Professor Socolow describes the problem in a very clear way: “We desperately want there to be low-cost solutions to climate change. So, each time a "solution" arrives that looks like it is low cost, we embrace it and are not adequately critical.” Nevertheless, this problem is not moral hazard; I would argue it is Time Inconsistency. Time inconsistency is a term first introduced to talk about the inability of the federal bank to be consistent across time with their monetary policies, and it is now widely used by behavioral economists to represent a situation in which a presentself cannot negotiate with a futureself to ensure the actions decided today are still taken in the future. For example, you can always say you will stop smoking in one week, or start running tomorrow, or dieting in the new year. However when the next week, the next day or the new year arrive, your promises are gone. Several mechanisms give rise to this situation, hyperbolic discounting being the most standard way of thinking about the problem nowadays. Other mechanisms such as the overestimation of the gains from the introduction of a technology, after the technology has been introduced, will also give rise to this type of behavior. The problem with situations exhibiting time inconsistent behavior, in very general terms, is that it is impossible to generate a contract in which the two parties agree on doing or not doing something. The reason this contract do not exist is because ...well, the futureself or is not there to sign it. The solution is then to generate path dependent outcomes. That is, create policies that will stick in and that are very difficult to override. IN the case of the diet this implies registering to a (expensive) program, in the case of running the next day committing to run with another person (hopefully someone you respect a lot) and in the case of smoking, I am not sure, I haven’t figure that one out yet. Assuming this framework is the right one, one could identify two problems with arguing climate engineering induces moral hazard behavior. First, it obscures our understanding of the problem. Second, it complicates the finding of a solution. I should say here that the fact that the problem is not correctly framed doesn’t mean it doesn’t exists, as it was very subtly suggested before in this e-mail exchange. The fact that it obscures our understanding of the problem is evident from this discussion and I shall not go there. The real problem is when it interferes with finding a solution. A way to deal with moral hazard is by splitting the benefits of loses between the principal and the agent (pardon my economics): In the insurance industry this is due by means of deductibles; that is, making the agent share on the damages. In the labour market by sharing on the benefits of the successful job. It should be clear these solutions are not available for the case of climate engineering. Precisely because the current generation cannot credibly commit to split the gains or losses of a successful or unsuccessful Climate Engineering adventure. Why? Well, the current generation will not exist once the benefits or losses are weighted in. IN this sense, there isn’t a Principal-Agent framework to deal with. On the contrary, the current generation can create policies today that will stick in the future. One such policy has been previously suggested in the literature and consists on a ban on CE research. If there is no research, the technology will not be available and the possibility of time inconsistent behavior is eliminated at its root. This solution, however, seems to be inappropriate because the inertia and uncertainty of the climate system my force the future generation to use CE, even if it hasn’t been research on it. A second solution, that is described on one of my papers jointly written with Timo Goeschl and Daniel Heyen, is to increase our levels of mitigation today. By doing so, we decrease the risk for the future generation; hence, decreasing the need for the use of climate engineering technologies. This is solution is path dependent and will seclude the use of CE only for extreme climate sensitivity cases. In this case, a policy in which both, research on CE and higher levels of mitigation seems to be adequate to deal with the problem. Notice that this solution can only be suggested and defended once we are aware of the problem and we have frame it appropriately. In general, I believe when David Keith make the parallel with Moral Hazard he was thinking of suboptimal behavior induced by the possibility of CE. Time inconsistency is one of many other sources of suboptimal behavior. However, we need to quantify these suboptimal behaviors and put them in context with the benefits from CE. But again, we can only do that once the suboptimal behavior is properly addressed. Best, Juan Moreno-Cruz
-- You received this message because you are subscribed to the Google Groups "geoengineering" group. To post to this group, send email to [email protected]. To unsubscribe from this group, send email to [email protected]. For more options, visit this group at http://groups.google.com/group/geoengineering?hl=en.
