Monday, September 17, 2007

Quote of the Day

From Stephen Colbert, on the Colbert Report:

"As I said before, Al Gore's movie made money, and therefore global warming must be real. The market has spoken."

Obviously Colbert was being sarcastic, but there is something to be said for this. If I put on my pathological (to borrow a description of economists from Greg Mankiw) economist hat for a second, I start thinking about why global warming is problematic in the first place. (I admit that this is a different question than that of whether global warming exists scientifically.) On a basic level, global warming is problematic because it imparts a cost on people. But how much of a cost? If people are sufficiently rational, the cost of global warming can (theoretically) be estimated via the answer to one of the following questions:
-- How much would you be willing to pay to make global warming go away?
-- How much money would you have to be paid in order to be willing to sit back and let global warming take its course?
Unfortunately, there are a number of problems with this. First, people won't always "put their money where their mouths are" in line with their answers to hypothetical questions. Second, people typically don't even give the same estimates in response to the two questions above, even though they are objectively identical to a first approximation. Lastly, funding the problem of global warming has big potential for free-riding, so people may understate their willingness-to-pay under the assumption that others would pick up the slack.

All of that said, the fact that people are expending resources to at least learn more about global warming suggests that it's a materially real problem for a lot of people. Indeed, the market HAS spoken.


Charles said...

I thought I saw an article on this very topic recently, but I cannot seem to find it. While searching, I came across this offbeat article.

Apparently, people will tackle global warming for as little as $1.30 (US dollars). People can put money where their mouths are and be able to eat at a discount too! As you said before, it's all about having the right incentives.

Half-price Big Mac to fight global warming proves big hit in Japan

Dagny said...

I think this post could learn a little bit from the one above, concerning people's irrational preferences. You overestimate how much the "market" has really expressed concern about global warming and, instead, simply replied to the baseless and unscientific hype being pushed by opportunistic attention-seekers.