[D]rivers of almost half a million cars in the US have now suddenly found that they are driving round vehicles which are a lot worse for the environment than they thought. The rigged tests masked the fact that these cars emit up to 40 times the legal limit of pollutants. And now VW has said that as many as 11 million cars worldwide could be affected. VW scandal threatens 'Made in Germany' brand, BBC, 22 September
Social Policy Bonds have big advantages over conventional policy when addressing a problem like air pollution caused by millions of point sources. Conventional policy cannot effectively measure the pollutants emitted by any more than a few major sources, and then reward or punish the emitters accordingly. What might work for power stations or cement factories won't work for cars or households. Corporations (like Volkswagen) have every incentive to cheat the system, and individuals have every incentive to go along such cheating. The bureaucratic burden of measuring the pollution generated by millions of machines or people is not just a misallocation of resources: it's likely to be intrusive and divisive. Plus, it's not a very exciting job.
Social Policy Bonds can help. They're at once both more direct and more versatile. So instead of targeting the air pollution generated by millions of point sources, they can target an array of pollutants, weighted according to lethality, and let the market for the bonds work out, dynamically, the best ways of achieving our pollution reduction goal. I first wrote about this approach back in 1991. My views haven't changed since then, so I won't repeat them here.