# Conservation G406, Regulation, ch. 12 Eric Rasmusen, October 31, 2013 1.

## Presentation on theme: "Conservation G406, Regulation, ch. 12 Eric Rasmusen, October 31, 2013 1."— Presentation transcript:

Conservation G406, Regulation, ch. 12 Eric Rasmusen, erasmuse@indiana.edu erasmuse@indiana.edu October 31, 2013 1

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? 2

First Problem: The Common Pool Resource Game 3

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. 5

The Cod Catch 6

A Cod 7

Elinor Ostrom, Indianas Nobel Prize Winner (d. 2012) 8

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 Xt 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 20Xt - Xt^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 Qt denote the fish population at the start of decade t. In decade t+1, the population is 1.5 (Qt – Xt) 9

Second Problem: Public Goods. Old Hetch Hetchy Canyon 10

Hetch Hetchy Now 11

Hetch Hetchy Then and Now 12

Third Problem (?): Using Up Resources 13

The Telzebel Mulch Story I have 10 cubic yards of telzebel 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 telzebel mulch is as good as 2 yards of cedar mulch. Last year I spread 4 yards of cedar mulch per month, for 6 months. What should I do now? 1. Spread more than 4 yards of telzebel per month till its used up I have a big pile of telzebel mulch with no out-of-pocket cost. 2. Spread 4 yards, using a mix of cedar mulch and telzebel mulch to make the telzebel mulch stretch. 3. Spread 2 yards of telzebel mulch per month till its all used up, then switch to cedar. 14

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. 15

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? 16

Shifts in Supply as the Resource Runs Out 17

The Price of a Nonrenewable Resource over Time 18

Oil Prices over Time 19

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 persons 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. 20

Oil Output 21

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 isnt 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 22

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, thats 42*365= 15,330 gallons per year. Water costs \$1.50 for 1,000 gallons. Thus, the toilet saves \$23/year in water. Why didnt 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 http://www.ehow.com/info_8179341_problems-watersaving-toilets.html 23

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 24

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*20milliongallons/748gallonsperunit is \$75,600. Thats the citys savings as a result of the water conservation. 25

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. 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 26

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/SB1000142405274870491330457537146261 1463490.html 27

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 28

Recycling: Indias Ragpickers 29

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. Its 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. Its an efficient process in a county where nothing is wasted and almost everything has some value. 30

Crichtons 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. 31

John Tierneys 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. 32

John Tierneys 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." 33

34

Sustainability I bet you didn't know that Skeptoid is a sustainable podcast, delivered over a sustainable Internet, using sustainable networks, and received through your sustainable ears. Now you know. But really you should have known that already, because this year's winner of the meaningless, overused buzzword award has to be the word "sustainable". To label your product as "sustainable" is to imply that competing products are not sustainable. What this is intended to mean is often pretty vague. Presumably it means that competing products are manufactured from materials that we'll run out of, should current methods and usage continue…. http://skeptoid.com/episodes/4005 35

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 36

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 whats going on? 37

Material Specific to Fall 2012 The following slides are specific to Fall 2012. 38

Final Exam 1.The final will be dfdsfdsf 2. It will cover the entire semesters topics and be closed-book. 3.There will be questions on two articles. I will attach them to the test. dfsdfds 4.You should memorize the numbers from facts.pdf file that I hand out and will email you. 5.I do not intend for the test to take the full 2 hours. 6.Some questions will be short-answer, some multiple choice, as in last semesters final, posted on the website. 7. I will have office hours: dfsdfsdfdsf 39

Similar presentations