs. Kiawe (Prosopis pallida)
Local and global changes continue to influence interactions between groundwater and terrestrial ecosystems. Changes in precipitation, surface water, and land cover can affect the water balance of a given watershed, and thus affect both the quantity and quality of freshwater entering the ground. Groundwater management frameworks often abstract from such interactions. However, in some cases, management instruments can be designed to target simultaneously both groundwater and an interdependent resource such as the invasive kiawe tree (Prosopis pallid), which has been shown to reduce groundwater levels. Results from a groundwater-kiawe management model suggest that at the optimum, the resource manager should be indifferent between conserving a unit of groundwater via tree removal or via reduced consumption. The model’s application to the Kona Coast (Hawai‘i) showed that kiawe management can generate a large net present value for groundwater users. Additional data will be needed to implement full optimization in the resource system.
A Cross-Country Index of Intellectual Property Rights in Pharmaceutical Innovations
Many countries with strong patent protection for other industrial products and processes have not always provided strong protection for pharmaceutical innovations. For example, in 1970, all 22 OECD countries had functioning industrial patent systems, but only four allowed new pharmaceutical products to be patented. Over the last five decades, the extent of IPR protection for pharmaceutical innovations has increased dramatically, as more than 90 percent of the world’s countries now offer pharmaceutical product patents to both resident and foreign inventors. At the same time, the types of intellectual property available to protect new drugs and improvements to existing drugs have also expanded rapidly, with countries protecting innovations via product patents, process patents, formulation patents, new medical indication patents, and marketing exclusivity measures. The proliferation of new types of IPRs has made it more difficult to compare IPR protection of pharmaceuticals across countries and has increased the need for an index summarizing each country’s property rights in pharmaceutical innovations.
Globalization and Wage Convergence: Mexico and the United States
Neoclassical trade theory suggests that factor price convergence should follow increased commercial integration. Rising commercial integration and foreign direct investment followed the 1994 North American Free Trade Agreement between the United States and Mexico. This paper evaluates the degree of wage convergence between Mexico and the United States between 1988 and 2011. We apply a synthetic panel approach to employment survey data and a more descriptive approach to Census data from Mexico and the US. First, we find no evidence of long-run wage convergence among cohorts characterized by low migration propensities although this was, in part, due to large macroeconomic shocks. On the other hand, we do find some evidence of convergence for workers with high migration propensities. Finally, we find evidence of convergence in the border of Mexico vis-à-vis its interior in the 1990s but this was reversed in the 2000s.
The Miracle of Microfinance Revisited: Evidence from Propensity Score Matching
We provide new evidence on the effectiveness of microfinance intervention for poverty alleviation. We apply the Propensity Score Matching (PSM) method to data collected in a recent randomized control trial (RCT) in India by Banerjee et al. (2014). The PSM method allows us to answer an additional set of questions not answered by the original study. First, we explore the characteristics of MFI borrowers relative to two comparison groups: those without any loans and those with other types of loans, predominantly from family and friends and money lenders. Second, we compare the impact on expenditures of MFI borrowers relative to these two comparison groups. We find that microfinance borrowers have higher expenditures in a number of categories, notably durables, house repairs, health, festivals and temptation goods. The differences are stronger relative to those without any loans. Our results suggest that microfinance can make a larger difference for households previously excluded from other credit sources. However, some of the increased expenditures are unlikely to lead to long-term benefits and there is no significant difference in total expenditures. We also present suggestive evidence of negative spillovers, i.e. non-participants reducing some categories of expenditures, while MFI participants “pick up the tab.”
The Impact of Stronger Property Rights in Pharmaceuticals on Innovation in Developed and Developing Countries
We use dynamic panel data regressions to investigate whether the strength of a country’s patent protection for pharmaceuticals is associated with more pharmaceutical patenting by its residents and corporations in the United States. Using the Pharmaceutical Intellectual Property Protection (PIPP) Index to measure patent strength, we run dynamic probit and Poisson regressions on panels from 25 developing and 41 developed countries over the 1970-2004 period. Results vary, depending on whether we examine partial effects at the mean or average partial effects for the PIPP Index. APEs for the PIPP Index are positive but statistically insignificant in both developed and developing country samples.
Optimal groundwater management when recharge is declining: a method for valuing the recharge benefits of watershed conservation
Demand for water will continue to increase as per capita income rises and the population grows, and climate change can exacerbate the problem through changes in precipitation patterns and quantities, evapotranspiration, and land cover—all of which directly or indirectly affect the amount of water that ultimately infiltrates back into groundwater aquifers. We develop a dynamic management framework that incorporates alternative climate-change (and hence, recharge) scenarios and apply it to the Pearl Harbor aquifer system on O‘ahu, Hawai‘i. By calculating the net present value of water for a variety of plausible climate scenarios, we are able to estimate the indirect value of groundwater recharge that would be generated by watershed conservation activities. Enhancing recharge increases welfare by lowering the scarcity value of water in both the near term and the future, as well as delaying the need for costly alternatives such as desalination. For a reasonable range of parameter values, we find that the present value gain of maintaining recharge ranges from 31.1million to over1.5 billion.
Published version: Burnett, K. and Wada, C.A., 2014. Optimal groundwater management when recharge is declining: a method for valuing the recharge benefits of watershed conservation. Environmental Economics and Policy Studies. In Press.
Global Value Chains and Trade Elasticities
Previous studies have argued that global value chains (GVCs) have increased the sensitivity of trade to external business cycle shocks. This may occur either because GVC trade is concentrated in durable goods industries, which are known to have high income elasticities (a composition effect), or because, within industries, GVC trade has a higher income elasticity than regular trade (a supply chain effect). Using Chinese trade data across customs regimes and industries during the period 1995-2009, we find evidence for the former, but not the latter.