Economic Approaches to Managing Natural Resources

Katie Huston for TEI

John Stranlund was drawn to economics because of his passion for the environment. “Economics looked like a promising avenue for me to study environmental issues,” he says. “I cared about the environment and development before I cared about economics. In fact, without the environment and development aspect, I’m not sure I would be an economist.” Today, Stranlund is a professor in the Department of Resource Economics where he’s been on the faculty since 1993. His current research takes two distinct directions, ranging from the effectiveness of environmental regulation in the developed world to resource-sharing and government intervention in small fishing villages in Colombia.

One current project focuses on the design and enforcement of pollution control policies in the developed world, and how well governments and businesses comply with these policies. Stranlund began by theorizing about the efficiency of various incentive-based policies, such as emissions taxes and cap-and-trade policies, which he says “put a price on using the environment as a waste dump.” Soon, he connected with people who run economic experiments to evaluate the policies’ effectiveness.

“How do you enforce these policies in a dynamic environment that evolves over time?” he asks. Stranlund, along with five other researchers – including John Spraggon, an associate Resource Economics professor at UMass Amherst, and James Murphy, who left a similar position for one at the University of Alaska Anchorage – recently received a $1 million grant from the Environmental Protection Agency to try to answer this question. Stranlund and his colleagues are looking at efficient ways to design and enforce cap-and-trade policies, one regulatory method used to control pollution.

“Cap-and-trade has gotten a lot of press lately because it’s a viable option for controlling carbon emissions,” Stranlund says. Cap-and-trade policies set a statewide or nationwide “cap,” or limit, on the amount of emissions from a particular industry. “Under that cap, you distribute rights to pollute to each of the sources,” he explains. “The sources trade these rights with each other, so that a market develops.”

Effective policies must be able to adapt to a changing world. “Enforcement of these rights has to evolve over time,” he says, “because the market evolves over time. We’re looking at efficient ways to design dynamic enforcement strategies.”

The merits of cap-and-trade policies are often debated and contrasted with emissions taxes, which set a price on pollution but do not set an upper limit on emissions. Personally, Stranlund believes emissions taxes are more efficient, but politically more difficult to implement: “People hate taxes.” It’s important to analyze the effectiveness of cap-and-trade, he says, because it’s a much-discussed regulatory choice. “We’ve had enough experiences with these programs and enough successes with these programs that they’re always going to be part of the debate,” he says.

On the other end of the spectrum, Stranlund supervises ongoing research on the local governance of communal natural resources in rural Colombian fishing villages. His research question is twofold: first, what motivating factors govern the sharing of natural resources? And second, can governments intervene effectively to promote conservation? Like the new project on enforcing cap-and-trade pollution policies, much of this research uses economic experiments in which subjects play economics games to test theoretical hypotheses.

In many Colombian fishing villages, people depend critically on one local resource, Stranlund explains, which is not owned by anyone -- common property resources. When resources are shared, there is often an incentive to overharvest, which is detrimental both to human welfare and to the environment.

Research began in the late ‘90s, when Juan Camilo Cardenas, a Colombian graduate student, initiated the project. “He cared about these local people and their relationships with the local environment in situations where they depended critically on a local resource,” Stranlund says.

Cardenas is now a professor of Economics at the Universidad de los Andes in Bogota, Colombia. Because of their relationship, several other Colombian students have come to UMass Amherst to study with Stranlund.

“In one area we’ve studied, families harvest clams in the mangrove forests on the Pacific coast; they just walk into the mangroves and poke around in the mud to find these clams. That’s about as low-tech as you can get,” Stranlund says.

Community members may have various motivations for action, he says. They may try to maximize their own welfare, irrespective of others. They may behave altruistically, aware that their actions affect the welfare of their neighbors. Or they may conform to accepted behaviors and social norms, which is what Stranlund and his Colombian partners tended to find.

“These communities come up with rules or norms, usually informal rules, about how to share the resource. Their rules could be that you don’t take a clam of a certain size, or you harvest clams from one area for a little while and let another area regenerate,” Stranlund says. The findings that people tend to conform to community norms are “really non-economic,” Stranlund says. “Economists have only recently started thinking of people making choices based on a psychological pressure like that.”