What do expert economists know?

Warning: thinking about this topic may blow your mind.

First some background before getting to my main point:

One thing environmental economists do is estimate the value of things we like about the environment (more birdies, cleaner air, etc.). The purpose of this is that the estimates can be compared to costs of obtaining these things we like about the environment. One tool environmental economists use for this purpose is stated preference surveys – surveys in which you put the respondent in a hypothetical situation in which he or she must make a tradeoff between money and some (usually) improvement in the environment.

These surveys have been used by decades, but some economists question the validity of the estimates derived therefrom. The debate is multifaceted (for more info, read the contingent valuation symposium articles here), but one suggestion made by super-famous economist/econometrician and noted stated preference survey detractor Jerry Hausman is that, rather than administering such surveys to the general public, it would be better to get a team of “experts” to assess these values. Remember this. (Key point: “value” refers to the value to individuals. It has always been counterintuitive to me that experts would be better judges of the value of something to people than those people themselves would be.)

Now to the story:

A team of stated preference survey practitioners (among them Richard Carson, who would probably be considered the foremost expert on the practice, and he’s an MSU alum to boot!) recently conducted a Delphi survey on the value of protecting the Amazon rainforest to people in countries outside of South America. A Delphi survey is one in which expert opinion is elicited about some topic, a summary of their responses are then provided in a second round of the survey, and the experts are then allowed to revise their original responses. In this case (read the study here), 216 expert environmental economists in stated preference methods from 36 countries (North America, Europe, Asia, Oceana) were asked to predict the mean and median value to the average person in the expert’s home country for protecting the Amazon rainforest from further destruction through the year 2050. (Your own Drs. Interis and Petrolia were among these experts.)

The data show that experts predict that the value, per year until 2050, range from $4-$36 in the Asian countries to near $100 in Canada, Germany and Norway, with other countries lying in between (note: the measure of value used was willingness to pay, which generally increases as income increases, so the higher values for wealthier nations makes sense). There are many more interesting findings of the paper which you can read about within the paper, but one of the most interesting things is that the Delphi method hasn’t really been used before for estimating environmental values.

Now back to the debate I mentioned above:

The authors state that they intend to conduct actual general-population stated preference surveys in several of the nations represented by the experts in this study. They say in this paper that “A large discrepancy between the Delphi exercises and the population surveys…may signal a need for further analysis of our overall valuation approach.” It’s not exactly clear what they mean by “our overall valuation approach” but when I read it I interpreted it as referring to stated preference valuation in general.

I think this may be a coy reference to Hausman’s complaint about stated preference methods that I mentioned above – if experts do not do a good job of predicting what the results of a general-population survey would be, then one would wonder if relying on a panel of experts (instead of going to the general population) would be a good approach. Of course, I’m assuming here that people are better judges of their own values than experts are (call this Stance 1), but the reason Hausman made the suggestion in the first place was because he believed the opposite: that experts are better judges of people’s values (at least when it comes to values of environmental public goods that are elicited with stated preference methods) than the people themselves (call this stance 2).

So this is a really interesting problem (if you don’t think so, you’ve probably stopped reading by now). All economists agree that “value” is a subjective measure, but the question is whether experts or people themselves are better judges of people’s values. This problem might be partially resolved if we had some other measure of value that people of both Stance 1 and Stance 2 could agree were correct – then we could compare estimates from experts and estimates from the general public to see which were more accurate (i.e. closer to this third measure that they agree on). BUT, there are two problems with this. First, there are other ways to measure values of public goods (generally called revealed preference approaches), but these have their own problems and weaknesses and can’t generally be judged to be more or less reliable (i.e. more or less “accurate”) than stated preference approaches. And second, when it comes to certain types of environmental values (e.g. value the rainforest to someone just because it exists – and hey, you can’t argue with this because value is subjective!), stated preference methods are the only way to obtain estimates in the first place, so there’s no revealed preference estimate to compare it to.

I don’t know about you, but my mind boggles just thinking about this. But, if you’ve understood everything, especially the previous paragraph, you, like me, might be inclined to think that there can never be a resolution to this debate (about whether experts or people themselves are better judges of people’s values for environmental things that can be valued directly only with stated preference methods). So why bother debating? I’d say for several reasons: it’s our job as economists to try to answer pertinent questions, it’s important to understand multiple sides of an issue, and – not of any lesser importance – it’s fun. If economists didn’t have fun, they wouldn’t be economists after all.

So we’ll have to stay tuned to see if there is a follow up study that actually compares the expert predictions to actual estimates from a general population survey. Can’t wait!