The Economics of Globally Shared and Public Goods

S. Niggol Seo

• Publisher: Academic Press
• Year: 2020
• Print ISBN: 9780128196588
• eBook ISBN: 9780128198766
• Topic: Economics
• Subtopic: Economic Conditions
• Index: Economics

The Economics of Globally Shared and Public Goods responds to an urgent need to consolidate and refine the economic theories and explanations pertinent to globally shared resources. Making a clear distinction between theories and empirical models, it elucidates the problem of global public goods while incorporating insights from behavioral economics. Its comprehensive and technical review of existing theoretical models and their empirical results illuminate those models in practical applications. Relevant for economists and others working on challenges of globally shared goods such as climate change and global catastrophes, The Economics of Globally Shared and Public Goods provides a path toward greater co-operation and shared successes.- Offers an encompassing description of the economics of global public goods- Provides an ensemble of empirical analyses of behavioral complexities- Defines a set of optimality conditions for a solution applicable to many problems

1

An introduction to the challenges of public and globally shared goods in economics and policy-making

Abstract

This chapter provides an introduction to the book which deals with the economic and policy problems of public goods and global public goods. The challenges of public goods in the economics literature were recognized at the early first half of the 20th century, which have become a preeminent theoretical and policy field with the emergence of public goods at a global scale during the late second half of the 20th century. This book traces the economic theories put forth over the past century and provides the three critiques on the current economic theories. Based on the three pivotal critiques, this book offers a novel integrative theory, that is, the economics of globally shared goods. The “grand” theory is rooted on microbehavioral economics and has three distinct components: microbehavioral decisions, foresight, and greenhouse technologies. The economic theory is applied to a basket of globally shared challenges such as global warming, asteroid collisions, nuclear disarmaments, a strangelet catastrophe, and an artificial intelligence singularity.

Keywords

Pubic goods; globally shared goods; microbehavioral economics; foresight; greenhouse technologies

1.1 Introduction

A public good, also referred to as a social good by some scholars and a public economy by others, has long been seen as a troubling spot for the economics profession and literature for nearly a century (Hayek, 1948; Bowen, 1943). The crux of the troublesomeness is that the efficient market cannot provide this type of good efficiently, that is, it will underprovide it or not provide it at all (Samuelson, 1954). As the age of a globalized Earth dawned somewhere around the beginning of the 21st century owing to the revolutions in internet and communication technologies and transportations, the troubling spot has become a one big ill of the Planet that economists cannot provide a lucid exposition, that is, an effective medicine (Nordhaus, 2008; Weitzman, 2009). This book is an ambitious endeavor to elucidate the economic problems, explain the contemporary economic theories, account for severe political ramifications, and, building upon these efforts, develop a novel economic theory for the provision of the public and globally shared goods.

A public good is a short form for a public consumption good, both of which were coined by Paul Samuelson, an iconic American economist of the 20th century. Samuelson initially called it a jointly consumed good and then a publicly consumed good, which conveys the meaning of the term unmistakably (Samuelson, 1955). It is a good, once provided at all, that must be consumed by a large group of people. It cannot be provided exclusively to a single individual.

The group of people in this context can be a local village, a municipality, a state, a country, or even a global community at large (Samuelson and Nordhaus, 2009). The term public goods, however, in most occasions, refer to the public goods consumed jointly at the national level, that is, national public goods (Mas-Colell et al., 1995). The economic theories on public goods were developed with a national public good in mind, which was in part because national policy-makers have keen interests in a national-scale public good for the reasons to be elaborated shortly.

A national public good is an indispensable part of everyday life for any private citizen of any country, the basket of which includes national defense, public education, public roads, police works, public works, and air pollution. Unlike a vast basket of private consumption goods which the market provides efficiently, a public good, both each and all of them, cannot be provided efficiently in the market. As such, without doubt, each of these subjects is one of the most important public policy issues of any nation.

It means that the market cannot provide these essential goods optimally to the society and also means that there is vast literature on each of these subjects with regard to how the society should attempt to provide each of them, including the literature of public finance, economic growth, environmental pollution, and resource uses (Musgrave, 1959; Nordhaus and Tobin, 1972; Baumol and Oates, 1975; Hartwick and Olewiler, 1997). This, however, does not mean that each of the literatures is unanimous on a remedy, governmental policy or not, for the problem. On the contrary the basket of policy solutions offered in each of the public good literatures has contained many different fruits and breads of dissimilar sizes.

The entire spectrum of rivaling views and theories on the provision of public goods includes, to name only the prominent ones, a governmental taxation (price), a quantity standard set by the government, a precautionary principle, a tradable permit system, a zero discounting-based policy, a voluntary bargaining, a progressive taxation, a private provision, and offset credits (Coase, 1960; Baumol and Oates, 1971; Montgomery, 1972; Weitzman, 1974; Stavins, 1998). Across the entire range of policy discussions on these policy instruments, there lies the hurricane’s eye around which all things are whirling, that is, the question of how to put a monetary value on a public good (Mendelsohn, 1980; Hanemann, 1994; Mendelsohn and Olmstead, 2009; Freeman et al., 2014).

The rival theories and concepts have resulted in the establishment of institutions to tackle these issues and the host of laws and regulations that define national policies on various public good areas. For example, the Environmental Protection Agency (EPA) in the United States was established in 1970 through which a host of major environmental laws began to be administered including the Clean Air Act (CAA) and the Clean Water Act (CWA) (USEPA, 2010). Internationally the first conference on the human-caused environmental issues was held in 1972 in Stockholm, Sweden (UN, 1972).

The studies of public goods in economics and many related disciplines during the 20th century up to the beginning of the 1990s had set the ideal conditions for a perfect storm: the emergence of a truly global-scale public good. By the early 21st century, the economics and policy negotiations of public goods at a global scale surged to the forefront of economics, sciences, and policy discussions (Nobel Prize, 2007, 2018). Although the Treaty of Nonproliferation of Nuclear Weapons (NPT), one of the global public goods analyzed in this book, was signed and entered into force in 1970, negotiations and economic studies had remained focused primarily on the cold war competition between the US and the USSR, as well as nuclear containments of rogue regimes (UNODA, 2019). The academic field of global public goods came to be a salient research area with the emergence of the study of global warming and the establishments of international conferences and organizations such as the Villach Climate Change Conference in 1985, the Intergovernmental Panel on Climate Change (IPCC) in 1988, and the United Nations Framework Convention on Climate Change (UNFCCC) in 1992 (WMO, 1985; IPCC, 1990; UNFCCC, 1992).

The academic literature, especially that of economics, has flourished since around the entry into the 21st century. The economics of global warming was elegantly explained by William Nordhaus with a policy proposition of a globally harmonized price of carbon dioxide, which was recognized with a Nobel Prize in economics in 2018 (Nordhaus, 1991, 1992, 1994). Researchers had delved into developing an integrated assessment model for a global warming policy tool (Manne et al., 1995). The debate on how damaging climate change will be erupted and is still a central battleground in global warming economics (Adams et al., 1990; Mendelsohn et al., 1994; Tol, 2002; Schlenker and Roberts, 2009; Bakkensen and Mendelsohn, 2016). The study of how individuals can adapt to changes in the climate system has gradually moved from the periphery to the center of climate change economics (Seo, 2006, 2010a, 2016a,b, 2017a). The question of whether the benefit-cost analysis is an adequate policy analysis tool for the problem of global warming or not has raged among the economists (Weitzman, 2009; Nordhaus, 2011; Seo, 2018). Economists were divided on whether the discount rate for a global warming policy should be near zero or close to a market interest rate (Arrow et al., 1996a; Stern, 2007). The emerging battle ground of economists is whether a global public good fund such as the Green Climate Fund (GCF) can be an effective solution for the global public good problem (GCF, 2011; Seo, 2019a).

The richness and high quality of the global warming economics were triggered by the significant progress in climate science, both in quantity and quality. A simple carbon dioxide-global average temperature equation at the end of the 19th century by Svante Arrhenius has turned into a global scale machine of which each scientist group took on one aspect of climate science or another. The progresses of climate science have been well summarized and reported to the public through the IPCC reports (Arrhenius, 1889; Revelle and Suess, 1957; Hansen et al., 1981; IPCC, 1990, 2014). Once the greenhouse effect of carbon dioxide and other chemicals was established, the genie was truly out of the bottle to search for and inspect every parcel of the globe and leave not a stone unturned. It became a truly globalized endeavor (Le Treut et al., 2007).

The scientific frenzy has translated without interpretations into a massive global policy undertaking through the United Nations. Tens of thousands of politicians and scientists from about 200 countries convene annually during the 2 weeks before Christmas holidays. The meeting is called the Conference of the Parties (COP). Of the most successful COPs were the Kyoto Conference in 1997, the Copenhagen Conference in 2009, and the Paris Conference in 2015, which produced the Kyoto Protocol, Copenhagen Accord, and Paris Agreement, respectively (UNFCCC, 1997, 2009, 2015).

Despite the 25 COPs held since the establishment of the UNFCCC, it can be judged that there is still no global policy on global warming. The Kyoto Protocol was the only legally binding treaty, but the policy scale and effectiveness were severely constrained by the exclusion of China, India, the US, and other developing countries (Manne and Richels, 1999; Nordhaus and Boyer, 1999). The Copenhagen Accord was not able to negotiate an expanded Kyoto Protocol due to disagreements between developing countries and developed countries (Nordhaus, 2010). The Paris Agreement, while hailed as a turning point for our Planet by President Obama, was not a legally binding agreement (CBS...

Table of contents

• Cover image
• Title page
• Table of Contents
• Copyright
• Dedication
• About the author
• Preface
• 1. An introduction to the challenges of public and globally shared goods in economics and policy-making
• 2. The economics of public goods and club goods
• 3. The economics of global-scale public goods: key challenges and theories
• 4. A critique of the economics of global public goods: a microbehavioral theory and model
• 5. A critique of the economics of global public goods: economics of noncooperative games
• 6. A critique of the economics of global public goods: the economics of a global public good fund
• 7. The economics of globally shared goods
• 8. Extensions of the economic theory to a basket of globally shared goods
• Appendix A. A succinct mathematical disproof of the dismal theorem of economics
• Index