Michael Greenstone on the experimental method in environmental economics (MIT News)

This power station smokestack in Pittsburgh was fit with a $42 million wet scrubber to minimize emissions.

This power station smokestack in Pittsburgh was fit with a $42 million wet scrubber to minimize emissions. (Image from archives.gov)

Next week – April 22, 2014 – is the 45th anniversary of the first Earth Day. Debates continue about the costs and benefits of anti-pollution regulation: what actions are most appropriate, and most effective? Environmental economists like MIT’s Michael Greenstone are finding new insights that should help us come to better decisions.

3 Questions: Michael Greenstone on the experimental method in environmental economics
MIT economist makes the case for new quasi-experiments as a way of studying environmental issues.

Peter Dizikes | MIT News Office
April 17, 2014

How can scholars get traction on environmental problems, particularly those relating to pollution? In an essay appearing in this week’s issue of the journal Science, MIT economist Michael Greenstone, along with co-authors Francesca Dominici and Cass Sunstein of Harvard University, make the case for “quasi-experiments,” or “natural experiments,” which have gained prominence in other domains of the social sciences. Environmental economics, they suggest, can rely increasingly on quasi-experiments to sharpen its conclusions about which kinds of environmental action are most cost-effective. Greenstone sat down with MIT News to discuss the subject.

Q. Why should quasi-experiments be in the environmental economics toolbox?

A. The single best way to learn about the world is through randomized controlled trials (RCTs). Now, some problems are not directly amenable to RCTs. In the case of climate change, we don’t have a second planet to randomly assign climate change to, or not. And that means to learn about a lot of environmental problems, such as climate change or air quality, we have to turn to other methods.

The conventional approach to doing that has been to rely on comparisons of places that are more polluted to places that are less polluted. [But] places that are more polluted might have other things that are different about them, besides the pollution. In this paper we have highlighted a potential solution, the use of quasi-experimental evaluation techniques, which mimic some of the features of an experiment, in the sense that there is a group that receives the treatment and a [very similar] group that doesn’t. But [this] is based on nature or politics or some other accident, rather than being done through random assignment.

In the case of environmental questions, there has been great progress in the last 10 to 15 years applying quasi-experiments to environmental questions. This same revolution has been occurring in other fields — labor economics, development economics, public finance, statistics, and criminology. This “credibility revolution,” as some people refer to it, tries to move beyond simple comparisons. Read more…

Learn more in OCW, with Professor Greenstone’s 14.475 Environmental Economics and Government Responses to Market Failure. For an overview of environmental economics, see 14.42 Environmental Policy and Economics. And for more on the randomized quasi-experiment methodology, see Abdul Latif Jameel Poverty Action Lab Executive Training: Evaluating Social Programs 2009.

 

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