Learn Economics. Work for Amazon, eBay, [insert tech company name here]…

This working paper from the Harvard Business School by Susan Athey and Michael Luca was recently brought to my attention by Dr. Alba Collart. The authors discuss the increasing role of economists working for tech companies like Amazon, eBay, Google, Airbnb, etc. Fascinating stuff!

I’ll list what I thought were some of the highlights:

  • Not only is the number of economists employed in this sector growing rapidly, but economists are playing more central roles in company decision-making.
  • What are the skills these companies want that economists have? (1) identifying causal relationships, (2) designing incentives to improve business outcomes, (3) disentangling the complexities of market equilibria.
  • Economists take on a wide variety of roles, from data analysis to experiment design, to public policy work.

And economists at these companies are working on topics like:

  • How to increase online advertising revenue?
  • What types of email language lead not only to more people opening them but to increased sales?
  • How do changes in the app user interface affect consumer behavior?
  • How can bias in online reviews be minimized?

And economists work on the complex interactions of these ideas as well. One example given is how eBay at one point changed its user interface to make it easier to compare prices across products. Well, this affected consumer choice, which in turn affected prices charged by sellers, all of which, over the long run, affected whether consumers used eBay at all.

I should mention that the focus of the article is on PhD economists, and I know a great place to get started in the field of economics if you’re interested!

EEM Alumni Spotlight: Chloe Cantor ’15

It’s time for another Environmental Economics & Management (EEM) alumni spotlight. Today’s featured alumna is Chloe Cantor! We recently exchanged a few emails and here’s what she’s up to these days…

What’s your name, and what year did you graduate?

My name is Chloe Cantor, and I graduated in 2015.

Where do you currently work, what is your current job title, and what are your overall responsibilities?

I currently work as a Legislative Correspondent for Senator Roger Wicker.  I respond to constituent mail that relates to budget, environment, healthcare, and tax policy.  I also prepare memos for the Senator, meet with constituents, and research policy.

What is a typical day like for you in your job?

Every day is a little different because there is always a new policy issue at the forefront.  When the Senate is in session, my day starts off with preparing meeting memos for the Senator that relate to my policy portfolio.  Throughout the day, I may have meetings with advocacy groups, attend a briefing, or respond to constituent mail.  When the Senate is in recess, I usually have time to catch up on other tasks because things are not quite as hectic.

How has your background – in particular majoring in EEM – helped prepare you for life after graduation?

Lately, I have had the opportunity to work on aquaculture policy.  So, things that I learned in Natural Resource Economics have been very valuable.  Last fall, I worked on the tax bill that was ultimately signed into law by the President.  Even though I was not particularly knowledgeable about this issue, my background in economics helped me work through more complex tax issues.  Interning in DC also really prepared me.  My senior year, I interned in Senator Cochran’s office through the CALS internship program. Prior to that, I interned at the U.S. Department of Agriculture and was a Demmer Scholar, which is a joint internship program with Michigan State University that focuses on natural resource policy.  These internships provided me with valuable work experience when I was job hunting.

What did you most enjoy about the EEM program?

I really enjoyed the coursework and how relatable it was to real-world issues.  Especially after interning in DC, I found that the coursework was very applicable to what I wanted to do with my career.  In fact, the semester after I interned with Senator Cochran, I took Public Problems of Agriculture*.  Several of the topics that we covered in the course related to policy areas that I was exposed to during my internship.  This course, and others, have continued to help me in my career.

What advice would you give to students trying to pick a major or who are thinking about the EEM major?

Although EEM may be a relatively new major, it is very relevant to current global issues.  I work with policy, but there are many different career paths that you can choose with this degree.  That is something that very much appealed to me.  There is not one set career path that you have to go down with this degree.  You can pick your own path – and your professors will guide you.

Any other thoughts about the EEM major, your experiences in the program, etc, and how they’ve shaped your life or helped you?

I changed my major to EEM my junior year of college, which was one of the best decisions I made.  Prior to starting college, I had general ideas of what I wanted to do.  In high school, I really enjoyed AP Environmental Science and knew that I wanted to do something that would help preserve our natural resources.  When I decided to change my major, professors in the Agriculture Economics department welcomed me and invested in my success.  They helped me fit internships into my coursework and flexibility was provided so that I could take courses that were of interest to me. Without that, I don’t think I would be on the career path I am on now.

Other comments?

Make the most of college.  Get involved, get to know your professors, and get to know your classmates.  Those four years will be over before you know it!

* Taught by department head Dr. Keith Coble each spring semester.

EEM Alumni Spotlight: Katie Starr ’16

I have another Environmental Economics & Management (EEM) graduate Q&A for you, this one from a more recent graduate, Katie Starr, who graduated just this past December, 2016.

Katie, where do you currently work, what’s your job title, and what are your overall responsibilities?

I am currently working in Oxford with the Mississippi Department of Environmental Quality. I’m an Environmental Scientist and my overall responsibilities include running air and ozone sampling tests and data collection/analysis. I also handle air pollution complaints and permits for the Northern Mississippi region.

What is a typical day like for you in your job?

A typical day for me is never typical! I could be doing anything from driving to one side of the state to collect data to driving to the other side of the state to investigate a pollution complaint or to finalize a permit for a company that will emit any kind of “pollutant”. I also do a lot of paperwork and data analysis when it comes to permits and complaints. MDEQ has also thrown me into the biochem lab a few times to do some more hands on testing!

How has your background – in particular majoring in EEM – helped prepare you for this experience?

EEM gave me the tools to think outside of the box. I wouldn’t be able to do my job as efficiently if I wasn’t able to look at a problem and think about it from every angle. The analytical skills I gained through EEM have also helped me keep my bearings during our data analysis.

What did you most enjoy about the EEM program?

The thing I appreciated the most about our program was our EEM community. I’m blessed to be able to say that I got to study with some of the brightest students and faculty. Any time I was struggling in a class (or just life in general) there was ALWAYS someone in the department I could turn to; be that study groups and extracurriculars with other students or going directly to the professors. Even now I keep in touch with my old classmates and professors, and I will never be able to thank EEM and the Department of Ag Econ enough for the bonds I’ve made.

What advice would you give to students trying to pick a major or to students thinking about the EEM major?

I was caught between the general business economics and EEM when I first came to Mississippi State. I ultimately chose EEM because the economics was the same (it’s very easy to minor in business econ with EEM) but with EEM you get a deeper look into some of the world’s most pressing issues. Combine the narrowed economic field and the Department’s size and you truly could not get a better program.

Any other comments on the major, your experiences, or anything else?

A++ for EEM (if I were grading)

Thanks, Katie!

EEM Alumni Spotlight: Jonathon Giuffria ’12

Let’s try something new with a Q&A from an EEM grad! Today we feature Jonathon Giuffria, one of our earlier Environmental Economics and Management (EEM) majors, class of 2012. Jonathon has been nice enough to answer a few questions about his experiences in our program and since graduating. (And yes, some of my questions are probably a bit leading…but I did ask Jonathon not to say stuff he didn’t mean! Really, I did.)

Jonathon, what have you done since graduating, up until your current job?

Prior to working with the EPA as an Economist, I traveled extensively overseas, worked with a MS entrepreneur solidifying supply chains, and attained my M.S. in Agricultural and Applied Economics from Virginia Tech.

Where do you currently work, what is your current job title, and what are your overall responsibilities?

I am an Economist with the EPA working in the Office of Pollution Prevention and Toxics. This office is charged with administering and implementing the Toxic Substances Control Act (TSCA), which was recently revamped by Congress in 2016. In general, I work with the Economics and Policy Analysis Branch to provide economic and regulatory support to the overall office. On a day-to-day basis, I help conduct preliminary market analysis reports attempting to discover how industry and the public would be affected by proposed environmental protections, such as chemical labeling or restrictions on consumer chemical uses. Learning the framework of the EPA and how to conduct cost-benefit analyses at MSU was paramount for my success here at EPA.

How has your background – in particular majoring in EEM – helped prepare you for this experience or other experiences you have had?

Many of the economic methodologies practiced within EPA were well covered by the Department. Additionally, the flexibility of the program allowed me to take several policy oriented classes which arguably landed me the job here. Had I not studied the statutes that promulgated the EPA’s creation in Environmental Law and Environmental Policy and had I not known known the fundamentals of a cost-benefit analysis, I firmly believe that I would not have stood a chance in getting a job here.

What did you most enjoy about the EEM program?

For one who likes to branch out of his or her immediate discipline, EEM is a great choice. I was ecstatic to have the flexibility to study Ecology and Forestry Economics one semester and then study Environmental Law and Natural Resource Conservation the next. The faculty were all willing to work with each student truly catering his or her course trajectory based upon his or her own unique interests, be it aspirations to practice law, work in the private sector, or advocate for wetland restoration with a non-profit. An important take-away is that my professors wanted me to have this experience – they were all very willing to work with me and carefully consider my educational aspirations.

What advice would you give for students trying to pick a major or for students thinking about the EEM major?

To the student who wants to take 12 hours a semester and show up to class still asleep, I suggest you pursue other options. However, if you are willing to learn and are passionate about environmental or agricultural issues – the next sustainable food system, fishery economics, how can we change the energy grid, or even moving to downtown DC and directly contributing to the environmental policy process – then I highly suggest that you speak with one of the faculty members in the Department of Agricultural Economics about the Environmental Economics and Management degree.

Any other thoughts on the EEM major, your experiences in the program, extracurriculars at MSU, etc. and how it has shaped your life, helped you achieve goals, etc?

As an EEM student, I was always encouraged by my adviser and professors to pursue my interests. Because of their flexibility and openness, I was able to study abroad in Spain, conduct research in Brazil, and even teach English as a Second Language in Arequipa, Peru. To top it all off, my major adviser* and I shared a common interest – we both studied Music as a secondary major. No matter how eclectic or quickly my interests changed, I was always supported by the Department. I firmly believe that my diversity in education and personal experience is one of the strongest assets that I bring to the workplace, and it all started with pursuing a degree in Environmental Economics and Management.

Any other comments?

College is expensive – better make sure your investment is worthwhile.

Thanks, Jonathon!

*Guess who?

Update: What are our EEM graduates up to?

Well, we have a new boss here in the department and he asked me to update this previous blog post from early 2015 about what our EEM majors are doing after they graduate from our program. I spent a little time tracking some of them down and had some fun conversations – some I hadn’t spoken with for a few years so it was really nice to catch up!

You can see the previous list in last year’s blog post but here are what the graduates since then have been doing. We’ve had eight new graduates since the last post, and two I haven’t been able to get hold of. For the remaining six we have:

  • Recruiter for a staffing agency, Raleigh NC
  • Economic Development Program Manager at Mississippi Development Authority, Jackson MS
  • Legislative Assistant for Florida Crystals Corporation (producer of organic and low-environmental-impact sugar), Washington DC
  • Restaurant Manager, Starkville MS
  • AmeriCorps VISTA for the Center for Economic Education and Financial Literacy (here in our department)
  • Graduate school, joint JD & MA in Environment & Natural Resources, University of Wyoming

Besides these recent graduates, some of our earlier graduates from the EEM program who were mentioned in the previous post have changed jobs. They are now:

  • Peace Corps, Sustainable Ag Systems Extension Agent, Panama
  • Major Donor Manager, Republican National Committee, Washington DC
  • Speech Language Pathologist, Cumberland MD
  • Law School, Washington & Lee  U.
  • Unit Director, Boys & Girls Club, Starkville MS
  • Administrator, Fresh Thyme Farmers Market (natural & organic grocery store), Worthington OH

I should also point out that we had four Demmer Scholars who completed internships in Washington, DC this past summer. Three were current EEM students, one of whom will be working with the Foreign Ag Service in Washington, DC after graduating next spring. (Lesson: internships can lead to job opportunities!)

You can see our EEM graduates are spread out fairly well around the nation in a variety of endeavors. Also, it’s around that time of year when students in Dr. Little’s seminar class will be going around to their advisers asking questions like what job opportunities there are for our majors, whether internships are useful, how to be successful as an undergrad student, etc. I usually tell my advisees that economics is a way of thinking that helps you in any job in which critical, logical thinking is an important skill (and that’s important for many jobs as you can read about here!). But, if you want to actually do what most economists do, which is analyze data in order to answer important questions relevant to policy and to private decision-making, you’re going to want to consider going to graduate school to further develop your economic skills. Grad school isn’t for everyone – neither in terms of taste nor in terms of need – so our hope in the department is that we help our students develop economic thinking and knowledge and expose them to conducting economic analysis so that they can make great, best-informed decisions about their own futures, which can take any of numerous exciting routes. And maybe they have a little fun while in the program too…

Water is the common bond: agriculture, basic human needs, climate change, the environment

BBC News reports on the current drought in India, a complicated and challenging issue.

Following two consecutive bad monsoons, India is facing one of its worst droughts.

Of its 29 states, nearly half were reported to have suffered from severe water crisis this dry season…

The federal government in Delhi has had to send trains carrying water to the worst affected places.

India has faced a water crisis for years. Its ground waters have depleted to alarming levels, mainly because of unsustainable extraction for agriculture and industries.

In response to the drought, the government is planning to create several linkages between rivers so that water can more easily be distributed to locations most severely affected by the drought. The Water Resources Minister, Uma Bharti, also suggests some forward thinking regarding the project:

“The water crisis will be there [in the future] because of climate change but through this [inter linking of rivers] we will be able to help the people,” Ms Bharti said.

“The public has welcomed it and they are happily ready to be displaced.”

Are you keeping tracks of the costs and benefits of this project so far? Physical cost of actually implementing the linkages, benefit of addressing the current drought (e.g. water for direct human consumption and helping agriculture), benefit of being able to address future climate-change-related water crises, cost of displacing people to make the river linkages…anything else?

Environmentalists have opposed the project, arguing it will invite ecological disaster.

Diverting the water will certainly impact ecological systems. And there’s one final curveball mentioned:

“It is even more impossible in the context of climate change as you don’t know what will happen to the rivers’ flows,” says Himanshu Thakkar of the South Asia Network for Dams, Rivers and People.

“The project is based on the idea of diverting water from where it is surplus to dry areas but there has been no scientific study yet on which places have more water and which ones less.”

So apparently there is uncertainty about where exactly more water is needed now, where there is surplus water now, and how this will change in the future. Undoubtedly there is political pressure to address the problem sooner rather than later. Unfortunately, because the issue is extremely complicated and there is a lot that is unknown, a quality economic analysis of the problem would take a lot of time, time which certain people might not be willing to wait for. A difficult problem to address…

India to apply Dr. Interis’ teachings

From CNN Money: India Slaps New Taxes on Cars to Curb Pollution

The tax hikes were unveiled as part of India’s annual budget on Monday by Finance Minister Arun Jaitley, who described pollution and traffic in Indian cities as “a matter of concern.”

Buyers of small cars will now pay a tax of 1%, while diesel cars will be taxed at 2.5%. SUVs and vehicles with bigger engines will be hit by a 4% tax.

Thirteen of the 20 most polluted cities are in India, according to air quality data released by the World Health Organization in 2014. India’s capital New Delhi, which is home to more than 20 million people, topped the list.

As I teach in class, pollution from vehicles is an example of a negative externality. When people drive around in vehicles, the emissions affect not only the buyer and seller of the vehicle, but others as well. Because it affects these “others” who are external to the market transaction, it’s called an externality. And because people think pollution is bad all else equal (exception: Elmer Fudd as Siegfried in What’s Opera Doc?*), it’s a “negative” externality.

I also teach that a possible way to increase economic efficiency in the presence of a negative externality is to impose a tax which discourages the action that creates the externality. In this case, India is imposing a bigger tax on vehicles which pollute more, all else equal, to discourage purchases of higher-polluting vehicles. Although, as my colleague and former adviser Tim Haab says here, there’s a much more straightforward approach to address the problem.

* Smooooog! See 5:39 here.

HT: Dr. Freeman

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!

Career opportunities in environmental economics

Students often ask me what kinds of jobs environmental economists get. Bob Hartzell has named his list of the top 5 career opportunities in environmental economics. They are (1) environmental consulting, (2) project management, (3) resources policy advocacy, (4) agricultural economics, and (5) resources management, and you can read about each on the hyperlink.

Most of these positions will require at least a master’s degree. And, in fact, in order to be hired to do the type of work that most economists do (in general, analyzing data to answer questions your employer wants the answer to), you’re going to need a master’s degree whether you’re an econ, agecon, or environmental econ major. And of course, if you go beyond a master’s degree and get a PhD, there are many more job opportunities available such as working in academia (i.e. being a professor), working for NGOs and government organizations, and working in the private sector.

I usually tell my undergraduate advisees that your graduation from MSU sends a signal to potential employers. The first signal, which doesn’t depend on your major, is that you were competent enough to graduate. And that’s saying something – not everyone can graduate, so if you do so, that says something about yourself. It first of all says that you were capable of passing your courses. But it also says you were organized, committed, and disciplined enough to spend about 4 years working towards your degree. If you go on and get a master’s degree or PhD, that signals that your expertise is probably greater than that of someone with only an undergrad degree and that, again, you were committed enough to pursue more advanced degrees.

The other signal your graduation sends pertains to your major. While both the history major and the environmental economics major are committed enough to graduate, the history major is probably more likely to enjoy reading and writing and to be able to, um, do whatever else it is history majors are good at (I don’t know because I’m not one). If you’re an economics major, it sends a signal that you are relatively strong in critical thinking and logic, and, if you’re an environmental economics major, you can think critically about environmental issues in particular and that maybe you have some knowledge of applied economics (analyzing data to answer questions).

Our Environmental Economics and Management (EEM) major is relatively young so we’ve had only a handful of graduates so far. But here are some of the things they’ve gone on to do after graduation:

  • Go to graduate school (Virginia Tech, USM, MSU)
  • Human Resource Management at Target
  • Environmental Professional at Nova Engineering and Environmental
  • Production Supervisor at Yokohama Tire
  • AmeriCorps Volunteer
  • Area Director for Ozone Ministries

You can see that some positions are more related to the environment than others based on their titles. Some of that may be due to the preferences of the graduates, but, in general, I’d say that regardless of what a student’s major is, many students don’t actually go into the field of their major directly after graduation. I myself was an economics (straight up, not ag or environmental) and music double major. After graduation I volunteered for AmeriCorps and then had several odd jobs that were related neither to music nor economics, until I entered graduate school for environmental economics after a 4 year hiatus from school. And that four year hiatus was important – it was during that time that I learned there was such a thing as environmental economics in the first place.

My own philosophy is that you needn’t be so attached to a particular career route as an undergraduate (but if you are, that’s perfectly fine). But that doesn’t mean you don’t need to be thinking ahead. My approach was to set myself up to have opportunities (if you don’t graduate, you’ll have fewer opportunities!), let a little time go by, learn about the world and my own preferences, and then make a more specific decision about a career path 4 years after graduating from undergrad. I’m sure many of our graduates will make career changes like I did as they progress in life. So be thinking about the opportunities you’d like to be setting yourself up for (different majors open yourself up to different types of opportunities!) as you choose your major and make decisions about graduate school and other possibilities after graduation.

Can I pay you not to harvest that timber?

From BBC News, Norway is going to pay Liberia to cease all harvesting of trees from its rainforest by 2020:

Liberia is to become the first nation in Africa to completely stop cutting down its trees in return for development aid.

Norway will pay the impoverished West African country $150m (£91.4m) to stop deforestation by 2020.

Why would Norway want to do that? Apparently…

Liberia’s forests are not as big as other countries but the country is home to a significant part of West Africa’s remaining rainforest, with about 43% of the Upper Guinean forest.

It is also a global diversity hotspot, home to the last remaining viable populations of species including western chimpanzees, forest elephants and leopards.

“We hope Liberia will be able to cut emissions and reduce poverty at the same time,” said Jens Frolich Holte, a political adviser to the Norwegian government, speaking to the BBC on the sidelines of the UN climate summit in New York.

So apparently (assuming “Norway” is acting on behalf of its citizens) Norwegians value the forest because it provides habitat for endangered species and because it acts as a carbon sink. Well, that’s not really that surprising – plenty of studies have shown that residents of one nation value ecosystem services provided by forests and other kinds of habitat in other nations.

But what is surprising is that the two nations were able to strike a deal. Here’s why: typically, the benefit to the nation owning the forest (here, Liberia, whose harvesters can sell the timber) of harvesting from it is greater than the cost of harvesting, which includes not only costs of equipment and labor, but also costs of giving up carbon storage and the costs of harming wildlife habitat. Let’s call the benefits of harvesting to Liberia Bl, and the Costs of harvesting to Liberia Cl. However, forests provide services like carbon storage and wildlife habitat that benefit not only the nation which controls the forest, but residents of other nations as well. So let’s say we have some nations whose names start with a, b, and c. The typical problem is that, even though Bl > Cl, Bl is yet less than Cl + Ca + Cb + Cc. So, from the perspective of the entire world, it’s economically inefficient to harvest from the forest, but from the perspective of the owning nation, it’s economically efficient to harvest from the forest.

This problem comes up repeatedly with the Amazon rainforest which is primarily controlled by Brazil. As far as I know, Brazil has never entered any similar deal with another nation or group of nations to receive payments to not harvest from its rainforest.

In the case of Liberia and Norway though, a deal was struck because the benefits to Norway of not harvesting the forest are greater than the $150m payment it gives to Liberia, and the $150m that Liberia receives is greater than its costs of not harvesting from the forest (i.e. forgone profits from selling timber). And, again, this assumes that each nation has made a decision that is actually best for its own nation.

As the article mentions, success of the deal will depend on being able to enforce the ban on logging, and Norway is prepared to help with that.

By the way, this is also the same exact problem that makes coordinating a global effort to curb greenhouse gas (ghg) emissions difficult (e.g. the Kyoto protocol). For each individual nation, the costs of cutting down on ghg are greater than the benefits of doing so. But from a global perspective, the costs are less than the benefits of doing so because curbing ghg emissions in one nation benefits all other nations.

You don’t see this kind of deal that Liberia and Norway struck very often, if ever. And one of the nice things about it is that residents of other nations besides Norway benefit as well, for example, the U.S. Many U.S. citizens would be happier protecting the habitat of the chimps, elephants, and leopards than allowing the habitat to be cut down. That increase in happiness? Economists would consider that to be a benefit that should be accounted for in any economic analysis of the decision – but most non-economists aren’t used to thinking about these kinds of benefits.

That’s why I describe economics in my principles class as the study of how to make the best decisions by comparing all the costs and all the benefits of an action.