Market and Non-market Solutions to Ecological Crises

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Sascha Voss
Food prices at a grocery store in Barcelona, Spain.

Ecological crises ranging from climate change to biodiversity loss arise when self-interest outweighs the common good; for example, people aware of the catastrophic social costs of carbon emissions drive anyway because it is personally convenient. Markets, in theory, channel self-interested, competitive behavior towards the common good, leading an increasing number of economists and environmentalists to argue that market mechanisms offer the most efficient solutions to environmental problems.1 People respond to higher prices—a tax on carbon—by using less. Industry responds to profit incentives—monopoly property rights to patented information—with environmentally-friendly innovations.

These market mechanisms are certainly better than ignoring the costs of ecological degradation or investing nothing in green technology, but they remain highly inefficient. Demand for essential resources, such as food and energy, is only responsive to price when expenditures account for a large share of the household budget. Internalizing the full ecological costs of agriculture would cause food prices to skyrocket. Yet, when food prices did soar from 2007 to 2008, rich countries scarcely noticed. Americans actually increased wheat consumption even as the price tripled.2 In contrast, in poor countries where food expenditures account for more than half the household budget, people slashed consumption,3 resulting in rising malnutrition, rioting, and political breakdown.4,5  Allocating the last loaf of bread to the overfed American who throws a third in the trash, rather than to the destitute African mother desperate to feed her starving children, is clearly inefficient.6 If society develops a clean, decentralized, dependable, and inexpensive alternative to fossil fuels, it is equally inefficient to limit use to those who can pay monopoly prices, leaving others to burn coal. True, patents become part of the public domain after twenty years, but can we afford to delay the adoption of green technologies for that long?

Most of the ecological problems we currently face are prisoners’ dilemmas: even when universal cooperation is clearly the best strategy for society as a whole, individuals are better off acting in their own self-interest regardless of what others do.7,8 Prisoners’ dilemmas can only be solved through institutions that successfully promote cooperation. Several articles in Solutions have called for one very promising cooperative institution: common asset trusts (CATs), designed to manage our shared natural and cultural heritage for the common good of this, and future generations.9-15 CATs can even use market mechanisms, such as auctioning off rights to resource extraction or waste emissions, and can use the resulting revenues to address the undue burdens on the poor and invest in the common good.

Most global CATs will require detailed and complicated international agreements, which can be time consuming and difficult to negotiate. In contrast, a green technology CAT could be developed unilaterally and help pave the way for other CATs. A single wealthy nation, or even an individual, could start a CAT in green technologies by funding research—especially for sustainable agriculture and alternative energy—with results made freely available to all on the condition that any improvements are also open access.16 Unlike CATs for resource extraction or waste emissions, where the goal is to ration access to ensure sustainable consumption, the optimal property rule for information is open access—free, unlimited use for all. The major input into developing new technologies is information, so open access lowers the costs of technological advance. Once a green technology exists, its value is maximized when adoption is maximized, at a price of zero. Furthermore, compared to profit-driven innovations, those funded by a CAT are more likely to help the poor or protect, restore, and create public goods.17-19 While all countries would ideally contribute funding to the best of their abilities, free-riding on the CAT would be impossible; more widespread adoption of green technologies benefits the funder, and will almost certainly lead to improvements in the technology.

A fossil fuel economy is inherently competitive, since one person’s use of fossil fuels leaves less for others. In contrast, one country’s use of solar technologies does not leave less sunshine or technology for others. The energy transition required to avoid runaway climate change favors a more cooperative economy. Abundant research from across the sciences shows that humans are among the most cooperative species to have ever evolved, and identifies cultural mechanisms that stimulate cooperation. One important mechanism is group membership, another is reciprocity stimulated by generosity.20-24 A green technology CAT achieves both of these. Anyone who chooses to use the technologies becomes a member, and initial generosity would undoubtedly stimulate reciprocal contributions. Technology alone will be unable to solve global ecological problems, but future negotiations for CATs that reduce waste emissions and resource extraction would be among members of the same group, and more open to reciprocal cooperation.

References

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  2. Wheat data. USDA [online] (2013). http://www.ers.usda.gov/data-products/wheat-data.aspx.
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  4. Berazneva, J & Lee, DR. Explaining the African food riots of 2007–2008: An empirical analysis. Food Policy 39: 28-39 (2013).
  5. Ball, P. Acting on the global food crisis. The Lancet 386(10000): 1231 (2015).
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