Comments on: Climate Change Economics

By: RSSted Development

RSSted Development — Tue, 22 Sep 2009 22:25:51 +0000

*are advocating

By: RSSted Development

RSSted Development — Tue, 22 Sep 2009 22:25:22 +0000

This won’t work. If China and India grow to have per capita C02 equal to the Western world, then worldwide C02 measures will more than triple.

To get down to the levels greens are advocated everyone, including China and India, will have to lower our per capita emissions. We would have to lower them to sub-Saharan African levels. I.e. nearly nonexistent.

Good luck on that.

By: gpeters

gpeters — Tue, 22 Sep 2009 21:39:01 +0000

Here is an example of related environmental issues in the accounting literature:

Clarkson et al. 2004, The Accounting Review

“…The existing environmental literature suggests that investors condition their evaluation of the future economic benefits arising from environmental capital expenditure on an assessment of the firms’ environmental performance. This literature predicts the emergence of two environmental stereotypes: low-polluting firms that overcomply with existing environmental regulations, and high-polluting firms that just meet minimal environmental requirements. Our valuation evidence indicates that there are incremental economic benefits associated with environmental capital expenditure investment by low-polluting firms but not high-polluting firms. We also find that investors use environmental performance information to assess unbooked environmental liabilities, which we interpret to represent the future abatement spending obligations of high-polluting firms in the pulp and paper industry….”

By: Peter Klein

Peter Klein — Tue, 22 Sep 2009 21:00:27 +0000

OK, here are the ones I was thinking of:

Peltzman, Sam. 1974. “The Benefits and Costs of New Drug Regulation.” in Regulating New Drugs, ed. Richard L. Landau (Chicago: University of Chicago Press, 1973), pp. 114–211.

Linneman, Peter. 1980. “The Effects of Consumer Safety Standards: The 1973 Mattress Flammability Standard.” Journal of Law and Economics 23: 461-

I’m sure there are many more recent studies in this tradition, however. You might find some sources at

http://www.fdareview.org/index.shtml

By: gpeters

gpeters — Tue, 22 Sep 2009 19:37:43 +0000

The “minimum” response problem, is something that has been nagging at me. Generally, we think about disclosure being a good thing in terms of driving competition (everyone wants to look marginally better, so they are looking for ways to perform better). However, I am curious about conditions in which disclosure would actually drive an equilibrium where everyone goes to the minimum level of activity or performance, opposite of what was intended with the disclosure policy. Note that this would be in the absence of any minimum standard of performance. Maybe this will spark an idea for the analytic audience.

I am currently working with a co-author on the cross-country determinants of carbon disclosures. Hoping to get the paper on SSRN very soon.

By: Peter Klein

Peter Klein — Tue, 22 Sep 2009 17:06:36 +0000

Gary, good question, I’m not aware off-hand of any studies on mandatory disclosure in your context, though there must be some work on, e.g., FDA food-labeling requirements. What I had in mind was product characteristics that go beyond those mandated in the generic product-safety rules, like dolphin-safe tuna or fair-trade coffee. Indeed, just yesterday I saw an ad for a car (Lexus, I think) that was 80% made of recyclable materials. Obviously the seller is targeting a particular demographic that is willing to pay a price premium for that level of perceived environmental friendliness.

Now that I think of it, I believe there were a bunch of Journal of Law and Economics papers in the 1970s on FDA labeling rules, concluding that product safety had actually declined, in many cases, as a response to these rules. The argument was that consumers were lulled into a false sense of security such that there was little incentive for sellers to exceed the minimum standards. I can’t recall the exact cites (Peltzmann?). Maybe somebody out there can help….

By: gpeters

gpeters — Tue, 22 Sep 2009 16:07:14 +0000

Peter K, would my economist friends offer there is room for a “disclosure” requirement in the public policy arena. That is, while we might not need a policy on emissions reductions, is there room for policy on disclosure of emisssions. Admittedly, if consumers made decisions based upon the information, there is incentive to provide it without policy. However, this does not address any perceived incentives for non-disclosure.

I am looking for a good paper that describes the potential “markets” problem that a public policy on disclosure would create (in any setting)? I realize the choice of an acceptable disclosure measure has its own difficulties.

Accounting research spends a great deal of time trying to understand the disclosure decisions of managers (including biased disclosures, voluntary disclosures, and proprietary costs of disclosures). Of course, we borrow heavily from the economics literature.

By: Tim Worstall

Tim Worstall — Tue, 22 Sep 2009 11:56:39 +0000

“Thus, efforts to reduce emissions will grow as more and more countries prosper sufficiently that their inhabitants are willing to forgo consumption for cleaner air, etc. So, from an economic perspective, the most realistic way to fewer carbon emissions and (per my assumption) less climate effects is through the aggressive promotion of activities that promote growth: free trade, democracy, economic freedom, reduced taxes, regulations and tariffs, protection of property rights.”

Interesting thought but sadly, as with so many interesting thoughts, not novel.

Something very much like this is actually one of the economic models feeding into the IPCC reports on climate change.

Yes, it does provide most of the best outcomes as well.

Have a look around the SRES (just search google for it) and read chapter 4.

By: Peter Klein

Peter Klein — Mon, 21 Sep 2009 13:55:07 +0000

Peter, regarding #1, nobody opposes individuals and firms taking these actions. But, of course, there is no need for “climate change policy” regarding them, because individuals and firms will simply do them. It’s the same with “socially conscious” business practices. If consumers desire “green” or “sustainable” or “fair-trade” products then firms have an incentive to supply them. This is simply not a public policy issue.

By: Peter Meyer

Peter Meyer — Mon, 21 Sep 2009 13:13:41 +0000

Glen’s basic premise is faulty:
“…emissions are a classical prisoners’ dilemma. That is, reducing emissions is costly, and the benefits to any one country are mainly enjoyed by others.”
— NOT!! … and the falsehood is arguable on multiple grounds.

1. There is extensive evidence about the energy efficiency measures that are net positives for those who engage in them. The best summaries of these findings were done by the McKinsey Global Institute in the past two years.

2. If there is a greater than zero probability that alternative energy and efficiency technologies will be in very high demand in the future, then there is a potentially significant payoff to the economies of those countries that are in the lead in developing those technologies that would warrant current costs for a high future return on investment.

3. There is the other side of the prisoners’ dilemma – the costs of doing nothing. His proposition assumes the do-nothing alternative does not impose costs in the relatively near tuture. Recent evidence on forest fires and mean temperatures, not to mention data on droughts and storm patterns, suggests this assumption is false.

Ample evidence abounds at