#MeetTopEnvEcon – Lucas Bretschger

#MeetTopEnvEcon – Lucas Bretschger

Lucas Bretschger

Current position: Professor of Economics at ETH Zurich

Year of birth:  1958

Homepage: http://www.resec.ethz.ch/people/person-detail.html?persid=110065

IDEAS profile: https://ideas.repec.org/e/pbr145.html

lucas

When I met Lucas for the first time it was not at one of his famed SURED conferences in Monte Verità. I guess he may not even remember our first meeting: I was a young master student at LSE who came from a climbing trip in the summer and stayed at a friend’s place in Zurich. As I prioritized climbing over studying I was getting nervous for an exam and couldn’t get my head around a mathematical problem. So I went to ETH, knew nothing about anyone but went into the economics department to find someone who could answer my question. The only open door – it was the summer holiday after all – was Lucas’, so I knocked innocently. He was kind enough to take his time and answer my questions, probably wondering why a run-down climber was inquiring about all these easy economics problems. I passed the exam, so thank you Lucas!

There are not many who manage to organize conferences in such nice places, to get a good group of researchers together on a recurring basis, and who still know how to enjoy their life. There are not many who do extremely well both in research and in the interaction with policy makers, while still having enough energy to promote the research community through e.g. bringing everyone together via conferences or heading prestigious organizations such as the European Association of Environmental and Resource Economists. So Lucas is one of these few and that is the reason why he is part of this series.

Could you please give me a brief background of yourself and your main research interests?

I grew up in a large family in a quiet neighbourhood. I studied economics because I wanted to inquire into the wealth of nations and the limits to growth as well as other issues that I found important. I was working in practice, visiting Princeton in the US and then working in Germany for several years before coming back to Zurich. Now I am here at ETH since 2003 where I have excellent research conditions and also the possibility to organize beautiful workshops and seminars.

What article/book of yours would you call your best?

With every new paper I have tried to provide good quality research but looking back I think some topics and papers are worth special mentioning. Recently we worked a lot on risks and uncertainty, a critical issue for climate policy and other applications; one of the papers is

  • Lucas Bretschger and Alexandra Vinogradova (2018): Best Policy Response to Environmental Shocks: Building a Stochastic Framework, Journal of Environmental Economics and Management, in Press.

Crucial determinants of decisions and macroeconomic outcomes are expectations and prices, as documented in

  • Lucas Bretschger and Andreas Schaefer (2017): Dirty history versus clean expectations: Can energy policies provide momentum for growth? European Economic Review, 99: 170-190

and

  • Lucas Bretschger (2015): Energy Prices, Growth, and the Channels in Between: Theory and Evidence, Resource and Energy Economics, 39: 29–52.

The impact of poor input substitution is studied in

  • Lucas Bretschger and Sjak Smulders (2012): Sustainability and Substitution of Exhaustible Natural Resources; How Resource Prices Affect Long-Term R&D-Investments, Journal of Economic Dynamics and Control, 36 (4): 536–549

and combined with endogenous population growth in

  • Lucas Bretschger (2013): Population Growth and Natural Resource Scarcity: Long-Run Development under Seemingly Unfavourable Conditions, Scandinavian Journal of Economics, 115/3: 722–755.

Would you mind giving a list of essential articles that a young researcher in your line of research should read?

I recommend reading the seminal contributions to resource economics in the original, in particular

  • Harold Hotelling (1931): The Economics of Natural Resources, Journal of Political Economy, 39, 2, 137-175 as well as
  • Partha S. Dasgupta and Geoffrey M. Heal (1974): The Optimal Depletion of Exhaustible Resources, Review of Economic Studies, 41, 3-28.

For sustainability, the foundations of endogenous growth theory are important, which are given in

  • Paul M. Romer (1990): Endogenous Technical Change, Journal of Political Economy, 98, S71-S102
  • Sergio Rebelo (1991): Long-Run Policy Analysis and Long-Run Growth, Journal of Political Economy 99: 500-521.

There are many excellent combined applications of these theories; I would like to highlight

  • Pietro Peretto and Simone Valente (2011): Resources, Innovation and Growth in the Global Economy, Journal of Monetary Economics, 58 /4, 387-399.

Finally, there are also many good surveys by excellent scholars like Tasos Xepapadeas, Sjak Smulders and Scott Taylor which help young researchers to get an overview and identify challenging topics for their own research.

And could you be so kind and give a reference for a policy-oriented article or book that sums the research in your field for an interested policy maker?

I have tried to summarize the essence of policy-relevant analysis and conclusions of my field in a non-technical manner in

  • Lucas Bretschger (2018): Greening Economy, Graying Society, Second Edition, CER-ETH Press, ETH Zurich, Zurich.

I contains the aspects of efficiency, equity and sustainability which I think are relevant for environmental economics and policy. There is now a second edition because I had to update because of Trump and the Paris Climate Agreement.

Inhowfar is this book special or different from the rest on the market?

The book covers what I call the major challenges, such as the major environmental problems that need to be solved. We have textbooks that say how this should be done in principle, but in practise we encounter immense difficulties. So I try to bring to the public what exactly these difficulties are. We have dynamic problems, we have very complex problems, we have a high degree of risk and uncertainty, we have institutional problems, and it comes together in my book where I try to frame all this.

(I read the book and I can fully endorse Lucas’ suggestion. You can download it HERE.)

If you had to give young researchers in environmental economics some advice, what would it be?

When starting research my advice to young scholars is to be very, very patient. One of the secrets of our profession is that writing good papers requires way more time than originally anticipated. It still applies on a senior level but at the beginning of the career one has to learn this lesson the first time, and often in a significant and rather painful way. One has to fight with lack of own knowledge, slow progress, errors in modelling, conflicting information etc. and needs substantial time to develop a good mode of scientific working. In this phase it especially helps to have full support of a research group and of supervising persons who entirely trust the young researcher, give guidance, and are able to explain the challenges of our tasks. I also recommend to keep a good work-life balance because it supports personal development and helps productivity and originality of research. It is also good to reach out early, for example by going to special conferences for young economists or special young economist sessions and later regularly submit to international workshops. One also needs to be stubborn sometimes and at the same time accept the unavoidable imperfections of academic work.

In what direction would you like to see environmental economics develop? What would be the obstacles?

A first aim is to bring our topics back to core economics like in classical theory. This has already happened recently but should be pushed much further. For example, the questions whether there are limits to growth, whether economic growth increases welfare or whether population growth is a threat for the planet are crucial in public debates yet not often addressed prominently by environmental economists. We should try to seek a good balance between disciplinary excellence, interdisciplinary collaboration, and political impact. Also, we should become again the forerunners in developing and applying new methods in economics and not only apply the methods of others in an additional field. With the existence of limited stocks and limited absorption capacity in nature combined with different kinds of uncertainty we have challenging key topics calling for extending standard techniques. Possible obstacles are that some of the techniques, for example in dynamic optimization under uncertainty, are complex so that it is not easy to address a broader audience and to find a sufficient number of good reviewers. In the policy application, we regularly underestimate the equity implication of proposed policies. Policy makers are not really interested in efficiency, rather they fear the negative reactions of voters who think environmental policies are expensive for them and not sufficiently beneficial. It is crucial to address these concerns by a smart policy design.

At ETH you invested a lot of time building a group of young and also now much more advanced researchers. How important do you feel – based upon this experience – that interaction is for young researchers and studying at top places such as ETH?

I think the group is crucial. We need times when we study alone and try to solve problems on our own, but then we also need interaction, feedback, and sufficient proximity for discussing; for trying new things or asking other researchers whether they know if this ever has been dealt with in the literature. For me this is central for a productive research. We are lucky to have an endowment here at ETH, which I can more or less double with external money to have a sizable group. It is amazing how broad the variety of topics is that we can cover – it all centres around resource economics but goes from climate finance and the behaviour of dictators to theoretical research, risk assessment, behavioural aspects, etc.

Recently we have seen, at least in the academia in England, also in Italy for example the FEEM group, that many larger groups start to have trouble to attract funding due to cuts in R&D funding because of the financial crisis. Did this also affect your group?

Not yet in a major way. But we are struggling as well and spend considerable worktime to get more funding which often relates to the perceived quality of our work.  We are quite successful but it is clear that it is difficult, that it is competitive; at the moment we are still fine.

Did it become more competitive during the past years?

In the longer run very much so. Of course, the longer you are in business the better you know where the good channels are, where the lower hanging fruits are, where the easier money is. One also needs to consider that third party money requires additional effort to justify research and to deliver, that is to provide intermediate and final results. You must calculate the net benefit and I think we have managed this quite well in the last years.

How do you mostly get your ideas?

I am a curious mind. However, I would say I’d often get them over the weekend, or even in holidays, by reading books, the news, the literature and by discussions with colleagues from the field and also by discussions from very different fields, such as architecture. Then I try to connect some things, try to be innovative, think about the future and also about other top issues. I also respond to incentives: we have more and more directed research. These are specific programmes where we are asked to contribute and special issues of journals for example. I also reconsider results from colleagues in the literature where one probably could improve upon or find something in addition to that. Thus already by reading the literature in our specific field one always finds plenty of topics. I never run out of topics, I just never have enough time to deal with them.

We tend to have researchers that focus on very specific topics. In contrast, you work all over the place. How difficult do you feel it is to still stay on top of the game compared to several years ago when the field was much smaller?

It is difficult but it is just my nature: I cannot stick with a very narrow field. I want to solve some problems in one field but then I have to move on. And it is clear that my group helps, my co-authors help, my network helps. One should develop – if one does too long the same thing it is not productive. On the other hand, it is true that, if you are at a junior stage and you want to become a professor, you have to concentrate on some specific issues. In some topics we  try to be on top of the field and set the pace instead of simply following others.

Are you more interested in fundamental research or do you try to shape actual policy through your research?  

I try to combine it, and actually at ETH we are asked to combine it, we are asked to reach out to politics. I have clearly realized in the last years that it is very demanding to all this at the same time. So as you see with my papers I try to do deep theory, but at the same time it is really useless if we cannot explain results and make recommendations to the public or the policy makers. I did all kind of policy advice.

One was with the Energy Policy for Switzerland; we relatively closely followed the energy transition in Switzerland where one of the issues was the nuclear phase out. We were calculating the long-term economic effects of different scenarios which hopefully had an impact on the public decision making.

Second I was five times part of the Swiss Delegation at the UNFCCC Climate Change Conferences where I saw real policy work with very different concerns compared to what we usually have in our theoretical research. It was always rewarding but during the climate negotiations the quality of life is not very good; you have no free time and very short nights, you sit around in meetings all the day with very long delays and complicated processes. Going back to the office and simply do theory feels much better. I have the privilege that I can combine these aspects. I also like teaching. Fortunately, I can keep administration to a minimum and thus  safe time which I can use for academic activities.

Let’s talk more about your policy involvement.  You have been part of the Swiss Delegation at the UNFCCC Climate Change Conferences COP 15 (Copenhagen), COP 17 (Durban), COP 20 (Lima), COP 21 (Paris), and COP 23 (Bonn). You have also been on the Advisory Body on Climate Change of the Swiss government. How did you get involved in these processes?

Switzerland is a small country. We do not have a lot of personnel so it happens rather quickly. Once you are in the network it depends on your availability, and I must say that I had to free up time and space to do this. To go to the COPs is more difficult: There is a high demand for being part of the delegation, not everyone can go. Also, what we environmental economists say is not always in line with what policy makers want to hear, we might have some conclusions which they do not like. This is a dilemma.

How is it for an economist to work together with politicians?

Surprisingly good! I think many politicians are quite smart, they simply have completely different preferences. They don’t care too much about efficiency, they care about voters, about lobbies, and of course they always use language that mimics scientific results but in the end it is about re-election and popularity. What is special about international politics is that when you go to the United Nations then it is more or less about 190 times national politics. So while one talks to foreigners one thinks about the government and lobbies at home which makes a complex combination. When you have to find a consensus at the international level you can imagine how complicated that is.

Can we learn something from politicians?

Oh sure, one can learn how to survive, how to deal with bad news, how to make and break coalitions, how to make new coalitions when it is the right time. Academic life has many aspects of politics. If you think about which of your papers are published in good journals, which are not, this also has to do with networks.

I was thinking more along a different line: We economists tend to love Occam’s razor. Having worked together with policy makers – is our razor too sharp? Are we cutting off too much?

No, but we are sometimes cutting at the wrong places. When, for example, we talk about a uniform carbon price worldwide the good politicians know that this is efficient. But they also know what it means for fairness, equity, and the distribution of the carbon budget. When you realistically don’t assume international redistribution of carbon tax revenues it is clear that the highly polluting rich economies get a high carbon share while the poor economies get a low carbon share. So better talk about distribution first while firmly keeping efficiency but in the back than talking about efficiency and not talking at all about distribution.

So do you disagree with Jean Tirole and Christian Gollier who are pushing for a uniform, global carbon tax?

We all have the best intentions and we all agree on the goal of the policy; but we have to get it done and the question is how we get it done. At the COPs the basis of the climate agreements so far have not been uniform carbon prices, there were too many reservations. It will be very difficult if not impossible to redo the whole exercise soon and to get all countries to agree on something new. Thus, for pragmatic reasons, I think we should continue on the basis of the current agreement in order to gradually push politics towards the uniform carbon price via national policies and probably via a global permit system, but step by step, and not all at once.

You suggested that economists need to be concerned with smart policy design. Are we focusing too much on the first best?

Probably yes, because we are not living in a first or second best, but more like third or fourth or fifth best world. When designing policies, we should really focus on the set of feasible solutions, even when they differ from Pigouvian prescriptions. We have recently seen that Diesel bans and emission norms are quite effective and have changed the global car market very quickly. We should learn and find out what is doable and then do the best out of the instruments which are feasible.

Given you have been much involved in the policy debate – would you say your research has an impact on policy making?

Probably not [laughs]. Marginally maybe, maybe in the long run, I would at least hope so. But to measure such impact is very difficult. At the COPs, very few  person deserve special mentioning but all the participants deserve a lot of credit, because it is a huge joint effort. It is a very sluggish and sticky process. I think my personal impact is more direct in education but less direct via research and policy advice.

If environmental economists wanted to increase their say in the policy making, what should they do?

We should pick topics which are considered important in the public debate. Also, we should talk about the issues of colleagues which are not economists, such as: what is the impact of population growth on the world? Or: How do we perceive the degrowth debate? We should also insist of being part of the political game. We have some colleagues that do this well, while others think they would not like to do it. One also has to have some messages to deliver and to talk in a way that people understand. Some researchers with a high teaching load or those that have a lot of administrative work obviously do not have enough time to do significant policy work at the same time.

Don’t you also feel that we economists tend to value an academic publication much more highly than any of this work?

Absolutely.

How can we provide incentives then for younger researchers to be more active in the policy debate?

We have to change our evaluation guidelines, for persons and for programmes. We have already done so in many cases: In committees we now often ask whether this researcher is good in communication and teaching. Also: does he or she have a policy impact? Is the research relevant? What actually happens is that committees do not always act according to these guidelines. The most conservative element of the whole system is the mind of the people involved in the process and if committees are not fully willing to evaluate in a new manner the exercise does not really work. Thus, whenever we are in a committee or are evaluation projects, we have to remind ourselves that there are things that are also important apart from disciplinary academic research.

You would, however, agree that a risk averse researcher who wants to maximize the chances to be accepted in one institute would focus on academic research simply because not every committee places sufficient emphasis on other things but publications?

Yes, this is true. But it might also change. There might be a tipping point where it alters but at the moment I guess you are right.

You have recently been the president of the European Association of Environmental and Resource Economists. How was this experience for you? What were your goals and did you manage to achieve them?

It was a great experience. I could have an impact there; you were asking about impact before. I had some ideas about how to make the Association more efficient, make it better and more productive for the members, and also to re-arrange the budget a bit and to start new activities. I had a very good secretariat and a nice council around me, together with an excellent feedback from members, so I have to say it was very rewarding. As concrete examples, we strengthened the links between the regions and the Association, centralized some procedures which led to cuts in costs, and started a new format for young researchers with a very successful winter school run in Monte Verità.

There seems to be a gap between European and American, as well as other regions’ environmental economists. Did you have interaction with the American Association or any other region’s association across the globe?

I did not have a very strong interaction. I met the president of the US association twice but we did not have a very intense contact. Actually I now have a much more intense contact with the East Asian association which I find a very interesting endeavour. I will be there at the next years’ annual conference, I will go to Beijing to tie up with them as I think one of our big hopes is China and the whole East Asia. I find this to be a real adventure and talking about impacts, I believe our impact there could be really strong because, when you start from a relatively low level of impact, you may have a marginal effect that is much higher.

In addition to ERE you have now organized the SURED conference in Ascona, by the way one of my most favorite conferences around, around every second year since 2004. How has the research changed during the past years?

Research has been going more towards the issue of climate change but we still have the traditional topics, like the fundamental research about sustainability and its axiomatic foundations, or resource economics, applying the Hotelling Rule and the Hartwick’s rule, adding issues such as market structure and uncertainty. We had hoped to significantly enlarge the group of researchers in Europe that work on theoretical resource models and economic dynamics. But somehow that specific group is not getting that much larger. Nevertheless we do have many young people who are very strong and willing to apply new methods.

So, Lucas, you are now 60 years young (my wife suggested the word young). There is still a lot of time left. What are your aspirations for the future?

I want to continue to push research as much as I can. I think we have lots to do in climate economics and in sustainability issues; it is not at all like we have solved all the issues. Things that we thought we had solved like free trade of goods and services are now questioned again by politics. I want to do more research, but at the same time I also want to have a quieter life, and also consider other things of life. Maybe also a bit more travelling and free time as it has been quite hectic in the last years. But I won’t change dramatically – and while I look forward to things to come, I want to have a less dense schedule.

Talking about aspirations – if there is something in our discipline that you could change, what would it be?

It would be good to have broader criteria for evaluating people and projects. I would like to see all talented and strong young researchers of our field finding good jobs in academia. We should not only focus on top five journals as they are very limited and biased in different ways, especially in environmental economics. We should have a broader yet sharp view on what is good and bad research. A more equal consideration of the different disciplines in economics would be beneficial, herding and following fashions often lead to less productive research. Many colleagues have developed good ideas for a new system of quality criteria in research, but I see that it is very difficult to get out of the current equilibrium as, whoever suffered through this system and made it up there, is not willing to give it up easily because past investments would get the flavour of a stranded asset.

And now for a bit of fun. Do you know the concept of holidays or do you take your papers to the beach?

I stopped taking papers to the beach. I did this when I was young but I found this not very productive. What I do take to the beach is probably a small booklet where I can make some notes. The beach is a good place but not my favorite place, I do prefer hiking, biking and skiing in winter. I have many friends who are not economists and I have my private life on the weekends.

What is your favourite economics joke or anecdote from a conference?

If I may replicate the joke from my dinner speech at the last SURED conference, where I was telling stories about trust and confidence in our community: “Asks the boss the employee: Why do you say I do not trust? The keys for the company’s safe always lie around. Yes, says the employee, but they do not fit.”

As for anecdotes: One of my first experiences in EAERE was that I wanted to present something nicely, not always with words and math, so I put many arrows, to show the different effects in my model. But then somehow the computer program inverted everything and all the arrows went into the wrong direction. So I had to explain to the audience that this arrow in the picture goes up but in reality it should go down etc. It was all very confusing and not well explained in the end.

Please feel free to suggest someone else whose answers you would like to see.

If you never had a female colleague, then you may want to ask e.g. Karine Nyborg.

 

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