Ep. 100: Environmental market design

Since the 1990s, developers in Florida who want to build on wetlands have been required to buy offset credits from "wetland mitigation banks," private restoration projects that convert degraded land, often former pasture, back into functioning wetland elsewhere in the same region. Like other environmental offset markets, the program has proved controversial.

In a paper in the American Economic Review, authors Daniel Aronoff and Will Rafey found that wetland offsets generated roughly $2.4 billion in private gains from trade but also a significant increase in overall flood damage because wetlands were moved away from places where they protected existing homes.

Rafey recently spoke with Tyler Smith about what the results mean for the design of environmental markets and wetland regulations.