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It's great to welcome all of you to the eighth edition of the Oxy Economics Newsletter! A special welcome goes to the Econ majors of the class of 2007, who are still adjusting to the idea of being Oxy alums. The idea behind the newsletter is to keep you updated on departmental news and give you a chance to let us and your classmates know what you've been up to.

It's not every day that the White House comes calling, so we were very pleased that Sita (Nataraj) Slavov was invited to serve as a Senior Economist in the President's Council of Economic Advisers for 2007-08 (following in the footsteps of Econ major Kathy Shaw '76, who served in the Council in 1999-2001). You may read the official news announcement here: http://www.oxy.edu/x12197.xml. While Sita is in D.C., John Romley, an associate economist at RAND, is visiting the Department and adding another brand-new class to our offerings: Health Economics.

Environmental Economics in Daily Life:  Or How to Buy Your Next Dishwasher

Bevin Ashenmiller, Ph.D.

The First Fundamental Welfare Theorem of Economics says that private markets are perfectly efficient provided certain conditions are met.  These conditions include that there are no public goods, no externalities, no monopoly buyers or sellers, no increasing returns to scale, no information problems, no transactions costs, no common property, no taxes and no other distortions between the price that the buyer pays and the price that the seller receives.[1] The problem for an environmental economist is that the list of necessary conditions is long.  As an economist I spent two years learning the rules of neoclassical theory, and I will spend the rest of my life learning about the exceptions to the rules. 

In the first year of my Ph.D. program, one of my microeconomics classes was taught by a visiting Professor from the University of Minnesota, Leo Hurwicz.  Professor Hurwicz, who won the Nobel Prize in Economics this year, assigned the proof of The First Fundamental Theorem of Economics countless times over the course of the semester, each time with a slightly different set of assumptions.  One of the assumptions that we changed was whether or not disposal was free.  It turns out that this question of “free disposal” has defined much of my academic research.   

What does “free disposal” have to do with our everyday choices?  Well, the other day I bought my first dishwasher.  As an economist I made my decision on the margin.  I started with a top-end model and asked the sales person about the different features this model offered.  Once I understood what I was getting, I asked about the next model down: what am I giving up for the reduced price?  I continued down the line until the cost savings of the next model down did not seem to me to be worth the features that I was losing.  The question of disposal never came up.[2]  What happens to a dishwasher at the end of its product life?  It costs money to dispose of a product, but at the time of my dishwasher purchase I was given no information about what the actual cost of disposal would be.  Some of the dishwashers contain polyvinylchloride or PVC.  These dishwashers will cost more for society to dispose of because the disposal of PVC releases dioxin, a very toxic chemical, into the air when burned.  In a perfectly efficient market the disposal cost of each dishwasher would be one of the features that the salesperson would tell me about when I was learning about the product.  Unfortunately, this wasn’t the case.  

In general, consumers pay for disposal as a lump-sum.  You may have one or two garbage cans or perhaps you have the three-bin system with garbage recycling and compost, but you pay a monthly fee for garbage pick-up whether you fill your bin or not.  Ideally, for economic efficiency, you would pay for exactly what you throw away.  It would work like this.  The garbage collector would throw your garbage into the truck, where a scanner would recognize the different objects, and you would be presented with a bill.  So if you were throwing away used paint and batteries your bill would be much larger than if you were throwing away organic materials.  If this was the case, we would be charging you a Pigouvian tax. 

Under a Pigouvian tax a consumer pays a disposal fee equal to the marginal damage caused by the disposal. Unfortunately, a Pigouvian tax creates an incentive for me to throw my used batteries away in my neighbor’s garbage, at my office, or maybe even just on the ground.  An alternative to a Pigouvian tax is a deposit-refund program.  A deposit-refund program is a consumption tax combined with a disposal rebate that is the equivalent of a Pigouvian tax, something like the California Cash redemption program on beverage containers.  A deposit-refund is preferable to a Pigouvian tax.  While a Pigouvian tax encourages illegal disposal by individuals trying to avoid paying the fee, a deposit-refund encourages correct disposal, in this case recycling.  In the presence of illegal disposal a deposit-refund program is the most efficient way of internalizing the external costs of waste disposal.  In other words, consumers recognize that they will have to pay for the disposal of the good they are consuming at the end of its product life. 

When it comes to our old dishwasher, it turns out the company I bought the new dishwasher from will take the old unit, which leads me to believe that there must be something in it for them.  So perhaps there is an embedded deposit-refund, one that is available to the retailer and not visible to the consumer; or maybe the market for recycling dishwashers is already functioning without any incentives. 

Sometimes markets don’t meet all the assumptions to function efficiently, and when we talk about environmental commodities this is almost always the case.  So while everyone is tired of talking about global warming, remember to think like an economist.  Global warming is a great example of a public bad.  A public bad is the opposite of a public good.  It happens when the cost of my behavior is born by people outside of the market transactions that I am making.  Although you won’t be using my dishwasher anytime soon, we all live in the same climate conditions; any greenhouse gases that my dishwasher produces during its production, use, and disposal will damage your ozone as well as mine. 

So how much do you want to bet that my dishwasher met the Energy Star regulations?

Bevin Ashenmiller starts her third year in the Economics Department after delivering her daughter, Finley Evelyn Ashenmiller, on May 4^th, 2007.  Finley has already attended several economics seminars and looks to be a promising young economist already.  Professor Ashenmiller is not teaching in the fall, but is looking forward to teaching an upper division class on Environmental Economics and two sections of  Principles of Economics I.  She and Professor Slavov report that the field trip last fall to the “The Price Is Right” was a huge success, culminating in one of Professor Slavov’s students winning a minivan!  A good time was had by one and all.

Lesley Chiou looks forward to her third year at Oxy. During the 2007-2008 academic year, she will be teaching Intermediate Microeconomic Theory, Applied Econometrics, and Industrial Organization. Lesley's fields of interest are Industrial Organization and Applied Econometrics. Her research focuses on competition in the retail sector and the application of simulation methods in estimation. 

Mary Lopez looks forward to another exciting year at Oxy. Last year, she taught Principles of Economics II and the Economics of Race and Gender. She spent her summer working on her research projects in immigration and attending conferences in Seattle, Boston, and North Carolina. This academic year she will be teaching Principles of Economics II, Labor Economics, and a Frosh research seminar entitled "The Economics of Immigration." 

Jerry McIntyre has been at Oxy since 2001. In the fall he is on leave spending time at the International Monetary Fund in Washington , D.C. doing research on economic growth, macro and international economics. He looks forward to a great spring semester teaching Econ 311 - International Economics and Econ 361 - Topics in Macroeconomics. He extends an invitation to everyone to drop by his office, Fowler 224, for an espresso and some econ whenever they are free.

Robby Moore finished his three-year term as Chair of the Department in December.  He had his latest paper, "When Are Piece Rates Effective? What Recent Studies Reveal", published as a chapter in a new book published by WorldatWork (formerly the American Compensation Association) entitled, Incentive Pay -- Creating a Competitive Advantage.  He continues as Director of Oxy's Center for Teaching Excellence and is working on a new paper on the impact of student group (team) composition on knowledge transfer and individual performance in the introductory economics classroom. 

Giorgio Secondi taught principles in the fall and intermediate macro and development in the spring. He also continued to work on his development economics reader, which he is editing for the British publisher Routledge. He was glad to finish writing the pedagogical material (185 pages!), and he looks forward to seeing the finished product for sale sometime this coming spring. Giorgio also continued to serve on Faculty Council and became Chair of the department in January. In July he made his usual trip to New Hampshire to teach high school kids at the Phillips Exeter Academy; he wrapped up his summer with a wonderful bike tour in Ireland.

Sita (Nataraj) Slavov taught two brand new courses in 2006-07: a frosh seminar entitled "The World Through the Eyes of Economists" and an upper-division course on the Economics of Information. The frosh seminar was based around five popular press books by academic economists, including Freakonomics by Steven Levitt and Stephen Dubner, and Peddling Prosperity by Paul Krugman. Sita spent the summer at Stanford working with her co-authors on two research projects. They investigated the provisions of the Medicare program that discourage work at older ages, and the impact of Social Security rules on couples' decisions to divorce. Sita is on leave in 2007-08. She is spending the year in Washington, DC as the senior economist for public finance on the President's Council of Economic Advisers. While she's excited about being in Washington, she looks forward to returning to Oxy.

Woody Studenmund continues to love teaching his econometrics and managerial economics courses, and the fifth edition of his book, Using Econometrics, appears to be the best-selling elementary text in the field.  Woody's son Scott now is a senior in high school, so they've been visiting quite a few colleges lately.  So far, Woody has shown a distinct preference for those colleges that have adopted his text!  "They're clearly better schools,"  he says with a grin.

Mike Tamada continued as the Director of Institutional Research. His projects included analyzing students' choice of majors, helping with assessment of the success of Oxy's diversity efforts, and studying the causes of differential GPAs.  He was elected to the Nominating  Committee of the Association for Institutional Research, and appointed to the Professional Development Committee of the Higher Education Data Sharing consortium. He advises the men's and women's Ultimate Frisbee Clubs and travels to Potlatch, a large coed Ultimate tournament in Seattle, to play with the Oxy reunion team whenever he can.

Kirsten Wandschneider is excited about starting her first year at Oxy. She was a professor at Middlebury College before joining our department. Her teaching interests include macroeconomics, international economics, international finance, economic history, and the economies of Europe. Her scholarly work and publications have been on such topics as "Peace and Economic Interdependence in the Middle East," "The Effects of Political Regimes and Technology on Economic Growth," and "The Stability of the Inter-War Gold Exchange Standard." This year she will teach Principles, Intermediate Macro, and a new elective titled "Economic Institutions in Historical Perspective."

Jim Whitney remained heavily involved in campus affairs last year as he completed the second and final year of his term as Faculty Council President. Jim once again enjoyed teaching his old standards, Principles of Economics (Econ101) and International Economics (Econ311), and he looks forward to resuming a full teaching load in the Fall 2007 semester. Jim will be on sabbatical in Spring 2008, when he plans to continue his research into the economics of professional team sports and the economics of private higher education.