Thursday, September 15, 2011

Economists Who Write Letters to Newspapers

I've always liked the letters to the editor that Donald Boudreaux posts to his blog.  He needs to reveal what % are actually published!  In my attempt to make my mom proud of me as a "public intellectual", permit me to point you to My letter in today's LA Times.

CEQA reform

Re "CEQA and the art of the deal," Editorial, Sept. 12

Is California's regulatory red tape inhibiting our growth and ability to make good-land use decisions?

The Times presents the California Environmental Quality Act's nuanced role as both a valuable tool for blocking destructive undertakings and a

vehicle for anti-competitive delays. But what regulator in Sacramento has the Solomon-like wisdom to balance the benefits of economic development against the costs of damage to environmental assets?

Instead, what if developers were required to post a bond to be held in escrow? The developer would lose this money if a panel of experts hired by the state determined that the project caused significant environmental damage. Projects posting this bond would be fast-tracked. Developers would gain certainty over the investment process while being put on the hook for malfeasance.

Matthew E. Kahn

Los Angeles

So, I'm trying to dust off the old idea of backloading expected punishment.  There is an averse selection issue here and moral hazard issue.  We want to implement those development projects that offers  private benefits and relatively low social costs.  Developers will try to emphasize the private benefits (which they internalize) and try to externalize the social costs.  My proposal of posting a bond would lead to developers only selecting those projects that they still believe are worth it despite the expected punishment.  Once they have selected their favorite projects and started implementing them, under my proposal they would have stronger incentives to take care in minimizing environmental impacts because of fear that they will pay for damage.

Now, who are these Ph.D. jurists who I will deputize?  The University of California is filled with honorable people who are experts and could be paid some reasonably low daily fee for serving on this jury.    If you reject my idea, then you believe that a jury and judges are "better judges" of tradeoffs than experts.  I disagree with that.