Thursday, August 03, 2006

Cross-Country Environmental Comparisons

Internet news junkies love stories that show that one nation ranks poorly relative to other nations with respect to some measure of environmental sustainability (see www.yale.edu/esi/). But, how are these indices created and could they "cause" a behavioral change in the "dirty" nations?

Rankings are playing a growing role in capitalism. Look at Zagat's success in ranking restaurants or how much University Deans sweat U.S News Rankings of their school. Doctors are now being ranked with respect to their "batting average" on performing surgeries (i.e what % of operations turn out well --- this implicitly assumes that all operations are equally difficult or that patients are randomly assigned to doctors --- if the better doctors are assigned the harder surgeries then a naive index may yield false results about who are the "best" doctors).

Can Green rankings "green" the world economy?

I have always wondered how firms respond to the "day of shame" when the Toxic Release Inventory shows that they have high emissions relative to other firms. Greens will hope that these firms respond by changing their operations and reducing their emissions. How do we know that they don't engage in "accounting tricks" to simply lie and understate their true emissions?

Ideally, what the world needs is a trusted "environmental certifier" who could make spot audits both of companies and of national governments to see whether reported emissions factors indeed are accurate. KLD claims that they play this role but I have wondered if they actually do. What information do they collect about companies? How do they know a "brown" company when they see one? (see www.kld.com)

Ideally, the ESI would be used to identify "best practices" around the world. If nations such as Nigeria see that Finland is scoring high on some ESI subindex maybe Nigeria's government could contact Finland's government and a discussion could begin about what Finland could teach Nigeria and what technology transfer could take place. Prescott has stressed barriers to technology transfer such that the poor nation has stake holder whose livelihood is threatened by the transfer of new technologies. Would that issue arise here?

Can the rankings generate enough international shame to mobilize
countries? ---- I don't think so --- this is the same issue of boycotts. In any boycott there is a free rider issue. Europe may be upset about U.S greenhouse gas emissions per-capita but are they going to stop importing Hollywood movies to protest? Is it obvious that such a boycott (even if it could be achieved) would change U.S emissions production?

2 comments :

Milan said...

Rankings can also be misleading by downplaying the scale of differences between different ranked items.

For instance, the top twenty may all be very similar or they could be quite different. This cannot be determined from a simple ranking. The same is true for the bottom twenty and the distribution as a whole.

Carlos said...

In the case of the EPI and ESI the overall rankings are used primarily to catch people's attention. If the reader is genuingly interested in the indexes he/she will take the time to engage the indicator by indicator rankings.