Surrogate markers, in medicine and policy

A surrogate marker is an event or a laboratory value that researchers hope can serve as a reliable substitute for an actual disease. A common example of this is blood cholesterol levels. These levels are surrogates, or substitutes, for heart disease. If a medical study demonstrates that a medication can lower cholesterol level 10%, then we assume that this will also lower the risk of cardiovascular disease. Why doesn’t this same study determine if an anti-cholesterol drug decreases heart attack rates directly? After all, most folks would rather be spared a heart attack than have a silent decrease in their blood cholesterol levels. ...Surrogates often take on a life of their own, far removed from the actual disease they represent. Patients shouldn’t care if their ‘surrogates’ are improving; their objective should be to prevent disease, feel better and live longer. Evidence-based medicine in disguise: beware the surrogate, 'MD Whistleblower' (blog by Michael Kirsch), 1 August

Quite so. And as in medicine, so it is in policymaking, and for much the same reasons: 'It's much easier and cheaper ...to measure surrogates than actual disease events.' It's much, much easier to measure a government agency's spending than it is to measure its success or otherwise in delivering meaningful outcomes.

The problem isn't always that of measurement, or of short-term interests trumping long-term benefits. There is also the inescapable subjectivity of an important components of welfare: psychological wellbeing. To take one example that has obvious policymaking implications: in the UK for several years crime appears to have fallen, while fear of crime has risen (see here). The answer, if there is one, might be to re-localise some policymaking. Some of the most important components of wellbeing simply cannot be quantified and aggregated for efficient use by our highly centralised bureaucracies. Withdrawing unemployment benefit, for instance, could actually help someone who's lacking in motivation and would gain by being made to find a job. To another person, though, the loss of a welfare payment could mean calamity. No bureaucracy can make such a distinction, and we might not want one with the intrusive powers that could.

Social Policy Bonds are no different from conventional policy in that respect, except that they have to answer, upfront, the difficult question of whether a specified goal is a surrogate (a supposed means to an end) or an end in itself. Having to do that at the outset of making policy, is probably an advantage over the current system in which, too often, objectives are vague, conflicting, and only tenuously related to policy instruments allegedly supposed to bring them about.

Biodiversity and Social Policy Bonds

Already the UN has conceded that the targets for safeguarding wild species and wild places in 2010 have been missed: comprehensively and tragically. Talk has not halted biodiversity loss - now it's time for action, Guillaume Chapron and George Monbiot, Guardian.co.uk, 13 August

It's a tough one. Some Guardian readers' ideas, many of them worth considering, are presented here. Could the Social Policy Bonds principle help? Part of the problem is to clarify whether biodiversity is a means to an end or an end in itself; and another is how to quantify what biodiversity is and what we want from it.

One option could be to for experts to list their top, say, 10000 plant and animal species, according to their intrinsic value, or their status as indicator species, representing the broader state of the environment, including biodiversity. It would probably be impractical to legislate effectively against serious depredations of such a large number of species. But a Biodiversity Bond, following the Social Policy Bond principle, could be issued, perhaps by a combinatin of governments, non-governmental organizations, and environmental bodies. What would such Biodiversity Bonds target? Not the health or survival of the full panoply of 10000 species; that would be too complex and expensive. But what about the health and habitats of, say, 100 of these species? That would be a fairly simple matter. The key to such a regime is that the 100 species would not be known in advance by either the bonds' issuers or investors in the bonds.

Instead, the 100 species could be randomly chosen from the 10000 towards the end of bonds' stipulated expiry period. The bonds could target a broad definition of biodiversity, encompassing the 10000 species, 30 years hence. Towards the end of that 30 years, 100 out of those 10000 species or habitats would be randomly chosen. If all 100 were doing well, surviving and thriving, the bonds would be redeemed. If not, they wouldn't.

Bondholders would then have incentives to preserve biodiversity of all the 10000 species (or ecological systems), but there need be no onerous, contentious and expensive monitoring of all 10000 species. Only a fairly small sample, randomly chosen after 29 years, need be examined. That, in my view, would make targeting biodiversity a practical proposition.

Your thoughts or comments on this idea are particularly welcome.

An argument for a governing aristocracy?

Or perhaps, lottocracy? In a review of Philip Ziegler's biography of the former British Prime Minister, Edward Heath, Ferdinand Mount says:

[Heath] promised a 'quiet revolution', in terms which understandably convinced his right wing that he had come over to their way of thinking. By instinct, though, he preferred to control things rather than let them run free and endure the consequences. Plonking, Ferdinand Mount, London Review of Books, 22 July (subscription)

I wonder whether this is a feature of all non-aristocratic policymakers. Which is to say, those politicians - almost all of them nowadays, and definitely Mr Heath - who had to struggle mightily to get to their position. Effort is all very well but, especially when it has successfully advanced a person's career, it will predispose to a controlling mindset; one that will be predisposed to work on problems, rather than let them solve themselves. One that will be biased toward intervention and top-down, one-size-fits-all planning, rather than creating an environment whereby adaptive, diverse policies can achieve outcomes without government prejudging how they shall do so.

Social Policy Bonds could perhaps be a compromise. Under a bond regime, politicians would still articulate our social goals, and control their funding and priority; they would, though, relinquish their power to dictate how these goals shall be achieved.

The costs of free parking

In his book, Professor Shoup estimated that the value of the free-parking subsidy to cars [in the US] was at least $127 billion in 2002, and possibly much more. ... “Who pays for free parking? Everyone but the motorist.” Free parking comes at a price, Tyler Cowen, 'New York Times', 14 August

One big advantage of Social Policy Bonds is their transparency. If we wanted to subsidise car drivers, for example, a Social Policy Bond regime would require that we do so with our eyes open. Under the current arcane, opaque policymaking process those interest groups with (essentially) the most muscle can manipulate the legislative and regulatory environment to suit their own ends. So we end up with free car parking for the minority of people who drive cars a lot. The price is high, but it's borne by society in general. The car drivers who benefit, pay very little. It's the same pattern in other sectors. The well resourced use the vagueness of current policymaking to their own advantage. And who are the well resourced? Large corporations or government agencies. More and more, it seems, their goals are not only different from those of ordinary people; they are in conflict with them.

Scary

An article in the Atlantic, highlights the likelihood of Iran's developing nuclear weapons.

The Iranian leadership’s own view of nuclear dangers is perhaps best exemplified by a comment made in 2001 by the former Iranian president Ali Akbar Hashemi-Rafsanjani, who entertained the idea that Israel’s demise could be brought about in a relatively pain-free manner for the Muslim world. “The use of an atomic bomb against Israel would destroy Israel completely while [a nuclear attack] against the Islamic countries would only cause damages,” Rafsanjani said. It is this line of thinking, which suggests that rational deterrence theory, or the threat of mutual assured destruction, might not apply in the case of Iran, that has the Israeli government on a knife’s edge. The Point of No Return, Jeffrey Goldberg, 'The Atlantic', September

And much of the rest of the world. But if the leaders of Iran aren't rational human beings, that doesn't mean they aren't susceptible to incentives. The usual incentives might not apply to them, themselves. But the people who work for them, who follow their orders, who supply their centrifuges or generate their electricity: some of them will be susceptible. And this is where Social Policy Bonds could help. A Middle East Peace Bond or, more broadly applicable, a Disaster Prevention Bond, could focus people's attention on what needs to be done in a more systematic, incentive-driven manner, than the current array of high-stakes bluster, talks about sanctions, talks about talks and all the rest of it.

Socialism, American style

That's the title of a post by Denis Weisman, which outlines some of the laws that protect US car dealers from having to beheave competitively.

Some states make it illegal to sell cars at lower prices to high-volume dealers than to low-volume franchisees. Some prohibit car companies from selling directly to the public (say, via the Internet) because it would adversely affect the competitive position of the dealers. Socialism, American Style, Denis Weisman, 26 July

How did this come about? It's the usual tawdry tale of lobbyists filling the vacuum created, in my view, by a complex political system that's opaque to non-specialists; that is, ordinary people, as distinct from corporations.

In the American political system, a highly focused, well-funded lobby with tight connections in every House district is almost unbeatable when it chooses to play rough.

It's policymaking by the rich, for the rich, and there's little sign of it ending any time soon.

You can see where I am heading with this. A Social Policy Bond regime would target outcomes. Outcomes that are meaningful to ordinary people. Corporate success would be a by-product of a prosperous population, not something that grows out of the power of the lobbyist. Government's raison d'etre is to enhance the wellbeing of the population, not corporations. Policymaking should subordinate corporate interests to those of ordinary citizens, and a Social Policy Bond regime would do that.

Give greed a chance

Tyler Cowen asks:

How many [books on morality and markets] take seriously the notion that our moral intuitions can be badly misguided for judging the operation of an impersonal market economy in the modern world? Not so many, though all seem to think they do. Source

I sometimes am asked how Social Policy Bonds, which envisage self-interest as playing a still bigger role in our economy, can be reconciled with morality and ethics? I have two answers. One, that morality is at least as much a matter of outcomes as about the means of reaching them. Our private sector, whose motivation is profits (or sales, market share, or revenue), generates much of the tax revenue with which we help the disadvantaged and supply public goods and services. It also contributes much in the way of positive non-market impacts: through employment it alleviates poverty and crime, etc. In short, a system based (apparently) on greed, as regulated by government, enables us to raise the wellbeing of all, especially the disadvantaged: greed can be good.

My other answer is that what is labelled as self-interest and is disdained for that reason can be no more than someone going to work for money, to support him/herself and his/her family. Under a Social Policy Bond regime, investors in the bonds would make capital gains if they help achieve society's targeted goals. That doesn't make them profiteers or worthy of condemnation. It makes them entrepreneurs willing to take a risk so that they can pay themselves and people who work for them (at a lower risk) salaries. Competition for the bonds would bid away excess profits anyway. Largely for reasons of history and (I think) too-little-examined moral disdain for self-interest, we've been reluctant to channel self-interest into the solution of social problems. Those who are charged with solving them are rarely rewarded in ways that correlate with their success in doing so. Social Policy Bonds are my suggested way of channeling the incentives and efficiencies of the market into the achievement of social goals, including those, such as world peace and the elimination of poverty, that most would agree are morally uplifting. My header says it all.

Evolutionary fitness

...5% of movies pay for the other 95%, and success or failure is unpredictable. The best the studios can hope to do is find contractual mechanisms that back success after it happens and thus leverage their profits. This was what they had with distributors and cinemas, and it worked. They just didn’t realise it was these deals and almost nothing else that was paying for their Cohiba cigars. The movie industry was what Arthur [de Vany]] loves best: “a complex, adaptive, decentralised system”. Exactly like the human body. Evolutionary Fitness: the diet that really works, Brian Appleyard [UK] 'Sunday Times', 17 August 2008

And exactly like human society. The problem is that top-down planning cannot deal with such a system: it much prefers to impose the idea of equilibria, steady states, homeostasis and normal distributions about the mean on systems to which they don't apply.

Almost all dietary and fitness regimes are based on a homeostatic view of the body – meaning it is a self-regulating system that maintains itself in a continuous, stable condition. The average is the ideal. So we are told to eat regular meals consisting of a balance of the food groups and to take regular exercise, dominated by steady aerobic activity like cycling or jogging. This is all wrong.

We have seen where this line of thinking takes us in banking and finance too (see my post about Black Swans). And I suspect it fails in other policy areas, such as welfare, health and education. Our tendency is to ignore or discount the possibility and impact of catastrophe.

This is one area where Social Policy Bonds can function as a societal insurance policy against large-scale disasters that policymakers would otherwise neglect. The cause of the the disaster need not be specified: the bonds would function in a similar way to increasingly popular catastrophe bonds, except that they would have the purpose - and the backing- of making it worthwhile for investors to prevent disasters happening. A national government (or a consortium of corporations, non-governmental organizations and concerned philanthropists) could issue Social Policy Bonds that would reward investors if an event killing more than, say 10000 of a country's citizens in any one 48-hour period, does not occur before a specified date.

Such Disaster Prevention Bonds would encourage investors to investigate all sources of potential disaster, impartially. Unlike current attempts at disaster prevention, then, they wouldn't concentrate on those disasters that have a high media profile, for example.

The concept could be scaled up: a collection of governments under the auspices of the United Nations or non-governmental organizations could issue similar bonds, aimed at preventing even larger-scale disasters, such as a nuclear exchange. It's also conceivable that, again, the private sector could issue bonds that could, for example, aim to defuse regional conflicts (preventing war), or lessen the impact of malaria or crop failure in specified parts of the world.

Heading for disaster: Kyoto, Copenhagen and climate change

This is an updated version of an article that first appeared in Economic Affairs, 22 (3), September 2002, published by the Institute of Economic Affairs, London. If you wish to publish it, please email me.

There is overwhelming, but not quite conclusive, evidence that the global climate is changing. That said, scientists are divided as to (a) how fast climate is changing, (b) what is causing it to change, (c) the likely effects of climate change, (d) how much we can do about it, and (e) how much we should do about it. Despite these uncertainties, climate change has the potential to inflict serious harm on large populations, so there is a strong argument for doing what we can to prevent it or minimise its adverse effects.

The December 1997 Kyoto treaty required developed countries to bind themselves internationally to numerical targets. Despite Kyoto’s flaws, between 1990 and 2007 emissions of greenhouse gases did fall by 4% in these countries. (Carbon dioxide, which is given off by fossil fuel combustion, is thought to be by far the most important of the man-made greenhouse gases that form an insulating blanket around Earth.) But evaluations by leading scientists indicate that Kyoto’s environmental effects, for all the bluster and bureaucracy, may be so small as to be almost unnoticeable.

Yet we are heading for more of the same. If any successor to Kyoto is ever agreed - or, more important, implemented - we can look forward to minimal reductions in emissions; undetectable effects on the climate; ingenious attempts to game the system; and the squandering of billions of dollars on wasteful, corrupt schemes all over the world. The big beneficiaries will be third-world dictators, Swiss bankers, and the burgeoning bureaucracies at national and supra-national level who will be charged with administering and ensuring compliance with whatever absurd regime is agreed. This is not cynicism, it’s realism: Canada has exceeded its Kyoto target by 29%,[1] but does anyone imagine it will be punished? And do we really want to see national democratic governments coerced by yet another supra-national governmental body into doing something to which their electorates object?

The successor to Kyoto will share the same, ludicrous assumption that afflicted its predecessor: that government knows the best way of achieving its goals. But with climate change the biological and physical relationships involved are many and complex. Even specialists in climatology disagree about the degree to which any of the myriad components of the world’s climate contribute or react to climate change. It would therefore appear to be poor policy to impose expensive, divisive, unpopular and upfront controls on certain activities on the basis that they might help bring about a slightly more stable climate some time in the future.

People who were serious about addressing climate change would not embody the assumption that they know exactly how the Earth’s climate is changing, what is causing it to change, and what is the best way of dealing with any change. They would not ignore a potentially catastrophic problem, but would try to be as cost-effective as possible, especially because of the colossal expenditures that will inevitably be incurred. An ideal policy would encourage innovative solutions, stimulating the investigation and adoption of promising new technologies, and be open to new information about the causes and effects of climate change. It would most probably seek to constrain the negative impacts of climate change, while doing little to discourage any positive effects.

An ideal solution would also use markets. Now markets are getting a bad press right now. Many blame them for the current financial crisis and for environmental depredations. And it’s true that unregulated markets are being abused to serve purely private interests at the expense of the wider public. So it is important to remind ourselves that a market economy is consistent with many different outcomes and that market forces can serve public, as well as private, goals. Markets are simply the most efficient means yet discovered of allocating society’s scarce resources. An ideal solution to the climate change problem would use market forces to channel people’s self-interest into the solution of the climate change problem.

If such a solution could be found, it would be bound to attract more support from world leaders, non-governmental organisations, and the public in general than Kyoto. Such buy-in is essential, because any solution is probably going to entail enormous costs and sacrifices.

Targeting outcomes, not activities: Climate Stability Bonds

Climate Stability Bonds would be a new globally backed, financial instrument, designed to achieve climate stability, rather than to regulate emissions, activities or institutions. These bonds would be issued on the open market and would become redeemable for a fixed sum only when the climate had achieved an agreed and sustained level of stability. In this way there is no need for the targeting mechanism to make assumptions as to how to stabilise the world climate - that is left to bondholders.

There are obvious difficulties involved in defining what a stable climate actually is, but the same difficulties apply when attempting to monitor the success or otherwise of Kyoto, neo-Copenhagen or any other regime. A Climate Stability Bond regime could target an array of objectively verifiable indicators such as temperature, change in temperature, rate of change of temperature, precipitation, frequency of extreme climatic events, ice sheet volume and many other variables, at a wide range of locations. It could also target for reduction the effects of a changing climate on human, animal and plant life. All indicators would have to fall into a satisfactory range for a sustained period before the bonds would be redeemed.

Normal bonds are redeemable at a fixed date, for a fixed sum, and so yield a fixed rate of interest. Climate Stability Bonds would not bear interest and their redemption date would be uncertain.

Bondholders would gain most by ensuring that climate stability is achieved quickly.

Internationally backed Climate Stability Bonds would be issued by open tender, as at an auction; those who bid the highest price for the limited number of bonds would be successful in buying them. A fixed number of bonds would be issued, redeemable for, say, $10 million each, only when climate stability, as certified by objective measure­ments made by independent scientific bodies, has been achieved and sustained. Once issued, the bonds will be freely tradeable on the free market.

What will determine the price of the bonds? Most obviously, the market’s assessment of how close climate stability is to being achieved. Interest rates on alternative investments will also be a factor. The bonds would sell for small fractions of their issue price if people thought there were virtually no chance of climate stability being achieved in their lifetime. People will differ in their valuation of the bonds, and their views will change as events occur that make achievement of a stable climate a more or less remote prospect. They would also change as new information about climate, and about the causes of climate change, is discovered. But the bonds, once issued, would be transferable at any time. Bondholders, having done their bit to achieve climate stability, could sell their bonds, realising the capital gain arising from the higher market price of their bonds. These market prices would be publicly quoted, just like those of ordinary bonds or shares.

Assume that Climate Stability Bonds, redeemable for $10 million each, have been issued, and that they each sell for $1 million. People, or institutions, now hold an asset that can give them a return of 900 percent once a stable climate has been achieved. It is this prospect of capital gain that gives bondholders a strong interest in bringing about a stable climate, as cost-effectively as possible.

Climate Stability Bonds could be issued by a world body, perhaps one supervised by the United Nations or World Bank. This body would undertake to redeem the bonds using funds that could perhaps be obtained from all countries, in proportion to their Gross National Product. It would be up to individual countries to decide how to raise funds, presumably from taxation revenue. Importantly though, no bonds will be redeemed until the objective of a more stable climate has been achieved and sustained.

What would bondholders do?

How might bondholders aim to accelerate the achievement of a stable climate? They could:

· help finance countries’ or companies’ greenhouse gas emission control programmes;

· pay vacationers to stay at home rather than fly;

· supply solar heaters to villages and households in poor countries;

· carry out, or subsidise, research into schemes to remove greenhouse gases from the atmosphere.

Bondholders can also be expected to finance other climate stabilising initiatives, the precise nature of which we cannot, and need not, know in advance. Of course, governments, research institutes and others are already carrying out many of these activities. But there is a crucial difference. Under a Climate Stability Bond regime, the motivation arises from the self-interest of bondholders, who have the incentive to seek out those ways of achieving a stable climate that will give them the best return on their outlay. Their outlay, of course, is the taxpayers’ outlay. But note that it is only when the targeted degree of climate stability is achieved that governments end up paying for it. Until then, it is bondholders who have to finance the initiatives that they think will achieve climate stability. The issuing body will, in effect, be contracting out the achievement of climate stability to the private sector. But it will be stipulating the degree of climate stability that it wants, and undertaking to reward bondholders when that objective has been achieved.

Many will be skeptical that bondholders can actually do anything to combat climate change. It is true that too large a number of small bondholders would probably do little in isolation to bring about climate stability. If there were many such small holders, it is likely that the value of their bonds would fall until there were aggregation of holdings by people or institutions large enough to initiate effective problem-solving projects. As has happened with share privatisation issues, the bonds would mainly end up in the hands of large holders - probably institutions, brokers, governments or corporations.

Even then, each such body would probably not be big enough, on its own, to achieve much without the cooperation of other bondholders. They might also resist initiating projects until they were assured that other holders would not be ‘free riders’. But note that they will have a strong incentive to cooperate with each other, and to do so as cost-effectively as possible. If they did not, the market value of their bonds would fall. Their common interest in seeing climate stability achieved quickly means that they would share information, trade bonds with each other and collaborate on climate-stabilising projects. They would also set up payment systems to ensure that people, bondholders or not, would have an incentive to perform efficiently. Large bondholders, in cooperation with each other, would be able to set up such systems cost-effectively. Governments holding bonds would benefit by enacting legislation aimed at achieving climate stability, while large bondholders could lobby for such legislation, targeting their lobbying energies at those governments who will respond most readily.

Advantages of Climate Stability Bonds

There are two critical advantages that Climate Stability Bonds have over Kyoto and its likely successor. One is that the bonds do not rely on the robustness of our existing scientific knowledge. Kyoto aims to reduce emissions of a small range of gases. But there may be other causes of climate change that are far more important, of which we are currently unaware. And these need not be man-made: natural variability of climate has had severe impacts on human life in the past. Kyoto, responding to effects whose causes are uncertain, embodies a limited number of fixed ideas about the nature of the relationships involved. A bond regime, targeting climate change directly, may well lead to cuts in greenhouse gas emissions, but it would not assume that doing so is the best solution. Climate Stability Bonds improve on Kyoto because they encourage behaviour leading to the desired outcome, rather than seeking to control activities whose effects on the climate stability are not fully known.

The other major advantage of a Climate Stability Bond regime is that bondholders will support whichever climate stabilising projects will give them the best return for their outlay. These may involve controlling greenhouse gases, but they could also mean furthering research into such ideas as genetically engineered cyanobacteria that can soak up carbon dioxide from the atmosphere. The more efficient bondholders are in achieving climate stability the more they will gain from appreciation in the value of their Bonds. This efficiency maximises the degree of climate stability that can be achieved per dollar outlay. Because of the colossal sums involved, the benefits that Climate Stability Bonds offer in comparison to activity-based regimes, such as Kyoto, are likely to be huge.

Further advantages of a bond regime are:

· the bonds would have considerable informational advantages over such measures as Kyoto, which target activities rather than outcomes. Greenhouse gases are emitted from many sources. About half of carbon dioxide emissions, for instance, come from dispersed sources, such as cars and home heating systems. Immense quantities of information would be needed to establish and monitor a comprehensive system of control using taxes or tradeable emission permits. Costs of obtaining such information and resentment against the intrusiveness required to ensure compliance are going to be high. By contrast, Climate Stability Bonds would target and monitor a much smaller number of global indicators.

· governments would pay up only when a stable climate has been achieved - any risk of failure or of undershooting the climate stability target is borne by bondholders, rather than taxpayers;

· funds for global climate stability could bypass corrupt or inefficient governments or, by appealing to their financial self-interest (if they were bondholders, or bribed by bondholders) could effectively modify their behaviour in favour of achieving climate stability; and

· formulating the redemption terms for Climate Stability Bonds will entail clarifying of what is actually wanted. Framing the debate in terms of outcomes, rather than institutions or activities, will bring about greater public participation and buy-in to the entire process: essential of the challenge is to be met.

Achieving a stable climate will unquestionably require a wide range of diverse, responsive projects. Reducing greenhouse gas emissions or sequestering carbon may be helpful ways, but they are not necessarily going to be the most cost-effective. Other ways yet to be discovered may be far cheaper. Kyoto is, in my view, deficient, in that it offers no incentives to find out how to achieve a stable climate most cost-effectively. Climate Stability Bonds would encourage the most efficient solutions given the knowledge available at any time, and they would stimulate research into finding ever more cost-effective solutions. This occurs because of the nature of the bond mechanism, and requires no presupposition as to the optimal set of solutions. Scientists and governments would need to decide only on the objective - climate stability - not on the ways of achieving it.

Of course, the Climate Stability Bond concept involves surrendering of policy instruments to the private sector, and this may be difficult for politicians to swallow, even though, under a bond regime, they would continue to set, and be the ultimate source of finance for, the targeted objective. The potential benefits of a bond regime are colossal. In economic theory, and on the evidence of recent history, market forces are the most efficient means yet discovered of allocating society’s limited resources. Under a bond regime, government would do what it's good at doing: articulating society’s wishes and raising the revenue for achieving them. Where government often fails is in actually achieving these goals efficiently and that is where investors in the bonds would do what they are best at; exploring, investigating and implementing an array of approaches, while responding to events and our rapidly expanding scientific knowledge; all in the service of the overall goal of climate stability. Investors’ rewards would be inextricably linked to their success in bringing about society's climate stability goal, as articulated by national governments. Rather than punish countries, upfront, for dubious long-run benefits, the bonds would reward and motivate people for achieving demonstrable gains in climate stability.

Climate Stability Bonds are intended to channel the market’s incentives and efficiencies into the achievement of society’s overriding environmental objective. By appealing to people’s self-interest, Climate Stability Bonds could be far more effective at achieving climate stability than Kyoto or whatever deal is struck in Copenhagen. And, by targeting a desired outcome but leaving it for the market to achieve, the principles underlying the bond concept could show the way to solving other seemingly intractable global problems, including other environmental problems, war, civil war, disease and malnutrition.

© Ronnie Horesh, November 2009

Bibliography

Injecting incentives into the solution of social problems: Social Policy Bonds (September 2000), Ronnie Horesh, Economic Affairs, 20 (3), Institute of Economic Affairs, London, UK.

Injecting incentives into the solution of social and environmental problems: Social Policy Bonds (January 2001), Ronnie Horesh, iUniversity Press, USA. ISBN: 0-595-15374-7

‘Investing for the Future’, UK CEED Bulletin No 35 (September-October 1991), Centre for Economic and Environmental Development, Cambridge, UK.

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[1] Avoiding a crash at Copenhagen, ‘The Economist’, 24 September 2009

Doing what the corporates want

One of the virtues of Social Policy Bonds is that people, as distinct from government agencies and corporations, would decide on policy goals. As human beings, we probably would not want to divert funds from taxpayers and consumers to, for example, big agriculture, wealthy landowners, or big energy. The sums involved are staggering:

...more than US$ 550 billion was spent in 2008 on subsidies to oil, natural gas and coal by 37 of the world's developing and emerging economies ...their removal would result in significant energy savings. G-20 Summit sees little mention of pledge to reform fossil-fuel subsidies, by Fernando Cabrera Diaz, Global Subsidies Initiative, June/July

It's only because of the way in which government and big business make policy that they can get away with such a waste of resources. The current way of deciding on policy priorities is too obscure and protracted to engage ordinary people. Big corporations and government bodies fill the vacuum.

Social Policy Bonds would be different. The focus would be on outcomes right from the start. Organizations would be entirely subordinate to chosen social and environmental goals. A new type of organization - one whose rewards would be inextricably tied to its success in achieving society's goals - would come into being. Even under a bond regime, people would disagree with some chosen policy priorities. But, having been able participate actively in the selection process, they would be more inclined to buy in to targeted goals. Of course, even then we might still opt to tax the poor and subsidise big energy and big agriculture. But we'd be doing so with our eyes open, not as a result of being excluded from the decision-making process.