Economists praise the efficiency of private competitive markets. Perfect (or is it pure?) competition requires that both buyers and sellers have all the relevant information necessary to make rational choices that lead to efficiency (i.e., the difference between benefits and costs is maximized). As the U.S. Senate passes a climate change resolution that acknowledges the science that people are contributing to the problem and that people should change their fuel inefficient behavior, at least a little bit, the insurance industry (i.e., a private market) makes the same case. From the WSJ's The Morning Brief:
The Association of British Insurers plans to argue today that the world-wide cost of big storms will become more frequent because of climate change and is likely to rise by two thirds to £15 billion ($27.23 billion) a year in the next seven decades, the Financial Times reports. Nick Starling, the industry group's director of general insurance, will urge the leaders of the Group of Eight industrialized nations to take action on emissions of greenhouse gasses when they meet to discuss climate change next week. "Governments now have a chance to make rational choices for the future before it is too late," he will say, according to the FT. Making the right decisions based on assessment of the costs of climate change "will ensure lower costs for the public in [the] future."
One interpretation of this development is that some private market participants are beginning to believe the climate change science. The insurers' recommendation is simply that government should regulate industry/consumers that produce greenhouse gas emissions because they believe the benefits of regulation exceed the costs to industry and consumers. When private market participants buy in, should government decision maker's, who preach the virtues of the market, buy in as well?
I hate ending with a rhetorical question, so here is some recommended reading on climate change econ received from the RFF connection email:
With climate change high on the agenda at the forthcoming G8 summit in Scotland and climate legislation now being debated in Congress, four RFF experts share their views on life post-Kyoto in “Where do we go from here?” -- a just-published series of articles in Resources magazine, where they examine the business, international, and domestic angles of this contentious issue.
To view these Resources articles, along with other RFF work on climate change, please visit www.rff.org/climatechangeafterkyoto.
