Resource Economics Department Dissertations Collection

Pricing and Preserving Unique Ecosystems: The Case of the Galapagos Islands

Mejia, Ceasar Viteri — Fri, 19 Aug 2011 13:50:51 PDT

This study contributes to the discussion of managing tourism to a protected area in a developing country (Galapagos, Ecuador). The first part of the analysis provides quantitative data about preferences of tourists and potential impacts on park revenues from price discrimination. It uses the data from a choice experiment survey conducted in the summer of 2009 in which these four attributes of a tour of the Galapagos were described: tour length, depth of naturalist experience, level of protection of Galapagos from invasive species, and price of the tour. On average the Galapagos tourist would be willing to pay slightly more than 2.5 times for a trip with a high-level of environmental protection than for a trip that is equivalent on all other characteristics but has a lower level of environmental protection. The mean marginal willingness to pay (MWTP) for a trip with an in-depth naturalist experience is 1.8 times more than that for a trip with a less detailed naturalist experience but equivalent on other characteristics. The relatively inelastic demand for travel to the islands would allow managers to adjust access fees to shift the distribution of length of trips while not affecting the revenues.

The second part of the analysis evaluates the influence on travel to the islands by depicting Galapagos as a standard market commodity as well as depicting it as an environmental commodity. This analysis compares the results obtained from two different choice experiment surveys given to tourists finishing their trip to Galapagos. One survey design portrays the archipelago as a standard holiday island destination while the other design highlights the uniqueness and vulnerability of the islands’ biodiversity and the challenges that tourism poses to the islands’ conservation. Results suggest that additional information modified an individual's decision-making process. In the first design case (which excludes environmental information), the influence of attributes such as length and depth of natural experience is attenuated. The MWTPs estimated for these attributes are smaller in absolute terms although differences on the MWTP are not statistically significant.

The Potential Supply of Cellulosic Biomass Energy Crops in Western Massachusetts

Timmons, David Selkirk — Mon, 11 Apr 2011 08:57:30 PDT

Most energy sources are derived from the sun, directly or indirectly. Stopping the increase of heat-trapping carbon dioxide in the atmosphere will likely require more reliance on current rather than ancient terrestrial solar input. Yet which forms of renewable energy are most appropriately used is a significant question for the twenty-first century. This dissertation concerns the potential supply of biomass energy crops as a renewable energy source in Massachusetts. Biomass represents a low-efficiency solar collector, and supplying society with an important portion of its energy from biomass would require a great deal of land. The cellulosic biomass crop evaluated in this research is switchgrass, among the most studied of possible biomass crops. The study looks at biomass energy crop potential from three perspectives. First, a biomass crop supply function is developed for switchgrass by 1) using a GIS model to estimate land availability by current land use and soil type; 2) using a crop-growth simulation model to estimate potential switchgrass yields; 3) estimating marginal production cost by land parcel; and 4) calculating a supply function from marginal production costs. Total technical potential is estimated to be about 1.3 million dry metric tons of switchgrass per year, though financial constraints would likely limit production to some portion of the estimated 125,000 metric tons per year that could be produced on existing grasslands. Next, the study examines circumstances under which landowners might opt to make land available for biomass crop production. The social challenge of minimizing biomass energy cost is described. Potential biomass crop landowner decisions are characterized in a theoretical utility maximization model, with results suggesting that non-price attributes of crop production are likely important to landowners. Finally, an empirical study using a landowner survey assesses interest in growing biomass crops, and uses contingent valuation (CV) to estimate landowner willingness to accept (WTA) land rent for biomass crops. The median estimate is $321/ha/yr, with a much-higher mean estimate of $658/ha/yr (based on a parametric estimator). While the realistic potential for biomass crops is some fraction of technically feasible potential, there are other potentially important roles for biomass crops in Massachusetts, for example in preserving unused farmland that would otherwise revert to forest.

Country of origin labeling: A theoretical and empirical analysis of market effects in the U.S. seafood industry

Joseph, Siny — Wed, 17 Feb 2010 09:53:56 PST

Mandatory Country of Origin Labeling (MCOOL) was implemented on seafood in the United States on April 4, 2005. MCOOL exempts the foodservice sector and excludes processed seafood from labeling. This dissertation contributes to understanding the economics of the MCOOL law for seafood by showing that current partial implementation may have unintended consequences both on the domestic supply chain and on trade. In other words, while labeling satisfies the market demand for information provision in one market, exemptions in the other market may create incentives for the diversion of imports, which are assumed to be lower in quality than domestic seafood, to the non-labeled sector. Analyzing alternate scenarios such as voluntary labeling shows that total welfare may be greatest under this scenario compared with partial MCOOL. Voluntary origin labeling of seafood by some U.S. retailers indicate there is no compelling market failure argument warranting MCOOL implementation. Trade between major shrimp exporters and the United States can be affected with partial MCOOL. It may lead exporters with questionable quality to change their product mix, i.e., export more processed shrimp relative to unprocessed shrimp. This work is therefore a step towards analyzing the effect of partial MCOOL policy in the seafood industry taking into consideration the nature of the industry. ^

Essays on Environmental Policy and Markets

Nyiwul, Linus M. — Wed, 02 Dec 2009 11:55:45 PST

This dissertation consists of two theoretical papers on market-based environmental policy. The first paper exploits the correlation between the environmental performance of firms and their economic performance to show that financial markets can be used to help enforce environmental policy and to design more efficient regulations. The results indicate that when markets punish firms for not complying with environmental standards, environmental regulators can exploit this by setting stricter standards. In fact, it is possible for the regulator to use market-driven enforcement to reduce a firm’s emissions and monitoring of the firm simultaneously. The second paper provides a theoretical analysis of the nature of an optimal emissions tax when firms’ emissions are not perfectly observable. The purpose is to examine how the optimal tax is affected by enforcement costs and the market structure. We obtain the result that market imperfections and enforcement costs push the optimal tax lower than the marginal damage when the number of firms in the market is exogenous. However, when the number of firms is determined endogenously enforcement costs generate two countervailing effects on the optimal tax. The overall effect of enforcement costs on the optimal tax depends on the strength of direct relative to indirect effects when there is free entry and exit.

A study on forecasting high-frequency time series with multiple seasonal patterns

Baek, Moonyoung — Fri, 27 Mar 2009 17:00:15 PDT

The present study aimed to examine the forecasting performance of various univariate approaches to forecast high-frequency time series which contains more than one seasonal pattern in hourly data. To achieve the purpose of the study, we performed the following procedures with major findings.^ First, we produced point forecasts of hourly data series using benchmark forecasting approaches—the traditional (single seasonal) Holt-Winters exponential smoothing methods—and also made additional sets of forecasts by applying non-benchmark approaches with double seasonality, such as Taylor's double seasonal Holt-Winters method, innovation state-space models, and unobserved components models. We then compared forecasting performance or accuracy across those suggested forecasting approaches. In this empirical study, we found that the benchmark forecasting approaches were outperformed by the non-benchmark approaches when we applied those forecasting approaches to our two data sets of hourly time series on emergency room arrivals at a hospital and on electricity loads in New England area of the U.S. This indicates that forecast accuracy was able to be improved by incorporating two different types of seasonal patterns simultaneously. We also found that the innovations state-space models with a single source of error appeared not to outperform the generalized version of the state-space models with multiple sources of error (i.e., unobserved components models). This observation may imply that an assumption on the structure of disturbances in a time-series model affects an improvement of forecasting performance. We favor the unobserved components models as a structural time-series modeling approach with a general structure of error for both of the two data series, in the present empirical study.^ Second, we repeated the investigation of forecasting performance across the forecasting approaches at the aggregated (partially summed up to four hours) level, while the previous empirical results were made based on the disaggregate (hourly) level. We took advantage of two approaches to produce aggregate point forecasts: direct (top-down) and indirect (bottom-up) approaches. We examined the effectiveness of the two approaches and observed that the data series on emergency room arrivals showed somewhat mixed empirical results on the forecasting performance. On the other hand, the series of electricity loads showed a strong and consistent support for the indirect approach to aggregate forecasts. In this study we favor unobserved components modeling approach within the indirect approach to forecasting at the aggregate level. ^ Finally, we constructed prediction intervals for the two time series data sets using two model-based approaches such as the innovations state-space models and the unobserved components models. In the framework of the innovation state-space model, we employed an analytical approach to obtain a (standard) statistical formula of prediction intervals, which depend on the estimates of model parameters and seasonal factors (also, level and trend) in more complicated specifications. Using both innovations state-space models and unobserved components models, we obtained considerably stable ranges of the prediction intervals with data on emergency room arrivals, but we observed divergent widths of the prediction intervals for the hourly electricity load series from the both models. In particular, the prediction intervals of the electricity loads series got fairly wider over long lead time based on the innovations state-space model. Furthermore, the prediction intervals based on the unobserved components model appeared to seriously diverge even with short lead time (less than 10 hours), which may imply that the extremely wide ranges of prediction intervals are not appropriate in practice for actual electricity loads data, although the general state-space models produced better point forecasts than the innovations state-space models did.^

Price transmission and market power in the vertically separated markets of fluid milk

Li, Chunxiang — Fri, 19 Dec 2008 10:17:44 PST

This dissertation analyzes price transmission, market power and vertical relationships at the processing and retailing levels for the fluid milk market in the New England area. The New England fluid milk market is particularly interesting due to its prior minimum farm price policies. This study contributes to previous market power and market conduct literature in three ways. First, it incorporates time series properties to test for asymmetry in price transmission by employing an error correction model and a revised version of the Engle-Granger cointegration test. Second, it proposes a method based on previous tax rate analysis research to test for market power without requiring detailed cost data. Third, it utilizes a natural experiment of minimum price policies to simulate retail price responses to changes in marginal cost so that different vertical relationship models can be evaluated and ranked. ^ Most previous asymmetric price transmission research is based on the Houck model, which might produce spurious regressions when price series are nonstationary. This dissertation exploits the time series properties by employing an error correction model. Furthermore, the revised version of the standard Engle-Granger cointegration test (Enders and Siklos, 2001) was employed to improve the efficiency of cointegration testing and accomodate asymmetry in convergence to long run equilibrium. Asymmetry in price transmission is suggestive of market power. New empirical industrial organization models have been widely used to estimate market power, but they require input price data. This study tests the market power hypothesis by estimating a reduced form model and analyzing the extent to which farm prices are transferred to retail prices. Since only farm and retail prices are available, the market power hypothesis can only be tested for the combined processing and retailing markets. It is unclear how market power is distributed between the two market levels due to lack of wholesale milk price data. The Northeast Interstate Dairy Compact provides a natural experiment to observe changes in marginal costs. Through simulations of retail price responses to marginal cost changes, this study ranked different vertical relationship models according to their fit to the observed data. ^ The results show that farm and retail prices are cointegrated and provide empirical evidence for asymmetry in farm to retail price transmission. Under some reasonable assumptions on processing and marketing costs, the minimum price policy, which was intended to protect farmers from market power of larger processors, actually increases market power exercised by processors and retailers. Finally, retailers are found to exercise more market power than processors. ^

Internal, external and dual enforcement to enhance cooperation among users of natural resources: Evidence from the field

Lopez Perez, Maria Claudia — Fri, 19 Dec 2008 10:16:47 PST

In this dissertation, I analyze two public good experiments that I designed and conducted in coastal areas of Colombia. The first set of experiments was conducted on two islands in the Caribbean, the second set was done on the Pacific Coast. The participants in these experiments were fishermen and mollusk harvesters—people who, in their daily lives, face the same kind of dilemmas posed in the experiments. I am motivated by the wide variety of institutional arrangements that communities use to manage local natural resource and to confront other similar social dilemmas. Thus, I study four types of institutional arrangements: external regulations, informal sanctions, internal formal sanctions, and the combination of external regulations and informal sanctions.^ In the first essay of this dissertation, Comparing the Effectiveness of Regulation and Individual Emotions to Enhance Cooperation: Experimental Evidence from Fishing Communities in Colombia, I present the results from a comparison of external regulations and informal sanctioning systems. More explicitly I compare the effects of random revelation of individual behavior, both in private and to the remaining group members, to external regulatory pressure. I find that the random public revelation of individual choices and the consequences of these choices on the welfare of the rest of the group promotes more cooperation and leads to higher payoffs than regulations that are backed by random financial sanctions, even when these regulations are designed to be fully efficient. My results suggest that in communities where there are mechanisms for triggering pro-social emotions, governments might be better advised to leave the management of the local natural resources to the community. ^ In the second essay, Internal Punishment Systems and External Regulation: Complementarities in the Field, I first investigate the differences between two internal sanctioning systems in which it is costly to sanction someone in the group. The difference between the sanctioning systems is that one involves monetary punishment, while the other involves non-monetary punishment. Following this, I explore the possible complementarities between the two different internal sanctioning systems and external regulations. I observe that allowing both internal sanctioning systems and external regulations results in higher welfare than with the internal sanctioning systems alone. Thus, I conclude that internal sanctioning and external regulations can be complementary institutions.^

Hypothetical bias in contingent valuation

Yadav, Lava Prakash — Mon, 28 Apr 2008 13:13:48 PDT

The three essays in this dissertation address issues pertinent to hypothetical bias in the contingent valuation (CV) mechanism. Empirical evidence gathered through several experiments conducted at the University of Massachusetts, Amherst, is used to provide a better understanding of the cause and nature of hypothetical bias. ^ The first essay is based upon the notion that uncertain responses in stated preference valuation are associated with hypothetical bias. While the relationship between respondent uncertainty and hypothetical bias is not well understood, calibration techniques such as the uncertainty adjustment have been developed to mitigate the bias. Hence this study seeks to fill this gap by uncovering the relationship between hypothetical bias and respondent uncertainty using induced value goods. According to the results there is no relationship between certainty of induced values and either respondent's stated level of certainty or hypothetical bias. ^ The lack of hypothetical bias with induced value goods, but its continual existence in homegrown value goods lays ground for further investigation of the bias in the second essay. By employing both induced value and homegrown value goods, this study seeks to isolate the cause of hypothetical bias. Furthermore, a within-subject design is employed to prevent the infiltration of any individual specific biases. According to the results, hypothetical bias is non-existent with induced value goods but emerges once homegrown value goods are introduced. Hence the value formation process as hypothesized by Taylor, et al. (2001) is identified as a key contributor to hypothetical bias. ^ The third essay explores a relatively new approach to non-market valuation that is based upon a prediction format. Unlike the traditional CV format that asks individuals to state personal values and opinions, this technique inquires about their predictions of other's behavior. Literature in psychology regards these estimates to be less strategic, which could potentially eliminate biases including hypothetical bias. In this study we obtain hypothetical bias in both the traditional CV and the prediction formats. Although prediction estimates were significantly lower, it was observed that individuals are able to correctly predict the magnitude of hypothetical bias in the traditional CV. ^

Enforcing voluntary agreements for environmental protection: A theoretical and experimental analysis

McEvoy, David M — Thu, 27 Mar 2008 13:24:18 PDT

Voluntary agreements are increasingly being considered as viable alternatives to more traditional forms of environmental management. Although the economic literature on voluntary approaches to environmental protection has progressed quite far in the last decade, no one has rigorously addressed the fact that compliance with voluntary agreements must be enforced. This body of work directly addresses this issue by examining the consequences of the need for member-financed enforcement of compliance on the performance of voluntary agreements for environmental protection. ^ In the first chapter, I examine the impact of including costly monitoring of compliance within a theoretical model of a self-enforcing international environmental agreement (IEA). I find that although monitoring costs limit the circumstances under which international cooperation to protect the environment is worthwhile, when IEAs do form they will involve greater participation than IEAs that do not require costly monitoring. Consequently, costly monitoring of IEAs is associated with higher international environmental quality. ^ The second chapter develops a theoretical model to compare the properties of a voluntary agreement made between a government and an industry with a traditional emissions tax, when compliance is costly to enforce. I find that a voluntary agreement can be a more efficient way to achieve an environmental quality objective over an emission tax, but only if (1) profitable agreements exist; (2) members bear the cost of enforcement, and (3) the enforcer of the agreement has a significant advantage in enforcement technologies compared to the government. ^ In the final chapter, a set of provision point experiments are used to empirically test the major theoretical conclusions of the first chapter. I find that, contrary to what the theory predicts, member-financed enforcement of compliance actually reduces the overall provision of the public good. This result is entirely due to the fact that members of stable coalitions only profit if all members fully comply with their commitments, and therefore, cooperative coalitions to provide a public good completely collapse with any positive level of noncompliance. Finally, I show that requiring all members to participate within an agreement that is costly to enforce can significantly increase the overall provision of the public good. ^

Heterogeneity on the commons: An analysis of use and management of common forests in Himachal Pradesh, India

Naidu, Sirisha C — Thu, 19 Jul 2007 17:32:20 PDT

Community-based natural resource management has become immensely popular among some policy makers on the assumption that involvement of local communities can achieve conservation goals with greater efficiency and equity. However, the community is quite often conceived of as an undifferentiated whole. Given that diverse groups may exist within a community, with heterogeneous interests, abilities, incentives, and social affiliations, such a conception is problematic. This dissertation empirically investigates the effects of heterogeneity on use and management of common forests. ^ This dissertation conducts a meso-level study of heterogeneity using the 'community' as the unit of analysis. The data are derived from fieldwork conducted in the middle Himalayan ranges of Himachal Pradesh, India in 2004. During this fieldwork, survey data were collected in 54 forest communities. This method contrasts with the usual practice of examining individual motivations or conducting a cross-section country-level study. ^ There are two key findings. First, three dimensions of heterogeneity affect collective management of forests: heterogeneity in wealth, social groups and incentives. However, these effects are complex and non-linear. The empirical results suggest that both social and wealth heterogeneity have a non-monotonic relationship with cooperation. In addition, heterogeneity in incentives decreases cooperation conditional on the presence of wealth heterogeneity. These results imply that cooperation does not depend on social parochialism, very high levels of wealth heterogeneity reduce cooperation, and a divergence between wealth and incentive to cooperate decreases the level of collective management. ^ Second, forest use is affected by heterogeneity as well. The sampled communities have access to forests that are common property, in that rights of use are vested with the community and not the individual. This means that all individuals in the community should be able to use the forest to the same degree. However, on investigating the effect of heterogeneity in forest use, the dissertation finds that wealth heterogeneity increases whereas social heterogeneity decreases the extent of forest use even after controlling for market related factors. The results therefore, suggest that the social structure of the community plays an important role in determining both the degree of cooperation and extent of forest use at the community level.^