Electric Cars

• “Spatial and Temporal Heterogeneity of Marginal Emissions: Implications for Electric Cars and Other Electricity-Shifting Policies,” by Joshua Graff Zivin, Matthew J. Kotchen, and Erin T. Mansur. October 2012. University of California Center for Energy and Environmental Economics Working Paper WP-047.

Do electric vehicles emit less carbon than conventional gasoline-powered vehicles? Many people would probably say yes. But the actual answer depends on the type and amount of fuel used to generate the electricity used to charge the batteries.

To compare emissions for the current American fleets of both types of cars, the authors of this paper use the continuous emissions data for 2007–2009 for electricity generating plants in the United States. They create hourly estimates of the effects of marginal increases in electricity use on carbon emissions at the level of the nation’s three electricity transmission systems: east of the Rockies, west of the Rockies, and Texas.

The average emissions rate is 2.1 lbs. of carbon dioxide per kilowatt-hour (kWh) of electricity, taking into account generation and transmission losses, which amount to 4.6 and 9.6 percent respectively of gross generation. Current plug-in electric vehicles (PEVs) consume 0.35kWh per mile, and thus result in 0.735 lbs. of carbon dioxide emissions per mile. Gasoline-powered autos and light trucks in the United States in 2009 averaged 21.7 miles per gallon, and each gallon of gasoline consumed resulted in 19.6 lbs. of carbon dioxide. Thus, conventional vehicles emitted 0.9 lbs. of carbon dioxide per mile on average. That means that PEVs have lower carbon emissions than the average conventional vehicle in operation.

But if one already uses a high-mileage conventional car, then the scope for carbon improvement through the use of a PEV is much smaller. Consider the Toyota Prius: If one gets 50 mpg, then an emission-equivalent electric vehicle would have to be charged from generators whose carbon emissions were less than 1.13 lbs. per kWh. Only 12 percent of fossil-fuel-fired generation have emission rates that low.

An all-electric Nissan Leaf would emit 0.735 lbs. of carbon dioxide per mile, while fuel-efficient conventional vehicles like the Honda Civic, Toyota Corolla, Chevy Cruze, and Ford Fiesta get 31 mpg and thus emit 0.63 lbs. of carbon dioxide per mile. Some 59 percent of fossil-fuel-fired generators that would be used to recharge the Leaf would produce more carbon than the conventional cars would produce through gasoline combustion.

Another complicating factor in comparing PEVs to conventional cars is the time and place that PEV owners choose to charge their vehicles. Marginal carbon emissions from electric generators vary by region and by time because of the composition of fuel used by generators—primarily the tradeoff between coal and natural gas. Charging an electric vehicle between midnight and 5 a.m. anywhere east of the Rockies would result in more carbon emissions than driving a gas-electric hybrid like the Prius because of the dominant role of coal-fired electricity generation during those hours.

Air Quality

• “Defensive Investments and the Demand for Air Quality: Evidence from the NO_x Budget Program and Ozone Reductions,” by Olivier Dechenes, Michael Greenstone, and Joseph S. Shapiro. July 2012. SSRN #2109861.

Estimates of the health benefits from air pollution reduction are difficult to obtain because of the lack of natural experiments. Most evaluations of emissions markets combine engineering models of emissions with atmospheric chemistry and transport models and epidemiological models of dose and health response. The epidemiological models, in turn, are grounded in cross-sectional statistical relationships in which differences in aggregate pollution exposures are compared to differences in health outcomes across metropolitan areas.

For six years, from 2003 through 2008, the summer cap-and-trade system for nitrogen-oxygen molecules (NO_x) was in operation in the Eastern and Midwestern United States. On May 1 of those years, emission levels dropped 35 percent and then rose again on October 1 when the summer season ended. This created a natural experiment that the authors of this paper used to create estimates of changes in exposure and health effects. Their work also examined asthma drug expenditures in order to estimate people’s willingness to pay to avoid negative respiratory health outcomes.

The authors used a triple-difference estimator that compares winter vs. summer, participating vs. nonparticipating states, and before- and after-2003 pollution and health outcomes. In the participating states in the summer, ozone average concentration dropped 6 percent while peak ozone levels dropped 23 percent. In that time period, asthma drug expenditures decreased 1.9 percent, or $900 million. That cost exceeded the cost of abatement, which was less than $761 million per year (365,750 tons per summer multiplied by the average permit cost of $2,080 per ton). Summer mortality decreased 0.5 percent, or 1,800 fewer deaths per summer among people age 75 and over, but those benefits may simply be the result of short-term displacement from the summer to the winter.

The authors argue their results stem from ozone reductions rather than other plausible channels. They find no effects on plausibly unrelated health conditions such as those that require gastrointestinal medications. They also find no effects on other pollutant concentrations such as carbon monoxide or sulfur dioxide.

Behavioral Economics

• “Are People Probabilistically Challenged?” by Alex Stein. March 2012. SSRN #2015075.
• “Behavioral Law and Economics: Its Origins, Fatal Flaws, and Implications for Liberty,” by Joshua D. Wright and Douglas H. Ginsberg. September 2012. SSRN #2147940.

The most important intellectual challenge to the belief that adults in market settings make decisions that improve their welfare is behavioral economics. Behavioral economics claims that people commit cognitive errors in choice settings. The result is reduced, rather than improved, welfare.

Many who advocate government regulation of markets use results of behavioral economics as a rationale. The ascendancy of behavioral views as rationales for regulation was confirmed by the appointment by President Obama of Cass Sunstein to head the Office of Information and Regulatory Affairs, the agency that analyzes the cost effectiveness of major federal regulations. Sunstein is the coauthor with Richard Thaler of Nudge (Yale University Press 2008), a popular exposition of behavioral thought.

Another important book advocating behavioral approaches to economics is Thinking Fast and Slow (Farrar, Strauss, and Giroux 2011) by Daniel Kahneman, one of the first scholars to criticize neoclassical economics from the behavioral perspective. Before this book, the behavioral critique was just a list of cognitive errors, each of which had a name such as “the endowment effect” (people demand more to part with something they already have as compared to what they would pay to get the same good), “hyperbolic discounting” (placing an extremely high weight on present costs and benefits as compared to future costs and benefits), and “optimism bias” (a person believes that bad events are far less likely to happen to him than to others). Kahneman’s book provides an explanatory theory for these errors. He argues that “fast thinking,” or intuition, is often susceptible to such errors, whereas “slow thinking,” or deliberation, typically avoids them—but unfortunately it is not used very often.

Stein’s review of the book praises it for finally providing a theory to supplement the list of cognitive errors that subjects in behavioral experiments make. But Stein argues that the errors made by subjects in behavioral experiments are often the result of subjects having to wade through a narrative fog to figure out what the experimenters were asking them, not simply the product of fast thinking. More explicit questions would have elicited more correct answers, he claims. As evidence for this, he points out that participants in these experiments could only be fooled once; once the scenario became apparent to them, they made rational choices successfully. “Under neither scenario can such a person be considered cognitively incompetent and in need of the government’s intervention,” Stein claims.

Wright and Ginsburg argue that the cognitive short-comings found by behavioral experiments may not be relevant in real markets.

The Wright and Ginsburg paper covers much of the same ground. They provide a comprehensive list of the cognitive errors found by behavioral experiments, but then argue that cognitive shortcomings that exist in experiments may not be relevant in real markets. They reference articles by Charles Plott in the American Economic Review that echo the claim of Stein that the results of the experiments are the product of the subjects’ inability to understand the instructions of the experiment rather than inherent cognitive limitations. They provide a more comprehensive list of citations that critique specific behavioral experimental results or their relevance for designing policy intervention.

College Graduation

• “First Degree Earns: The Impact of College Quality on College Completion Rates,” by Sarah Cohodes and Joshua Goodman. August 2012. SSRN #2128786.

One of the great puzzles in contemporary applied economics is the failure of college graduation rates to rise in response to the dramatic increase in economic returns to a college degree relative to high school over the last 30 years. Normally, in markets where the returns to a factor increase dramatically, the supply of that factor increases to take advantage of the returns. To be sure, college attendance rates have increased and college graduation rates among those under age 29 have increased from 29 to 33 percent from 2000 to 2012, but the college wage premium remains high.

Private selective colleges and honors programs at public universities graduate most of their students, while general programs in public universities are less successful. This raises the question, is the design of the general programs flawed, or are the students in those programs somehow “different” in a way that negatively affects graduation rates? Students who apply to the Ivies and honors programs could be different from students in the regular public university systems in ways that are unobservable to the data gathered by researchers. Or private schools and honors programs have “special” production processes (e.g., more financial aid, smaller classes, better faculty, more intimate supportive environment) that aren’t being duplicated in the general programs.

As I argued in my review of the book Crossing the Finish Line by William Bowen, Matthew Chingos, and Michael McPherson (Spring 2010), the central problem in educational policy research is disentangling selection effects from program effects in educational outcomes. That is, do private school students do well because of characteristics of the students, or the schools? This issue is usually impossible to adjudicate with normal regression analysis. Instead, true experiments or quasi-experiments are necessary.

The authors describe one such experiment: a Massachusetts aid program that gave aid only for public schools attendance. The effect of this program was to induce students with superior ability to attend lower-quality colleges. So what happens when higher-ability students attend lower-quality colleges?

The authors used a research discontinuity design. That is, they compared students just below and above the thresholds for receiving aid who were presumably identical other than being aid-eligible. The scholarship program covered only tuition and not fees, so the actual reduction in college costs accounted for by the aid program was a 13–15 percent discount. Of the 8.3 percent of students induced by the aid to enroll in public colleges within Massachusetts, only 27 percent graduated within four years. For the marginal student induced by the scholarship to attend an in-state public college, the probability of graduating on time was reduced by 26 percentage points, or more than 40 percent.

In my review of Crossing the Finish Line, I argued that even though the intellectual evidence for the positive role of increased educational resources in educational success was suggestive, there was also contrary evidence that made me conclude that selection was still viable as an explanation. Thus, I wrote at the time, before we commit more resources to education, we should make sure that increased resources really alter outcomes for the better. This article adds to the evidence about resources by demonstrating that inducing high-quality students to attend public institutions that have fewer resources lowers graduation rates dramatically.