Wednesday, August 16, 2006


Inadvertently Saving the Environment

I got a new car on Monday. Not because I wanted to save the environment, but because I desperately needed a new car.

The xA, amongst all its other wonderful features, gets 32 mpg on in the city and 38 on the highway.

So now I have a great conversation starter for all the tree-huggers applauding me for getting an eco-friendly car.

"I just wanted to save some money on gas and I ended up doing something good for the earth! Isn't the free market awesome?

The invisible hand at work.

This is exactly the reason we should not repeal the gas tax. :)
You say things like that just to get a rise out of us, don't you?

Is the gas tax in place to improve air quality, or to pay for roads?
If the gas tax actually went towards roadwork, I'd be all for it. If that were the case, it would just be a user fee collected in a rather inefficient way. By far one of government's least harmful policies.

However, since the gas tax seems to be used for everything BUT paving old roads and building new ones, I'm not such a fan. I don't want the taxes I pay for driving a car funding those who don't: light rail dreamers, bus-riders or bikers.
Can you still get a tax credit on those "green" vehicles....

I wouldn't call the auto industry a free market either

Only sometimes. :D

But you are right. The gas tax, so far as I know, is not curently calculated to promote an efficient market outcome.

So the chances are pretty slim that the tax we have now is the most "efficient" tax.
Chris, I'm pretty sure that Bush killed the green car tax break. It'll be interesting to see how long it takes hybrids to actually be competitive now that the tax break has been removed.

Do you agree with the standard Pigouvian tax scheme for internalizing externalities?

If so, how do you begin to estimate what the marginal social cost/benefit is of any externality? I'm interested to see this in action, since as you said, this is not typically the reasoning or guiding principle behind taxes.

I don't want to say that I agree with the approach of pigouvian tax schemes because I don't consider myself a utilitarian (there's more to life than preference satisfaction). However, I do think that Kaldor-Hicks efficiency can sometimes be a useful way to evaluate market outcomes.

How would go about calculating the efficienct tax? I've never actually been a part of such a project myself, but obviously the hardest part of such a study would be determining how much people value cleaner air.

The only way I could imagine this being estimated would be using the Contingent Valuation Method (CVM)--where economists survey random samples of people to estimate their willingness to pay.

I think we both realize the problems with using this method, and I would expect the people using it do as well. But what other choice do we have?

No empirical measurements are perfect and the only other option would be to not stop trying to estimate people's valuation of resources that aren't traded on open markets.

Politically, that might sound very nice. But I'm not sure I would want to stop studying entire areas of human behavior for political reasons.

PS* The only reason I know about CVM is because we're using it in a different setting on a project I have at work. :P Doing a little googling, it looks like there are other methods for valuing non-traded resources (travel cost method for example), but none that would apply to air quality.

If you know of an alternative method, please let me know.

That isn't to imply that you are suggesting giving up such studies for political reasons.

I totally understand where you're comming from. And believe it or not, I actually agree with you.

Even if we decided an "efficient" tax on air pollution would be a good idea, I would be very skeptical of basing our calcuations on the results of some survey. People could easily say they would pay $100 for a 10% increase in air quality until the bill actually shows up.

In the end, this all goes back to a point I've been beating around in several points. The most importan questions in economics are empirical, but all the empirical tools we have before us are imperfect and ussually unreliable. But what else can we do?
Good, short link on different methods for valuing enviromental resources:
It's unnecessary to go through all the interpersonal utility gymnastics to value the environment. A system using civil courts to adjudicate cases would solve the problem without any kind of advance planning or complicated valuation systems.

More on this at the Heartland Institute.

In some cases that might be the case, but in the case of air pollution I think the problem of transaction costs is too great to expect a court solution.

After all, who would you take to court? It isn't like there is two parties to nagotiate with. Everyone contributes to air pollution. Even most hardcore enviromentalists drive cars, ride buses, and fly planes.

I mean, I love Coase and institutional solutions as much as anyone, but I don't think we will find any here. Air pollution is probably THE most perfect example of how governments could justifiably intervene to internalize externalized costs through a pigouvian tax.
Paraphrasing Roy:

You can use civil courts to deal with Air Pollution.

The important element to consider is what harm is being done once pollution leaves the air and "lands" on an individual - in his lungs, on his crops, etc.

So, there's no need to privatize the air in order to come up with private solutions to air pollution.

Science has progressed such that it is possible to trace the source of pollutants with a good degree of certainty. (Remember, of course, that in Civil Courts, all you need is a "preponderance of evidence" not evidence "beyond a reasonable doubt." So, modern science means that suing in civil court is a very viable option.

The only other thing necessary to make this a perfect system would be to privatize roads, making it easy to determine who one should sue if one is harmed by pollution from automobiles. Keep in mind that under current laws we aren't even allowed to sue the owners of the roads - the government.

It seems to me that the cost of air pollution on any given individual would be small when compared to the costs the individual would have to incur to hire a lawyer, identify the party most responcible for the damage (even if they could), and then spend time suing them.

Whether this is true or not is an empirical question, but that is certainly my impression.

If the costs were not prohibitive, why aren't more people suing as individuals or as part of groups? We already have a sophisticated court system with laws on the books that allow individuals to sue each other for property and personal damages. What's the hold up?

Maybe you're right that government ownership of roads prevents effective law suits. But I don't see how.

Even if we wanted to sue road owners for the damages of air pollution (I'm not sure we would), why would it matter that the current road-owner is the government?
Who says you can't sue the government?

For example, Can't someone that suffers adverse health events caused by car exhaust on the Interstate Highway just go to the closest U.S. District Court and file a law suit against the federal government for damages? I've heard of people suing the government for less.

Of course, I don't know much about the law. I'm sure you or Roy can point out what I'm getting wrong. But, right now, I just don't see the problem.

PS* Another reason people might not be suing is because the current combination of taxes and regulations is "solving" the "problem". But, if that's the case, let's still continue the court-solution discussion. It's an interesting idea.
First, you can't sue the Government because the Government says so.

Except under a very few circumstances, enumerated in the Federal Tort Claims Act, the Federal Government claims sovereign immunity and cannot be sued. Same applies to States except in cases of extreme malfeasance on the part of some state actor.

So, that explains why people aren't currently suing.

In the 19th Century, individuals and groups filing suit against private polluters (factories, etc) was in fact very common and was the main way in which pollution was controlled.

That ended when courts began to claim that factories were "good for the community" despite individual harms from pollution. Note that in under a natural rights regime, this would never happen.

Thanks for pointing out FTCA. Like I said, outside of my economics and law course (which was mostly economics) i have never spent much time with torts and the like.

But are you sure your examples from the 19th century are actually evidence for your proposed alternative?

The way I see it, the only time someone will go to court is when the damages being incured exced the costs of going to trial.

The fact that there were a lot of court cases 100 years ago doesn't suprise me. I suspect that individual polluting firms caused far more damage 100 years ago than they do today. After all, they did not have the same technologies that we do today and they didn't face the same regulatory enviroment.

But it still seems to me that people will stop suing (and pollution will stop falling) when the costs of going to court become prohbitive.

And there is no reason to think that this will be at the "efficient" outcome or that the government can't help imrpove the outcome through taxation.
Sorry, I'm not buying it. In a world where interpersonal utility comparisons are verboten, "efficiency" writ-large doesn't exist.

Moreover, the answer is to strip the Bar assocoation of its power. Allow individuals without law degrees (or those who have not passed the bar) to practice law. Going to court is costly because of ridiculous regulations - not because of market conditions.

The answer is less government - not more.

But what makes you think that will reduce the costs of legal transactions?

It will certainly alter the cost, but I can't say that I see in which direction.

Allowing people to practice law that havn't passed the bar might introduce more lawyers and that might lower the wages of lawyers, but lawyers are not homogenous. How will this impact the quality of the average lawyer in practice? How will that impact the probability of winning any particular court case?

And what if the increase in lawyers leads to more court cases? How will that impact the time it takes to complete any lawsuit?

These are pretty big questions. I really don't see how we can just assume the legal costs will just drop.

Have you seen papers that address these issues?
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