How much is a Wave Worth? An example of how much Economists are creative and cool people, too.

A few  days ago a very interesting  article was published by The Economist, “The effects of surfers on local Economies”.
It illustrates the findings of a study published by Thomas McGregor and Samuel Willis of the Oxford University, originally titled “Natural Assets: Surfing a Wave of Economic Growth”, which is pretty much enlightening.
What this paper basically tells, is this story: we can estimate the economic worth of a wave by computing its follow up on the mainland. The reasoning behind is that surfing, as a sport, is pretty much about exploring new unconquered waves, beside of course of getting better at mastering them.
At this point the paper becomes brilliant. As a wave, commonly being a natural asset, doesn’t come with a price tag, the most convenient way to estimate its value is by measuring the entertaining activities taking place on the coast.  In fact surfers are likely to grab a sandwich after the exhausting ride and then watering it down with a drink or two. This relaxation highlights and augment the local economy. By how much? The answer lays in the night time illumination increase; it is in fact a reliable economic indicator for local GDP.

At the end of the  (surfing) day…

Lets  refresh: the paper tells that there is  (statistically) significant difference among low quality and high quality waves in terms of economic return. Moreover the study demonstrates that:

  • emerging economies benefit the most from those
  • the incoming tourism is not stolen from surrounding neighbourhoods, because the local economic activity is generally and altogether improved
  • Surfing reduces rural poverty
  • surfing waves contribute US$51.2 billion (2011 PPP) globally each year to economic activity in their surrounding 50km

However, the contribution of the study can also be found in renewing  the academic work on valuing non-market natural assets. In fact non market evaluation techniques have been neglected in the political, and not only, environment; in fact the study cite that The World Bank also estimates natural capital but excludes most non-market assets due to a lack of data (Jarvis et al., 2011).
The work here presented builds a strong base for revealed preferences.
Creativity in the numbers

Another Surf
Another Surf



A remarkable feature of this paper is also the one of reminding us also how much Economics is a inexact science. It is, indeed, a social science: based on people. People are under this discipline, stigmatised into patterns: the issues is that people are unpredictable! Therefore economists have often failed because relying too much on models standing on too weak and restrictive assumptions. It is a very big con of studying this subject. However, this allows experts also to wander with creativity: have you noticed that the paper has used illumination as a proxy for economic activity? And this expedient is far more realistic than an index of number of residents or of  tourism activity, because it allows to include in the figure everyone enjoying the surfing place, not only a legally recognised small part of it.
After all economics has a long list of creative and successful index.
The most popular one is probably the Big Mac Index, invented by The Economist in order to be able to compare the purchasing power parity around the world. But there are my other pretty funny ones, for example the Garbage Index based on the simple Physics rule: nothing can be created nor destroyed, it just passes from a state to another. Therefore the amount of garbage we produce can also be a proxy of GDP.
Another, maybe less credible, one is the Hemline Index: it correlates the length of women’s skirts with economic downturns. The longer the worst the situation is going to be.
What about The Japanese Haircut Index?  It relates the inches  women let the hairdresser cut in the salon with economic situation: the more they are brave the worst the situation is going to be, as women think to cut deeper on those times in order to save money and visit the stylist less frequently in the future.
Finally, the Buttered Popcorn Index: it correlates its sales with economic crisis, the more it is bought the worst we have to expect as people tend to want to escape from reality at the movies.

So folks. Do not forget to have fun with your mind, ever.  Basic and creative intuitions can be the smartest you could ever conceive!

 

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