Skip to content

Category: Economics

Published June 13, 2012

Remembering Elinor Ostrom

Elinor Ostrom (Source: Wikimedia Commons).

Elinor Ostrom, the first woman to win the Nobel prize for Economics (which she shared with Oliver Williamson), passed away yesterday. She was 78.

The official announcement from Indiana University, where Ostrom spent most of her career, is here.

With Ostrom’s passing, social science lost one of its greats. If you’ve never read anything by Ostrom, you should start with her 1990 book, Governing the Commons. NPR’s Planet Money has a nice writeup:

She was famous for challenging an idea known as the tragedy of the commons — the theory that, in the absence of government intervention, people will inevitably overuse a shared resource.

So, for example, if a village shares a pasture, it’s in the individual interest of each farmer to graze his cattle as much as possible on the pasture even though, in the long run, overgrazing may ruin the pasture for everyone.

“It’s a problem, it’s just not necessarily a tragedy,” Ostrom told us when we spoke to her in 2009. “The problem is that people can overuse [a shared resource], it can be destroyed, and it is a big challenge to figure out how to avoid that.”

But, she said, economists were “wrong to indicate that people were helplessly trapped and the only way out was some external government coming in or dividing it up into chunks and everyone owning their own.”

And here is a lecture by Ostrom, on sustainable development and the tragedy of the commons:

The one anecdote I distinctly remember being told about Ostrom, from one of her coauthors, was that her secret was that she worked all the time, and that it was not uncommon to receive an email from her very early in the morning or very late at night — or both.

In fact, here is proof that Ostrom worked until the very end: an op-ed that carries her name in the byline published the morning of her passing.

I did not know Elinor Ostrom personally, but I have a few friends who did. My condolences to those friends and to those of you who also knew her.

(HT: Lou Brown for the Project Syndicate article; Mike Munger for the video lecture.)

Published June 12, 2012

Biofuels and Food Prices

In a new survey article in the American Journal of Agricultural Economics, David Zilberman and his coauthors look at the relationship between biofuels and food prices:

[W] e conclude that introduction of biofuel may affect food prices but the impact varies across crops and locations. Furthermore, we found that the introduction of biofuel has a lower impact on food-commodity prices when biofuel production is not competing with food crops for resources, such as land and water. Thus, the expansion of sugarcane ethanol in Brazil and second-generation biofuels grown on nonagricultural lands are likely to have a much smaller impact on food prices than the expansion of corn ethanol. We further argue that the introduction of corn ethanol has had a significant impact on food commodity prices, but it is less substantial than the impact of economic growth and approximately of the same order of magnitude, though in the opposite direction, as the impact of the introduction of GM organisms.

Now, this is based in simulation analysis and economic theory, so it is not possible to make causal claims here.

But this is an interesting set of results in that it suggests that the impact of the growing demand for food due to increased incomes is more important than the impact of biofuels when it comes to food prices.

This is especially interesting when contrasted with the findings in the article I discussed yesterday, which concluded that China’s economic growth since 1995 has only had a weak effect on food prices.

Published June 11, 2012

Chinese Economic Growth and Food Prices

In food policy debates, people often claim that Chinese economic growth — and thus an increased demand for food in China — is partly to blame for rising food prices.

Up until today, however, I had never seen any empirical evidence to that effect. Here is the abstract of a new article by Nelson Villoria in Agricultural Economics:

This article explores the impacts of China’s growth in the international markets of agricultural products along two dimensions: food price inflation and export growth in other developing countries. China’s food imports of vegetable oils have grown dramatically over the last decade, linking China’s economic growth to the recent increases in global food prices. If China is a source of global food price inflation, exporting countries will benefit whether they sell directly to China or not. These direct and indirect linkages are explored using a short-run, partial-equilibrium model of international trade in agricultural products in which consumer prices and trade costs are derived from bilateral trade flows. China’s effects on food prices and exports are estimated by reducing Chinese food expenditures in 2007 by half, roughly China’s level of expenditures in 1995. Results indicate that food prices as measured by CES price indexes in developing Asia, Africa, and Latin America would have been reduced by 1.27%, 0.32%, and 0.22%, respectively. China has been an important source of growth for exporters selling directly to China. There is no evidence of export growth due to an overall increase in food prices caused by China’s growth.

I am not sure setting China’s food expenditures equal to what they were in 1995 is the right counterfactual, but it is really difficult to establish the right counterfactual in this context. This is especially true given that the “right” counterfactual would be an alternate world in which China would not have experienced all that additional economic growth since 1995.

If you believe the counterfactual, however, it looks as though the effects of Chinese growth on food prices are weak, with increases in food prices ranging from 0.2 to 1.3 percent.

Hopefully, these results can help improve current food policy debates. “We can’t be sure of what actually caused food prices to rise” is a sounder basis for food policy than “Increased demand for food in China and India have caused food prices to rise.”