Every blog needs at least one catchy post-theme, and since I have written about a few other topics which have me pretty well baffled (like here and here), I am going to make “Economics Mystery” a (hopefully)catchy post-theme. So here is the official first Economics Mystery post:
In the U.S., some sort of greenhouse gas (GHG) emission limiting policy seems more likely every day. Earlier this month, a group of senators proposed cap-and-trade legislation, and now even President Bush is now ‘considering’ a domestic cap (link), though I am not sure if that means endorsing or proposing legislation or if it means working though the EPA in some way.
The economic mystery is why relatively small political entities have adopted GHG emission caps. Global warming seems like a fairly clear cut case of a public good problem, and I would not expect small regional political entities to bear the costs of limiting. The benefits of establishing GHG emission limits or GHG emission prices are widely distributed and non-excludable, and the costs are born almost completely by the region adopting the limits. As Mancur Olson points out, large groups usually have difficulty providing for non-excludable goods. He also points out that if there are a few large players, the very two or three largest might rationally provide for small amounts of collective goods, but I don’t think this effect accounts for the local limits that have been established by regional governments. If it were, California would never establish emission limits (link) before the United States as a whole.
In a conversation I had with commenter John M I argued that the reason the typical public good problem is not as pronounced as I had expected is that the issue has been successfully framed as an ethical matter. Now I’m not so sure. Hardcore environmental groups may discuss global warming in ethical terms, but mainstream discussions tend to focus on the ‘seriousness’ of the problem of global warming, in other words, the costs. For example, in the article on California’s emission cap (linked above) Governor Schwarzenegger’s justification is that “nothing is more important than protecting our planet.” His statement is not about ethics but about costs; Schwarzenegger references our planet not the planet; he supports emission limits because he expects global warming to impose high costs, presumably on the rest of the world as well as California.
I think a partial explanation for why GHG emission limiting political action is more popular than would be expected if political entities acted for the strict material benefit of their constituents is that political entities do not act for the strict material benefit of their constituents. As many political scientists and at least one economist have argued, voters are largely altruistic. Now, the extent of and target of voter altruism changes from issue to issue, but on the issue of global warming the costs are perceived to be relatively homogenous among people, which makes it easier to relate the population of the world in general, which should increase altruistic voting considerations towards the world as a whole.
There are other possible explanations though. For example, voters may simply systematically overestimate how much local emissions caps will benefit them. Does anyone have other complementary or alternative explanations?