zondag 24 maart 2013

I'm an economist, I know nothing

One of the most difficult things about working in resource economics is being supposed to say something about stuff you actually haven't a clue about. Does bottom trawling wreck the benthic ecosystem? How high are discard rates? Is the Plaice Box working? I don't know, but to make an economic analysis I should.

It's not like economics can't deal with uncertainty. Sure, in the ideal situation we know everything: if A causes B, and we know the costs and benefits of A and B, we can do a cost-benefit analysis to tell whether A is a good idea. This is when the relation between A and B is deterministic. But mostly the relation between A and B is not.

The natural scientists could say "well, we don't know for sure whether A leads to B, but what we can tell you is that the probability that A leads to B is 20%". Most of the environmental economics textbooks call this risk, as opposed to uncertainty, which I will explain below. Risk is something we can deal with. For example, if B costs €100 then the expected value of the "B costs" of doing A is €20. You can also take into account that people don't like risk, so perhaps they are willing to pay €25 to prevent B from happening if we do A. Note that this is €5 more than the expected value of the B costs; hence the costs of risk bearing are €5.

The natural scientists could also say "sorry, we have no idea. A could lead to B; it may also have no relation to B at all. We simply don't know, and we can't give you any probabilities either." This is what the textbooks call uncertainty. Uncertainty is nastier to deal with (and, unfortunately, also more widespread) than risk. Under uncertainty all we could say is something like "if you do A, the worst that can happen is B; the best that can happen is no B." There are strategies like maximin (choose the best of all worst outcomes), maximax (choose the best of all best outcomes), and minimax regret (choose the outcome that gives you, in the worst case, the least explaining to do), but that's about all you can do.

The natural scientists could also say "it depends on who you ask. Some scientists say A probably leads to B, but others are not so sure. This is an ongoing debate in our field." This is not so different from the previous case, and we could treat it similarly to uncertainty. Let's call it a case of competing hypotheses.

The worst case, however, is where some scientists tell you "all the evidence suggests that A leads to B, and don't let those evil impostors from the A institute tell you otherwise. They are paid by the A industry to deny our science." No surprise that the A institute tells you that the idea that A could possibly lead to B is preposterous, and that anyone who claims that A leads to B is a leftist bureaucrat out to vilify the poor, hard-working entrepreneurs in the A industry, if not to establish an anti-A-ist communist state. Let's call it a case of polarised hypotheses. Examples abound: genetically modified organisms, climate change, bottom trawling, MPAs.

The problem with polarised hypotheses is that the moment you choose to include a hypothesis in your uncertainty analysis you imply it is something to be taken seriously. I have no idea of climate science, and I don't have the time to acquire all the knowledge that would enable me to distinguish the genuine scientists from the flat earthers. But I'm convinced that it is easy to take advantage of my ignorance, and that there are a lot of folks out there who try to do so. Is it a coincidence that one of the most prominent climate skeptics was once paid lavishly by the tobacco industry to deny the harmful effects of second-hand smoke? On the other hand, I've seen sufficient nonsense in the news (100 cod in the North Sea, all fish gone by 2048, dolphin meat in canned tuna) to be equally skeptical of the toxic combination of overzealous NGOs and lazy journalism.

So what do you do, as an ignorant economist who cannot fully judge the arguments? You check the messenger. Where does this person work? How much has he or she published, and in which journals? What is the disciplinary background of this person? (For example, one of the more prominent Dutch climate skeptics is an economist whose only peer-reviewed publications were in a journal specifically established to give climate skeptics the stage they can't get elsewhere.) How much of what this person does is science and how much is advocacy? (I'm allergic to the kind of advocacy dressed as science that was behind, for example, the nonsensical claim that the planet's ecosystem is worth $33 trillion every year. You can't estimate this value, period.) I tend to pay much attention to contradictions: The Economist, for example, is an economically liberal newspaper that used to play down the threat of climate change, but nowadays it argues in favour of limiting greenhouse gas emissions. As far as I know Richard Tol, who is often quoted by climate skeptics, does not deny that greenhouse gas emissions are a problem. Funnily the skeptics never quote him on that; they only do so when he bashes wind power.

Yes, I know science is not made by majority votes, but that doesn't mean that I should take into account every pseudoscientist with an opinion. And I know that reputation isn't everything, and that many revolutionary insights were first ridiculed, but I can't be a master of all. So I have little choice but to listen to the mainstream.

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