Economics Questions

Re: How would the free market account for very general, dispersed externalities?

Ultima — Sat, 24 Jan 2009 08:23:45 GMT

I agree, I've had some thoughts on these same and similar issues, and this insurance approach isn't that bad at all. Probably similar to what governments would try to do, but at least with an insurance company you would have more competition and the money could not be siphoned off for unrelated items as that would make the company less competitive.

Re: How would the free market account for very general, dispersed externalities?

Josiah Schmidt — Sat, 24 Jan 2009 03:53:27 GMT

Sphairon:

I'd posted some ideas on this a couple of weeks ago, but I received little feedback:

If climate change is man-made, really dangerous and will cause massive damage, this will burden insurance companies a lot. They somehow need to collect more money to pay for the new damages. What's to stop them from using your "carbon footprint" in their premium calculations? After all, people who fly a lot, drive big SUVs and have wasteful homes contribute more to man-made climate change than your average tree-hugger.

[...]

Now you may ask yourself, what's the difference between a carbon tax that decreases demand for carbon-intensive products and carbon-based insurance rates that do exactly the same? If government collects the money, it may go anywhere without notice. Instead of helping the victims of climate change, this carbon tax money may as well be used to build tanks to invade some foreign nation. Insurance companies also redistribute money in a sense, but it must flow directly to those in need without too much wasteful bureaucracy

[...]

Just in case climate change is just a giant money-making scheme, this solution will also help. If there's no additional damage done by climate change and insurers just use it as a scare tactic to siphon off money, just one competitor who doesn't will suffice to lure off customers who don't like to pay more for nothing.

Oh, wow, those are some good points. That makes sense.

Re: How would the free market account for very general, dispersed externalities?

Sphairon — Sat, 24 Jan 2009 00:39:07 GMT

I'd posted some ideas on this a couple of weeks ago, but I received little feedback:

If climate change is man-made, really dangerous and will cause massive damage, this will burden insurance companies a lot. They somehow need to collect more money to pay for the new damages. What's to stop them from using your "carbon footprint" in their premium calculations? After all, people who fly a lot, drive big SUVs and have wasteful homes contribute more to man-made climate change than your average tree-hugger.

[...]

Now you may ask yourself, what's the difference between a carbon tax that decreases demand for carbon-intensive products and carbon-based insurance rates that do exactly the same? If government collects the money, it may go anywhere without notice. Instead of helping the victims of climate change, this carbon tax money may as well be used to build tanks to invade some foreign nation. Insurance companies also redistribute money in a sense, but it must flow directly to those in need without too much wasteful bureaucracy

[...]

Just in case climate change is just a giant money-making scheme, this solution will also help. If there's no additional damage done by climate change and insurers just use it as a scare tactic to siphon off money, just one competitor who doesn't will suffice to lure off customers who don't like to pay more for nothing.

Re: How would the free market account for very general, dispersed externalities?

ama gi — Sat, 24 Jan 2009 00:14:43 GMT

you have to persuade them that reducing pollution is in their best interests.

Re: How would the free market account for very general, dispersed externalities?

Josiah Schmidt — Fri, 23 Jan 2009 22:40:33 GMT

ama gi:

Freiheit:
What if most people aren't concerned about it (though a minority of people are), but legitimate health and property damage is being done to everyone, by everyone?

The thing about the free market is that the minority cannot ever force their will on the majority.

Even if they are right.

In terms of opinion or public policy, perhaps a minority indeed cannot, but the issue I'm addressing is one of property rights violation. If 6 people violate the property rights of 4 people, a totally free market should allow the 4 to take the appropriate legal action against the 6 in order to be justly compensated, even if the 4 are a minority and the 6 are a majority.

My question is on a much more exaggerated scale, though. In a free market, how does perhaps one person receive just compensation when his property rights are violated by 7 billion people? At what point is the group of property rights aggressors too big to be held accountabe for their violations, even in a free market? When the aggressors number one million perhaps? Or one hundred thousand? Or one thousand? One hundred? How, under a free market, could one person protect his property from so many aggressors?

Re: How would the free market account for very general, dispersed externalities?

ama gi — Fri, 23 Jan 2009 22:20:11 GMT

Freiheit:
What if most people aren't concerned about it (though a minority of people are), but legitimate health and property damage is being done to everyone, by everyone?

The thing about the free market is that the minority cannot ever force their will on the majority.

Even if they are right.

Re: How would the free market account for very general, dispersed externalities?

liberty student — Fri, 23 Jan 2009 02:34:11 GMT

Freiheit:
How would such a situation be resolved in a totally free market?

First, I don't buy the global warming stuff based upon what I understand about greenhouse gases. And thus, no insult to the OP, this discussion is sorta like "What if a wizard cast a fireball spell, and the sky erupted in flame? How would a totally free market solve this?"

The way I see it, the market won't address it until the costs of not addressing it manifest themselves. Sure, some dude might sell global warming insurance, but I think it will be as popular as cryogenic storage of sick people is today.

The market really isn't designed to deal with hypothetical future property rights issues that (1) may or may not happen, and (2) no one knows what will happen and what those consequences will mean.

So until damage is measurable, it is hard to determine how much resources the market will allocate to dealing with that issue.

I like to think of cancer as an example. Right now, cancer kills a lot of people. If for some reason, the environment changed, and for whatever reason, less people contracted cancer, then less resources would be allocated to it. And likewise, if 20 people die of bird flu, resources on a cancer-fighting scale will not be mobolized to fight it, unless there is a certainty that it will claim more than those 20 people and closer to the scale of cancer.

I find agw a funny topic. We (an-caps, austro-libertarians) really should be asking, "How much will it cost to get the frak off this mudball?", not "how much can we impoverish ourselves managing declining resources".

Re: How would the free market account for very general, dispersed externalities?

Josiah Schmidt — Fri, 23 Jan 2009 02:25:02 GMT

Well, the problem with pollution isn't that humans "harm" the environment per se, because humans cannot harm the environment--only change it. The problem with pollution involves the fact that two parties have conflicting uses for the same resource. So, the resolution of the problem is much more clear when it's just one railroad emitting sparks damaging the crops of one farmer. Both parties wish to use that land for conflicting purposes (the railroad as a receptacle for its sparks, and the farmer to grow crops), but only the party that rightfully owns that property has the right to use that land for their purpose. So, whoever has the title, or in the absence of titles, whoever can prove that they or their ancestors homesteaded the property first, can claim that property for their own use (assuming that a good legal system is in place to enforce property rights).

Likewise, the problem with this general pollution committed by many and affecting many is a very complex and large-scale interpersonal conflict over the use of resources. So, let's say that one specific man owns property on the shore. The carbon emissions of billions of people around the world are causing a greenhouse effect, which causes some relatively nearby glaciers to break up. A massive chunk of glacier breaks off, causing a tidal wave that destroys and wipes out this man's property. What is involved here is an interpersonal conflict between two parties (the property owner and the rest of mankind). In essence, the man wants to use a certain resource (his land) for his purposes (whatever they may be), and the rest of mankind wants to use that same resource for their purposes (as a receptacle for the effects of their pollutants). The man is clearly in the right here and the rest of mankind is clearly in the wrong, but how can the property owner legally resolve this dispute with the entirety of the rest of mankind? Take them all to court and demand that they compensate him for the loss of his property?

You could say that the man took that risk by living so close to a glacier, and since it was his own risk that he voluntarily took, he should have to pay the cost himself. But, assuming that major global warming is real and is man-made, this act was still an an act of property damage accidentally caused by multiple other persons. The principle would be the same in a situation where a small group of 7 individuals used torches to break off the glacier, knowing full well that it would cause a tidal wave that would damage the nearby property. In that situation, the man could take that group of individuals to court, but what about if that group of individuals numbers 7 billion? How can the property owner be compensated by the aggressors for the loss of his property in a free market?

Re: How would the free market account for very general, dispersed externalities?

ama gi — Fri, 23 Jan 2009 02:05:29 GMT

Freiheit:
It's billions of people all emitting a little bit of pollutants each, and billions of people all bearing the cost.

Smog is an example of that. There are several ways to reduce smog in a free market.

This first step is to stop subsizing roads. Also, peer pressure can encourage people to get their vehicles smogged. Likewise, local residents could sue road owners for allowing excessive pollution. People could choose to purchase vehicles that do not pollute as much.

See http://mises.org/Community/forums/p/5672/81579.aspx

The important thing is that environmental standards should be set by the concerted efforts of the many, and not by the demands of a few.

Re: How would the free market account for very general, dispersed externalities?

krazy kaju — Fri, 23 Jan 2009 01:34:54 GMT

Nobody truly owns the air, so nothing really could be done from a property rights perspective. From a utilitarian anarchist perspective, concerned people might pay more for special arbitration firms that limit carbon emissions, although this is unlikely to happen. Either way, an anarchist society would avoid significant damage by not incentivizing people to live in high-risk flood zones. If people truly believe that global warming is a serious problem, they will move away from the coasts in order to avoid damage. Governments around the world are slowing this process by bailing out flood victims and by putting up barriers to movement of people and goods (borders).

Re: How would the free market account for very general, dispersed externalities?

Josiah Schmidt — Fri, 23 Jan 2009 01:34:07 GMT

What if most people aren't concerned about it (though a minority of people are), but legitimate health and property damage is being done to everyone, by everyone?

Re: How would the free market account for very general, dispersed externalities?

kiba — Fri, 23 Jan 2009 01:15:37 GMT

If lot of people are really concerned about this, than it will be solved through lot of entrepneurs experimenting with technologies that reduce, filter, and doesn't enmit pollutants.

How would the free market account for very general, dispersed externalities?

Josiah Schmidt — Fri, 23 Jan 2009 01:12:01 GMT

Having read many Austrian articles on property rights and the environment, one question that remains unanswered is how externality disputes are settled when the "pollution" is contributed to by many individuals and the costs are also born by many individuals.

I'm not personally convinced one way or the other that man-made global warming is a reality or a serious threat to the survival of the human race, but let's say that it is. It's not like one railroad operator's trains emitting sparks that are damaging the crops of one farmer's field. It's billions of people all emitting a little bit of pollutants each, and billions of people all bearing the cost.

How would such a situation be resolved in a totally free market?