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Tuesday, August 22, 2006

Economists and Their Values

I haven't posted at Environmental Economics for a while, and this actually reverses the flow by posting their stuff here. Oh well. This discusses a disconnect between the public and economists on public policy issues, environmental policy in particular:

Putting Our Values On The Table, by J.S.: The myriad theories that underlie the ever-expanding field of economics are essentially positive in nature; they are descriptive and subject to hypothesis testing. ...

However, as soon as we enter the world of public policy, economic models and their implications are riddled with normative assumptions. Much of the distrust that many environmentalists have towards economics is based on their belief that economists often hide their value judgments behind highly complex mathematical models, instead of being forthright about their normative assumptions. I think there is some truth to this.

Some examples of areas where normative elements are unavoidable in economic analysis are the following:

1. Efficiency v. Equity

By definition, economics is a utilitarian discipline, and efficiency is defined as those policies or outcomes which maximize social welfare. Besides many of the normative elements in how social welfare is measured..., efficiency says essentially nothing about the actual distribution of costs and benefits. Economists often tend to emphasize the efficiency arguments and downplay distributional concerns, while in the policy world people are often more (or equally) concerned about winners and losers and issues of fairness than whether a given social “pie” is maximized. The result of this mismatch in priorities is that often economists and policy makers talk past each other and opportunities for a more robust discussion of the trade-offs between efficiency and equity is missed...

2. Cost-benefit analysis and discounting

Cost-benefit analysis is one of the most ubiquitous methods employed in environmental economics, and its normative underpinnings are huge. First, researchers must determine what elements should fall under the scope of the CBA since it is almost always impossible (due to cost, time, and the state of scientific precision) to measure all of the effects of a given policy. Yet, what to include and what not to include can dramatically alter the findings.

Perhaps even more influential in the ultimate findings of any CBA is the use of a particular discount rate for the measuring costs and benefits into the future. Many economic theories have been developed to justify an appropriate discount rate, yet there is no consensus as to a “correct” rate for environmental projects. ... Anyone who is familiar with exponential rates of growth and decay knows that such a wide range of possible values translates into an even wider range of total values assigned to the costs and benefits of an environmental policy or project.

3. Anthropomorphism writ large

A fundamental aspect of economic theory that is virtually unchallenged by any economist is that the ultimate source of all value rests with humans. To the extent that we can measure the values that environmental resources provide human beings, whether indirectly or directly, we can then compare different policy outcomes and make informed policy decisions. According to this logic, environmental resources (and all non-human beings) have no intrinsic value apart from what humans assign them. This is something that many environmentalists find so disconcerting.

According to economic theory, if there is a species that has no value in terms of the ecological services it provides and there are no humans who happen to care about it, it has a value of zero. In addition, the value that humans gain from hunting or killing animals for sport or food is automatically counted as a positive source of value, while the suffering of the animals (apart from the suffering caused to humans who care about the animals) is zero. One doesn’t have to be an animal rights activist or a strident environmentalist to feel a little uneasy about this.

I am not sure if economics can or should try to transcend this anthropomorphism, but environmental economists should, at minimum, be clear that this is what their theories and methods dictate...

There are many additional examples of where economic concepts applied to real-world environmental problems are laden with value judgments. To the extent that these can be made explicit and the public engaged in the debate over these assumptions, I believe economics will be more warmly embraced. It will also help to deepen economists’ own understanding of their value systems and the values they advocate, and likely make for better public policy as well.

For a recent example, David Altig is clear about this:

I'll stick with my original ... position ..., but it's good to remember that this is a value judgment, about which the economist in me has little standing.

And here's Joan Robinson:

There has been a good deal of confused controversy about the question of 'value judgments' in the social sciences. Every human being has ideological, moral and political views. To pretend to have none and to be purely objective must necessarily be either self-deception or a device to deceive others. A candid writer will make his preconceptions clear and allow the reader to discount them if he does not accept them. This concerns the professional honour of the scientist.

Still, I think, as much as we can, we should keep our analytical structures free of value judgments (which is a value judgment itself).

    Posted by on Tuesday, August 22, 2006 at 07:03 PM in Economics, Environment, Policy | Permalink  TrackBack (0)  Comments (23)


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