2015 CARD Award for Best Ph.D. Dissertation in Agricultural, Environmental, and Energy Economics and Policy

Three Essays on Environmental Economics

Hocheol Jeon

My dissertation is a collection of three independent studies in environmental and energy economics. The first study focuses on the discrepancy from different data sources in nonmarket valuation. The second study examines the significance of the relationship between two critical concerns—obesity and vehicle emission. The third study investigates the rebound effect in vehicle usage.

The first study, “Combining Revealed Preference Data with Stated Preference Data: A Latent Class Approach,” proposes a new framework to combine revealed and stated preference data when the convergent validity assumption does not hold. While a substantial portion of literature assumes that convergence of the two elicitation approaches in an all-or-nothing proposition (i.e., the RP and SP data are either consistent with each other or they are not), this paper suggests a latent class approach that allows for possible divergence among individuals in terms of the consistency between their RP and SP responses. The empirical results suggest that somewhat less than half the sample exhibits inconsistent preferences. CARD has implemented a project gathering data on recreational trips made by households to about 130 primary lakes in Iowa each year from 2002 to 2005. In particular, the 2004 survey asks respondents to report how frequently they visited lakes in the state during 2004 (RP) and how frequently they intend to visit in 2005 under both current conditions and a proposed water quality improvement (SP). Even though Jeon and Herriges (2010) test the convergent validity using 2004 Iowa Lakes Survey data, and reject the convergence of two sources, they cannot propose any remedies to solve the problem. The econometric method proposed in my first chapter is able to give a more efficient and reliable way to combine two sources of data.

The second study, “Weighing the Effects of Obesity on the Environment,” touches on two prominent social concerns, obesity and GHG emission in the US and throughout the world. A number of studies have suggested that the societal impacts of obesity, which has become a prominent social concern, also extend into the environmental arena. It is argued that obesity can increase gasoline consumption, both directly, through the additional fuel required as passenger weight increases, and indirectly, through the move towards less fuel efficient vehicles by obese and overweight individuals. By adopting panel data and the linkages between obesity on the one hand and both vehicle choice and usage on the other, this study prevents the problem that potentially mask important factors determining vehicle choice and usage from aggregate data analysis. I show that while it has been suggested that obesity may contribute to environmental problems by inducing individuals to by less fuel efficient vehicles, this impact is likely small. One of the CARDs research areas is to investigate food consumption, food safety, nutrition, and food assistance programs. CARD conducts several studies on human nutrition and obesity and their link (e.g., Miao et al. 2013 and Leung et al. 2013). My second chapter shows that obesity belongs is not only a food policy issue, but also an environmental issue.

The third study, “Vehicle Fuel Efficiency and the Rebound Effect: Evidence from US Panel Data,” highlights a drawback of the Corporate Average Fuel Economy (CAFE) standards that have been long centered in US efforts to reduce the carbon footprint of its transportation sector. There is already substantial literature on the rebound effect; however, there remains no consensus regarding its magnitude. Estimates of the rebound effect vary substantially, changing with the empirical methods employed, the types of or time periods covered by the available data, and the specific definition used to characterize the rebound effect. This paper addresses the endogeneity issue, instead, through the use of panel data techniques, controlling for unobserved, but time invariant, household factors with fixed effects. Moreover, I examine the variation in the rebound effect across income docile. While our estimates of the rebound effect vary somewhat with the definition used, from 0.58 to 0.80, we cannot reject the hypothesis that the response to fuel price and fuel economy are the same. The research CARD conducts, in particular the Environment, Science and Technology, and Biorenewables divisions are connected to climate change directly or indirectly. My third chapter is also highly related to climate change issues. The breakthrough of mitigating climate change is to establish energy efficiency policies with the aim of reducing energy consumption. Improving energy efficiency would have a direct and significant effect; however, the assumption behind this is that the economic agents hold their behavior constant. Yet, in the real world, no one can expect this reasonably. For comprehensive assessment and policy, climate change should be considered through the various areas CARD conducts research in, and policy makers and researchers need to consider the unexpected results.