[extropy-chat] Externalities

[Adrian Tymes]

--- Mike Linksvayer <ml at gondwanaland.com> wrote:
> I don't recall where I read about it, but one scheme to facilitate
> development and compensate for negative externalities goes something
> like this:
> 
> Ask each resident or property owner how much they would have to be
> paid to allow a (e.g.) nuclear plant to be built within some
> distances
> from their locations, say 1km, 10km, 50km.  Given this information
> nuclear plant entrepreneur can decide where to build the plant and
> pay each entity the amount asked given the distance of the chosen
> location.  I don't recall how this system got people to reveal their
> true preferences or dealt with liars and holdouts (I require a
> payment of $1 trillion for construction of a nuclear power plant
> anywhere on earth).

More than just liars and holdouts, you also have people who say, "I
don't want one built anywhere ever again, and you can't pay me any
amount of money to change my mind."

Democracy deals with that by requiring majority (absolute, two-thirds,
mere plurality, or some other proportion relative to the severity of
the thing being decided) approval, thus unless there are a lot of
absolute holdouts (and in theory, if there are that many holdouts,
they'd have a good reason), one could buy approval.

Problem is, that then quickly gets into problems seen in the 18th
century and earlier with vote buying: the wealthy can often talk the
poor into approving things for a far lesser price than the
externality's actual long term cost to them.  (If you're starving, a
loaf of bread to keep you alive until tomorrow may seem worth any price
- even though you often have other options for mere survival.  But once
you do survive until tomorrow, you've already consumed your loaf of
bread, but that polluting factory next door is impacting your health,
driving you further into poverty.  In purely economic terms, the poor
would have given a loan at unfavorable odds to the poor person...but
unlike with banks and other financial institutions, the poor might not
accept full responsibility for their actions: they eat their bread and
blow up the factory that's smogging them out of house and home.)