A ruling last week from Minnesota’s Court of Appeals provides an interesting case study in using common law and legal liability (a la Coase) in an environmental case. As summarized in the St. Cloud Times, the issue at hand is pesticide drift — when pesticide spray on one field is carried over to another field by wind. In the case of an organic farm, such pesticide drift has a significant economic cost, because the organic farmer cannot sell the affected produce, and may even have to take affected acreage out of rotation for several years to clear the pesticide and retain the foundation of the organic attribution (usually defined by law).
Here’s a bit more about the fact pattern:
The Johnsons turned their farm into an organic one in the 1990s to take advantage of the higher prices organic crops and seeds bring at market. They posted signs noting that the farm was organic, created a buffer between their property and neighboring farms and asked the co-op to take precautions to avoid overspraying, according to the Court of Appeals opinion.
But the co-op violated state law four times from 1998-2008 by spraying chemicals that landed on the Johnson’s organic farm, the opinion said. The opinion said that the co-op was cited four times by the Minnesota Department of Agriculture for violating pesticide laws that make it illegal to “apply a pesticide resulting in damage to adjacent property.”
A 2002 overspray led to the Johnsons selling their crops at lower, nonorganic prices and taking the tainted field out of production for three years. In 2005, 2007 and 2008, the overspray led the Johnsons to destroy alfalfa and soybeans and plow under and take out of production for three years parts of their fields, according to the Court of Appeals opinion.
What’s interesting to me about this case is the Johnsons’ use of the common law — they filed a lawsuit claiming nuisance and trespass. The district court found against them, but this appeals ruling negates that and sends it back to the district court:
The Court of Appeals opinion Monday decided that what the co-op did could be considered a trespass because it met the two elements necessary — that the Johnsons had rightful possession of their fields and that the cooperative’s unlawful spraying of the pesticide, causing it to drift onto the Johnsons’ otherwise chemical-free fields, constitutes an unlawful entry.
Looks to me like an application of Coase to the pesticide drift question — clarifying who has legal liability for the consequences of actions when those actions affect others, use of the common law concept of nuisance — with the result that the pesticide sprayer is liable for the costs of the consequences.
In a case like this, with two adjoining plots of land, the identification of the actors and the actions is pretty straightforward, so it’s a textbook low transaction cost case. But what happens if, say, the organic farm is adjacent to three other farms, and the issue is not pesticide drift, but is rather GMO propagation drift? If all four farms plant corn, but three of them plant the same strain of drought-resistant GMO corn, some seed propagation across property boundaries is likely. How do you assign liability with multiple potential actors? Is there a way to avoid such a cost, and if so, who is likely to be the least-cost avoider? Or more interestingly, since the GMO corn is drought resistant, how do you net out the beneficial effects of the need for less irrigation against the cost of the corn not being able to be sold as GMO-free any more?
I think I may have just identified a new case study for my fall environmental class …
Today’s global stock market correction is a humdinger, and is almost certainly the result of multiple factors — expectations of minimal impact of debt ceiling deal, tepid domestic and international manufacturing data, tepid domestic unemployment data, expectations of tepid employment data tomorrow, and what’s really the 800-pound gorilla here, the eurozone debt and currency woes.
The worldwide market plunge since the signing of the U.S. debt agreement tells us one thing above all: Almost no one on the planet has confidence in the leadership of Barack Obama.
With all due respect, just asking the question is silly.
Here’s a counterfactual question to Roger’s quoted assertion: suppose that Congress had passed and Obama had signed a fiscally meaningful public debt deal. Would we still have seen a global equity correction today? Almost certainly, due to the confluence of European and Japanese factors, but primarily European factors and their contagion into worldwide markets, including US. Perhaps you could argue that the eurozone crisis would be smaller if the US economy were healthier, but that’s at best an indirect second-order effect; the eurozone woes are predominantly of their own making, and if we had a stronger economy to paper over their debt it would still have come home to roost.
While I concur that domestic US policy leadership has been either nonexistent or misguided, and that both the executive branch and Congress have been feckless, I think it’s an incorrect and irresponsible knee-jerk reaction to leap from a global equities market correction to a presidential resignation a year and a half before the end of the term. Such a conclusion derives from a hasty misinterpretation of the data. And Glenn, you should know better too.
There’s a lot of exciting work right now in political economy at the intersection of academic scholarship and application to public policy, ranging from law to public finance to regulation to development and beyond. Mark Pennington’s Robust Political Economy is one of the most exciting, thoughtful, and valuable of the recent work in political economy (it’s been out of stock in the US, but now it’s back and you can get yourself a copy!). Whether you are a scholar working in this area, a policymaker interested in thinking more deeply about what you do, or someone who works in an area where you engage with public policy, you will find lots if ideas here worth considering, presented in a clear, scholarly narrative.
He begins by drawing some stylized categories of ideas that will provide the context for his analysis, and the main contrast he draws is between classical liberalism and ideas critiquing classical liberalism from several directions, such as communitarianism, egalitarianism and, even, neoclassical economics. A lot of political economy analysis takes place in the realm of these theoretical archetypes — people formulate their positions in opposition to these theoretical archetypes, and often simplify or mischaracterize them. One of the intellectual, analytical, and rhetorical strengths of Mark’s work is that he really fleshes out those archetypes so they are not simplistic straw men. I think he reads the various critiques of classical liberalism fairly and in an open-minded manner, and describes their analyses and positions in ways that I find quite reasonable (I say that, though, acknowledging my confirmation bias and my agreement with and sympathy with his own argument).
Mark’s emphasis is on creating an analytical classical liberal framework for examining and understanding issues in public policy. To do so he tackles several tasks in this work: he lays out his conception of classical liberalism, he uses that conception to contrast with a range of ideas critiquing classical liberalism, and he then applies that framework to analyze some selected public policy issues. His contextual lens is primarily British and European, so for readers in other areas some of the specifics of the intellectual debates may be unfamiliar, but the general ideas and principles still translate clearly.
I find the most valuable contribution of Mark’s work to be the conceptual framework for classical liberalism as “robust political economy” that he provides in Chapter 1, and then elaborates on in contrast to other sets of ideas in the ensuing 4 chapters. Why is this idea of robust political economy so important? Robustness is like resilience; it’s a performance criterion by which we can evaluate a set of institutions to see how well they perform in real-world situations across time and space. Robust social institutions take into account the cognitive, psychological, and strategic realities of being human and trying to live together in civil society, rather than being based on some mythical, hypothetical individuals who are either entirely Cartesian-rational, entirely Hobbesian-rapacious, or possessing full foresight. Mark takes on all of these traits of real humans, and a lot of his argument is grounded in the reality of the knowledge problem (a topic near and dear to my heart and brain).
Human beings are limited in their cognitive capacities and as a consequence even the most intelligent and far-sighted people are relatively ignorant of the society in which they are situated (Hayek, 1948a; Simon, 1957). Given the imperfections of human knowledge, the consequences of any particular action, either for the actors concerned or for the wider society, will at any given time remain uncertain. Robust institutions should therefore allow people to adapt to circumstances and conditions of which they are not directly aware, and under conditions of ‘bounded rationality’ must enable them to learn from mistakes and to improve the quality of their decisions over time. (pp. 2-3)
Taking into account the knowledge problem, what are institutional traits that enable heterogeneous self-interested individuals, for whom self-interest usually takes many different forms, to live together and hopefully to thrive in civil society? Mark’s primary argument throughout the work is institutions reflecting classical liberal ideas and principles are best situated to do so. He synthesizes Scottish Enlightenment political economy, Austrian economics, pubic choice economics, and new institutional economics into a classical liberal framework that qualifies as robust political economy. These institutions focus on “private or severally owned property, a market economy, and a limited government confined to the resolution of disputes between private parties” (p. 3). The synthesis across these areas is a substantial original contribution of this work, because he provides the clearest articulation I’ve seen thus far of how the ideas arising from these various strands of thought complement and reinforce each other. Mark melds the complexity and emergent order approaches of the Scottish Enlightenment and of the knowledge-problem-focused Austrian economics with the ideas of adaptation and evolution in those traditions as well as in new institutional economics. He blends the polycentric and locally-driven approach to institutional design from NIE with the “model men as if they are knaves” to constrain selfish minorities that we see in David Hume, James Madison, and modern public choice economics. He further combines all of the above with the idea that processes that enable emergent, decentralized, polycentric institutions will do a better job of enabling people to thrive in civil society (i.e., be robust) precisely because they allow for trial and error, for experimental evolution, and that the combination of community processes of consent with real options for both voice and exit are a crucial component of creating this robustness. I have never read a more compelling or uplifting account of this argument, which regular KP readers will recognize as resonating strongly with the approach to regulatory policy that I have advocated here and in my own book in 2008.
Taking this framework, Mark then confronts the challenges to classical liberalism that neoclassical economics (focusing on “market failure”), communitarianism, and egalitarianism provide. He also argues that none of these three sets of ideas qualify as foundations for robust political economy. His analysis of neoclassical economics includes a strong critique of the theoretical emphasis on equilibrium outcomes and the existence of equilibria, and his discussion of how such arguments misunderstand the nature of competition do a good job of making that Hayekian point more clear and relevant to modern policy debates. I recommend this chapter in particular to all graduate students in economics, as a spur to think more deeply and critically about our models and how we use them. I am less familiar with the communitarian and egalitarian literatures in political science and philosophy with which Mark then engages, but what I found most interesting in those chapters was how he showed that classical liberal ideas and institutions do address many of the issues and concerns of those scholars, contrary to their beliefs.
In the final section of the book Mark applies classical liberalism as robust political economy to three policy areas: poverty relief and public services, international development, and environmental protection. In each chapter he provides an in-depth discussion of the policy implications of the four main sets of ideas (classical liberalism, neoclassical economics, communitarianism, and egalitarianism), again consistently anchored in the complexity and knowledge problem traits of reality, which lead him to conclude that institutions grounded in classical liberal principles are the most likely to qualify as “robust” and to thus be the most likely to enable people to thrive in civil society in each of the three areas.
An enthusiastic must-read, from which I learned a lot and which has changed and refined my thinking about some of my own work.
Earlier this year Mark did a book event at Cato, complete with a companion podcast and a video of the event:
He also occasionally blogs at Pileus, always informatively and eloquently.
Earlier in the week I discovered this Household Hacker video “Flower Pot Fridge” courtesy of a Energy Circle blog post with the appealing title, “How to cool your beer without electricity!“
Simple! All you need is a pair of flower pots (one slightly smaller than the other), some sand, a damp towel, and relatively low ambient humidity. The secret to this low tech marvel is evaporative cooling.
While I was vacationing in New Mexico and Arizona, New York Times public editor Arthur Brisbane continued his analysis of the pair of late June articles in the newspaper that suggested widespread insider skepticism over the size and significance of recent shale gas developments. A June 26 story suggested the presence of significant skepticism within the gas industry and a June 27 story suggested an active internal debate among officials at the U.S. Energy Information Administration. Both stories relied heavily on highly-selective anonymous comments taken from emails that had names and much other identifying information redacted. Both stories have been discredited by subsequent revelations.
Brisbane’s article on the June 27 story begins with a disclosure by the EIA that the emails quoted in the story were “largely to and from a person who was hired by E.I.A. in 2009 as an intern and later developed into an entry-level position.” Nowhere in the June 27 story does it mention that some of the quotes presented as examples of EIA skepticism were by an intern or newly-hired college graduate. Instead, in the article the intern/entry-level employee was referred to variously as “one official” at the EIA, as an “energy analyst,” and finally as “one federal analyst.” Brisbane finds the presentation to be sloppy and misleading.
If the emails to and from the intern/new employee are eliminated, what remains in the story is some concern over the lack of independent EIA expertise on some petroleum geology topics and some probably healthy skepticism of early industry claims of a vast and newly-accessible gas resource.
In my view, by using multiple descriptors to mask the identity of a single emailer, then redacting any mention of internship or entry-level employment status in the original supporting documents presented with the story, the reporter of the June 27 article intentionally sought to mislead Times readers concerning the nature of internal debate at the EIA. It is just more dishonest journalism by reporter Ian Urbina. (Brisbane somewhat-more-mildly concluded that the story exhibited “some of the classic problems associated with anonymous sourcing” in journalism.)
RELATED:
The Times posted the unredacted emails, once they had been released publicly by the EIA, so readers are now in a better position to judge for themselves whether or not the emails constitute serious internal dissension at the agency.
Gas-industry website Energy In Depth - which has been quite critical of the Times natural gas reporting – seized upon the revelations with unsurprising glee. Their commentary noted that a key EIA official cited in the June 27 story was just an intern, and then drills deeper into the unredacted email to discover that the intern exchanged a number of emails on shale with the Natural Resources Defense Council and attempted to feature the NRDC’s shale gas criticisms on an EIA website on shale gas.
Jonathan Adler reports from a PERC workshop on fisheries management and how property rights institutions can reduce pervasive overfishing problems in fishing. Overfishing is a serious environmental and economic problem, and Jon provides excellent links to the body of research showing that property rights institutions, such as tradeable catch shares, can reduce overfishing and improve the long-run sustainability of both the fish populations and fishing profits in the industry.
I can’t stress how important this is. For example, overfishing has brought the Atlantic bluefin tuna to the brink of extinction, and despite the prospects of losing this species and the future stream of profits from fishing it if it were to survive, the industry has failed to self-organize and have continued to overexploit the common-pool resource. How they can place so much weight on current profits and so little weight on the loss of future profits is a mystery to me. But if they can’t self-organize to agree to catch shares they will be subject to regulation, which if done right will be a system of catch shares.
But catch shares aren’t always politically popular, particularly with successful incumbents in the industry. As Adler notes:
Political opposition to rights-based fishery management is a timely concern. Although rights-based management systems have been successfully adopted in several U.S. fisheries, as they have in other parts of the world, they are under threat. Earlier this year, Reps. Barney Frank (D-MA) and Walter Jones (R-NC) pushed successfully for an appropriations rider prohibiting the National Oceanographic and Atmospheric Administration (NOAA) from spending money implementing additional rights-based reforms in U.S. fisheries. Rep. Jones, in particular, is on the warpath against rights-based management – which is a shame as rights-based fishery management is about as market-oriented environmental policy as there is. (Indeed, even the folks at CAP recognize the value of rights-based fishery reforms.)
Opposition to catch shares is environmentally indefensible and economically foolish. Any program than can simultaneously increase the environmental sustainability and economic efficiency of a natural resource should be a no-brainer. It would also be good for the federal budget. A recent study in the Journal of Sustainable Development estimated the widespread adoption of rights-based fishery management could reduce the deficit by as much as $1.2 billion.
Here’s an area where the long-term economic and environmental interests coincide, but are being stymied by backward-looking and short-term economic and political interests.
That’s the constant in my assessment of the political theater of the past two weeks — so much sound and fury, and the federal government’s debt rating is still likely to be downgraded. And it deserves to be downgraded, and probably should have had that happen a while ago. I mean, seriously, what credit score do you think the federal government should get if it went to freecreditreport.com? “The fisc” has not been sustainable for a decade, and only marginally so before that.
Moreover, this deal does not moves us toward sustainability; it does not cut spending, as you see here and here. The dirty little addiction secret in federal budgeting is the baseline, and despite hand-flapping Keynesian hyperbole over the past few days (I’m lookin’ at you, Mr. Krugman), this deal still constitutes spending increases over the next decade. That’s why I think a credit rating downgrade is inevitable, because the majority of the American public, those they elect to represent them, and the breathless, melodramatic media are getting what they want. Good and hard. Problem is, the rest of us who understand living within our means at a micro and a macro level, and behave accordingly, are also getting what the others want.
True, the rating agencies are damaged goods because they did such a craptacular job of assessing risk in new debt instruments around mortgages. In this case as in that one, they do have muddled incentives, because the people who hire them and pay their salaries are the players in the “crony corporatism” that characterizes the relationship between the federal government and big business. But if Congress is going to continue abrogating its long-term fiscal responsibilities, the interest rate effects of financial market movements and of the rating agencies are the only even-somewhat-credible discipline that we can expect.
If this doesn’t provide enough evidence to you that we need to take as many important decisions as possible out of political processes and return them to individual processes, you haven’t been paying sufficient attention.
At least Gabrielle Giffords brings some dignity and courage to this ugly process, and I honor her strength. If Joe Biden weren’t so mean, petty, and small-minded as to use “terrorist” rhetoric in political debate, perhaps he could learn a lesson from her as a role model. I’m not holding my breath on that.
The only silver linings I see here are the reining in of some defense spending, and the fact that we actually almost-sort of-kind of had a substantive debate on spending and debt. My inner optimist has to cling to those, because my inner cynic has so much other fodder.
