Willingness to Value

 If you were asked to establish your willingness to pay (WTP) or willingness to accept (WTA) for a specific good or service it would most likely vary depending on what is being valued. This idea of WTP and WTA is based on the economic concept of establishing monetary values for all goods and services, even if the good or service brings non-instrumental value to you. This concept was developed due to the homo sapiens suicidal tendencies to exploit all resources biotic and abiotic until they are virtually exhausted (and yes it is possible to exhaust biotic resources). But to continue we must first define some of the key terms that will assist us in establishing the relevance of WTP and WTA, and what exactly it means for the future of our planet.

Contingent Valuation: Hypothetical estimates of prices of non-market goods and services based on survey questions asking how much one would be willing to pay for an extra unit of the good or how much one would accept for the loss of a unit of the good.

Willingness to Pay: The price or dollar amount that someone is willing to give up or pay to acquire a good or service. Willingness to pay is the source of the demand price of a good. However, unlike demand price, in which buyers are on the spot of actually giving up the payment, willingness to pay does not require an actual payment.

Willingness to Accept: The price or dollar amount that someone is willing to receive or accept to give up a good or service. Willingness to accept is the source of the supply price of a good. However, unlike supply price, in which sellers are on the spot of actually giving up a good to receive payment, willingness to accept does not require an actual exchange.

 Now that we have defined the key terms related to establishing values for goods and services we may begin to discuss further the concepts of willingness to pay (WTP) and willingness to accept (WTA) and their differences. Willingness to pay is different from willingness to accept, because with WTP you are considering your personal willingness to pay to receive a good or service. This could range from buying household appliances to entering a national park to experience the scenery -- it all depends on your WTP and the good or service you are attempting at acquiring. With WTA it is your personal willingness to accept a certain value to give up a good or service, and this could also range from giving up drinking coffee in response to the economic savings it generates to giving up driving a car in exchange for knowing the amount of carbon dioxide you are personally diverting from the atmosphere.

 With contingent valuation (CV) studies survey design is critical because it formulates the questions that the recipient is answering in regard to their personal valuation practices. This means that if a questionnaire for a CV is formulated wrong the resulting answers from a recipient will be skewed and the precise valuation for a good or service -- such as a forest being considered for resource exploitation -- will be lost to unpredictable data failure.

 In regard to ecological resources contingent valuation measures tend to have an upward bias, because of social factors associated with WTP and WTA. When an individual is surveyed to determine their WTP or WTA regarding an ecological resource, and its instrumental and non-instrumental values, an individual will be compelled due to social factors to value their WTP or WTA for the ecological resource as worth more. This results in an upward bias regarding the valuation of ecological resources causing most economists to speculate on the true value that is placed on ecological resources when bias is replaced with Keynesian economic supply and demand theory.

 In all the valuation of goods and services, specifically those of environmental resources, through contingent valuation studies with questions relating to willingness to pay and willingness to accept have established some value on ecological resources to protect them from the current growth and profit hungry economic system that has exploited our resources for too long. Now it is time for the next step in our systematic evolution, the establishment of a monetary-free economy perhaps, the study of environmental economics being accepted as mainstream, or something even more “radical” in the philosophical context. We can only hope our ignorance is lifted before we meet our untimely demise.

Thank you for your interest, please comment and subscribe.

Onward,

Hayden van Andel

A Paradigm for a Paradigm

 In this complicated world we currently live in, filled with global markets, political corruption, corporate greed, and rampant severe poverty, it is hard to distinguish what systems will work and what systems will not work in the future. A leading factor to some of the economic and societal woes the world has been experiencing of late is the concept of paradigms. A paradigm is a worldview underlying the theories and methodology of a particular scientific subject. So how can societies find a paradigm that benefits the majority and harms no one (ideally)? This is the question philosophers have posed for a millennium to no avail. Until today previous leaders have not considered the shifts in paradigms as probable logical solutions to the flawed systems scattered throughout different societies. To discuss this concept further we must first define some key terms that will help us establish some different paradigms that have already been implemented throughout different societies around the world.

Regression Analysis: the use of regression to make quantitative predictions of one variable from the values of another.

Boundary Vegetation: consists of the area of vegetation that creates a boundary between ecosystems.

Intangible Costs: an unquantifiable cost relating to an identifiable source. Intangible costs represent a variety of expenses such as losses in productivity, customer goodwill or drops in employee morale.

Intangible Benefits: are advantages or favors that can be offered by one person to another. An example would be a research organization asking someone to volunteer time and expertise for a project in exchange for prestige by affiliation. 

Induced-Adoption Paradigm: the idea of the induced-adoption of a certain paradigm to mitigate change within a system.

Familial Influence: the influence of family on the decision making process towards investors.

 Now that we have defined the key terms relating to shifting paradigms in societies we can begin to discuss the different areas in which societies can establish shifts in paradigms. From the dissertation by Bradley Tyndall the differences between a diffusion of innovation paradigm and an induced-adoption paradigm in the context of the use of Grevillea in Kenya is a great example of shifting paradigms in an emerging market for societies. The difference is, diffusion of innovation paradigms include the action of innovative systems being dissolved among a society through a certain paradigm over time, and induced-adoption paradigms are almost forced through the actions of either economic collapse of environmental collapse, which provides limited innovation. So the use of the Grevillea tree in Kenya is based on a diffused innovation paradigm, because over time the adoption of the Grevillea tree became diffused throughout Kenya as farmers found them to be indispensable.

 With the diffused innovation paradigm came the realization of the intangible costs and benefits of the Grevillea tree. These intangible costs and benefits played a major role in the process of diffusing the innovation of planting the trees on farms to then practice agroforestry. The intangible benefits of planting the Grevillea tree were extremely valuable, like marking property boundaries, harvesting the branches, and the expedient growing rate all contributed to the diffused innovation of planting the Grevillea tree with the shift in paradigms.

Thank you for your interest, please comment and subscribe.

Onward,

Hayden van Andel

How do you value the future?

 This is a current subject of much debate, not between politicians, not between engineers, not between individual citizens, but between environmental economists. Valuing the future has created texts devoted directly to deciding what is right or wrong, but who knows best? Before we can begin discussing the facts behind how, why, and when we should be valuing the future different from the present, we must first define some key terms that are imperative towards understanding exactly what “valuing the future” means.

Pareto Optimality: An efficient allocation is one that best satisfies individual wants weighted by the individual’s ability to pay -- that is, by their income and wealth.

Intertemporal Allocation: The apportionment of resources across different stages in the lifetimes of basically the same set of people (same generation).

Intertemporal Distribution: The apportionment of resources across different generations (different people).

Lorenz Curve: A curve plotting the cumulative percentage of the population against the cumulative percentage of total income held by that percentage of the population, which illustrates the degree of equality or inequality in the distribution of income.

Gini Coefficient: A measure of the inequality of the distribution of wealth or income across a population. A Gini coefficient of one implies perfect inequality (one person owns everything), and a coefficient of zero indicates a perfectly equal distribution.

Intertemporal Discounting: The process of systematically weighting future costs and benefits as less valuable than present ones.

 Now that we have defined some key terms that are imperative towards understanding how, why, and when we should be valuing the future as more or less than present day, we can now begin to figure out just what exactly environmental economists are debating about.

 The topic of renewable and non-renewable resources brings up debate when discussing intertemporal distribution, because each is treated differently when being considered for reasonable distribution across generations. Renewable resources are considered finite, so when considered for distribution across generations the renewable resources are given a higher future value based on intertemporal discounting, because the supply is finite even as demand increases exponentially. On the other end non-renewable resources are considered (income specifically) more important, and when being considered for distribution across generations non-renewables are valued less in future values as the intertemporal discounting interest rate increases to make it seem as though non-renewable resources are more cost effective to exploit presently for economic gain, then to preserve them for any future exploitation.

 This difference in renewable and non-renewable resources in relation to intertemporal distribution provides a stark contrast that is expressed best in intertemporal discounting, and the value of natural capital. Personally when considering this economic valuation of present and future values I find that I value the present and future as not more or less, but as the same. What I mean is that living in the present is VERY important, making decisions in the present that affect the future deserve the utmost logic, but those same decisions that affect the present and future should be taken into account for any future valuation, which is why I value the present and future as the same. This concept is reflected in economics much differently than I reflect it. In economics most economists use intertemporal discounting to create values for future amounts, the problem is that it is all based on our current money-market economy that creates a necessity for economic gain in the shortest span of time, which is present value. So when this happens economists use high interest rates (upwards of 3, 4, or 5 per cent) to include in intertemporal discounting creating a future value that is only a percentage of the present value amounts. A great example of this market failure is the idea of valuing a human life. Currently a human life is estimated to be worth around $10 million, but if we apply a three (3) percent discount rate to this it means that a human life five hundred years from now is only worth $3.81 in today’s valuation.

 So which human life would you like to occupy? The life you currently live, worth $10 million, or that of future humans five hundred years from now worth a TOTAL of $3.81. No wonder we currently exploit resources like there is no tomorrow, because according to intertemporal distribution and discounting from the world’s leading economists, the value of tomorrow will be so little it will nor be worth to live that long. Luckily for humanity, present and future, environmental economists are attempting to change the intertemporal discounting rate from the usual 3, 4, or 5 per cent interest, to a more reasonable rate of 0.5, 1, or 1.5 per cent interest that would value the future and its resources almost as valuable as present values.

 Let’s just hope the day comes soon enough to slow down our suicidal growth rates before all is lost.

P.S.
 Thank you for your interest, please comment and subscribe.

Onward,

Hayden van Andel

Is Small Beautiful?

The original publication date of the collection of essays Small is Beautiful by E. F. Schumacher was in 1973, and yet MOST of his text continues to ring true today in 2012. A little history regarding the author would be beneficial before we discuss the relevance of this work in accordance with today’s society. Schumacher was a respected economist who worked with John Maynard Keynes and John Kenneth Galbraith, and for twenty years as the Chief Economic Advisor to the National Coal Board in the United Kingdom. He was opposed to the tenets of neo-classical economics, declaring that single-minded concentration on output and technology was dehumanizing. He held that one's workplace should be dignified and meaningful first, efficient second, and that nature (like its natural resources) is priceless.

Now that we have an understanding of the author and the publication date, we can now begin to discuss the relevance of the text with its relation to modern day society. What was very interesting in the reading was the references Schumacher made towards the value of natural capital and the imperative realization of this concept among economists. This concept of 'natural capital' has most likely been around in different forms and terms since the greeks and romans developed the first economies of scale. What is interesting is in 1973 we had a very influential economist stating the effects of not valuing natural capital and the environmental destruction that follows, and now in 2012 we still have many more influential economists stating the same information and authoring similar texts in regard to 'natural capital’. These authors include Paul Hawken, Amory B. Lovins, and many more, and unfortunately we are seemingly in the same position as we were in 1973.

But this is somewhat wrong for a couple of reasons. First, Schumacher states in his text that, “[S]tatistics never prove anything.” This statement made by Schumacher is relatively mis-educated, because currently in our global society statistics provide key data that helps organizations prove that, for example the value of 'natural capital’ through the collection of data regarding the depletion rate of resources in comparison to there demand from society. So this statement made by Schumacher expresses the generation from which he was educated in and developed his theories in (a time when computers had VERY limited computing power).

Since the publication of Schumacher’s collection of essays a lot has changed in society for the better. One example of an area that is experiencing a change in thinking is technology and its relation to the efficiency of innovation in energy. In 1973 Schumacher predicted that by 2028 we would be experiencing an energy crisis the world has never witnessed before. The optimistic outlook in this bleak prediction is, that technology and its creators are beginning to realize their importance in innovating the energy sector to create less supply while providing for the increase in demand. Technology has now helped society exponentially update the energy sector with new and more efficient energy solutions each year while creating less demand for the non-renewable resources (oil, coal, natural gas) that we have been dependent on since the beginning of the industrial revolution.

With this understanding of the relation of Schumacher’s Small is Beautiful to today’s society we can now understand and realize that even though the concept of ‘natural capital’ has been around for tens of thousands of years the realization of the concept takes a lot more effort than predicted. So why not educate yourself on an emerging paradigm that holds its creation in the oldest civilizations known to current societies.

Thank you for your interest, please comment and subscribe.

Onward,

Hayden van Andel

Adopting and Innovating Agroforestry

In agriculture what is more important, diversity or abundance?

Unfortunately this is a loaded question and the answer is mixed, but most often then not the answer is more diversity leads to better agricultural operations. So how does agroforestry play into this diversity concept? To begin we have to define some key terms that help us understand how agroforestry and diversity then create successful agriculture operations.

Innovation/Technology transfer: Is the process of integrating new and innovative technology into operations in a way that creates a more efficient and productive environment.

Diffusion of Innovation Paradigm: The act of innovative designs being incorporated into society as a whole.

Agroforestry: Is a collective name for land use systems and technologies in which woody perennial are deliberately combined on the same land management unit with hervaeous crops and/or animals, either in some form of spatial arrangement or temporal sequence.

Indigenous Knowledge Systems: is human experiences, organised and ordered into accumulated knowledge with the objective to utilise it to achieve quality of life and to create a livable environment for both human and other forms of life.

Endogenous Technology: Is an economic theory which argues that economic growth is generated from within a system as a direct result of internal processes and will lead to economic growth by means of the development of new forms of technology.

Now that we have defined the key terms listed above we may begin to discuss how agroforestry plays such a large role in the diversity level of agriculture. The dissertation from Professor Bradley Tyndall titled The Anatomy of Innovation Adoption: The Case of Successful Agroforestry in East Africa (1996) is a very interesting text regarding the successful integration of agroforestry into farming in East Africa to increase maximum sustainable yield and create diversity. The most interesting aspect of this dissertation is the effectiveness of the Grevillea tree in producing fuelwood for the farmers in a sustainable manner. The Grevillea tree is a Silver Oak tree that grows in Australia and has recently been introduced to Africa. The amazing aspect of the Grevillea tree is its rapid growth and cultivation rate, this makes it extremely cost effective to divert a portion of land to the cultivation of these Silver Oaks for use as fuelwood.

In East Africa the poverty rate is rampant with a majority of the population unable to sustainably heat and cook in their own homes. With farmers producing an abundance of certain crops the soil has begun to deteriorate in quality of nutrient. So farmers have begun to grow and cultivate the Grevillea tree as a percentage of their irrigated land, in so producing different nutrients for the soil and later harvesting the wood as fuelwood for heating and cooking. All this culminates in the practice of agroforestry and the creation of diversity from abundance, which creates a win-win for the farmers of East Africa that do not rely on the energy and fuel from the corrupt governments, and it creates a healthier soil that is more diversified in cultivation.

With the Grevillea tree being used solely for private utility this makes it a non-market good, as it is not commercially sold in the area. But being a non-market good still creates a high demand product. Currently 94 percent of farmers in East Africa grow and harvest the Silver Oaks for private use, seeing that they are cost effective, have rapid maturity phases, and consume at a very efficient rate, the percent of farmers may have grown to close to 100 percent in East Africa alone and even more around the world. The Grevillea tree should remain a non-market good, because it is extremely efficient towards farming techniques creating diversity in crops as well as creating sustainable operations for numerous families in rural East Africa.

This is just one example of a resource that may create diversity out of abundance, and in doing so increasing the efficiency and cost effectiveness of an agricultural operation.

Thank you for your interest, please comment and subscribe.

Onward,

Hayden van Andel

The Difference Between Economic Welfare and Prosperity

For a society to thrive there are many aspects that need to be accounted for. There are the government policies that govern laws and regulations. There are the taxes that support public projects -- including roads, bridges, parks, and commons -- which provide citizens with operational infrastructure. Then there is the national budget and GNP/GDP of a country, which in our current society provides a welfare system that does not allow us to thrive.

This argument has been debated through our bipartisan political system for hundreds of years, but the problem is that the politicians have been looking at it from the wrong point of view this entire time. To build this argument we must first define some key terms that are the foundation to the difference between welfare and prosperity.

Welfare (in the economic sense)- is a branch of economics that uses microeconomic techniques to evaluate economic well-being, especially relative to competitive general equilibrium within an economy as to economic efficiency and the resulting income distribution associated with it.

GNP (Gross National Product)/GDP (Gross Domestic Product)- the market value of final goods and services purchased by households, by government, and by foreigners (net of what we purchase from them), in the current year. Alternatively, it is the sum of all value added to raw materials by labor and capital at each stage of production during the given year.

Circular Flow- the idea that since every expenditure by anyone is at the same time an equal receipt by someone else and receipts in turn become expenditures, money or exchange value flows in a circle. But physical factors and products do not flow in a circle.

GPI (Genuine Progress Indicator)- is an alternative metric system which is an addition to the national system of accounts that has been suggested to replace, or supplement, gross domestic product (GDP) as a metric of economic growth. The GPI is used in green economics, sustainability and more inclusive types of economics commonly known as "True Cost" economics.

Fallacy of Composition- the argument that what is true for the part must necessarily be true for the whole, or vice versa.

Now that we have defined some key terms regarding the difference between welfare and prosperity we can begin to break the issues into separate pieces and later reconfigure them to create a society that is able to thrive. To begin we must distinguish between economic welfare and non-economic welfare, because these are two very different concepts of welfare. Economic welfare as stated in the definitions is  a branch of economics that uses microeconomic techniques to evaluate economic well-being, especially relative to competitive general equilibrium within an economy as to economic efficiency and the resulting income distribution associated with it. Non-economic welfare is a lesser known branch of economics that reevaluates the distribution of action in a microeconomic environment that provides precedence to the welfare that is experienced in the anti-act. An example of non-economic welfare is the leisure time that is experienced when an individual does not need to take the second job, or when an individual is able to leave work on time instead of staying late enabling them the ability to enjoy more time with their families, it  is the welfare that brings true contentment. Examples of economic welfare are the paycheck you receive to buy food, and supply housing for yourself and your immediates. Also economic welfare includes the benefits you pay for such as healthcare and public infrastructure, which provide services to your life that provide economic welfare.

So how does non-economic welfare differ from prosperity? Well non-economic welfare does provide individuals with experiences that are not valued, but prosperity in society would encompass both economic welfare and non-economic welfare. Let’s not compare prosperity to total welfare, because for a society to prosper the economic welfare standards must change and non-economic welfare must be given more importance towards the overall well being of individuals as parts of societies.

Also welfare measures in economics are important, because to an extent they do provide beneficial aspects to large populations. Currently not every individual can feed themselves or their family, so we have developed a welfare system that can feed these individuals. Also some individuals experience medical costs that are impossible to pay, in response we have developed a welfare system that provides for those costs. The negatives from these systems we have developed come in the forms of entitlement and free-rider problems. With these systems individuals have realized that the supply and demand function of society now has a loop hole, as one individual does not necessarily need to supply yet his demands will be met none the less through the contributions of the rest of society. This has led to many critics of welfare states, but unfortunately these same critics advocate for pure competition in the stead of welfare which also does not produce prosperity.

So the challenge that falls on society is, how to develop a welfare system that incorporates more non-economic welfare and different economic welfare system standards. If societies can complete this task they will be on the road towards prosperity as societies recognize what benefits individuals and what harms individuals.

Thank you for your interest, please comment and subscribe.

Onward,

Hayden van Andel

The Human Condition

Imagine... A world with common mannerism, a planet with equal resource distribution, where environmental destruction and social inequality hold the highest punishment. This world has been imagined countless times throughout history, unfortunately the majority that have created history and present day society have been gravely mis-educated. This has led to values, ethics, and overall societal culture to disintegrate. But there is still hope, we can still change directions through logical initiatives; initiatives that promote environmentally sustainable economics, environmental stewardship, and social equality.

The human condition is a unique condition. No other species on Earth experiences it, so it has become almost impossible to define due to the fact that we are not able to test any other species to compare to the human condition. But it is not completely impossible to define the human condition, many philosophers, psychologists, anthropologists, and historians have defined the human condition in different aspects. We will be defining the human condition using values, both intrinsic and extrinsic values. But first we must define some key terms that are foundational to explaining the human condition.

Procedural Utility: The pleasure an individual experiences from doing something, not just from owning material possessions.

Prisoner’s Dilemma: A paradox in decision analysis in which two individuals acting in their own best interest pursue a course of action that does not result in the ideal outcome.

Free-riding: The situation in which an individual enjoys the benefits of a public good without paying a share of the cost of its provision and maintenance.

Extrinsic Incentives: Incentives that are externally derived to promote desirable behavior.

Easterlin Paradox: A key concept in happiness economics. Has to do with the level of income related to level of happiness.

Now that we have defined some key concepts regarding the human condition, we can now delve further into examples regarding the human condition. To begin, when humans camp in the outdoors it is expected of them to leave the camp spot clean and in as good of shape as when they left. This is an intrinsic incentive, because if someone were to leave a camp spot worse off than when they arrived they would experience the social scorn from other members of society along with a possible monetary fine. But some members of society feel that they are entitled to whatever actions they see fit, causing disturbances abound these members are responsible for a majority of the world’s problems. So to deal with these actions we may create extrinsic incentives for the individuals that do not believe in intrinsic incentives. These extrinsic motives could be like offering free camping to individuals whose camping spots were inspected after a stay and were found to be in the same shape as when they arrived. This motive would cause people to clean their camp spots to the same level as when they arrived, which would decrease the cost for them as the camp spot would be free for use. The same could be done on the other end of the spectrum that when a camp spot is left worse off then initially the fine for such an act is tremendously more, leading more individuals to want to clean the camp spot after use to avoid the substantial fines.

Now personally through these extrinsic motives it would not change the way I leave a camp spot, as I believe in intrinsic motives and I enjoy practicing ‘leave-no-trace’ camping practices when I camp in the wild. Unfortunately this is not the case for a majority of individuals in the world, but as Mahatma Gandhi said, “Be the change you wish to see in the world.” So only time will tell if humans choose intrinsic motives over extrinsic motives. Now extrinsic motives can result in negative outcomes all the time, a great example is a study conducted where participants performed IQ tests. One group was paid for each correct question (extrinsic incentive), while the control group was not paid at all for the test (intrinsic incentive). The result was profound, the researchers found that the group getting paid for each correct question performed considerably worse than the control group receiving no monetary gain. This example brings to question the true incentives that drive individuals to succeed.

Now successful economies abound have not managed to survive solely based on intrinsic incentives for individuals, but I also believe that economies based largely on extrinsic incentives contain individuals that are too far separated from society, which can lead to internal competition that benefits no one. I believe in an economy that concentrates more on intrinsic incentives and less on extrinsic incentives, because studies have shown that satisfaction and happiness have very little to do with annual income levels and material possession. This means that an intrinsic valued society has the same if not more satisfaction and happiness than a society that concentrates on extrinsic values. Along with higher levels of satisfaction and happiness an intrinsic valued society has lower costs as not everyone demands some extrinsic incentive for their actions. I believe the two extremes, pure capitalism and pure communism have their benefits and losses, which is why I choose to transcend both paradigms and accept both as plausible systems that can provide concepts to provide the highest level of satisfaction and happiness.

The human condition is intriguing and brings to light some dark questions, but if society may transcend the multitudes of paradigms each their own partisan competitor; the human race may ultimately realize that there are positives and negatives from each paradigm, and through transcendence we may utilize each positive and discard the polar negative to once again thrive like past ancient civilizations before us.

Thank you for your interest, please comment and subscribe.

Onward,

Hayden van Andel