MARCH 27, 2015, Economic View By ROBERT J. SHILLER
Half of the working inhabitants of Copenhagen now commute by bicycle. A new theory suggests that persuading people to make such changes may be crucial to fighting climate change. Credit Johan Spanner for The New York Times
Idealism combined with an intriguing application of economic theory may accomplish what international conferences have not: solving the seemingly intractable problem of global warming.
Despite periodic flurries of optimism, diplomacy has been largely disappointing. The 1997 Kyoto Protocol, for example, in which many nations agreed to impose strict taxes on carbon emissions, hasn’t accomplished much. And subsequent climate conferences haven’t come up with an effective solution. Secretary of State John Kerry summed up the diplomatic landscape in December at the United Nations climate change conference in Lima, Peru: “We’re still on a course leading to tragedy.”
From an economic standpoint, international efforts until now have foundered on a fundamental “free rider problem.” In a nutshell, individuals and nations that bear the immediate costs of measures to protect the atmosphere will experience only a small fraction of the benefits, which are shared by all the people and nations on the planet. Why not just take a “free ride” and let others do the hard work?
In traditional economic theory, the benefits of reducing emissions take the form of an “externality,” meaning they are external to the local environment because they are spread over the whole world. Our own contributions are often too small to see or feel.
When the problem is an externality, it is, for the most part, futile to ask people to volunteer to fix it — by taking actions like car-pooling or riding a bike to work to cut back on emissions or, in the case of governments, by enacting laws and regulations.
Yes, some individuals with a strong moral compass will take action, and some nations will do so occasionally, but most people and countries will not do so consistently. That’s what the theory says, anyway.
But in a new book, “Climate Shock: The Economic Consequences of a Hotter Planet” (Princeton 2015), Gernot Wagner of the Environmental Defense Fund and Martin L. Weitzman, a Harvard economist, question that assumption. In a proposal that they call the Copenhagen Theory of Change, they say that we should be asking people to volunteer to save our climate by taking many small, individual actions.