Environmental Economics

Environmental Economics Assignment-Wildfire A deadly wildfire in November 2018, named the Camp Fire, caused many deaths, destroyed thousands of structures, and burned 150,000 acres. The fire led to a tragic loss of life, as well as the near entire destruction of two communities, Paradise and Concow. The utility PG&E was deemed to have responsibility for the ignition of the fire. This means that those damaged by the fire have a legal claim to compensation from PG&E. (The size of potential liabilities from this and other wildfires pushed the utility into bankruptcy.) To assess the size of such compensation payments, as well as other penalties that might be assessed by government agencies, courts need to decide on the value of the damages caused. This exercise asks you to contemplate the valuation techniques discussed in our course with respect to this case.1. Before you read anything more about the Camp Fire, I want you to think about what the different costs of the fire were, and how big you’d expect each of them to be. (Imagine that you are hired as an economist by the government, which is prosecuting PG&E, and your job is to make sure that the government contemplates all possible costs that they might want to include.)a. Make a list of all the different costs that you can think of that you might want toadd up to get a total cost. (3 points)b. Again, before you do any reading or research, ask yourself which of these costs are going to be the largest. Identify what you think the three biggest cost categories will be. List those three, and put down your guess as to what percentage of the total costs would be associated with each category. (2 points)c. After you have completed the items (a) and (b), read some background materialon the Camp Fire (Wikipedia is fine; there is a Frontline documentary; there is extensive media coverage; and insurance company analysis of damages offers empirical estimates.) Then, write 1 or 2 sentences saying what surprised you about the size and components of damages. (1 point)2. The most dramatic and tragic aspect of the fire was the loss of human life. In class we discussed using the Value of a Statistical Life to put a dollar value on risks to human life. The federal EPA has a suggested estimate of the VSL here that it recommends agencies use in valuation. https://www.epa.gov/environmental-economics/mortality- riskvaluation a. Find the EPA’s preferred estimate of the VSL; find the number of deaths reported asdirectly caused by the Camp Fire; and use those numbers to calculate an estimate of the value of lost life from the Camp Fire. Show your calculation. (1 point) (There may be some ambiguity about specific values, so we will award full score to things that are in a reasonable range.)b. Is this a good estimate of the cost to society from lives lost during the Camp Fire incident? Explain why or why not. (200 word limit) (4 points) (For example, you may wish to argue that the VSL is not the right concept. Or, you may wish to recommend tweaks to the EPA’s number. Or, you may wish to argue that this is exactly the relevant number.)3. In recent years, the salience of wildfire risk has changed dramatically in California. That is, many people are suddenly more aware of and concerned about wildfire risk. This suggests the possibility of getting a hedonic estimate of individual concern about wildfire risk by looking at housing price changes.a. Suppose we wanted to follow the model of the Davis paper on cancer clusters discussed in class. Describe the four home price values that you would want to collect in order to perform an analogous hedonic estimate related to the change in perceived wildfire risk in Northern California. (That is, suppose we are going to get an estimate using the mean home price from four groups of homes; what would those four groups be in order to follow the model of the Davis paper?) (2 points)4. Another valuation method we discussed is analysis of defensive expenditures.a. What defensive expenditures might have been deployed in response to the increase in wildfire activities? List all that you can think of. (2 points)b. Suppose that you had a complete accounting of all expenditures every year for the last twenty years in Northern California in each of these categories. Would the change in expenditures over time represent a good estimate of the total cost of the increase in wildfires? Explain why or why not briefly. (50 word limit; this can be quite brief.) (2 points)5. Finally, we have discussed contingent valuation and stated preferences more generally as a method of evaluating damages. This question asks you to take the Exxon Valdez case from class as a model and use it to consider how you would conduct a contingent valuation survey that estimate the total willingness to pay of all California residents to avoid a disaster similar to the Camp Fire. The class lecture describes three phases of a study. Key Phases: 1. Describe the damages from the event in a wholistic way and subsequent actions and conditions. 2. Develop a realistic scenario: describe a policy or program. 3. Elicit the value of that policy or program in a survey, then combined across respondents.a. Describe how you would conduct phase 1 of a study for this disaster, following the model from class. (75 word limit) (2 points)b. Describe how you would conduct phase 2 of a study for this disaster, following the model from class. (75 word limit) (2 points)c. Describe how you would conduct phase 3 of a study for this disaster, following the model from class. (75 word limit) (2 points)d. Of the four main types of bias that we discussed in class, which are you mostconcerned would cause bias in this situation. Explain why briefly. (75 word limit) (2 points)Four main types of bias: 1. Sampling bias: Having a sample that is representative of the group you’d like to sample from is very important.2. Strategic bias (not telling the truth): You need to ask questions in a way that get people to reveal their willingness to pay (WTP) honestly (this is related to public goods provision problems). 3. Framing bias: The way in which you ask a question can influence answer. 4. ll-formed preferences: People may not have well-formed preferences for unfamiliar goods.For more information on Environmental Economics check on: https://en.wikipedia.org/wiki/Environmental_economics

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