Ethical Issues in Resource Economics: Discussion

Apparently Page found this paper difficult to write. His assigned title was "Ethical Implications of Discounting Long-Run Environmental Impacts." The title on the paper delivered is "Risk Conservatism and the Circumstances of Utility Theory." Actually, it was about misgivings concerning expected utility theory and risk aversion. Other evidences that the paper was difficult to write are that (a) Page secured a philosopher, Douglas MacLean, as a coauthor; and (b) I did not receive the initial draft of the paper until 29 July. The paper was also difficult to review; but, having reviewed it, I now understand how it relates to ethical issues in resource economics, the subject of our overall session. In order to understand this contribution of Page and MacLean, we should note that longrun environmental impacts involve the conferring of various goods upon certain people while imposing various bads on still others. The disparate nature of these goods and bads makes it extremely difficult to find a common denominator among them for use in subtracting the total of the bads from the total of the goods to obtain a net difference to maximize in choosing among alternative environmental policies, programs, and projects. This problem is even more difficult when the common denominator must be interpersonally valid because goods are conferred and bads are imposed on different people. Among the disparate goods and bads which give particular difficulty are those associated with taking chances. Chance taking has entertainment value to some people, as all gamblers know; other people, however, experience badness when taking chances. Economists have found it extremely difficult to deal with the goodness and badness of taking chances (Friedman and Savage). Expected utility analysts since Friedman and Savage have continued to experience this conceptual difficulty (more on this later). It is necessary to assess numerous long-run environmental consequences in order to reach maximizing prescriptions as solutions for most environmental problems. There are four prerequisites for maximization: (a) a common denominator among all bads and goods involved, (b) interpersonal validity of that common denominator if goods and bads are conferred and imposed upon different people, (c) the existence of a maximum in the net difference between goods and bads to be found by the decision-making process, and (d) an agreed-upon decision rule to use in defining the maximum. Our authors concentrated on the expected utility hypothesis as a decision rule for reaching prescriptions about which environmental policy program or project is best among available alternatives. The expected utility hypothesis, as usually formulated and as axiomatized (Schoemaker), meets the prerequisites for aximization decisions but under extremely limited conditions. The authors use a very simple, one person, short-run "frostbite" example in their paper which, unfortunately, does not illustrate all of the problems encountered in making environmental decisions. Even so, it violates some of the prerequisites for using the expected utility decision-making rule. The authors express the prerequisites for the validity of the expected utility hypothesis in terms of the usual axioms. They note that the frostbite example tends to violate some of these axioms and that, hence, some of the axioms "lose their appeal" as justification for using the expected utility analysis. The authors note that the frostbite example involves what I call "true" risk aversion, which is not well handled in the expected utility theory despite the attention devoted to a somewhat "perverted" concept of risk aversion in that theory which depends on the curvature of the utility function with respect to the outcomes of chance taking and not upon Glenn L. Johnson is a professor, Department of Agricultural Economics, Michigan State University.