23 January 2006

Climate change

Catch this ongoing discussion on Climate Stability Bonds on the Deltoid blog.

4 comments:

Harald Korneliussen said...

I repeat what I said there, that your idea is interesting, but that it needs field tests before getting applied on critical issues. Social goal bonds can also create perverse incentives. Imagine, for instance, if the government of Singapore decided that the problem of chewing gum on the sidewalks was better handled by social bonds than by public flogging (or whatever sick things they practice there...)

Now, imagine that the bonds quickly fall in value to almost zero (because no one feels like herding cats/14-year old boys), then the mob buys them. Now they start their campaign of doing nasty things to teenagers who spit gum on the sidewalks.

This illustrates that sometimes (probably always!) the way matters as well as the goal. How do you plan to avoid such scenarios? Explaining that in this concrete example would help :-)

Ronnie Horesh said...

Harald, thanks for your comment, and sorry not to have followed it up in the Deltoid forum.

I agree absolutely: Social Policy Bonds would be a radically new way of doing things, and the idea needs discussion, application on a small scale, and refinement before it can be deployed to solve critical problems. I have suggested that it be used initially for such self-contained goals as improving the water quality of a river, or reducing the quantity of litter dropped in a city, or the incidence of petty crime in a city. One problem with small-scale trials is that the bonds are best deployed when their goal cannot be achieved simply by transferring the problem to another area.

Anticipated, negative-but-legal actions could be deterred by including provisos in the terms of the bonds' redemption that stipulate that the bonds shall not be redeemed if the provisos are broken. Examples don't readily spring to mind but I suppose the Singapore Government could stipulate that its bonds would not be redeemed if (for example) incentives were paid for parents to beat their gum-chewing teenagers.

But the main problem with Social Policy Bonds is that they might stimulate unanticipated negative actions that are not already illegal. It's not impossible to imagine such scenarios, though even in the example you give, I'm not sure what the mobster-bondholders could take that would not already be illegal. Note that they could legitimately bribe teenagers to chew their gum away from sidewalks, or bribe gum retailers to stop stocking the stuff. They also, of course, could intimidate the retailers to stop selling gum, which would be a negative-but-illegal action, against which there is existing sanction.

In my book I explore ways in which the possible unanticipated negative-but-legal effects of Social Policy Bonds could be avoided. In ascending order of severity a government could:

• persuade, shame or cajole bondholders into toeing the line. They could do this publicly or privately — initially, at least, bondholdings could be registered in the same way as shares;

• buy back the Social Policy Bonds, which would have the effect of lowering the market price of bonds remaining on the market (by reducing the total redemption funds); or

• legislate against the negative activity.

One final but crucial point: a Social Policy Bond regime has to be compared with the current system, under which all sorts of corrupt and negative actions are encouraged, because there's so little accountability and transparency about what funds are for, where they're going or whether they are being used for their intended purpose.

Thanks again for your comment. If you have any further comments or thoughts, please get in touch again.

Harald Korneliussen said...

One problem with "bribing" is that it's a temporary solution, which may eventually eat up any profits you get. For example, bribing my antisocial neighbors to turn the music down so I can sleep would be a bad idea, because I would have to keep on paying and paying - at least if they act in their own economic self interest without regard to my well-being (and if they already cared about my well-being, we wouldn't have the problem in the first place, would we?)
In a situation like that, one could say that my neighbours have a duty to respect my sleeping hours, and the problem appears because they disregard this duty.

Wouldn't littering fall into a similar category? It's not a natural problem; it appears because people do something antisocial and/or illegal. Using a SPB to try to control this - wouldn't it be a little like paying ransom money?

(An even uglier example, imagine a SPB to prevent kidnappings in Iraq. That money would find its way to kidnappers and potential kidnappers, and they would in practice be free to set whatever price they wanted)

Now, to climate change. The question is: Is that a problem which has its roots in antisocial behaviour? If the warming is natural or mostly natural, SPBs may be a good idea (provided there aren't any other weaknesses), but if the warming is man-made, then it's similar to the littering or hostage-taking scenarios, and SPBs may be worse than doing nothing.

Ronnie Horesh said...

Thanks again Harald. My use of the word 'bribe' was perhaps too elliptical. Let's take the litter example: insofar as littering's illegal, Social Policy Bonds could mean subsidising the operations of people who will track and convict serious malfeasers. Now say the litter dropping is just anti-social but not illegal: Social Policy Bonds would direct resources (bribes) to litter-droppers only if that were the most efficient way of solving the problem. More likely, bondholders would find more efficient solutions: strategic deployment of sexy litter-bins (there's been no incentive to produce them yet!); competitions for the cleanest streets; aggressive street sweeping; sponsorship of anti-litter ads on tv; more subtle inculcation of local pride etc. I think the same applies to the example of kidnappers. Sure, it's conceivable that kidnappers could benefit directly from Social Policy Bonds, but (1) it's also likely that kidnap-prevention would be contracted out to the most efficient operators. It might be cheapest to build golf courses solely for the use of men with long beards, or lay on raunchy dvds etc; which might be effective but cannot be done under the current regime. Social Policy Bonds would encourage diverse, adaptive responses - which we don't have now. And (2) again, the comparison is with the current system, under which kidnappers (and polluters etc) can already exert a sort that sort of blackmail pressure on everyone else.

To see this more clearly, let's look at climate change. Remember that there is competitive bidding for the bonds, and remember also that bondholders can lobby the government for changes in the law. So it is far more likely, I think, that bondholders would either concentrate on bringing illegal polluters to the attention of the law, or lobby for more stringent rules, than that they would pay off recalcitrant polluters. The polluters would see which way the wind is blowing. The bonds aren't just dreamed up: their targets, expressed in terms of outcomes (ie in terms that are meaningful to people) would be decided with public participation, so in a contest between blackmailing polluters and bondholders, public sympathy support would go to the bondholders.