Reaching conclusions: meritorious modelling

A physicist, a chemist and an economist are stranded on an island, with nothing to eat. A can of soup washes ashore. The physicist says, 'Let's smash the can open with a rock.' The chemist says, 'Let's build a fire and heat the can first.' The economist says, 'Let's assume we have a can-opener'.  

George Goodman (1981)

As the joke above parodies, economists have a tendency to simplify the problems they face by making assumptions and early in this blog I explained how the assumptions made during the construction of conventional economic models has led to a systematic neglect of environmental variables within economics. The recent development of environment-economy models, however, is addressing this significant oversight and throughout the course of this blog I've looked at the insights that such models can (and can’t), offer.

From delineating the impact of trade on endangered species to improving land-use decisions to estimating the cost of climate change, it’s clear that environment-economy models can be used to investigate a wide range of subjects. Despite the variety of these hybrid models, however, I want to conclude with two general pieces of advice.

1.   Always remain skeptical – environment-economy models, like all models, rely on a set of simplifying assumptions and, as exemplified by integrated assessment models, these assumptions can be highly problematic. Because of this, if you ever come across a report that uses env-econ models to generate estimates or projections, I would encourage you to flick straight to the technical appendix. Although the inevitable discussion of Cobb-Douglas production functions might not be particularly stimulating, this is where all the assumptions are hidden and so it’s a good way to check the integrity of any models that are used.

2.   Models are never enough –  Because models rely on simplification and abstraction, they are inherently fallible. This means that it’s always necessary to check the accuracy of a model’s results using real-world analysis. If used correctly, I believe that environment-economy models can be informative but it’s essential that modelling is used to complement, rather than replace, more ad hoc sources of evidence.

Although researchers should be more explicit about the assumptions that models are founded on, I think that environment-economy models can make valuable contributions. In particular, environmental-extended input-output models (like the one I discussed here) are important, as they show how production and consumption within a particular country has environmental impacts that extend globally. So overall, my outlook on environment-economy modelling is pretty positive – I just hope this esoteric sub-discipline gets the attention it deserves!