Category Archives: Economics

306 – Economics of green infrastructure in cities: some essentials

During the recent Conference of the CRC for Water Sensitive Cities in Perth, I was interviewed about some of the essential points that non-economists need to be aware of when thinking about the economics of water-related investments in cities. The video is now available.

My team has been part of the CRC since it started back in 2012. In the interview I talk a bit about the work we’ve already done and what we’re doing now, and then identify my three top tips for non-economists: that benefits from an investment relate to the differences in outcomes with versus without the investment (not before versus after); that the timing of benefits and costs can matter greatly to the economic results; and that you need to account to a range of risks that might cause any particular investment to deliver less than you’d hoped.

These issues are spelt out more in the video (13:50 long), which you can see right here.

Further reading

Pannell, D.J. (2015). Ranking projects for water sensitive cities – a practical guide, CRC for Water Sensitive Cities: here

Web site for our CRC project: here

305 – Feeling virtuous: what’s it worth?

We all like to feel good about ourselves. A product that makes us seem virtuous to others, or even to ourselves, would be worth paying more for than its strictly utilitarian value.

That was one of our hypotheses behind a surprising result in some recent research. We were trying to measure the benefits of installing a rainwater tank on an urban property in Perth. We did this by measuring the premium in house sale prices for houses that already had a rainwater tank installed, compared with similar houses that did not.

The results left us deeply puzzled. First, the price premium was enormous: around $18,000. Now the water in a typical tank, when full, is worth about $3, and a tanks lasts for about 15 years. That means that to use enough tank water to make the $18,000 price premium worth paying, you would you would have to use a full tank of water and refill it from rainfall about twice each day every day for the whole 15 years (assuming a 5% interest rate on your home loan). But that’s way beyond actual levels of rainwater use, and it doesn’t rain that much or that frequently in Perth anyway!

We were left scrambling for explanations for the high price premium. As I started off saying, an obvious one is the feel-good factor from knowing that one is contributing to water conservation. It could be a bit like organic food. Some of the price premium for that could reflect people’s concerns about environmental impacts of agricultural chemicals (as well as perceived health impacts).

Another possible explanation is that people may misjudge how much the water captured in the tanks is worth. Water from the tap really is most extraordinarily cheap, whereas the most common experience of paying for water for most people is bottled water, which is most extraordinarily expensive. So it would be understandable to some extent if people got this wrong. We cannot tell from the house sale data what is in peoples’ minds (e.g. about water cost), only the overall result.

A third explanation could be that our statistical analysis was faulty. If you look at the paper you’ll see that we tied ourselves in knots, testing the robustness of the stats in ways that are far beyond my own statistical skills (thanks co-authors), but we couldn’t make the result go away.

There was one more puzzle we couldn’t solve, as well. The price premium for rain tanks is far above the cost of installing a tank, so why doesn’t everybody with a house to sell invest in a rain tank? In fact only a small minority of houses sold do have them. I guess they aren’t aware of the potential price hike.

On the other hand, we don’t know what would happen to the premium if the proportion of houses with installed tanks was to increase substantially. It is likely that the greater supply of tanks would drive down the price premium to some extent.

Further reading

Zhang, F., Polyakov, M., Fogarty, J. and Pannell, D. (2015). The capitalized value of rainwater tanks in the property market of Perth, Australia, Journal of Hydrology 522, 317-325. Journal web site ♦ IDEAS page (includes link to freely downloadable version of the paper)

304 – Predicting behaviour change by farmers

I have a new paper out describing ADOPT, the Adoption and Diffusion Outcome Prediction Tool. We’ve paid the money to make it Open Access, so I hope you will make it worth our while having done that by going to the journal web site and downloading the paper for free.

There are many hundreds of research papers on the adoption of new practices by farmers. Pretty much all of them set out to explain the relative contributions of different factors to the past adoption or non-adoption of particular practices in particular regions. There are a bunch of review papers that try to make sense of the voluminous literature (including a beauty by Pannell et al. (2006)).

However, neither the original papers nor the reviews set out to address an issue that really matters to many people working in the agricultural sector, in research, extension, natural resource management, policy, sales, etc. That issue is the likely future adoption of a new practice that has not yet been adopted. An interdisciplinary group of us set out to fill this gap by developing ADOPT.

There are a large number of users of ADOPT – there have been over 1000 downloads of the tool, and many examples where it has been used effectively in planning or evaluation of research, extension or policy.

Now we have published this paper, which describes how we developed and validated the tool, how it is structured, and some example of its use.

You can download the paper for free here and you can download the ADOPT tool for free here. If you do it quickly, you’ll be one of the first to get a new update of the model, just released on June 29.

Also available now is Version 1.0 of the “Smallholder” version of ADOPT, designed for use in developing countries. Download it from the same web site here.

Also see http://www.ruralpracticechange.net for a set of videos on the topic of farmers adopting new practices.

References

Kuehne, G., Llewellyn, R., Pannell, D.J., Wilkinson, R., Dolling, P., Ouzman, J. and Ewing, M. (2017). Predicting farmer uptake of new agricultural practices: a tool for research, extension and policy, Agricultural Systems 156, 115-125. Journal web site for free download of the paper.

Pannell, D.J. and Vanclay, F.M. (eds) (2011). Changing Land Management: Adoption of New Practices by Rural Landholders, CSIRO Publishing, Canberra. Available at the publisher’s website.

Pannell, D.J., Marshall, G.R., Barr, N., Curtis, A., Vanclay, F. and Wilkinson, R. (2006). Understanding and promoting adoption of conservation practices by rural landholders. Australian Journal of Experimental Agriculture 46(11): 1407-1424. Journal web site, or email David.Pannell@uwa.edu.au to ask for a copy.

 

300 – MOOC feedback

Last week I checked out the comments that people have left about the free online course (MOOC) that I offer, called “Agriculture, Economics and Nature”. Some of the comments were so heart-warming that I thought they were worth sharing.

They highlight what an amazing thing it is to provide things to the world on an open-access basis. Thanks to the internet, you can connect with, influence and help hundreds or thousands of people who you will never meet. The diversity of commenters, and their circumstances, is just amazing.

My motives in preparing the MOOC were selfish (to attract students to our courses at UWA, to raise our School’s profile), but reading these comments gave me such a warm glow that it makes me hardly care about that aspect (although it clearly has been somewhat successful in delivering those selfish aims as well).

It may seem like I’ve cherry picked the comments, but I promise that these are quite average in their enthusiasm. I’ve only tried to select the more interesting ones. I’ve edited out names and tidied some up a little, but not changed content at all.

I am a 52 year old single mother, from Barbados. It is my intention to operate a herbal production and agricultural business. I took the course as I needed the knowledge, since the area of agriculture would be a new and unknown area of business for me, This course has started me on the road to gaining all the knowledge I need going forward, it has exceeded my expectations, since I did not realising how intense it would be. It was a real pleasure and great learning experience for me. I am truly encouraged. Based on what I have learnt, I can now understand how to apply all of it to my pending operation, it’s invaluable. I loved the structure of the course, the intensity, interest, delivery and concise method of explanation and teaching.

I’m from Nepal. I recently completed my Masters in Plant Biology and Plant Biotechnology from India. I took this online course since I was idle at home, and also because I was curious about the title. I was pleasantly surprised by the richness of the content, and I appreciate your efforts profusely. I enjoyed ‘Pannell Discussions’. There, for the first time in my life, I came across the expression- “bang for the buck” (fascinating and crisp indeed!). I’ve been throwing that that expression around for sometimes.

mooc1Thanks for this great opportunity to learn and gain insight about these complex but relevant interactions between economy, agriculture, and environment. I have learnt about a lot of complex theoretical models dealing with sustainable development, but written by bureaucrats or academics and usually not applicable on the field. This course was refreshingly down to earth, assuming realistic scenarios of limited funding, farmer’s basically economic orientation, and scepticism to change.

Thanks for the course. I enjoyed it a lot – some new content, some refreshing old information, and an agriculture/farmer focus which was what I wanted and was new to me. It was well structured in bite-sized parts perfect for this type of learning. I also enjoyed the excel components, and in fact I have found some published studies I want to apply some of this mathematics to. I currently work in a freelance capacity, recently relocated to Vietnam, but from the UK where I previously worked for the Overseas Development Institute. I focus on the economic and policy challenges to achieving better climate and development outcomes. I have had many insights from your course.

Wow. I have never really been an academic but have always tried and tried and tried again until I finish it. I am from South Africa and have moved here for my partner who is a country lad. I fell in love with the farming here and now I work for a fruit and veg company and I loved your course. I had to retake a lot but I have finally done it. Thank you!

I very much enjoyed your course, which provided me a comfortable introduction to the wide spectrum of agro-eco issues, and dovetailed nicely with a microeconomics Coursera offering that I happened to be taking concurrently. I am a geographer at University of California Santa Barbara.

I am an Agriculture and development economics, doctoral student from University of Agricultural Sciences, Raichur. I have learnt a lot of new things in the course. I thank you for giving such an amazing enriching inspiring lecture. The references taken in the course were precise, perfect and appropriate and very useful links and pictures. Thank you once again.

mooc2I work for an environmental NGO in California where we engage farmers to adopt more sustainable/resource conservation practices (e.g., habitat restoration, strategic water use) that are compatible with sustained levels of production. The course already sparked some questions that I have brought to my job, such as what do we actually know about the economic payoff of landscape-scale conservation. Thank you so much for the course. This was my first-ever MOOC and I’m glad I took it!

I am much pleased to learn from your experience and knowledge. I am a BSc undergraduate (biochemistry) student of the Kwame Nkrumah University of Science and technology in Ghana. I am planning of venturing into Msc. Agriculture as graduate studies and that triggered in partaking this course because of how poor our agricultural system is gradually heading way into abyss and if measures are not put in place by right expertise, failure will eventually embrace us.

Greetings from Rwanda! I would like to express my deepest gratitude for the ”Agriculture, Economics and Nature” course offered by the University of Western Australia on Coursera. I am now happy to have passed all the quizzes on the 4th of September with 79.4%, and received my Certificate. I will use the skills gained in my daily work.

I am got the BSC degree in the field of soil science from the college of agriculture and forestry, Mousel University in 1979 and the MSC degree from the college of agriculture, Baghdad University in the field of soil chemistry (Salinity) in 1985. This help me in my job (Project director).I love the proposal of all subjects in this course. Finally I thanks professor david pannell so much. excuse me about the language.

I really enjoyed the program. I wish I had a chance to say a proper thank you in person to you for the way you lectured. It was simple, precise and very resourceful. I am an agribusiness postgraduate student in NZ, originally from Cameroon. Worked in the bank as farm loan manager and then operation manager.

I will be going off to King’s College London this September to study international development. I would like to say a big thank you for putting together such an interesting and informative course!! I learned a lot about current problems facing the agricultural industry and different agri-environmental projects both in a global and an Australian contexts (which is really cool since I have always wanted to live in Australia at some point in life!). I will definitely recommend this course to my friends!

Hi, i am from Ghana. I am a young lady who wants to venture into the field of Agriculture. This six-week course has enlightened me on all resource available to farmers and how policies are put in place to help and motivate farmers. Every section was educative and self-explanatory.

I am from Zimbabwe but currently staying in the US. I would like to take this opportunity to express my gratitude for your service. It was an interesting course and I really enjoyed all your lectures. I am an animal scientist, I have a passion for animals and agriculture as a whole. I wish to start my own agriculture enterprise because I can feel I am now well equipped with all the knowledge needed. Once again, thank you very much for such a rich and life transforming course.

The course structure made participation an unforgettable experience; Professor Pannell expertly delivered lessons and the interview sections with stakeholders further underpinned everything taught. To Professor Pannell, I want to say learning with you has been a memorable one.

First of all, I would like to thank you for giving me a great opportunity to learn more about economics in agriculture. I’m an agronomist, and I’m currently the Food Security Advisor for World Vision Niger. I’m so excited about the opportunity to explore the scope and nature of relationship between Environmental Governance and Disaster Risk Reduction.

Thanks for going through the trouble of delivering this course online. I am just finishing my PhD in environmental sciences at the moment and felt like I needed some perspective if I were to undertake research for agriculture in the future. A lot I learnt in this course, thank you.

I work in the Agribusiness department of a commercial bank, and i took the course as one of the preliminaries to a Master degree in Agribusiness since my background is not in Economics. Prof Pannell made the teaching so easy to follow and understand especially the calculations and the graphs. i was so excited when i learnt how to calculate the discounting factor. This is my first experience in certificate online course and i find it very inetersting and a bit challenging too.

cornThank you so much for providing this course. I had learned a lot I had never known before. I’m an Au pair living in Virginia U.S. currently. I spent my free time after babysitting to finish the online course. I had an Agriculture bachelor degree which related to crop protection, and I had been working in a Fungicides company for two years before I came to the US. Meanwhile, I’m seeking the opportunity to work on some organic farms here. I will be working on a local organic farm from this month to next month. Thanks for laying out plenty of online resource about agriculture and this fantastic course.

Thank you so much for the methodology used in this course. The questions and answer are very good they make you think very well. Even though I had problems with my internet during the course but I still got through. Thank to other contributors of the the program. Am looking to work on Food and Nutrition Security Using Urban and Peri-Urban Agriculture for a better livelihood for my PhD work.

I hold a Masters Degree in Physical Geography from Free University of Berlin in Germany and specialized in Natural Resource Management. Many thanks for this really great course. I liked every section of the course, I really enjoyed all the relevant material and advice and those tremendous valuable tools! Thank you so much. Returning to Germany it will certainly help me in my new career here at ADRA Germany coordinating the department for Climate Change Adaptation and Renewable Energies.

Many thanks for a really interesting and well-paced course, it was fantastic. I’m going to miss those slides and the music!

Maybe this collection of stories and feedback has inspired you to check out the course yourself, joining the 7000 people who have already enrolled. You can do so at: https://www.coursera.org/learn/agriculture-economics-nature

For more information about the course, you could check out this video.

 

 

299 – Are higher house prices a benefit or a problem?

In the research reported in PD298, we used the impact on house prices as an indicator of the benefits of an investment in a public amenity. This is a well-established approach, but twice in recent times I’ve encountered an attitude that higher house prices are more of a cost than a benefit. Could that be right?

The issue that people have in mind when they raise this concern is housing affordability. This certainly is something that is worthy of attention. House prices in many parts of Australia (and other developed countries) are often so high that they place great financial stress on buyers with relatively low incomes or they result in too many people being excluded from the housing market.

However, talking to a former government minister last year, she said that measuring improved local amenity by the resulting rise in house prices was not acceptable because rising house prices are a problem for housing affordability.

housingAlthough I applaud her concerns for the welfare of low-income groups, her rejection of rising house prices as a measure of community benefits is not sound at all.

For one thing, it implies that rising house prices are a bad thing regardless of the cause of the rise. The logical extension of that thinking is that we would prefer completely impoverished suburbs with no amenities or services for residents. Let’s encourage crime, leave road potholes unrepaired, remove all street trees and encourage toxic industries to set up in urban areas. That would certainly result in affordable housing! This is obviously not the solution to the housing-affordability problem.

The second flaw in the politician’s logic was that it confused measurement with objectives. Improving the amenity of a suburb does result in benefits for the residents, and these benefits are reflected in the prices that people are willing to pay to become residents in that area. So the change in house prices that is attributable to the improved amenity is a sound quantitative measure of the benefits. There may also be spillover effects that are viewed as being negative, but the requirement then is to measure those negatives as well, not to reject the valid measurement of the benefits.

Thirdly, the politician is implicitly suggesting we should aim to achieve two different policy objectives (affordable housing and improved urban amenity) using only one policy mechanism, the decision about whether to invest in urban amenity. An important economic insight, known at Tinbergen’s Rule, says that you need at least one policy mechanism for each policy objective – in this case, one related to urban amenity (e.g. investment in drain restoration) and a different one related to affordable housing (e.g. increased land releases). If you try to achieve two objectives with only one mechanism, the community will end up worse off overall than it might have been.

I was completely unprepared for the ex-minister’s comment at the time, and so dazzled by its many problems that I wasn’t able to quickly provide a very coherent counter-argument. I’ll be better prepared if it comes up again.

Further reading

Borrowman, L. Kazakevitch, G. and Frost, L. (2014). Measuring Housing Affordability: What Types of Australian Households are in Stress? Discussion Paper 42/14, Department of Economics, Monash University. Full paper ♦ IDEAS page

Polyakov, M., Fogarty, J., Zhang, F., Pandit, R. and Pannell, D. (2016). The value of restoring urban drains to living streams, Water Resources and Economics Journal web site ♦ IDEAS page