28 May 2008
Gas Tax Holidays, Part 4:
Pressure in favor mounts in Europe
by Richard Belzer
in Regulatory Economics, Legislation
Public discussion about a federal gas tax holiday has abated in the U.S., but according to the Washington Post it is heating up in Europe. More...
12 Mar 2008
The Haze of Carbon Dioxide
According to the Washington Post, anyway
by Richard Belzer
in Regulatory Economics, Regulatory Policy, Regulatory Science
The Washington Post says carbon dioxide is visible to the naked eye. More...
2 Feb 2008
Incentives Work
But the New York Times is clueless
by Richard Belzer
in Regulatory Economics
In today's New York Times, Elisabeth Rosenthal says that Irish consumers don't use plastic shopping bags anymore. She acknowledges that the government has imposed a new tax of 33 cents per bag, but she appears to be baffled that consumers respond to taxes. Instead, she searches for mystical explanations. More...
6 Dec 2007
Objectivity in Risk Assessment:
The National Intelligence Estimate on Iran, Part 3
by Richard Belzer
in Information Quality, Regulatory Policy
The web is chock full of commentary on the recently released summary of the National Intelligence Estimate on Iran. (We emphasize summary because the body of the NIE remains classified.) We've posted here and here on the NIE as a risk assessment document, noting that it claims to be an objective assessment not confounded by risk management (i.e., policy or political) concerns.
We've read much (but by no means all) of this news and commnetary and drawn some inferences we hope are useful. More...
4 Dec 2007
Objectivity in Risk Assessment:
The National Intelligence Estimate on Iran, Part 2
by Richard Belzer
in Regulatory Policy
Early today we posted the unclassified summary of the recent National Intelligence Estimate on Iran's nuclear intentions and capabilities. We said that while we could not comment on its substance -- the details leading to the published judgments remain classified -- the document itself appeared to be notable for its transparency of language, recognition of uncertainty, and the clarity with which it defined the probabilistic language used to describe both the substantive judgments reported and analysts' confidence in them.
Today's news reporting on the NIE shows why it is so important that risk assessments be performed in an objective manner: risk managers, other political actors, and the press often want risk assessments to support predefined narratives and policy views. In less than a day, many of them have stripped away the NIE's careful calibration of uncertainty, suggested that its judgments are colored by the expectation that it would be made public, and undermined the case for performing risk assessment by using it for partisan political purposes. More...
Objectivity in Risk Assessment:
National Intelligence Estimate of Iran's Nuclear Weapons Program
by Richard Belzer
in Regulatory Science
An unusual example of risk assessment appeared today in the news: the disclosure of an unclassified summary of the November National Intelligence Estimate (NIE) concerning Iran's nuclear weapons program. The document, which for obvious reasons is not transparent and reproducible, nevertheless is remarkably clear about the uncertainties which underlie its estimates. More...
27 Jul 2007
Who Pays the Cost of Regulation?
Insights from corporate income tax incidence
by Richard Belzer
in Regulatory Economics
Regulation is widely understood as a tax on the activity or person being regulated. Where these activities repair genuine market failures, benefits from regulation may result. If there are benefits from, say, automobile safety regulation, one would expect the beneficiaries to be persons who otherwise would have been killed or injured at the pre-regulatory safety level.
But what about the costs of regulation? Who bears them? More...
24 Jul 2007
The Perils of Seeking Perfect Information:
How many roadway signs is enough?
Is there a public participation process that can help find out?
by Richard Belzer
in Regulatory Economics, Regulatory Policy
A conventional example of market failure often used to justify regulation is the absence of perfect information. This is explicitly set forth in the Office of Management and Budget's guidance on the conduct of Regulatory Impact Analysis.
While it is true that the strictest form of the economic theory that is the foundation for benefit-cost depends includes this assumption, it is made for expository convenience rather than necessity. Information need not be perfect for economics to explain or predict behavior. Indeed, it works fine when knowledge is limited; the pursuit of knowledge is one of the instruments through which markets improve general welfare, and for some people gaining knowledge is the very activity that brings them satisfaction.
So how much knowledge is enough -- or, in the language of economics, "optimal"? Assuming that it's true that ignorance generally is bad and knowledge is good, is there an amount of knowledge that the government can provide to "solve" market failure, beyond which people start to get worse off? Today's A-hed in the Wall Street Journal gives an example showing that there is an optimum. More...
15 Jul 2007
Global Climate Change Policy:
Economics finally gets a cameo role
by Richard Belzer
in Regulatory Economics, Regulatory Policy
Most of the debate about global warming has been about science, with the economics and political economy tending to be ignored. Today's Washington Post carries a Page One article summarizing how the focal point of the debate seems to have shifted.
Most US legislative proposals to mitigate the future damages climate scientists predict have three significant problems:
- They are expected to be enormously expensive.
- They are expected to be insufficiently stringent to have a significant effect even if all major greenhouse gas emitting nations agree to be bound by them
- All major greenhouse gas emitting nations will not agree to be bound by them
Now comes a fourth problem: Congressional advocates of taking action appear to prefer the least effective policy instruments, and opponents are daring them to support policy instruments that would be much more effective but whose costs would be transparent. More...
1 Jul 2007
Markets vs. Governments:
Contaminated Chinese imports
by Richard Belzer
in Regulatory Economics, Regulatory Policy
Over the past several months increasing evidence has arisen indicating that products manufactured by Chinese firms and exported to the U.S. often do not adhere to U.S. health and safety standards.
Does the federal government need to enact new regulations to deal with these threats? More...
14 May 2007
Socially Motivated Mutual Funds:
Are costs and benefits transparent to investors?
by Richard Belzer
in Information Quality, Regulatory Economics
Jeff Brown in the Washington Post business section discusses "socially responsible" investing, the practice of restricting the domain of one's portfolio to support various causes. Brown provides estimates of how much return on investment soc ially responsible investors sacrifice to pursue their social goals.
Brown's article is remarkable because it is one of few to acknowledge that the imposition of political or social constraints generally leads to lower returns. Investors with strong political or social values can choose to accept lower returns. The problem is mutual funds that promote social causes often imply in their advertising that their returns are just as good as mutual funds that do not impose such restrictions. In other words, they imply there is either no opportunity cost to "socially responsible" investing, or the opportunity cost is minor.
Brown provides some data that put these opportunity costs in perspective. His data, which he attributes to Morningstar, suggest that the opportunity costs of socially motivated investing can be very large. And it's not clear what benefits investors actually get in the process. More...
10 Apr 2007
Regulatory Policy in South America
Impressions from 10 days in Chile and Argentina
by Richard Belzer
in Regulatory Economics, Regulatory Policy
Neutral Source has not vanished; rather, we went away for about two weeks on a wine tour of Chile and Argentina. Blogging from abroad was entirely possible, as we had excellent internet connections almost everywhere, but it did not seem to be an optimal use of time.
Today we begin an occasional series comparing and contrasting regulatory science, economics, and policy in Chile and Argentina with the US. Though not a travelogue, we will provide a few suggestions for readers who are interested in taking such a trip or just happen to be interested in South American wine. More...
14 Mar 2007
Risk Management Under Uncertainty
Preventing terrorism
by Richard Belzer
in Regulatory Policy, Regulatory Science
The classic risk management problem consists of making decisions under uncertainty. Any decision, no matter how carefully considered and well informed, can err in either of two ways:
- By failing to prevent a risk from occurring
- By preventing a risk through the creation of a different risk
13 Mar 2007
Hype and Science
A new look at climate change policy and the science supporting it
by Richard Belzer
in Peer Review, Regulatory Policy, Regulatory Science
We've posted three times on different approaches to climate change, distinguishing the views of CO2 Pragmatists from CO2 Puritans. Whereas Pragmatists are open to market-based regulatory responses such as carbon taxes and tradable emission permits, Puritans are not. CO2 Hybrids are Pragmatists who are invested in technological remedies beyond what economic efficiency would achieve with correct market prices.
Most recently we implicitly defended Al Gore from criticism on both the right and left that he was insufficiently Puritan in his personal "carbon footprint," which appears to be rather large. We noted that the policy prescriptions on the web site for An Inconvenient Truth are consistent with CO2 Pragmatism. Thus, the strongest basis for criticism would arise if Gore did not actually behave as a CO2 Pragmatist by purchasing bona fide carbon offsets for the CO2 emissions he indirectly generates. We've found no evidence that he doesn't, and plenty of evidence that he can easily afford to do so.
In today's New York Times, William J. Broad identifies a different basis for criticism. The scientific claims about climate change in AIC are the subject of increasing controversy among climate change scientists.
More...11 Mar 2007
The Continuing Battle Between CO2 Puritans and Pragmatists
An update on Al Gore's carbon neutrality
by Richard Belzer
in Regulatory Economics
In July 2006, we posted an article in response to news stories about a speech former vice president Al Gore delivered at the Chautaqua Institution. According to Associated Press reporter Carolyn Thompson, Gore's "conscience is regularly challenged by a consumerism that contributes to the global warming he has made it his mission to reverse. After saying that he and his wife, Tipper, had adopted a "carbon neutral" lifestyle, he acknowledged that it was a difficult thing to do. " 'We've fallen into this pattern of consuming more and more and more and I'm part of it, I understand,' he said."
We were intrigued by the acknowledgment of personal responsibility in the news article (the speech itself does not appear to be online. So we did some research and learned that there is no generally accepted definition of "carbon neutrality." Nevertheless, the but the premise is simple. For every ton of carbon dioxide you emit, whether directly by your actions or indirectly by your consumption decisions, you undertake a compensating action or consumption decision that reduces carbon dioxide emissions by the same amount. In principle, your ledger of carbon debits would equal your ledger of carbon credits.
It's a pragmatic personal response to global warming that enables individuals to choose the optimal mix of actual CO2 reductions they want to make and how much cash they are willing to forgo instead. This is the standard economic theory prescription for solving a host of public policy problems that are defined by the existence of a negative externality in which the market price of an activity does not capture the full social cost.
We provided links to several nonprofit organizations that sell "carbon offsets" to people who want to mimic Gore's pragmatic approach. We noted that there are many other environmentalists who are highly critical of this pragmatic approach to global warming abatement. In their view, only actual reductions in CO2 emissions are legitimate and purchasing carbon offsets is not. We described this argument as being between CO2 Pragmatists and CO2 Puritans. The pragmatists are happy paying others to reduce greenhouse gas emissions on their behalf. It is no more a moral issue than paying someone else to mow the lawn. For CO2 Puritans, however, everyone must make a personal sacrifice in lifestyle, to personally share in the burden of reducing greenhouse gas emissions even if that means reducing energy consumption by (say) 60%.
The subject arose again in August when Peter Schweitzer published a commentary in USA Today claiming that Gore's professed carbon neutrality was hypocritical. Schweitzer was raising the banner of the CO2 Puritans (though it seems unlikely that he is one) because Gore had not actually reduced his "carbon footprint" in a manner consistent with his policy recommendations. Schweitzer's objections appear to have focused on the apparent disconnect between Gore's actions (which befit a CO2 Pragmatist) and his moralist rhetoric (which often tends toward CO2 Puritanism). Indeed, there is a significant disconnect between moral issues and economic remedies such as carbon offsetting, which are unambiguously amoral.
We were curious how well Gore was doing as a CO2 Pragmatist, so we posted an article estimating, based on limited information, what it required of the Gores to achieve a pragmatic form of carbon neutrality. For residential carbon-neutrality, we calculated that an annual payment of about $2,400 to one of these nonprofits would be sufficient, and noted that such an expenditure should not be a burden for Gore. For air-travel carbon neutrality, we used the conservative assumption that Gore's private air travel utilized an aircraft as fuel efficient as a Piper Seneca V. [A commenter doubts that Gore travels by Seneca V or its equivalent because it's a non-pressurized piston-driven aircraft. He also says corporate jets carrying 8 to 30 people burn 320 to 385 gallons per hour versus the 22 gph for the Seneca V. These changes would significantly increase our rule of thumb estimate of CO2 emissions from private aircraft, and of course, Gore's carbon footprint from air travel and the cost of carbon offsets necessary to neutralize it.]
Gore's carbon footprint is back in the news since the Tennessee Center for Policy Research distributed a press release containing actual electricity and natural gas consumption for the Gores' Nashville home. Subsequently, the political aspects of the story have been covered more than adequately.
Now that that aspect of the story has died down, we use it to address -- again -- the dispute between CO2 Puritans and CO2 Pragmatists. This dispute has serious ramifications for public policy on global climate change.
