1. 7: Conservation November 5, 2014 1

2. An Idea from Last Time If person X imposes an externality on person Y, and the externality is inefficient, we should not expect the externality to persist if X and Y can make a deal. 2

3. 3 An Idea from Last Time It’s wasteful not to use everything up. The only question is when to use it.

4. Does Conservation Need Regulation? Ordinarily, the individual choices of consumers and producers maximize surplus. Thus, the questions are the same as always: 1. Is there market failure? 2. Is there are a regulation that would fix the market failure? 3. Would government failure make things worse? 4

5. Spreadsheet http://www.rasmusen.org/g406/slides/12-fishery.xlsx Each of eight countries in a fishery decides how many ships to send out to catch fish each decade. Each country picks a number X t as its fleet for decade t, where 1 units of ships can catch 1 unit of fish. The country's profit for decade t is 20X t - X t 2 Thus, diminishing returns set in after a certain point and the marginal cost is too high for further fishing to be profitable. The fish population starts at Q1=60 (about 8 per country) and the game continues for 5 decades, after which a meteor destroys the world. Let Q t denote the fish population at the start of decade t. In decade t+1, the population is 1.5 (Q t – X t ) 5

6. First Problem: The Common Pool Resource Game 6

7. Hunting Licenses 7

8. A Cod 8

9. The Codfish “The codfish lays ten thousand eggs. The homely hen lays one. The codfish never cackles To tell you when she's done. And so we scorn the codfish. The humble hen we prize. Which only goes to show you: It pays to advertise.” 9

10. The Cod Catch 10 Watkins Watkins on cod.

11. Elinor Ostrom, Indiana’s Nobel Prize Winner (d. 2012) 11

12. Second Problem: Public Goods. Old Hetch Hetchy Canyon 12

13. Hetch Hetchy Now 13

14. Hetch Hetchy Then and Now 14

15. Third Problem (Problem?): Using Up Resources Codfish are a renewable resource, in unlimited supply in the sense that unless we kill every single cod, the ocean population will recover if enough time is allowed. Many natural resources are in limited supply. There is some finite amount of oil in the world, and if we keep using it, it will run out eventually. The only question is whether it will run out sooner, or later. Yet governments worry a lot about overuse of cod, but hardly do anything about the overuse of oil. Why not, when the amount of cod over time is infinite, and the amount of oil is finite? 15

16. The Delser Mulch Story I have 10 cubic yards of delser yard mulch to spread on my flower beds. I paid $3/yard. In the future, all I can get is cedar mulch, inferior, at the same price. Each yard of delser mulch is as good as 2 yards of cedar mulch. Last year I spread 2 yards of delser mulch per month, for 6 months, but if the mulch had been free I would have spread 3 yards per month. What should I do now? 1. Spread 3 yards of delser per month till it’s used up— I have a big pile of delser mulch with no out-of-pocket cost. 2. Spread 2 yards of cedar mulch and 1 of delser to make the delser mulch stretch. 3. Spread 2 yards of delser mulch per month till it’s all used up, then switch to cedar. 16

17. Open That Bottle Night “Imagine if an evil genie took some of your very best memories and hid them in a wine bottle. That's what so many of us do to ourselves. These dear bottles have a special way of retrieving warm and often-forgotten memories, but you have to pop the cork to release them. That's why we invented Open That Bottle Night. So very many of us have that special bottle -- from a departed loved one, from a visit to a winery, from a vacation -- that we're always going to open for just the right moment, but, of course, that moment never comes. So the wine sits and sits and sits and becomes more and more precious, so it sits and sits some more.” (Last Saturday of February every year)Last Saturday of February 17

18. Running Out of Oil: Reserves How long should we expect oil reserves to last if they’re estimated at 30 years of current production? 18

19. Running Out of Oil Suppose that at current rates of consumption, adjusted up for increases in population and GDP, oil demand will rise to 100 mbd by 2030. At current rates of production, adjusted down for reserves running out but up for new discoveries, oil supply will rise to only 90mbd by 2030. Are we headed for a train wreck? What will happen? 19

20. Shifts in Supply as the Resource Runs Out 20

21. The Price of a Nonrenewable Resource over Time 21

22. Oil Prices over Time 22 Royalty rates are 12-25%. http://blackbearddata.com/oil-and-gas-royalties-what-they- are 12.5-25%.

23. Gasoline is about as affordable now as in 1960 http://www.latimes.com/news/opinion/commentary/la-oe- goklany11-2008aug11,0,3798951.story Take the ratio of the gasoline price to the average person’s disposable income. Normalize that ratio so it equals 1 in 1960. It equals 1.35 in 2012, and reached a high of 3.32 in 1998. 23

24. Walking Uses Gasoline Too The reason: a lot of gasoline is used in growing food, especially meat. Beef takes 68 times as much per calorie as potatoes. To go 5 miles takes.25 gallons in a car,.17 walking, and.08 by bicycle (if the car gets 21 mpg). If it gets 30 mpg, the car is down to.17, the same as walking. If the walker is vegetarian, he uses just.13 gallons. This isn’t a cost-benefit analysis, just a gasoline analysis. What would a cost-benefit analysis add to the calculations? Click on the Bike vs. Walk vs. Drive calculator. Bike vs. Walk vs. Drive calculator http://www.freakonomics.com/2009/12/14/what-bothers-people-about-superfreakonomics/http://www.freakonomics.com/2009/12/14/what-bothers-people-about-superfreakonomics/ (drunk walking) http://bicycleuniverse.info/transpo/energy.html 24

25. Crichton’s Comment “From your point of view, your time is a nonrenewable resource. If you use up an hour, it is gone forever. Of course, from the point of view of the government, your time is a renewable resource. Stalin could view human labor as an input much the same as cattle--- scarce, but renewable, as long as he didn't use up too much at once. For Ivan Ivanovich, however, a year in a work camp was a year less of his time on earth. Indeed, human time is more clearly in short supply than oil, and more vulnerable to wasteful depletion. Burning oil practically always has some value, but burning time often is completely useless. Moreover, you cannot be sure whether oil will run out within your lifetime--- but you can be sure your time will, by definition. You can be absolutely certain that all of your time will be used up within 130 years--- and it might be used up twenty minutes from now, if your heart is weaker than you think.” 25

26. Water: Toilet Tanks 1994: Federal regulation reduced the size of the tanks from 3.5 to 1.6 gallons. The new toilets save an average of 10.5 gallons per person daily. For a family of 4, that’s 42*365= 15,330 gallons per year. Water costs $1.50 for 1,000 gallons. Thus, the toilet saves $23/year in water. Why didn’t consumers buy low-flow toilets without being forced to by the government? http://www.americanstandard-us.com/pressroom/10-years-after-low-flow-toilet-regulations-went-into-effect-plumbing-innovations-make- major-inroads-in-efficiency-flushability/http://www.americanstandard-us.com/pressroom/10-years-after-low-flow-toilet-regulations-went-into-effect-plumbing-innovations-make- major-inroads-in-efficiency-flushability/ http://www.drinktap.org/kidsdnn/Portals/5/story_of_water/html/costs.htmhttp://www.drinktap.org/kidsdnn/Portals/5/story_of_water/html/costs.htm httphttp://www.ehow.com/info_8179341_problems-watersaving-toilets.html 26

27. “You Just Need To Plunge” “Low-flow toilet supporters claim the correct application of a plunger is all that is required to hasten waste on its way, and warn that unregulated "rising toilet populations" would threaten water supply and treatment planning. Bruce Case of Case Design/Remodeling Inc. of Bethesda, Md., said an occasional "extra" flush can do the trick. "Our rule of thumb is that two out of 10 times, you're going to have to flush twice," Flara said. "From my perspective, the complaints are easing, but the toilets still are not as good (as 3.5-gpf units) so there still are complaints." David Lee Flara, vice president of Metropolitan Bath & Tile, Hyattsville, Md., said education is the key: "The conversation (with clients) can be uncomfortable," Flara said, "but we have to have this kind of discussion every time. The buyers don't understand that you just need to plunge them every now and then and that you can't put as much waste in.” ” http://uswaternews.com/archives/arcpolicy/9bilint11.html 27

28. San Francisco's big push for low- flow toilets (recall Hetch H.) “…Skimping on toilet water has resulted in more sludge backing up inside the sewer pipes, said Tyrone Jue, spokesman for the city Public Utilities Commission. That has created a rotten-egg stench near AT&T Park and elsewhere, especially during the dry summer months. The city has already spent $100 million over the past five years to upgrade its sewer system and sewage plants… Now officials are stocking up on a $14 million, three-year supply of highly concentrated sodium hypochlorite - better known as bleach…. According to Jue, they have helped trim San Francisco's annual water consumption by about 20 million gallons. Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/02/27/BAVP1HUSUD.DTL#ixzz1sVj4e1aMhttp://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/02/27/BAVP1HUSUD.DTL#ixzz1sVj4e1aM 1 unit of water=748 gallons costs $1.90, but is rising to $2.80 because of reduced demand, so it can still break even. $2.48/unit*20million-gallons/748gallons-per-unit is $75,600. That’s the city’s savings as a result of the water conservation. 28

29. Showerhead Crimes: Businesses “A 1992 federal law says a showerhead can deliver no more than 2.5 gallons per minute at a flowing water pressure of 80 pounds per square inch. For years, the term "showerhead" in federal regulations was understood by many manufacturers to mean a device that directs water onto a bather. Each nozzle in a shower was considered separate and in compliance if it delivered no more than the 2.5-gallon maximum. But in May, the DOE said a "showerhead" may incorporate "one or more sprays, nozzles or openings." Under the new interpretation, all nozzles would count as a single showerhead and be deemed noncompliant if, taken together, they exceed the 2.5 gallons-a-minute maximum. Hansgrohe The Raindance costs up to $5,457.The Raindance In May, the DOE's general counsel, Scott Blake Harris, fined four showerhead makers $165,104 in civil penalties, alleging they failed to demonstrate compliance for some devices. “ http://online.wsj.com/article/SB10001424052748704913304575371462611463490.html 29

30. Showerhead Crimes: Consumers “Many manufacturers took their existing shower heads and choked their flow. The typical tactic was to insert a small washer called a "flow restrictor" into the shower head. That slashed water use…. Today, the 2.5-gallon-per-minute shower head remains the legal standard. Heads are still manufactured with flow restrictors, but the washers don't always save water. It is an open secret in the plumbing world that consumers often remove them -- a fix that takes less than a minute with a small kitchen knife. Some manufacturers even note on their packages that the flow restrictors can be pried off. A drawing inside the package of a Water Pik model even shows customers where the ring is located.” http://online.wsj.com/article/SB10001424052748704913304575371462611463490.html https://www.youtube.com/watch?v=dlrtQb24Qxw 30

31. The Lightbulb Ban “Late in 2007, Congress banned incandescent lightbulbs, by a vote of 86 to eight in the Senate and 314 to 100 in the House. President Bush signed the bill in his late, get-me- back-to-Texas phase. The replacements are supposed to be compact fluorescents, those corkscrew tubes. To hear the greens tell it, compact fluorescents will reduce both household electricity bills and the U.S. carbon footprint; therefore the government needs to mandate the type of bulbs that adults are allowed to buy. The frequently invoked, less frequently consulted American public hasn't responded as the planners, well, planned. Some 89% of the residential market continues to be dominated by normal bulbs.... One reason may be that consumers prefer the incandescent style of lighting. Another may be that fluorescents cost at retail 10 times more than the ordinary bulbs that continue to work perfectly well.” http://online.wsj.com/article/SB10001424052748703860104575508130552891248.html 31

32. My Opinion on Recycling Here, I should frankly tell you my opinion. I think that recycling is wasteful and misguided. Not all economists believe this. I think that is because recycling tugs at our emotions and the puritan thriftiness that most Americans have. I think we feel recycling is a moral imperative, not an economic one. We feel bad about being wasteful, but we are not actually being wasteful when we don’t recycle. It just seems like it. And even economists, I think, come up with theoretical reasons why recycling is surplus-maximizing, to justify their moral intuitions. Maybe I’m wrong. But I have to teach you what I think economics tells us about recycling. See: Matthew Gunter, "Do Economists Reach a Conclusion on Household and Municipal Recycling?" Econ Journal Watch (2007) 32

33. Recyling: Does It Maximize Surplus To Throw This TV Away? 33 http://pittsburgh.cbslocal.com/2013/07/09/goodwill- set-to-stop-accepting-donations-of-tvs/

34. The Psychology of Recyling “Do you get a small but palpable sense of satisfaction each time you deposit a piece of paper in that recycling bin by the copy machine, rather than the nearby trash can?” How will this extra satisfaction affect a person’s behavior? 34

35. Catlin and Wang (2013) Experiment 1 44 students were asked to evaluate a pair of scissors by cutting different shapes out of paper. Each student was seated alone in a small room with a 200-sheet stack of paper. 22 students had both a trash can and a recycling bin the other 22 just a trash can. Result: Having a recycling bin doubled the amount of paper used. 35

36. Experiment 2 The experimenters collected data on the amount of paper hand towels used in a men’s restroom at the university over 15 days. Then they installed a recycling bin and posted a sign saying this was part of a new recycling program. Result: Over the next 15 days, paper usage increased by half a paper towel per person going from 3 to 3.5. 36

37. A Big Question If recycling is surplus-maximizing, why isn’t it profitable, and why don’t private companies try to make money off of it rather than government regulation being required? If people are foolishly throwing away valuable stuff, why doesn’t some entrepreneur take advantage of that? 37

38. Profitable Recyling There has long been an Institute of Scrap Recycling Industries. Even in 2003, its members annually recycled 85 million tons of ferrous metals, 11 million tons of non-ferrous, and 54 million tons of waste paper, glass, and plastic. That dwarfs all government recycling programs. (Daniel Benjamin 2010) 38

39. sdf sdfd 39

40. sdf sdfd 40

41. sdf sdfd 41

42. sdf sdfd 42

43. Cost-Benefit of Recyling (old) 43

44. Landfills The National Solid Waste Management Association estimated in 2010, landfill capacity was good for 20 years of disposal at current rates. A landfill to hold all of America’s garbage for 100 years would be only about 10 miles on a side, 255 feet tall (equivalent to New York City's landfill). The EPA estimated that landfills constructed according to EPA regulations will cause 5.7 cancer-related deaths over the next 300 years--- a trivial amount. Landfills are sited where fluids will won't get into groundwater. A foundation of several feet of dense clay is covered with thick plastic liners heatsealed together. That's covered by several feet of gravel or sand. As garbage is put in, dirt is layered onto it each day. Rainfall is drained out via collection pipes and sent to wastewater plants for purification. (Benjamin, 2010, http://perc.org/sites/default/files/ps47.pdf) 44

45. Recycling: India’s Ragpickers 45

46. Recycling: Boston’s Ragpickers Source: Winslow Homer (American, 1836–1910). Scene on the Back Bay Lands, 1859. Wood engraving, image: 9 1/2 x 5 in. Gift of Harvey Isbitts, Brooklyn Museum. 46

47. Ragpickers “Today there are still millions of rag pickers in India. Only the lowest caste people do what is obviously an unpleasant and demeaning job.... The open-air shop measures barely six feet square, and sits on a crowded street, an astrologer on one side, a shoemaker on the other. It’s stuffed full. And everything needs to be sorted. Paper in one pile, metal in another, heavy plastic separated from the lighter kind. Ram sells this stuff to middlemen who come to his shop about once a month. They in turn sell to bigger recycling operations. It’s an efficient process in a county where nothing is wasted and almost everything has some value.” 47

48. John Tierney’s Experiment I "I tried to estimate the value of New Yorkers' garbage sorting by financing an experiment by a neutral observer (a Columbia University student with no strong feelings about recycling). He kept a record of the work he did during one week complying with New York's recycling laws. It took him eight minutes during the week to sort, rinse and deliver four pounds of cans and bottles to the basement of his building. If the city paid for that work a typical janitorial wage ($12 per hour), it would pay $792 in home labor costs for each ton of cans and bottles collected.” 48

49. John Tierney’s Experiment II “And what about the extra space occupied by that recycling receptacle in the kitchen? It must take up at least a square foot, which in New York costs at least $4 a week to rent. If the city had to pay for this space, the cost per ton of recyclable would be about $2,000. That figure plus the home labor costs, added to what the city already spends on its collection program, totals more than $3,000 for a ton of scrap metal, glass and plastic. For that price, you could find a one-ton collection of those materials at a used-car lot--- a Toyota Tercel for instance--- and drive home in it." 49

50. 50

51. Sustainability as Marketing “It's so effective, and thus popular, because it's an alarmist term. Calling your product sustainable is not really saying anything about your product; it's clanging the warning bell about the alternative being unsustainable: Can't be sustained! The world is ending! It's like calling your product "hate free" or "cruelty free". In no way is it descriptive of your product, it's simply an underhanded way to insult your competition.” http://skeptoid.com/episodes/4005 51

52. Adam Smith: The Paradox of Value “The word VALUE... has two different meanings, and sometimes expresses the utility of some particular object, and sometimes the power of purchasing other goods which the possession of that object conveys. The one may be called “value in use”; the other, “value in exchange.” The things which have the greatest value in use have frequently little or no value in exchange;... Nothing is more useful than water; but it will scarce purchase anything; scarce anything may be had in exchange for it. A diamond, on the contrary, has scarce any value in use; but a very great quantity of other goods may frequently be had in exchange for it.” – So what’s going on? Think of supply and demand. 52

53. Material Specific to old chapters The following slides are specific to old chapters. 53