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Looks Aren’t Everything, In People Or In Light Bulbs…

August 10th, 2009 · 14 Comments
Behavioral Econ · Decision Making · Environmental Econ

Don’t get me wrong- I am in no way anti-environment (that would be nonsensical, like being anti-puppies or anti-chocolate cake), but I get concerned sometimes about how actually environmentally useful some of the “green” (picture air quotes here) products out there truly are. Are we having a printer/ink cartridge type problem here?

The printer/ink cartridge setup is the example usually given by David Laibson in his lectures to undergraduates. The basic idea is that people are biased in their choices of printers (i.e. are lured into purchasing the low price printer with the expensive ink) because they don’t properly account for the ongoing costs of use of the product. The term that Laibson uses is “shrouded attributes”, and the same argument could be made for what is going on here:

We all love a good China joke every now and then, right? In this example, the light bulb is the printer and the factory is the ink cartridge. Do people fully internalize the environmental impact of producing the environmentally friendly products that they consume? My guess is probably not. That said, it is important to make the right comparisons when thinking about overall environmental impact. Clearly the plant in the cartoon above is polluting, but that in itself is not what is relevant. The relevant question is “Is the plant polluting more in producing one energy efficient lightbulb than it would be to produce the equivalent number of regular lightbulbs?” Thinking about that question probably makes the factory above not seem so bad. Not so bad in this case perhaps, but still important to not ignore.

Laibson points out that market forces may or may not provide the proper incentives for consumer education. On one hand, educating a consumer about shrouded attributes makes him more likely to purchase a particular product over another. In these situations, competitive forces provide a motivation to educate consumers. On the other hand, however, if informed consumers are not profitable, the market is not going to do the work to educate them. I suppose that is what things like Consumer Reports and The Consumerist are for.

You can see Laibson’s thoughts on “The Curse of Education” here. (PowerPoint presentation given to the FTC) Here’s an interesting thought exercise for you: what “green” products are likely not so environmentally friendly when the overall production/consumption process is taken into account?

Tags: Behavioral Econ · Decision Making · Environmental Econ

14 responses so far ↓

  • 1 Rev. Pfloyd // Aug 10, 2009 at 6:16 pm

    This kind of reminds me of the argument against hybrid vehicles. As it stands the environmental impact of smelting nickel to make hybrid car batteries still outpaces the amount of “environment you save” by buying one and using less gas with it. Maybe once nanotechnology improves the battery process that won’t always hold true but when I was in the market for a new car, I decided against the hybrid for now.

  • 2 Benjamin Neusse // Aug 10, 2009 at 6:23 pm

    The market will save the environment as buyers and sellers achieve more perfect information and as both internalize their externalities. This should be the action of the government, not taxes and subsidies. The gov should set the conditions for successful markets and let the invisible hand work. Six billion parallel processors can solve the problem far better than 250.

  • 3 Larry // Aug 10, 2009 at 6:40 pm

    So True I think that every time I see a “We’re green” sticker or commercial… lots of times its to encourage you to buy an inferior product for a higher price like charging extra for paper towels made from recycled paper… or water in bottles that are thin and cruddy because it uses less plastic…

    but to the question the product that comes to mind is Ethanol! If I read correctly one of the new bills proposed recommends increasing the amount required in gasoline but in the same bill postpones for 5 years funding for a study of whether it is actually beneficial to the environment and economically sound… it takes a huge amount of other forms of energy to create a gallon of ethanol not to mention the negative effects of pushing farmers to produce more ect… many people believe ethanol may actually be worse than using the fossil fuels (With current technology… there are good bio fuels but they can’t be mass produced atm from my reading… algal diesel is a good one and ethanol from sources other than corn are promising).

    Does anyone agree with me that government should take the time to study and see if what they propose is actually valid before spending trillions on it… like corn based ethanol?

  • 4 SteveO // Aug 10, 2009 at 7:14 pm

    If memory serves, I heard on a news podcast (I’m thinking this was The Economist) that there is a program (UN?) to encourage China to do away with coal fired plants.

    The problem is this, they pay China XX dollars to shut down a coal plant. Well, China just keeps building them down the road, and then shutting them down in accordance with the program. The value they get from the program is greater than the cost of building the plant and abandoning the space.

  • 5 Matt.H // Aug 10, 2009 at 8:04 pm

    Wired Magazine had a great feature on this theme four or five months ago (“Inconvenient Truths”) that provided some excellent fodder for analyzing externalities and costs/benefits of traditional “green” initiatives. Some critiques I found particularly interesting were those on organic farming, carbon trading markets and the essay pointing out that in many years Canada’s vast forests were net carbon producers because of all the old trees that were either rotting or burning in wildfires. Canada discovered this when they commissioned a carbon emissions study to search for offsets to the Kyoto Protocol-mandated responsibility to cut greenhouse gas emissions. Ironic.

  • 6 Melinda // Aug 10, 2009 at 9:34 pm

    If you think about it a little more, a forest can’t be a net carbon producer if trees photosynthesize. The maximum amount of carbon they can give off is what they contain, and this can only be offset by the amount of oxygen they emit while alive. Canada’s forests can therefore only be net carbon emitters if they are actually shrinking (and not regrowing).

    To solve global warming it does not make sense to target consumers and convince them to do whatever. It only makes sense to target producers and solve the externality problem.

  • 7 Larry // Aug 10, 2009 at 10:28 pm

    Forests can be a net Carbon producer because all trees do is sequester carbon but roots can dig down into peat and other sequestered carbon and pull that out or allow water and bacterium in ect and end result there can be periods when they release more carbon then they sequester but it should be cyclical… It doesn’t have to be shrinking for that to happen it just means its mature and can’t sequester any more carbon than is sequestered at present meaning that it will release some for a period and then sequester more in a cyclical fashion until something changes.

    My problem is that no one talks about the benefits of global warming. The earth has gone through ice ages and much warmer spells than anything that we are going to create and carbon levels have been astronomical at other times prior to man and everything worked out fine. I’ve read studies that showed that the USA would earn a net economic advantage from global warming… they gains would outstrip the losses.

    With warmer water and higher carbon levels many plants and animals actually thrive! My question is what will we do when we head into another ice age ( Global cooling a threat in the 70s) will we then subsidies carbon emission?

    BTW if you know economics at all you would know that controls at the producer level and the consumer level have the exact same impact! Its all about elasticity. You achieve the exact same result whether you put a tax on one party or the other because elasticity determines who ultimately pays the tax through price fluctuations.
    Which means with cap and trade you and I the consumer will pay the taxes not the big producers because they will all have an equal burden and our elasticity on that broad a range of goods will be much steeper than the producers… we can’t stop consuming things effected by carbon taxes… like electricity, heat, food and clean water… we will bear any costs placed on producers almost entirely with the slight exception that foreign produced goods will get a huge comparative advantage and so American business will suffer from that aspect.

  • 8 Melinda // Aug 10, 2009 at 10:54 pm

    My point is that we should tax factory emissions to provide proper incentives to producers to reduce emissions. Taxing final products by proper amounts to account for externalities is much more complicated, as you would have to know the production process of that specific good. Also, taxes on goods may have the effect of reducing quantity, but not reducing the PER UNIT pollution. The informational requirement for the average consumer to make a good decision is just too high.

    Arguing that pollution is good is like saying that smoking is good because it can help you lose weight if you’re fat. Besides, natural climate changes don’t occur over just a few hundred years. Evolution can’t keep up with such fast changes.

    Unfortunately international cooperation on climate change is much like a prisoner’s dilemma game.

    P.S. Are you willing to trade off better weather in the USA for desertification and sea level rise in other parts of the World? Seriously?

  • 9 Larry // Aug 10, 2009 at 11:09 pm

    haha nice logical posturing there. First off my point is that there simply isn’t sufficient proof that carbon is “pollution” in fact there is no solid evidence other than theory that people are the primary cause of the warming since it has happened in the past without us… and solar activity is a primary cause of global temperature change historically and it can change rather rapidly. Since the US is a major supplier of world food the real question might be would you prefer a world without starvation or sea level rise and desertification. Personally I’d rather everyone have food. I’m not claiming that will be the outcome I’m simply saying that science can’t rule it out as a possible outcome and therefore we are speculating here and this speculation is costing trillions of dollars that could be used for better things like a higher standard of living.
    Yes it is like the prisoners dilemma and if we went to zero emissions tomorrow the global emissions would climb because we would simply import from less concerned countries that pollute more than US companies and when I say pollute I don’t mean greenhouse gases although they put out more of those too. A domestic carbon tax will accomplish almost nothing on a global scale because US consumers will purchase the products from China or India and a higher carbon level then if they where made here not to mention the transportation. Instead of taxing carbon we simply need to find an alternative method for sequestering carbon without considering special interest… I’ve read about one company who is doing algal farms connected to a coal plant… they run the carbon dioxide heavy emissions from the coal through the algal reactors and sequester a huge amount of the carbon and then turn the algae into bio-diesel… thats the kind of things that we should focus on not the things that will cripple our economy and accomplish nothing. Technology is always the answer not taxes. Taxes drive revenue away from the problem.

  • 10 Melinda // Aug 10, 2009 at 11:19 pm

    I agree that we need to look for better technologies. For example we shouldn’t forget Malthus and his predictions; and how improved technologies solved that problem (and created others).
    I also completely agree that in no way should we reduce emissions to zero. By the way I was never was in terms of domestic taxes only.
    Do you think though that private markets will make the necessary investments in R&D for pollution reduction?

    p.s. I hope you didn’t find my comments insulting. (Yours are a little). 😉

  • 11 Larry // Aug 11, 2009 at 12:10 am

    Sorry I don’t mean to be insulting 🙂

    I’m not sure if privet industry will or not. I see that there has been a move that direction due to popular demand without government intervention and I think we need more hard data before we throw trillions at a problem. Have you read the book State of Fear? There may be a consensus that global warming is happening and that its man made but there was a consensus that the earth was flat what I haven’t seen is real hard irrefutable data. What I’ve seen is funding get pulled from research that opposes the idea. I’ve seen funding increases to groups that believe in it. I’ve seen propaganda like faith based assertions and emotional please but no solid proof not numbers for me to fight only speculation based on ambiguous computer models with assumptions that aren’t disclosed and instead of getting to argue against facts and science I find myself fighting against polar bear cubs on commercials and “consensus”. Thats why I come across as insulting sometimes again I don’t mean to and sorry if I sound that way but its frustrating to fight straw men all the time.

    Global warming might be man made and might not it might be a big problem and it might not and before we go revamping an entire global economy I just think I should get warm fuzzies in my tummy telling me that its legit. Remember the Ozone scare a while back… a hole in the ozone layer… it turned out that it was there always and had nothing to do with our involvement but we didn’t find that out till we banned CFCs… not that CFCs are good only that we acted on incomplete information. In the 70s scientists thought there was global cooling… what if we had starting subsidizing fossil fuel use to offset that? The problem is fluid at best. Scientists don’t tell you that temperature and carbon levels have a logarithmic connection not exponential and that the problem actual slows not explodes. The hockey stick graphs every sees isn’t scientific. Global warming science is pseudo science and many smart guys in the field… many meteoroigists don’t think it is legit… IE the founder of the weather channel and the 5000 other scientists that signed his petition a few years back calling it a fraud. I would like to see a real open debate on what the real costs are and not some computer assumption based test graph hundreds of years out that no one can refute because of the thousands of simplifying assumptions. Maybe prove that other variables like the sun isn’t causing the problem or IDK something so that we get a real handle on this an not just fear mongering. Everyone knows that Al Gore was dead wrong in his movie… what he projected can never happen scientifically. What we need is to use Coase. We need a real estimate of the potential damage and then we need to work to distribute the burden equally between those who will suffer from it and those who are creating it. We need real estimates of what would be acceptable conditions… real estimates of the cost to sequester CO2 and make some real considerations. Simply CO2 levels can fluctuate naturally greatly like through a major volcanic eruption and nature has dealt with that in the past so why not make it a science problem instead of a social engineering problem and just solve it? The biggest threat of Global Warming is that it is seen as a social and political issue from its inception and was never addressed first and for most as a science problem. This is fun 🙂

  • 12 graham // Aug 31, 2009 at 7:42 am

    Nice posting. One has observe how serious the global warming and then implement new ways. Thanks for posting.

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