March, 2002

I. Introduction

There is increasing recognition of an apparent paradox with respect to certain dimensions of environmental quality in the United States.  On the one hand, some measures of environmental quality, with air quality being the focus here, have clearly improved over time.  However, at the same time that this improvement has been going on, surveys of individuals indicate that they believe that air quality is not improving, but rather is worsening.⁽¹⁾  While emphasizing here the specific case of U.S. air quality, the paradox is more general--many people in America and throughout the developed world believe that specific, measurable dimensions of environmental quality are deteriorating when the facts argue otherwise.

In Section II the issue of whether there really is a paradox is addressed, considering alternative interpretations of the apparent inconsistencies between environmental perceptions and environmental reality for certain environmental dimensions.  Section III discusses some potential explanations for the paradox, presuming that there is one.  In Section IV two different means of resolving the paradox, one involving standard economic theory and one a bit more novel, are proposed.  Section V summarizes and provides some generalizations.

II. Is there a paradox?

At the request of the Foundation for Clean Air Progress (FCAP), Energy and Environmental Analysis, Inc. (2002) reviewed publicly available data on energy consumption and emissions.  The goal was to investigate trends in each of the major U.S. jurisdictions (i.e., the 50 states plus the District of Columbia) and for the nation as a whole.  Considering only the national data, EEA determined that there had been, from 1970 to 1997, a 77 million tons per year reduction in the six EPA criteria pollutants; in percentage terms, this represented a 34% reduction over the period.⁽²⁾

However, in September of 1999, International Communications Research (ICR, 1999) conducted a poll of 1,012 respondents, half male and half female, in which it was found that Americans typically think that air quality has worsened over the past decade.⁽³⁾  Faced with the specific question, "Do you believe the nation's air has gotten better or worse in the last ten years?" 61% reported "worse," while 13% reported "about the same," and only 22% of respondents felt the air to be "better."

There is some interesting evidence on the FCAP website that, on the surface, seems mildly contradictory to the preceding paradox.  A later ICR (1999) survey was conducted "to determine peoples' perceptions about the progress, importance and accomplishments that have been made over the past 30 years with respect to various environmental initiatives in the United States."  In the portion of that survey dealing with air quality, 57% of respondents indicated that "we have made major progress in the fight against air pollution."

It is also possible, in perceiving worsened U.S. air quality when the facts suggest otherwise, that people are expressing more general environmental attitudes or are inappropriately lumping other environmental concerns (e.g. ocean reefs, CO₂ buildup, or wetlands destruction) with questions attempting to measure perceptions of U.S. air quality change.  Or, they might conceivably be thinking about pollution in third world countries, despite the seemingly unambiguous questions.  These explanations would seem unlikely, however, since most of the respondents indicated that air quality was worse from their "own personal experiences."

So, it is presumed here that there is a paradox to be explained, namely that people are for some reason seeing the air quality deteriorating when it is, in fact, improving.

III. Possible explanations for the paradox

The FCAP site definitely gives the impression that Americans are misinformed, or at least uninformed, in their perceptions. Indeed, their stated mission is to "provide public education and information about air quality progress."

One possible reason for misinformation might be that a biased, pro-environment media is consciously or unconsciously misinforming Americans, perhaps by focusing on "bad news," which might sell better than good news in the competitive media marketplace.  There is a common presumption that what we see in our newspapers, magazines, and in popular books (with titles like Silent Spring, Laying Waste, America the Poisoned, Currents of Death, Who's Poisoning America?, The Population Explosion, and Earth in the Balance) is a non-representative sample of what is occurring around us.

Another possibility is that environmental groups, using scare tactics as a money-raising strategy, have deliberately misinformed their constituents.  Environmental groups are, indeed, businesses like any other in that they need revenue to continue to exist; and revenue might be easier to generate by focussing on degradation rather than progress.  Additionally, scientists investigating air quality issues (atmospheric modelers, epidemiologists, biologists, and so on) are themselves hardly disinterested observers regarding the disbursement of funds for scientific research; biasing perceptions of air quality might be thought to be in their interest.

Additionally, the tone of the environmental debate continues to be that environmental quality generally, and perhaps air quality specifically, is a moral struggle between the greens and the polluters--between the good guys and the bad guys.  It is possible that employing polarizing ad hominem tactics has resulted in generalized disdain for polluters that spills over into air quality perceptions that are very resistant to change, regardless of the "facts."

Yet, there are counter-arguments.  Many books and articles have documented specific and general environmental improvements, with Bjorn Lomborg's The Skeptical Environmentalist being given considerable recent press coverage.⁽⁴⁾ And, as already noted, the polled respondents' most commonly cited reason for feeling that air quality is getting worse in the U.S. is that this perception stems from their "own personal experiences."  Might more be going on?

IV. A proposed economic explanation

A resolution of the paradox may lie in a growing gap between the levels of air quality that people desire and the levels they receive, despite growth in the latter.  There are many reasons why the psychological perception of "more being less" could arise.

A first consideration involves the non-instantaneous nature of changed desires, changed reality, and changed perceptions.  That is, there might be a lag in reacting, with regulation, to the desires of the population for environmental cleanup with growing income.  Additionally, there might be a lag in perceptions of cleanup relative the cleanup that has actually occurred as a result of existing regulations.  Invoking the environmental Kuznets curve (EKC) literature, there is the expectation that, following a period of deteriorating environmental quality as low income countries develop, there will be a period in which growing demands for environmental quality will lead to regulatory changes.⁽⁵⁾  It is possible that in the latter phase, in which U.S. air quality measures are improving, that both a political regulatory lag and a perceptions lag could at least partially account for the perception that air quality is worsening when it is not.

There are compelling economic arguments that there has been a failure to regulate as strictly, over time, as is desired by the American public.  The arguments are based on both traditional utility maximization and on recent recognition of a flaw in the traditional valuation process for public goods.  First, considering traditional variables, air quality is a normal good and GDP per capita rose dramatically over the twenty-seven year period from 1970 to 1997.⁽⁶⁾  In 1970 the chained 1996 dollar GDP per capita and disposable personal income numbers were $17,446 and $12,823 respectively, rising to $29,915 and $21, 464 by 1997.  Hence GDP per capita and disposable personal income have risen 71.5% and 67.4% over the 1970-97 period.  Taking the income elasticity of demand for air quality to be unity over this range of income,⁽⁷⁾ this suggests that the 34% increase in air quality supplied over this period is about half of what would have been demanded, holding price constant.⁽⁸⁾

Second, substantial advances in technology have lowered the price of air quality provision over the thirty-year period.  Of particular note are the advances in pollution monitoring technology that have rendered policy approaches involving economic incentives feasible.  It is widely recognized that employing economic incentives (pollution taxes, salable emissions rights, and so on) offers substantial efficiency savings of on the order of fifty percent or more.  A price reduction of this magnitude would also increase the desire of rational people for greater levels of air quality.  Combining price changes due to technological advance with the greater demands due to income growth over the period, it is easy to see how people might feel that "more is less."

There is an additional argument, discussed extensively elsewhere (see Graves 2002b and Flores and Graves 2002, the latter representing the more formal treatment).  Briefly, suppose (contrary to the facts above) that the political system were to respond perfectly to changed aggregates of individual demands, so that we had environmental quality that was seemingly growing in optimal relation to income growth and to price reductions.  Even if we had the levels of environmental quality traditionally thought to be socially optimal (the vertical summations of individual marginal willingness-to-pay), the demands for environmental and other public goods would still be understated.

The reason for this is that we generate income to buy the goods that we want.  But, if generating income does not allow individuals to purchase the kinds of goods they want, rational people will not generate as much income as they would have otherwise.  Since environmental goods often have a public good nature and hence are determined collectively, individuals will under-generate income and virtually all of that ungenerated income would have been spent on public goods, air quality being the focus here.⁽⁹⁾  This explains the "drop-outs" of the '60s and the seemingly anomalous result that those caring most for the environment would be expected to generate the least income, hence may look like they care little in willingness-to-pay surveys.

But we all care, at least to some extent, for air quality and other environmental goods and there will be a quite general tendency to "free ride" in input markets, under-generating income, because of our inability to individually "buy" the public environmental goods we want.  We have the frustration of not being able to equate the marginal values of all of the goods we care about (ordinary goods, environmental goods, and leisure), with marginal values of environmental goods being undervalued, even were we to obtain what has traditionally been taken to be the social optimum.

One might suspect that the preceding argument could account for a pervasive belief that too little air quality is being provided, but to explain the paradox, there would need to be growth in the extent to which income is under-generated.  But this is exactly what is to be expected.  At some point in the past, the marginal willingness to pay for air quality and other environmental improvements will have been zero or very low.  Since only private goods would be demanded, there would initially be no input market failure to generate the proper income levels.  As income to buy the things we want grows, the marginal values of air and other dimensions of environmental quality would be expected to grow as well.  But, the inability to individually purchase public environmental goods would lead to a growing amount of "ungenerated" income as well

The preceding arguments, taken together, suggest ample room for the argument that, despite having made limited progress in improving air quality, it is still the case that "more feels like less.⁽¹⁰⁾"  This is because the marginal rate of substitution between ordinary goods and environmental goods has grown dramatically over the past three decades, with high and growing marginal values for environmental goods relative to low marginal values of the ordinary goods that we possess in increasing abundance.

It should perhaps be noted that, while the concern of the present paper is with perceptions of decay for environmental goods that are actually improving, the arguments of this section support those who feel that the environment should not be allowed to deteriorate, regardless of utility growth or decline.  In this regard, the present paper provides support for the arguments given by Costanza et al. 2000 regarding the "protect your capital" implication of managing our environmental portfolio.  Indeed, a strong claim could be made that in our overall ordinary/environmental goods portfolio we are relatively "over-invested" in ordinary goods and "under-invested" in environmental quality.

V. Summary and Generalizations

A rationale is provided here, that does not require ignorance or misinformation, for the observation that U.S. air quality is perceived as getting worse despite documented improvements.

The rationale partly involves traditional income and price effects, either of which might be separately sufficient to account for the phenomenon under investigation, operating via a regulatory lag (or possibly a regulatory failure, e.g. due to special interest power).  Together the traditional arguments, they provide suggestive evidence for the thesis that "more feels like less."  We are unconstrained when it comes to the purchase of ordinary goods, hence will purchase more normal goods as our incomes grow and more goods with falling prices.  Were we to be politically constrained in our consumption of certain ordinary goods to growth levels below those we would have freely chosen, we would feel similarly frustrated.  There would be long lines when the goods we want became (temporarily) available, as was the case in many of the former Soviet republics in which central decision-making replaced market choices.

Moreover, in addition to the traditional price and income variables, there is a new argument for why the marginal values of air quality and other public goods will be understated in policy relative to their true values.  We will fail to generate optimal incomes, when doing so does not enable us to acquire more of the goods we want.  Since air quality is determined collectively via various regulations, the traditional approach--based on a given income--will result in under-production that grows over time.

The application in the present paper concerns a fairly narrowly defined measure of U.S. air quality.  But, the mode of thinking here relates to more general concerns.  In considering alternative futures, people tend to be either "Doomsters" (e.g. Paul Brodeur, Paul Ehrlich, Norman Myers, Ralph Nader, The Club of Rome, Malthus) or "Boomsters" (e.g. Herman Kahn, Bjorn Lomborg, Julian Simon, Elizabeth Whelan).  The first group believes that growth in income and population results in ultimately inevitable declines in environmental quality and in resource stocks for the future.  The latter group feels that growing income increases the demand for environmental quality while growing population provides both the minds and the labor supply to solve environmental and resource problems as they emerge.  Both positions are extreme, in that even the most ardent environmentalist will acknowledge some improvements, while ardent boomsters will acknowledge that mistakes have been made (Times Beach, Love Canal, etc.).  The more relevant question might be whether the world's environment is characterized as being "one step forward, two steps back" or a "two steps forward, one step back."

I argue here that the environment could be, a la Lomborg, moving "two steps forward, one step back" when we very much want it to be moving three or four steps forward for every misstep.  The arguments here provide a reasonable explanation for the widespread popularity of the Doomster position, despite a lengthy history of faulty predictions of mass starvation, environmental collapse, and resource depletion.  We may very well be doing "better" in absolute terms, but worse in relative terms--and relative terms are (and always have been) the only things that matter in economics.
 
 
 

References

Ansuategi, A. and M. Escapa 2002. "Economic growth and greenhouse gas emissions," Ecological Economics 40 (1), 23 - 37.

Bailey, R. 1995. The True State of the Planet. The Free Press: New York.

Bast, J.L., P.J. Hill, and R.C. Rue 1994. Eco-Sanity: A Common-Sense Guide to Environmentalism. The Heartland Institute: Lanham, Maryland.

Costanza, R., H. Daly, C. Folke, P. Hawken, C.S. Holling, A.J. McMichael, D. Pimentel, and D. Rapport 2000. "Managing Our Environmental Portfolio," BioScience50 (2), 149-55.

Dasgupta, S., B. Laplante, H. Wang, and D. Wheeler. 2002. "Confronting the Environmental Kuznets Curve," The Journal of Economic Perspectives. 16 (1), 147-68.

Economist, 2002. "The Litany and the Heretic," February, 2, 75-6.

Flores, N.E. and R.T. Carson 1997. "The Relationship between the Income Elasticities of Demand and Willingness to Pay," Journal of Environmental Economics and Management. 33, 287-295.

Flores, N.E. and P.E. Graves 2002. "The Valuation of Public Goods: Why Do We Work?" (manuscript).
 

Graves, P.E. 2002a. "Non-Optimal Levels of Suburbanization" (manuscript).
 

Graves, P.E. 2002b. "Valuing Public Goods" (manuscript).
 

Heerink, N., A. Mulatu and E. Bulte 2001. "Income inequality and the environment: aggregation bias in environmental Kuznets curves," Ecological Economics 38 (3), 359 - 367.
 

Lomborg, B. 2001. The Skeptical Environmentalist. Cambridge University Press: Cambridge.
 

McFadden, D. and G.K. Leonard 1993. "Issues in the Contingent Valuation of Environmental Goods: Methodologies for Data Collection and Analysis, in Contingent Valuation: A Critical Assessment (J.A. Hausman, Ed.), North-Holland Press: Amsterdam.
 

Roca, J., E. Padilla, M. Farré and V. Galletto 2001. "Economic growth and atmospheric pollution in Spain: discussing the environmental Kuznets curve hypothesis," EcologicalEconomics 39 (1), 85 - 99.

Torras, M. and J. K. Boyce 1998. "Income, inequality, and pollution: a reassessment of the environmental Kuznets curve," Ecological Economics25 (2), 147-160.

^{1 Indeed, an organization, the Foundation for Clean Air Progress, has sprung up with the mission of educating Americans as to the progress already made and likely to be made in the future. See http://www.cleanairprogress.org/index.asp for further details.}

^{2 The EPA puts the progress over this period at 29% (see http://www.epa.gov/oar/aqtrnd00/).}

^{3 One might suspect that the 1989-1999 period could differ in the progress reported for the entire 1970-1997 period but that is evidently not the case; substantial improvements occurred in the recent period (see http://www.epa.gov/oar/aqtrnd00/ for more details).}

^{4 Lomborg's arguments have received extensive coverage, both somewhat positive (in a balanced discussion in The Economist on 2/2/02) and very negative (in e.g. Nature and Scientific American). Other books making points similar to those of Lomborg are Eco-Sanity: A Common-Sense Guide toEnvironmentalism and The True State of the Planet (see references).}

^{5 The EKC hypothesis is controversial. For a good recent overview of the EKC see Dasgupta et al. 2002. The EKC is unlikely to hold for global pollutants (see, e.g. Roca et al. who find an EKC for SO₂ but not for other pollutants, and also Ansuategi and Escapa) and income inequality and other variables appear to matter (see, e.g. Heerink et al. and Torras and Boyce).}

^{6 McFadden and Leonard 1993 argue that environmental quality is a superior good. Indeed, casual inspection of environmental quality in poor and rich nations could support that view. However, there appear to be ranges of income growth over which growing income results in environmental decay, perhaps due to lags in governmental response to changed citizenry demands, as discussed in the text for the U.S.}

^{7 Since income must be allocated to some expenditure, the best guess income elasticity, in an uncertain world, is 1. This observation, and the corresponding argument for unitary price elasticities, provides much of the appeal of the Cobb-Douglas utility function so commonly employed in early economic studies.}

^{8 As discussed fully in Flores and Carson 1997, there is no necessary relationship between the income elasticity of willingness to pay (useful, upon aggregation, for marginal valuations of environmental quality used in benefit-cost analysis) and the ordinary income elasticity of demand.}

^{9 This assumes, for simplicity, independence of environmental goods from ordinary goods and leisure in the utility function. If there are private good substitutes, even fairly poor substitutes, income will be generated to purchase them (see Graves 2002a, e.g., on suburbanization); however, income will not be generated for private good complements, to the extent that public goods are under-provided.}

^{10 Graphically, one might envision a graph showing as a vertical line an initial 1970 provision of environmental quality to the left of the supply and demand equilibrium, resulting in a welfare loss of the traditional sort. By 1997 the collectively determined vertical provision will have shifted rightward 34% but both the demand and supply curves will have shifted far more, creating an even larger welfare loss. Note that the growing population (205,089,000 in 1970 versus 272,756,00 in 1997) will also increase optimal air quality, as more individuals are present to benefit. However, since the concern here is with individual perceptions, this point is less germane, despite its relevance for benefit-cost analysis.}