The Tragedy of the Commons, Flipped

Red Lobster is subsidizing international lobster fishing waters:

"Is there Red Lobster without lobster?" is not an existential question for this company. The North American lobster harvest fluctuates every year, but demand continues to grow. So two years ago, Darden began sponsoring an experiment to boost the population. Scientists working with the government of New Brunswick, in Canada, catch pregnant lobsters and care for their offspring until they're mature enough to burrow into the ocean's sandy bottom, then release the tiny animals into the wild. Then Darden waits and hopes -- for six years or more. So far, says Bill Herzig, Darden's senior vice president of supply-chain innovation, "it looks like good science." ...

But today, overfishing has made the seafood side of the business increasingly complicated -- not just for Red Lobster but for all the Darden brands. "It's a supply-and-demand issue," says Ian Olson, the company's director of sustainability, a newly created position. "There are 6 billion people on the planet today, and it'll be 9 billion by 2050. There's no better way to say it: There are only so many fish in the sea." Even before scientists predicted in 2006 that world fish stocks could collapse by 2048, Darden had begun removing endangered wild fish, such as Chilean sea bass and orange roughy, from its menus and using its clout as one of the world's largest buyers to push the industry toward sustainability. To promote fish farming and to set standards to minimize its environmental impact, Darden cofounded the Global Aquaculture Alliance, a nonprofit trade association that partners with governments and NGOs. Once GAA agreed on shrimp aquaculture rules, Darden required its suppliers to adopt them, much as Wal-Mart has successfully pushed its vendors to reduce packaging. "We recognize our responsibility," says Olson. "We want to make sure we preserve the ecosystem, but it's even better if we enhance it."

Somewhere Elinor Ostrom is smiling.

Disaster Politics and Civil Strife

From a new paper by Cullen Hendrix and Idean Solehyan:

This paper examines the relationship between rainfall, water, and socio-political unrest in Africa. In particular, we are interested in how deviations from normal rainfall patterns, and extreme events such as flooding and drought, affect the propensity for individuals and groups to engage in disruptive activities such as demonstrations, riots, strikes, communal conflict, and anti-government violence. In contrast to much of the environmental security literature, we use a much broader definition of conflict that includes, but is not is not limited to, organized rebellion. Using a new database of over 6,000 instances of social conflict in the past 20 years - the Social Conflict in Africa Database (SCAD) - we examine the effect of deviations from normal rainfall patterns on various types of conflict. Our results indicate that rainfall variability has a significant effect on both large-scale and smaller-scale instances of political conflict. We find that rainfall is correlated with civil war and insurgency, although wetter years are more likely to suffer from violent events. Extreme deviations in rainfall - particularly dry and wet years - are associated with all types of political conflict (violent and nonviolent, government-targeted and non/government-targeted), though the relationship is strongest with respect to violent events, which are more responsive to abundant rather than scarce rainfall. By looking at a broader spectrum of social conflict, rather than limiting the analysis to civil war, we demonstrate a robust relationship between environmental shocks and violence.

This is part of a growing body of research on how natural disasters and environmental changes affect politics. A recent article by Alastair Smith and Alejandro Quiroz Flores looked at how democracies perform relative to autocracies in mitigating the effects of disasters, and of course Amartya Sen famously showed that the worst famine in Indian history was a result of poor government response to a drought. (Johann Hari argues that this was at least partially Winston Churchill's fault.) Keep this in mind when reading about the ongoing flooding in Pakistan, the the fires in Russia, and the Chinese mudslides.

We Can't Stop Carbon Emissions (redux)

Ryan Avent takes Wilkinson to task for having the audacity to claim that there may be some collective action problems involved in getting the major world powers to credibly commit to reduce their carbon emissions, and in the process unwittingly stumbles onto the principle problem in international relations: in the absence of an over-arching international authority, cooperation among states is very difficult to achieve. Problem is, he has no idea that he's stumbled onto any problem at all. In fact, he denies that there even is a problem:

This seems almost deliberately dense. In particular, it makes no distinction between the world of billions of daily, anonymous transactions and the world in which a handful of great powers attempt to hammer out a diplomatic agreement. Unsurprisingly, it's very difficult to get millions of urban denizens to voluntarily come together to build and fund a road network or transit system in the absence of a coercive mechanism. The benefits are too broadly shared, and the incentive to free ride too great. But the smaller the number of players, the more concentrated the benefits, and the easier it is to find a mutually beneficial agreement. ...

In fact, there are fewer than ten relevant players, and only two really relevant players not already committed to reductions -- the US and China. Given that climate negotiations are part of a repeated game between the two great powers (that is, they're more or less constantly talking about one economic or political issue or another), it seems very likely indeed that an American pre-commitment to emission reductions would facilitate a similar Chinese commitment.

Ignore the rich condescension for a moment, and the irony as well. Avent is poking around at a game-theoretical argument: an over-arching international government isn't necessarily needed, because we only have to get a "handful of great powers" to agree to things, and coordination is easier with a smaller number of players. Well, that should be simple then. But there are all sorts of problems with this.

First, while it might be true that it is easier to coordinate among fewer players, it isn't necessarily true. In many game-theoretic models the number of players is irrelevant: coordination is just as difficult with 2 players as it is with 2,000. In other models, there may be lots of players, but only some have any ability to influence the final decision. In the picture Avent is trying to paint, this is actually the case: despite there being 200-odd states, really all that's necessary is securing the commitments of a relatively small number of those.

But even if Avent were completely correct about this, he's missing something else entirely: the salience of the issue. It's easier to tax millions of people a small amount and build roads with the proceeds than it is for neighbors in a property dispute to resolve the matter without litigation. If Avent's story were complete, this would not be the case. But the history of international relations is filled with instances of disputes between two states that lead to very costly wars or trade disputes. This occurs when the salience of the issue is high, or when the costs of some action are sufficiently high to dissuade a state from taking that action.

Finally, even if states could negotiate an agreement, there is no mechanism to prevent them from defecting. States say one thing and do another all the time, especially in violation of multi-lateral agreements like this. This is what Wilkinson was really driving at, and Avent doesn't even seem to consider the possibility. But this is a very, very big problem. In a nutshell, this is what the study of international relations is all about: finding the conditions under which actual cooperation occurs, and not just cheap talk. Turns out, it's harder then one might think, especially if the major powers are in major disagreement as in this case.

Even Avent's own examples speak to this: he says that of the "necessary" handful of countries needed to reach a meaningful agreement, only the U.S. and China have not committed to reducing emissions. Well, perhaps, but an agreement is not the same as an actual change in behavior. Among E.U. states, only the U.K. and Sweden are on track to meet their Kyoto obligations by 2010, and the U.S. has actually had fewer increases in emissions than many countries that ratified the treaty (including Canada and Australia, as well as a half-dozen or so E.U. states). The incentive will always be to defect, because compliance is costly and enforcement is essentially impossible. One simply cannot assume, as Avent does, that these collective action problems magically disappear if a formal agreement is made. In fact, Avent does worse than that by arguing that if the U.S. could only lead the way, China would surely follow. Really? He's never heard of the free-rider problem? When have the Chinese followed the U.S. on anything? China has given absolutely no indication that they will be willing to curb emissions if that means reducing economic growth by any calculable amount. Nor can the Chinese regime halt growth and still remain in power. And without China, the world's largest polluter (and the gap is growing amazingly fast), no overall progress can be made. And this says nothing of India or Brazil or Eastern Europe or Southeast Asia or Africa (if that continent ever starts achieving real growth). Getting real global cooperation on this issue would be the single greatest achievement in the history of international institutions. Which makes it very unlikely that it will happen.

In any case, Avent is arguing in this way to support the Waxman-Markey cap-and-trade legislation currently in the U.S. Congress. Strangely, Avent doesn't even like this bill, calling it "highly imperfect" and "totally inadequate". He also acknowledges that more progressive legislation is politically impossible despite an amazingly popular president who campaigned on this very issue and exceptionally large majorities in both houses of Congress. (Indeed, even this watered-down bill is unlikely to become law.) So Avent finds himself using deeply flawed logic to argue in favor of a wasteful, ineffectual bill that will make some people worse off by imposing a series of costs on them, but will not make anyone better off. He hopes that this bill will create better options in the future, but why? The electorate seems more likely to oppose future actions if present actions are wasteful and ineffective.

This is all odd, because Avent is usually much better than this, and he certainly knows enough economics to know better. So what's going on?

For even more difficulties, please see Tyler Cowen and Jim Manzi, and this previous post by me.

From "Obscure Journal" Article to Mainstream Policy

Cap and trade has become the "hot" environmental policy of choice as of late. Both those on the right and those on the left increasingly see it as the most efficient and practical way to tackle the issue of global warming using a market-based approach. 

The hard-core environmentalists and champions of global warming on the left would much prefer a strict carbon tax that would levy a tax on emissions of carbon dioxide as a way to cut down on pollutants. The global warming skeptics on the right do not want increases in regulations on businesses and oppose taxing companies on their emissions. They still oppose cap and trade as unnecessary regulation seeking to tackle a mythical problem, but see it as preferable to a strict carbon tax. In other words, if something is going to be implemented, they'd rather see a market based cap and trade, similar to that of the acid rain cap and trade in the early 1990's, rather than higher taxes and regulations. 

A cap and trade program, with its relatively broad appeal, is easier to sell politically and cheaper to administer:

It is almost perfectly designed for the buying and selling of political support through the granting of valuable emissions permits to favor specific industries and even specific Congressional districts. That is precisely what is taking place now in the House Energy and Commerce Committee, which has used such concessions to patch together a Democratic majority to pass a far-reaching bill to regulate carbon emissions through a cap-and-trade plan.

The bill is poised to win committee approval this week, although with virtually no support from Republicans. If there was a single moment when cap and trade crossed the threshold from relatively untested economic concept to prevailing government policy, it came in May 1989 in the West Wing office of C. Boyden Gray, counsel to President George H. W. Bush.

Cap and trade evolved from an academic debate that began in the early 1960s when Ronald H. Coase, then a professor at the University of Chicago Law School, wrote an influential paper, "The Problem of Social Cost,” that examined when government should intervene in cases where a private entity causes public harm.

In 1971, W. David Montgomery, a Harvard graduate student in economics, fleshed out the idea of emissions trading in his doctoral thesis and has spent much of the last three decades trying to figure out how the marketplace can deal with environmental problems that are caused by relatively few actors but have consequences felt globally.

So a cap-and-trade system is poised to make its way through Congress and into legislation. An idea that was hashed out, critiqued and critiqued again in "obscure journals" across a wide variety of disciplines including economics, political science, public health and environmental science, among others, has finally made the long journey from mere idea to "policy" and it only took about 50 years. 

I find it really interesting when policies and proposals have their foundations in academic journal articles written by economists and political scientists (mostly because it gives me hope that I will one day be relevant and may come up with some crazy idea that may actually impact the real world), specifically when proposals and positions are exactly lifted from the literature. The interesting question is: When are policies most likely to get lifted from academic journals? I'm guessing it is during times of crisis, which is when there is an impetus to try new things and actually push through changes in regulatory structures. (Kindred brought this up in a recent paper and discussion.)

We Can't Stop Carbon Emissions

So says Peter Huber:

We no longer control the demand for carbon, either. The 5 billion poor—the other 80 percent—are already the main problem, not us. Collectively, they emit 20 percent more greenhouse gas than we do. We burn a lot more carbon individually, but they have a lot more children. Their fecundity has eclipsed our gluttony, and the gap is now widening fast. China, not the United States, is now the planet’s largest emitter. Brazil, India, Indonesia, South Africa, and others are in hot pursuit. And these countries have all made it clear that they aren’t interested in spending what money they have on low-carb diets. ...

The grand theory for how the developed world can unilaterally save the planet seems to run like this. We buy time for the planet by rapidly slashing our own emissions. We do so by developing carbon-free alternatives even cheaper than carbon. The rest of the world will then quickly adopt these alternatives, leaving most of its trillion barrels of oil and trillion tons of coal safely buried, most of the rain forests standing, and most of the planet’s carbon-rich soil undisturbed. From end to end, however, this vision strains credulity.

His argument is simple: even if we (in the developed world) cut our carbon consumption markedly, the reduced demand will lower the price. Energy-starved developing economies will then take advantage of the lower price by ramping up their consumption by at least as much, and the net effect on emissions will be nil. We can't prevent them from doing this, nor we can afford to simply buy them off, because their sheer numbers are too great. In other words, we simply can't get past the economics of this even if we (in the developed world) were willing to sacrifice quite a lot to reduce emissions.

What can be done? Huber suggests that we cease spending time and money trying to hold back the inevitable tide. Instead we should invest in sequestering the carbon and sinking it back into the ground. This is best done, in Huber's mind, by investing in reforestation and other land use reform. In other words, Huber suggests taking better advantage of the earth's built-in stabilizers.

Would this be sufficient? Even Huber doesn't seem fully convinced. But there are reasons to think that the probability of sequestering working is greater than the probability of getting a bunch of treaties signed, ratified, and enforced. And sequestering comes with the added benefit of encouraging poor countries to grow out of poverty, rather than forcing them to stay poor.

For a different take, proposed by a Republican Congressman and member of the Pigou Club, see this letter.