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The Good, Bad, and Ugly of Watershed Management

Efficient management of groundwater resource systems requires careful consideration of relationships — both positive and negative — with the surrounding environment. The removal of and protection against “bad” and "ugly" natural capital such as invasive plants and feral animals and the enhancement of “good” capital (e.g. protective fencing) are often viewed as distinct management problems. Yet environmental linkages to a common groundwater resource suggest that watershed management decisions should be informed by an integrated framework. We develop such a framework and derive principles that govern optimal investment in the management of two types of natural capital — those that increase recharge and those that decrease recharge — as well as groundwater extraction itself. Depending on the initial conditions of the system and the characteristics of each type of natural capital, it may make sense to remove bad capital exclusively, enhance good capital exclusively, or invest in both activities simultaneously until their marginal benefits are equal.


Optimal Joint Management of Interdependent Resources: Groundwater vs. Kiawe (Prosopis pallida)

Local and global changes continue to influence interactions between groundwater and terrestrial ecosystems. Changes in precipitation, surface water, and land cover can affect the water balance of a given watershed, and thus affect both the quantity and quality of freshwater entering the ground. Groundwater management frameworks often abstract from such interactions. However, in some cases, management instruments can be designed to target simultaneously both groundwater and an interdependent resource such as the invasive kiawe tree (Prosopis pallid), which has been shown to reduce groundwater levels. Results from a groundwater-kiawe management model suggest that at the optimum, the resource manager should be indifferent between conserving a unit of groundwater via tree removal or via reduced consumption. The model’s application to the Kona Coast (Hawai‘i) showed that kiawe management can generate a large net present value for groundwater users. Additional data will be needed to implement full optimization in the resource system.


The Conversation: Carl Bonham on the County Forecast

Posted May 23, 2014 | Categories: Media

 UHERO Executive Director and Professor of Economics Carl Bonham appears on The Conversation to talk about UHERO's latest County Forecast: Despite Lull in Tourism, County Expansions Continue.



UHERO County Forecast: Despite Lull in Tourism, County Expansions Continue

Posted May 23, 2014 | Categories: Forecasts

Moderate economic expansion will continue in each of Hawaii’s counties. Last year’s tourism weakness continued in the first quarter of this year, and incremental gains for 2014 will be slight. Beyond this year, available capacity will limit further visitor industry growth. The construction expansion has proceeded further on Oahu than the elsewhere in the state, but it is also poised to contribute growth momentum to all counties going forward. In the broader economy, job growth will continue to bring down unemployment rates and will set the stage for a return to more satisfactory growth in personal income.

A summary of this forecast is available as a service to the public. For more detailed analysis, subscribe to UHERO's Forecast Project.

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Cost Implications of GHG Regulation in Hawai‘i

The State of Hawai‘i and the U.S. are developing greenhouse gas (GHG) emissions reduction regulations in parallel. The State requires that economy-wide GHG emissions be reduced to 1990 levels by the year 2020 and the U.S. Environmental Protection Agency is developing new source performance standards (NSPS) for new electricity generation units. The State Department of Health has proposed rules that would reduce existing large emitting electricity generating units by 16% from 2010 levels. The NSPS proposes GHG concentration limits for new electricity units.

We use a comprehensive model of Hawai‘i’s electricity sector to study the potential cost and GHG impacts of State and Federal GHG regulations. Given uncertainty about the final form and implementation of these regulations, we adopt a series of scenarios that bracket the range of possible outcomes. First we consider the State’s GHG cap (for existing units) and NSPS (for new units) being implemented at the facility level. Next, we consider the implications of allowing for partnering to meet the State GHG cap and the NSPS at a system-wide level. We also consider the case where the State GHG cap is extended to apply to both existing and new units. The current proposed State GHG rules exclude biogenic sources of emissions. We address the impacts of this decision through sensitivity analysis and explore the impact of GHG policy on new coal-fired units.

We find that regulating GHGs at the facility level leads to greater reductions in GHG emissions but at higher cost. Over the 30-year period that we study, when biogenic sources of emissions are ignored, facility level implementation of policy will add $3 billion to the cost of electricity generation at an average cost of $180/ton of GHG abatement. If biogenic sources of emissions are included within the accounting framework, abatement costs rise to $340/ton.

Overall, we find that the high cost of Hawai‘i’s current electricity generation provides a strong incentive to move towards less costly alternatives – in this consideration, primarily wind and rooftop PV. This leads to a reduction in GHG emissions. However, this finding would not hold if fuel prices were substantively lower than current levels, either from falling prices or fuel-switching to lower cost products. Regardless, the qualitative implications about the optimal structure of GHG policy are robust to changing assumptions about fuel prices. Implementing GHG policy at the facility level leads to relatively higher levels of GHG emissions reductions, though at substantially higher cost. If a greater level of GHG emissions reduction is desired, the least cost policy is to lower the level of the GHG cap while still allowing for the greatest flexibility in achieving targets.


A Cross-Country Index of Intellectual Property Rights in Pharmaceutical Innovations

Many countries with strong patent protection for other industrial products and processes have not always provided strong protection for pharmaceutical innovations. For example, in 1970, all 22 OECD countries had functioning industrial patent systems, but only four allowed new pharmaceutical products to be patented. Over the last five decades, the extent of IPR protection for pharmaceutical innovations has increased dramatically, as more than 90 percent of the world’s countries now offer pharmaceutical product patents to both resident and foreign inventors. At the same time, the types of intellectual property available to protect new drugs and improvements to existing drugs have also expanded rapidly, with countries protecting innovations via product patents, process patents, formulation patents, new medical indication patents, and marketing exclusivity measures. The proliferation of new types of IPRs has made it more difficult to compare IPR protection of pharmaceuticals across countries and has increased the need for an index summarizing each country’s property rights in pharmaceutical innovations.


Globalization and Wage Convergence: Mexico and the United States

Neoclassical trade theory suggests that factor price convergence should follow increased commercial integration. Rising commercial integration and foreign direct investment followed the 1994 North American Free Trade Agreement between the United States and Mexico. This paper evaluates the degree of wage convergence between Mexico and the United States between 1988 and 2011. We apply a synthetic panel approach to employment survey data and a more descriptive approach to Census data from Mexico and the US. First, we find no evidence of long-run wage convergence among cohorts characterized by low migration propensities although this was, in part, due to large macroeconomic shocks. On the other hand, we do find some evidence of convergence for workers with high migration propensities. Finally, we find evidence of convergence in the border of Mexico vis-à-vis its interior in the 1990s but this was reversed in the 2000s.


Hawaii Construction Forecast: Construction Upturn On Track

Posted March 28, 2014 | Categories: Forecasts

Hawaii’s construction expansion continues apace. New condo towers in Kakaako are spurring double-digit growth in permits for residential construction. A sharp rise in commercial construction, much of it in resort areas, is on the horizon. Public spending on infrastructure has also leapt upward, as the State works to address shortfalls that have built up in recent years. And with recent federal court victories, the way ahead is now clear for Honolulu rail rapid transit. Now in its third year of recovery, the construction industry is positioned for healthy growth over the next several years.

A summary of this forecast is available as a service to the public. For more detailed analysis, subscribe to UHERO's Forecast Project.

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The Miracle of Microfinance Revisited: Evidence from Propensity Score Matching

We provide new evidence on the effectiveness of microfinance intervention for poverty alleviation. We apply the Propensity Score Matching (PSM) method to data collected in a recent randomized control trial (RCT) in India by Banerjee et al. (2014). The PSM method allows us to answer an additional set of questions not answered by the original study. First, we explore the characteristics of MFI borrowers relative to two comparison groups: those without any loans and those with other types of loans, predominantly from family and friends and money lenders. Second, we compare the impact on expenditures of MFI borrowers relative to these two comparison groups. We find that microfinance borrowers have higher expenditures in a number of categories, notably durables, house repairs, health, festivals and temptation goods. The differences are stronger relative to those without any loans. Our results suggest that microfinance can make a larger difference for households previously excluded from other credit sources. However, some of the increased expenditures are unlikely to lead to long-term benefits and there is no significant difference in total expenditures. We also present suggestive evidence of negative spillovers, i.e. non-participants reducing some categories of expenditures, while MFI participants “pick up the tab.”


The Impact of Stronger Property Rights in Pharmaceuticals on Innovation in Developed and Developing Countries

We use dynamic panel data regressions to investigate whether the strength of a country’s patent protection for pharmaceuticals is associated with more pharmaceutical patenting by its residents and corporations in the United States. Using the Pharmaceutical Intellectual Property Protection (PIPP) Index to measure patent strength, we run dynamic probit and Poisson regressions on panels from 25 developing and 41 developed countries over the 1970-2004 period. Results vary, depending on whether we examine partial effects at the mean or average partial effects for the PIPP Index. APEs for the PIPP Index are positive but statistically insignificant in both developed and developing country samples.


PURPA and the Impact of Existing Avoided Cost Contracts on Hawai'i’s Electricity Sector

The United States has been trying to reduce its dependence on imported fossil fuel since the 1970s. Domestic fossil fuel supply initially peaked in 1970, and the oil crises of 1973 and 1979 accelerated domestic policy and investments to develop renewable sources of energy (Joskow, 1997). One such policy—passed in 1978 by the U.S. Congress—was the Public Utility Regulatory Policies Act (PURPA).

In this policy brief, we identify the existing PURPA-based contracts in Hawai'i and use a Hawai'i-specific electric sector generation planning model, The Hawai'i Electricity Model (HELM), to estimate the impact that PURPA contracts have on both total system cost and the mix of generation technologies. We study a variety of scenarios under the maintained assumption that the state will achieve the Hawai'i Renewable Portfolio Standard, which requires that 40% of electricity sales are generated using renewable sources by the year 2030.


The Conversation: Carl Bonham on the State Forecast Update

Posted March 3, 2014 | Categories: Media

UHERO Executive Director and Professor of Economics Carl Bonham appears on The Conversation to talk about UHERO's latest State Forecast Update: After Austerity, Road Ahead Will Be Smoother.

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UHERO State Forecast Update: After Austerity, Road Ahead Will Be Smoother

Posted February 28, 2014 | Categories: Forecasts

Federal budget woes caused a softening of growth at year-end. With that behind us, we’ll see better performance in 2014.

A summary of this forecast is available as a service to the public. For more detailed analysis, subscribe to UHERO's Forecast Project.

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Optimal groundwater management when recharge is declining: a method for valuing the recharge benefits of watershed conservation

Demand for water will continue to increase as per capita income rises and the population grows, and climate change can exacerbate the problem through changes in precipitation patterns and quantities, evapotranspiration, and land cover—all of which directly or indirectly affect the amount of water that ultimately infiltrates back into groundwater aquifers. We develop a dynamic management framework that incorporates alternative climate-change (and hence, recharge) scenarios and apply it to the Pearl Harbor aquifer system on O‘ahu, Hawai‘i. By calculating the net present value of water for a variety of plausible climate scenarios, we are able to estimate the indirect value of groundwater recharge that would be generated by watershed conservation activities. Enhancing recharge increases welfare by lowering the scarcity value of water in both the near term and the future, as well as delaying the need for costly alternatives such as desalination. For a reasonable range of parameter values, we find that the present value gain of maintaining recharge ranges from 31.1million to over1.5 billion.

Published version: Burnett, K. and Wada, C.A., 2014. Optimal groundwater management when recharge is declining: a method for valuing the recharge benefits of watershed conservation. Environmental Economics and Policy Studies. In Press.


The Conversation: Carl Bonham on Raising the Minimum Wage

Posted February 12, 2014 | Categories: Media

UHERO Executive Director and Professor of Economics Carl Bonham appears on The Conversation to talk about the research surrounding the issue of raising the minimum wage.



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