Opposing Irreversibilities in Environmental Policy: Avoiding the Point of No Return or Delaying the Inevitable

Wednesday, August 20, 2014: 1:30 PM
301B (Centre des congrès de Québec // Québec City Convention Centre)
Charles Sims , Department of Economics and the Baker Center, University of Tennessee, Knoxville, TN
David Finnoff , Economics and Finance, University of Wyoming, Laramie, WY
Irreversibilities in environmental policy are common.  Irreversible environmental damage can lead to more “conservationist” policies, while sunk costs create an economic irreversibility that leads to less “conservationist" policies.  When both types of irreversibility are present, policy responses are guided by two thresholds – one environmental and one economic.  If the environmental threshold is above the economic threshold, irreversible environmental damage is avoidable.  If the environmental threshold is below the economic threshold, irreversible environmental damage is inevitable.  This paper presents a framework for determining which scenario is more likely.

The model is applied to the spread of Asian carp.  Asian carp were introduced into the Mississippi River and have spread north, causing significant damage to commercial fisheries and impacts to biodiversity.  The Mississippi River is linked to the Great Lakes through the Illinois waterway.  Conventional wisdom indicates that this spread into the Great Lakes is an irreversible event – once they establish it will be impossible to eradicate them.  A number of policies have been implemented or proposed. These policies have significant sunk costs leading to an opposing economic irreversibility.  We ask whether the sunk costs associated with these responses render the irreversible environmental damage of Asian carp inevitable.