Environmental Decision-Making as Central Planning: FOR WHOM is Production to Occur? (Part IV of IV)

This is the final of four blogs in which I argue that Eastern Europe’s experience with central planning between 1950 and 1990 can provide us with important lessons about environmental decision-making. Whereas the preceding two blogs dealt with the determination of WHAT environmental amenities should be produced, and HOW; in this blog I remind readers that governments must also decide WHO is to receive those amenities.

In western economies, such as those of Canada and the United States, this decision is usually made in two stages. In the first, each individual’s income is determined, in part, through the operation of the labor market - where individuals are “rewarded” for investing in the appropriate levels of education and effort, for inheriting the desired set of genes, for living in the most successful regions of the country, etc. – and in part through transfers of income from their families and from the state. In the second stage, individuals use their incomes to “vote” in the marketplace for the goods and services that they prefer.

In an economy that was strictly centrally planned, however, the government would allocate all goods and services directly to individuals. Each individual or family would receive a defined allocation of food, clothing, housing, transportation, and services.

The problem that this raises for the planner is that consumers’ preferences vary widely: “one man’s meat is another man’s poison.” Whereas one person may be willing to trade off a larger car against a smaller apartment, his neighbor’s preferences might be the opposite. By allocating the available goods “incorrectly” among consumers, the planner may reduce social welfare substantially.

But how can central planners know which goods one person prefers and which are preferred by her neighbour? How can they know that A prefers corn flakes for breakfast while B prefers muffins? Or that B would like a new television whereas A would prefer a trip to Disneyland?

Questions such as these proved to be so complex that central planners gave up any pretense of attempting to answer them. Effectively, the rule for the vast majority of the populace became that everyone received the same allocation of goods – subject, of course, to bribery, corruption, and political favoritism.

What does this imply for environmental decision-making? Thankfully, in many cases, the allocation of environmental resources among citizens is not a difficult problem because many of those resources are “public goods.” When the government protects an endangered species, such as the spotted owl, for example, it is not necessary to “allocate” the benefits of that protection to specific members of society. All benefit equally.

Nevertheless, there are clear instances in which environmental policy benefits some members of society much more than it does others. Damming a river may create more benefits for boating enthusiasts than for hikers, and certainly creates more recreational benefits for those who live near the dam than for those who live far away.

Similarly, creating a park or a national monument, improving the quality of river water, or removing pollutants from an airshed will usually benefit local residents much more than it will those who live in other regions of the country. And some environmental amenities, such as recreation areas that are far from urban centers, may create more benefits for the rich (who can afford the costs of transportation to those areas) than for the poor.

Often – perhaps much more often than not – these distributional issues are ignored when environmental decisions are being made. My point in writing this blog was to argue that one of the benefits that arises from drawing an analogy between environmental decision-making and central planning is that these distributional effects are brought to the fore. These effects become one more issue that should be taken into account when designing an effective decision-making process: one more issue that leads environmental decision-making to be much more complex than is usually assumed by those who favor the use of techniques such as cost-benefit analysis or environmental impact assessment.

Comments

[John Whitehead]

Great series of posts.

[Dave Iverson]

I'll echo John Whitehead's comment: Nice posts.

The "What" "How," and "Who" questions remind me of my favorite question foursome that I daylighted in my mid-eighties plea for sanity in government decisionmaking, titled Economic Advice for Forest Managers.

In my version I ask these questions regarding efficiency: Efficient at what?, Efficient for whom?, Efficient for how long?, and Efficient by what standard?

I suggest, following advice from Garrett Hardin,that the questioner ask government officials "Efficient for how long?" repeatedly after each response. As Hardin tells us, it proves to be a useful way to draw out too-narrow framing in analysis.

The "How produced?" question, and relatedly "By whom produced?" have to be entertained as well as Chris aptly points out. It all tends toward complexity and political wickedness in practice (in the sense of wicked problems).

There are many parallels in our mixed economies that people are too-often prone to ignore when framing issues, problems, arenas, actors, and resolutions.