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HISTORY OF ECONOMIC RESEARCH AT THE EPA (Updated August, 2006) by Alan Carlin

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Economic research has been carried out by EPA since its earliest days as an Agency. The purpose of this Appendix is first to outline the history of some of this research, then to outline how it has evolved over the years, and finally to suggest its longer-run significance.

The placement of economic research and analysis within the EPA was uncertain from the beginning. Two offices, the Office and Research and Development (ORD) and the Office of Policy, Planning and Evaluation (OPPE), were interested in economics, but neither one has had exclusive jurisdiction. From 1971 to 1983, most economic research was carried out at Headquarters in the Office of Research and Development (ORD). Most economic analysis, on the other hand, took place either in OPPE or in the program offices such as air and water. From 1983 to 1988, most of the research and some of the analysis was carried out by the Office of Policy, Planning and Evaluation; from 1989-94 a more limited program of both research and analyis was carried out by OPPE as well as research by ORD; and from 1995 to date much larger programs were carried out by the National Center for Environmental Research (NCER) in ORD and by the National Center for Environmental Economics (NCEE) in the Office of Policy, Economics, and Innovation (OPEI), the successor to OPPE. Throughout this period, other offices have also been actively involved in carrying out economic analyses and studies, but their efforts are not discussed in this Appendix since their work is not classified as research. In addition, there is a small amount of economic research at ORD laboratories, which will also not be discussed.

The history of the ORD and OPPE/OPEI programs can perhaps be best summarized in the following table, which describes the characteristics of the two programs over five periods within the years 1971 to 2005 selected on the basis of significant program-changing events within EPA. The first period (1971-75) ended with the dissolution of the Washington Environmental Research Center (WERC) in ORD in the mid-1970s and the transfer of the economic benefits related research to the ORD Headquarters Office of Health and Ecological Effects. The second period (1976-83) ended with the transfer of most of the ORD Headquarters economic research resources to OPPE in 1983 and the very rapid expansion of the economic research program as a result of the Executive Order of 1981. The third period (1983-89) ended with the demise of the external OPPE economic research program in 1989 due to continuing budget cuts by the US Office of Management and Budget.. The fourth period (1990-94) ended with the transfer of most external ORD research from their laboratories to the newly created National Center for Environmental Research in Washington, the creation of an economics and decision sciences program within NCER, and the rapid expansion of OPPE's economic analysis and research staff starting in the mid-1990s.

EPA Economic Research by Historical Period, 1971-2009
#
Office
Program Type
Typical
Mechanisms
Research Subject Initiation
Research Institution Selection
Reports Listed on Web*
Period 1--1971-75
1
ORD/Implementation Research Division & later Washington Environmental Research Center (WERC)
      In-house staff of about 25 with contract support. Primary emphasis was on five areas: Economic benefits of pollution control, economics of regulation, use of economic incentives for pollution control, energy conservation, and use of environmental impact statements. Resources averaged about $3 million per year in the early years and somewhat less in the later years.
Small con-
tracts
StaffStaffYes
2
OPPE
      In-house with contract support. Primary emphasis was on short-term cost analyses required for Agency regulations and policy development
Small contractsStaffStaffYes
Period 2--1976-83
3
ORD/OHEE
      Centers of excellence selected through staff reviews of responses from very broad RFP responses. Primary emphasis was on the economic benefits of pollution control, including the use of a new methodology, contingent valuation, to determine benefits. The basic methodology for using contingent valuation for this purpose was developed during this period and applied to measuring the benefits of both air and water pollution control. Resources averaged about $1-2 million per year starting in 1976. The primary recipients included the University of Wyoming and to a smaller extent Resources for the Future.
Large grants competitively bid (an innovation later adopted for all EPA grants)Staff/ researchers proposed detailed topicsStaffYes
4
OPPE
      Work assignments (WAs) using mission contracts. Primary emphasis was on short-term cost analyses required for Agency regulations and policy development.
Work assignments StaffStaffYes
Period 3--1983-89
5
ORD
      Exploratory Research Program--External peer reviewed and selected grants in response to extremely broad annual RFPs. Resources averaged about $1 million per year.
Small grantsResearchersExternal peer review panelNo--re-
cords unavaila-
ble and may be lost
6
OPPE
      Staff-reviewed, researcher-generated research projects in response to very specific RFPs & work assignments. Primary emphasis was on the economic benefits of pollution control, including further development and use of contingent valuation to determine benefits, in response to the 1981 Executive Order requiring cost-benefit analyses of major regulations. Resources were about $4 million per year in the early years, decreasing to a few hundred thousand per year in the later years. Recipients included primarily universities with larger concentrations of environmental economists.
Medium to large grants & WAsStaff;
researchers proposed detailed topics
StaffYes
Period 4--1990-94
7
ORD
      Exploratory Research Program--External peer reviewed and selected grants in response to extremely broad RFP. Resources averaged about $1 million per year.
Small grantsResearchersExternal peer review panelNo—grantee lists unavail-
able before 1991
8
OPPE
      Program-oriented research grants/work assignments. Emphasis was on the economic benefits of pollution control. OPPE resources of a few hundred thousand per year were supplemented by joint funding with program offices averaging about a half million per year.
Medium/large grants & WAsStaffStaffYes
Period 5--1995-2007
9
ORD/NCER
      External peer reviewed grants in response to very broad RFP on decision-making and valuation for environmental policy issued jointly with NSF; gradual substitution of somewhat more narrowly focused RFPs and end to joint program with NSF. Primary emphasis was on economic benefits of pollution control, corporate environmental behavior, and economic incentives. Resources were roughly $2-3 million per year. Recipients were primarily academic institutions with expertise in environmental economics.
Medium to large grantsLargely researchers although increasing staff input in recent years Largely external peer panel; some staff input 1996+No—full technical reports not required but summaries and. RFP list are available.
10
OPPE later OPEI/NCEE
      In-house staff of about 25 supplemented by program-oriented grants/contracts. Emphasis was on the economic benefits of environmental pollution control. External resources for research were about $1-2 million per year. Recipients were primarily academic institutions with expertise in environmental economics, with increased use of contracts in very recent years.
Grants/ contractsStaffStaff until early 2000s when grant selection became more competitiveYes
Period 6--2008-2009
11OPEI/NCEEORD and OPEI programs merged in OPEI/NCEEPrimarily grants with some contractsBoth researchers and staffPanels of NCEE staffYes
* From Environmental Economics Report Inventory.

Although there were substantial differences in the research subjects (such as benefits, costs, etc.) funded between the first and the second periods, there was much less difference in the research subjects funded in the second, third, and fourth periods. The principal difference (other than the use of grants rather than contracts) between the first and the second periods was the increase in funding for research on benefits and the decrease/disappearance of most of the other categories except for economic incentives. The main difference thereafter was a further increase in benefits research in the third period (mainly in the subject areas of revealed and stated preference research) and a gradual increase in the media (air, water, etc.) covered since the initial concentration was on air pollution with water pollution added more strongly in the second period. By the third period other media were added--a trend that continued into the fourth period. A non-technical description of much of the wide-ranging and arguably ground-breaking benefits research funded in the second period can be found in Allen Kneese, Measuring the Benefits of Clean and Water. Research funded in the third and fourth periods had an equally broad scope but tended to fill in gaps in both subject and media areas funded during the second period. In the latter part of the fifth period, however, ORD economic research has expanded into new areas such as corporate environmental behavior. Appendix 2 provides a detailed analysis of the distribution of subject matter for reports funded during the first three periods.

Although the history of the program has been very varied it terms of both the methods used to implement the program and the offices that did so, perhaps two important conclusions can be drawn concerning the longer-run significance of the early years of the program. The first is that the first two periods of the economic research program laid much of the groundwork for the use of economic benefits to determine the economic efficiency of EPA's proposed regulations. Prior to 1983, when the research program moved from ORD to OPPE, OPPE was primarily concerned with cost analysis, which was all that was required to justify regulations prior to 1981. But as a result of the 1981 Executive Order requiring cost-benefit analysis of major Federal regulations, it suddenly became important for EPA to determine the benefits of its regulations as well if they were to survive scrutiny as a result of the new Executive Order. The research carried out by ORD prior to 1983 provided much of the research that made this possible in the early years. As of the early 2000s, for example, the Mitchell-Carson estimates of the value of water quality improvements were still being used by the EPA Office of Water to value their relevant regulations.

Besides "introducing" EPA to benefits, the research program also made a major contribution to research on benefits by funding much of the early research on contingent valuation and related stated preference techniques. This, in turn, has made it possible to quantify the benefits of many EPA regulations where the benefits cannot be valued in terms of goods traded in open markets. Although some of the basic ideas underlying contingent valuation and stated preference existed prior to EPA funding, it was probably EPA funding that made it possible for the interest of the few academics then involved to be transformed into the present self-sustaining academic interest in the subject. This viewpoint is supported by an analysis written by one of the pioneers in benefits research, Clifford Russell, which says in part:

"What has happened to turn things around, so that journal editors complain of being flooded by papers about what has come to be called “contingent valuation” (CV)? I would give a large share of the credit (or blame if you happen to think badly of the approach) to Alan Carlin at EPA. Alan managed to find and protect the money that supported most of the early efforts, concentrated in Ralph d’Arge’s group at Wyoming. These efforts began identifying problems for such techniques and even suggesting possible solutions. Perhaps most importantly, they failed to find evidence of pervasive strategizing in the responses. (This work also produced the CV tag, which was dev ised to avoid the word “survey” which was a red flag to OMB reviewers.) Such reviews resulted in demands to expand samples, chosen in sophisticated ways which in turn implied much higher expense than the EPA project budgets allowed.
"At roughly the same time, Peter Bohm was doing his famous TV show experiment in Stockholm (Bohm, 1972). This also showed immunity of respond ents to the efforts of the survey designer to provoke under and over statement (“free riding ” and “overbidd ing”), which is to say strategic responses. But Peter would an d does stress that it shows a tendency to state substantially higher amounts for WTP in situations described as not involving any payment.
"Other researchers took up the challenges as well, including Robert Mitchell, then at RFF, who had experience in survey work. He, in turn, brought in Richard Carson; and the two of them eventually parleyed an EPA (Carlin) cooperative agreement into the 1989 “bible” for the field.
"The largest single intellectual event over the next decade was the publication of the NOAA “Blue Ribbon Panel” report in 1993 (NOAA, 1993) that gave a stamp of fundamental approval – subject to cavea ts about ho w to go about it – and may finally have finished off the Samuelson objection on the basis of the number of Nobe lists involved in the panel. This, in turn, was part of the afterglow from the huge practical event, the grounding of and spill from the Exxon Valdez in Alaska. This produced enormous amounts of money for studies that were themselves undertaken with the aim of supporting or undercutting claims for damage payments from Exxon.
"Ten years later, it is not a stretch to say that the direct methods are triumphant, at least in the sense that they have become the dominant benefit estimation technique. For example, when benefit estimation is attempted for water quality improvement projects being proposed for Inter-American Development Bank loans, the method of choice is referendum-style CV. (“Would you be WTP X for the described water quality improvements?”) Indeed, dealing with the problems of, and suggesting and refining alternatives to, the “traditional” CV approach are the dominant intellectual challenges these days in environmental economics journals."
Although most of the original research reports to EPA are available in Environmental Economics Report Inventory, it is much more difficult to obtain lists of the resulting books and journal articles that resulted from the research. This is because there is not a one-to-one correspondence between the reports to EPA and the outside publications. Some journal articles combine research from more than one report to EPA. Others combine research from EPA and non-EPA funded research. And in many cases the information on outside publication was never reported to EPA. Despite these problems, however, the individual report records list publications known to have been based on particular report to EPA. Some publications prepared under EPA grants are also listed as separate reports in EERI. Appendix 3 lists many of the outside publications that appear to be primarily based on reports to EPA from the ORD research funded during Periods 1 and 2 above.




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