Monthly Archives: September 2014

272 – Additionality

Additionality is an important criterion to consider when a funding agency is selecting which projects to support. It is relevant to many different types of projects, including, for example, those related to the environment, agricultural production, natural resources and health promotion.

Suppose that your employer was planning to provide you with a new iPhone 6 the next week. You weren’t aware of this, and bought yourself an iPhone, only to find out later that you could have avoided the cost if only you’d asked them.

Additionality is like that. It’s about asking, what will happen if we don’t fund this project?  (… if you don’t buy the iPhone.) To what extent will the goals for this project be achieved anyway even if we don’t fund it? (You’ll get an iPhone anyway.) And how large will the additional benefits be as a result of the project if we do fund it? (Zero!)

A lot of systems for evaluating and selecting projects don’t ask these questions. They implicitly assume that all of the benefits generated will be additional, but this can be way off the mark.

For example, Claassen and Duquette note that, prior to their new study, the additionality of tens of billions of dollars spent by the US Department of Agriculture on conservation programs had never previously been assessed. The practices they looked at were soil conservation structures, buffer strips, conservation tillage, and nutrient management.

conservation_tillageThey present data for these practices showing that, of those farmers adopting them in 2009-2011, the great majority did not receive funding. This raises a rather pointed question about additionality for those who did receive funding – how many of them would have adopted anyway, even without the funding? A practice like conservation tillage is so beneficial for most farmers that the idea of paying them to do it is, frankly, ridiculous. And yet the USDA has spent many millions of dollars doing exactly that – money that would have been better spent promoting conservation practices that would not otherwise have been adopted.

Additionality is built into Benefit: Cost Analysis (BCA), although it is usually given a different name: the “with versus without” principle (see PD237). This says that the benefit of a project should be estimated as the difference in value between the outcomes that occur with the project versus without the project. It’s identical to the idea of additionality, and it is just about the first thing one is taught when learning about BCA.

It’s common sense, really, and no economist worthy of the name would ever get this wrong. But it is remarkable how many project evaluation systems made up by non-economists do get it wrong. Maron et al. (2013) checked out 16 different systems from around the world for estimating conservation benefits from investments. Of the 16, 15 got the with-versus-without comparison wrong in one way or another.

I’ve been focusing above on cases where a new practice is highly attractive to people, and so will be adopted without incentive payments. Clearly, the additionality of such payments would be low, so they are not good investments.

At the other extreme are practices that are highly unattractive to the people who would have to adopt them. They would be additional if we could pay people enough to get them adopted, but the amount we’d have to pay is really high. These are additional, but not good investments because of their high cost.

The best projects for funding support are those that promote practices that are viewed as neutral or a little bit attractive, so that some additional pushing from a program can make a big difference to their uptake (Pannell 2008).

p.s. 5 October 2014. “Market failure” is another economic concept that relates to additionality. The idea is that one should examine whether a new policy or project would do better than the free market before committing to it. If people have good information, and there are no externalities or public goods, the starting point should be that the new project or policy is not going to generate more benefits in aggregate than would have been generated as a result of people pursuing rational self interest. In other words, there would not be substantial additional benefits.

Further reading

Claassen, R. and Duquette, E. (2014). Additionality in agricultural conservation programs, Amber Waves, September.

Maron, M., Rhodes, J.R. and Gibbons, P. (2013). Calculating the benefits of conservation actions, Conservation Letters 6(5), 359-367. Journal web site

Pannell, D.J. (2008). Public benefits, private benefits, and policy intervention for land-use change for environmental benefits, Land Economics 84(2): 225-240. Full paper (140K) ◊ IDEAS page

Pannell, D.J. (2013). Ranking environmental projects, Working Paper 1506, School of Agricultural and Resource Economics, University of Western Australia. Working paper ◊ Blog series

271 – 10 years of blogging

I just noticed (a few months late) that it’s been 10 years since I started writing Pannell Discussions. Time for some reflections on the benefits and costs of doing so.

In 2004 I decided I wanted to increase my outreach to non-economists and to people outside academia. I wanted to put out material that would be interesting and engaging, and would increase people’s understanding of economic issues in agriculture and natural resource management.

I decided to write brief articles on a range of topics, and put them on my web site. Initially I didn’t think of this as being a blog, but eventually I accepted that this is what it is.

I adopted a few rules for myself. Firstly, I had to enjoy it. If it became a burden I would stop, or if other work was too demanding I would give it a rest. (Work has been demanding this year, hence the relatively low frequency of posts.) Secondly, each post had to be a manageable amount of work. I originally set myself a target of one hour per week. Eventually, it worked out that I was spending about two hours per post (including managing the web site), and doing one post about every second week, so the one-hour rule worked out. Thirdly, I decided only to write about things I know about or am interested in, to avoid having to do a lot of extra work to prepare each post.

I started with signing up some friends and colleagues as subscribers and let the subscription base grow fairly organically. It is now up to almost 700 subscribers, plus a lot of non-scribers look at the posts. The more popular posts get around 1000 readers.

blogOverall, the benefits of doing the blog have been much greater than I expected or imagined. As well as it being enjoyable to spend some time regularly writing something for a general audience, the benefits have included the following.

I’ve partly used the blog to raise awareness about my research and its implications. Some of the posts are based on one of my published research papers, and many posts include one or more of my papers as further reading. This has meant that more potential users of the research find out about it, and sometimes it’s led to actual usage of the research.

Some of my readers are other researchers, some of whom end up citing one of my papers in their research publications, as a result of having seen it on the blog.

In some cases, I’ve used the process of writing the blog as a mechanism to work out my thoughts on an issue, or to force myself to focus on the practical implications of a piece of research I’ve done. Occasionally, feedback from commenters helps with this, but mostly it’s just the fact that I know there is an audience of general readers who are going to look at it that makes me think about it more clearly from a practical perspective. A number of published papers have benefited from this prior public scrutiny of aspects of them.

There has even been one case where a blog post (PD175) generated ideas that led to research and a journal publication that wouldn’t otherwise exist (Rogers et al., 2014), which was then described in another blog post (PD256).

Beyond the more research-oriented posts, the blog posts take a number of different approaches, from time to time, including:

  • Getting stuff out of my system (split infinitives PD177, grammar PD215)
  • Sharing interesting stuff (fossil fuel subsidies PD265; economics and violence PD269 and PD270)
  • Self-indulgent sharing of my passions (The Beatles PD10, PD225 and PD264; long jump PD19 and PD109)
  • Travelogues (China PD198, PD199; Estonia and Latvia PD84) and
  • Explaining stuff that many people get confused about (discounting PD33, PD34, PD224, PD242, double counting benefits PD15)

Doing the blog has definitely meant that more people know about me and my work. I sometimes meet people who read my blog but otherwise wouldn’t know I existed and may never have heard of environmental or agricultural economics. Or my wife meets someone who asks whether she’s related to Pannell Discussions. Some people seem to think I’ve got more expertise than I really have, because they’ve seen a blog post I wrote about something.

Other random nice stuff that’s happened includes:

  • A friend sending one of my posts (PD139) to Nobel Prize winner Eleanor Ostrom and getting feedback that she really liked it.
  • Getting invited to join the Scientific Committee of a large European project on the strength of them seeing my blog.
  • A national prize for Quality of Research Communication from the Australian Agricultural and Resource Economics Society (PD206)
  • Getting a cheque for $500 from the copyright agency resulting from people making copies of Pannell Discussions for use in their teaching.

The main cost has been time but, as I said earlier, that hasn’t been excessive.

I haven’t found it difficult to identify enough topics to keep it going. If I don’t have a topic, that’s fine, I don’t write a post. But usually there are one or two topics in the queue.

Overall, it’s been a great thing to do, and I’ll keep on doing it when time allows.

Further reading

Rogers, A.A., Kragt, M.E., Gibson, F.L., Burton, M.P., Petersen, E.H. and Pannell, D.J. (2014). Non-market valuation: usage and impacts in environmental policy and management in Australia, Australian Journal of Agricultural and Resource Economics (forthcoming). Journal web page ◊ IDEAS page for this paper