Ashbrook asks, if the market were the answer and not a carbon tax, then why aren't we seeing anything from the market? And that is the issue, we could have said the same thing about mail and parcel delivery before email and UPS, and who saw google, Wikipedia, and Netflix on the horizon? The hybrid cars, wind farms, and solar seem like obvious solutions that the government has poured lots of money into. But the market's solution will not be so blatant and obvious as a government tax or subsidy, and Ashbrook's question will never have an obvious answer. Modern hybrid corn with no subsidy or tax for instance has done more to combat climate change than hybrid cars in the US.
Saturday, June 14, 2014
Thursday, June 05, 2014
“Was the government to prescribe to us our medicine and diet, our bodies would be in such keeping as our souls are now” - Thomas Jefferson Notes on the State of Virginia
This past May two counties in Oregon voted to ban the production of GMO crops. Was this good policy?
For a moment let’s sidestep the fact that modern molecular applications of crop improvement are just as safe if not safer than conventional and organic methods. Let’s also forget that using a democratic process to override other people’s choices may not be the optimal strategy for making the most of imperfect information and limited resources.
Often, this law is discussed in the context of property rights, and rightly so:
“This local effort is important because it’s a way for local growers to protect their property rights from genetically engineered pollen contaminating their seed crops.”
-Ivan Maluski, Friends of Family Farmers
The assignment and protection of property rights is an important role of government, and definitely serves a key function in dealing with what economists refer to as negative externalities, and what most people would think of when they think of nuisances or environmental pollution. However, the GMO bans represent a very narrow and restrictive assignment of property rights.
Property Rights and Externalities
Basically a negative externality occurs when a second party is harmed from an activity without their consent or compensation. In the context of the Oregon law, we might view genetic contamination as a negative externality. In these cases, the principle of polluter pays is often the basis used to require polluters to either stop their activity, pay a fine, or perhaps levy a tax related to the level of pollution. However, in 1960 economist Ronald Coase brought new insight in his Journal of Law and Economics paper “The Problem of Social Cost.” Coase stated that in many cases, the issue of pollution or negative externalities was in fact reciprocal. This can easily be understood in the context of the Oregon case. While banning GMOs certainly protects organic and conventional producers from the harms of cross-pollination it reciprocally imposes significant harm on most family farmers by limiting their ability to grow food in a way that is both profitable and sustainable. The question becomes, who may harm who?
Put another way, who should get the right to grow the kind of crops they want? The answer is that the right should be assigned to the party that values it the most. According to what has come to be known as the Coase Theorem, the initial assignment of rights does not matter. With clearly defined property rights, the optimal level of GMO vs. non-GMO crops planted as well as optimal levels of cross-pollination can be determined through cooperative processes. Of course in this case, we may not be assigning physical rights to property so much as we are assigning liability.
If liability goes to the organic producers, and they want to restrict the planting of GMO crops, then they have to find a way to compensate GMO growers to reduce planting . If liability falls on GMO growers and the economic and environmental benefits of growing GMO crops exceeds the value that organic producers place on uncontaminated crops, then GMO growers can pay for damages (or buy insurance for such purposes), or compensate organic producers for shifting their crops to another location. They may also alter their GMO planting decisions in highly susceptible areas.
The assignment of property rights and the potential for bargaining results in behavior that is changed or altered to account for the negative impact our choices have on others, regardless of who holds the rights. This is the essence of what is known as the ‘Coase Theorem and sets a standard of morality and efficiency that the Oregon law falls tragically short of meeting and in fact egregiously preempts.
Positive externalities occur when one or more parties engage in some activity and actually benefit another party without getting compensated for it. An example of a positive externality is the concept of herd immunity that can occur when most people are vaccinated for things like measles. Government funding of vaccination programs is often justified on the grounds of positive externalities. An unintended side effect of the Oregon law banning GMOs is the elimination of positive externalities associated with the planting of GMO crops. Research has shown that genetically modified crops have improved the genetic diversity of beneficial pest populations and have provided external pest protection benefits to non-gmo crops worth billions of dollars annually. In addition, biotechnology has contributed to significant reductions in greenhouse gas emissions and reduced the use of toxic chemicals and pesticides. The Oregon laws eliminate all of these positive externalities associated with GMO crops in effect harming organic producers and all consumers.
Are these options practical or realistic? Nothing I could put in print likely would be. Policy makers and economists are not in a situation to know exactly all of the margins that individuals consider in their decision making and the options available, which is another flaw in the Oregon laws which make this assumption. Some assignment of property rights or liability that accommodates a cooperative space for individuals to live their lives would be superior to both no law at all, or one as draconian as the two counties in Oregon have adopted.
The Problem of Social Cost. R. H. Coase. Journal of Law and Economics, Vol. 3 (Oct., 1960), pp. 1-44
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