Spitting In The Ocean
The Invisible Economist and Eco-System Services Markets
Over the years, I have had a couple of work assignments that took me over into the economics of transport and road building. Road building makes it easier to move things and people around, and those activities have broad economic effects. Roads are important to social welfare and people's living standards. But, aside from the economics that I was supposed to be applying in those projects, I was also intrigued by some of the institutional aspects of actually building or rebuilding a road.
Roads are typically mandated by the public sector, or, government. And while governments will usually retain some transport engineering capacity, roads are most often built by private for-profit engineering firms and road building companies. The agency that implements road-building policy decides where the road will go and other particulars. But, after that, they just manage the expenditures and watch the private firm build the road.
What was interesting about this institutional set up for building roads was that all the players needed their own road engineers. The government agencies needed road engineers for specifying the bid solicitations and managing the project. The engineering firms obviously needed road engineering capacity. And the actual road-building companies needed engineers to make good on implementing the design. There always seemed to be another set of engineers who followed along afterwards to verify that the road had been built the way it was supposed to have been built. It seemed that everybody in the process had a road engineer or two.
Roads, like healthy natural eco-systems, are public goods. That means they provide benefits that are difficult to exclude anyone from enjoying. While environmentalists might not want to think of themselves as being in the same league as road builders, their work does share this public good aspect. And, the authority and funding for protecting or managing natural ecosystems, like building roads, largely originates in the public sector (- all the good work of not-for-profit organizations not withstanding).
So, if environmental managers/protectors want to innovate with eco-system services markets, who is the technical equivalent of the road engineer in this process? Is it the physical or life scientist who defines the parameters of a healthy eco-system? Is it the modeler who can show a defensible way to put the various science findings together? Or is it the economist, who can suggest ways to incorporate this modeled science into the economic world, where everything is denominated by monetary values.
I would argue that it takes expertise from all of these disciplines to build functioning eco-system markets. I would further argue that, by and large, economists are missing from the process. I recently had occasion to look at the water quality trading schemes that are being developed in response to the Chesapeake Bay TMDL - a classic eco-system services market innovation. The absence of economists associated with those various schemes, while not complete, was very near complete. I was puzzled by this.
Was it that the people designing the trading schemes were not aware of how economics could inform their design and perhaps help them to avoid pitfalls? Was it that the economists were not available to help with this work (or, same result, were speaking a language that nobody else could speak)? Were there institutional pressures, or was it just the result of random bad decisions?
It is always nice to wrap up with a thought that resolves the issue under discussion. But I can't do that here. Because I haven't really answered any of the questions in the preceding paragraph. Governments have been building roads for a long time and they have only just recently started trying to create ecosystem markets. Maybe this is all just a function of where we are on the eco-system services markets learning curve.
Maybe I should lower my expectations. But if that is the case, I hope that getting eco-system services markets wrong the first time around will not be as costly as building a bad road. People die on bad roads. Still, getting eco-system services markets wrong will delay the environmental outcomes that we all desire. And, it would be truly sad if failing to get it right the first time deflates all the interest that currently seems vested in the idea.