According to one commentator, “Climate change is a collective action problem par excellence.”
The appeal of this analysis is clear. In 1965, Mancur Olson in The Logic of Collective Action argued that when each individual acts on self-interest, for example, to “free-ride” on the more socially motivated action of others, public goods will not be produced.
Olson wrote, “Unless the number of individuals in a group is quite small, or unless there is coercion or some other special device to make individuals act in their common interest, rational, self-interested individuals will not act to achieve their common or group interests.”
In a much-cited article popularizing this analysis, Garrett Hardin argued that the rational proclivity of each individual to exempt him or herself from cooperation (to “free ride” on the rest) made the destruction of public goods, such as a common field on which cattle graze, the likely result of liberty: “The only kind of coercion I recommend is mutual coercion, mutually agreed upon by the majority of the people affected” to preserve or provide or manage a public good or resource.
A little reflection, however, suggests that the “tragedy of the commons” analysis does not fit the problem of climate change.
Tragedy of the Commons
In the typical collective-action problem, such as managing a commons or preventing defections in a “prisoner’s dilemma” game, each person will gain if all cooperate and all will lose if each acts in his or her own individual self-interest.
In the case of climate change, however, one group, that is, people alive today and through the next generation, would make significant sacrifices, for example, by forgoing the consumption of inexpensive fossil fuels. A completely different group, whom one might call “posterity,” will benefit.
Furthermore, people today and people of future generations have no way even in principle to bargain with each other to influence each other’s behavior. We cannot even trust future generations to maintain what we protect for them; they could for their immediate benefit undo the good effects of whatever sacrifices we make for them.
Metaphysics, Not Markets
Law professor Jedediah Purdy has written, “Climate change threatens to be, fairly literally, the externality that ate the world.” By an “externality” is meant a cost (or it could be a benefit) one party places on another without his or her consent or, more generally, without bargaining about it.
In an influential analysis, Ronald Coase argued that the fundamental reason that externalities arise lies in the costs affected parties would have to bear — the transaction costs — to bargain, that is, to enter or influence the activities or decisions that affect them.
What story about transaction costs or bargaining costs explains climate change as a market failure? With climate change the problem is that the vast preponderance of victims do not yet exist and thus that the concept of a transaction cannot apply. We cannot make transactions with future generations.
This has to do with metaphysics, not with markets. Because no one can tell a plausible story about market exchange or transaction costs with future generations, no one can show that climate change is an external cost resulting from a market failure. No market can be conceived in which transactions could take place.
The essential problem is that future generations necessarily play an entirely passive role in our decisions. We can affect them, but they cannot affect us. They are epiphenomenal. This is what makes a market analogy — the idea of market failure — a poor model for climate change.
Since future generations do not exist, they cannot pay for anything. Nor can they accept payment. Nor, probably, will they be able and thus willing to pay us anything when they come into being because they will not be able to find us or by that payment alter what we had already done.
The non-existence of future generations may make them impervious to a “market failure” analysis of their plight. With future generations, no possibility of exchange exists and thus no possibility exists that markets could fail or succeed in maximizing the benefits of trade with them.
One might offer as a possible exception super-durable goods — that is, goods that are expected to last a century or more. Climate change, assuming it hits full force in 100 years, could in theory affect the prices of these goods today, in the expectation that intermediary buyers will successively bid less for them. (This argument would not be relevant to consumer goods such as cars or refrigerators, the value of which quickly depreciates, or to pure investment vehicles such as gold, the value of which is unaffected by weather.) It is an empirical question whether the price of any goods today, even super-durable ones, are affected by the wrath to come, but even if they are, the owners of these goods are too few and their economic interests too small to pay everyone else to make the sacrifices needed to mitigate climate change.
To enter the interests of future generations into cost-benefit analysis, one would have to know their willingness to pay for our sacrifices or their willingness to accept compensation, for example, in terms of the social and technological benefits they may enjoy if we grow rather than shrink our economy. The concepts of willingness to pay and to accept compensation are imponderable in this context.
“The earth belongs in usufruct to the living,” Thomas Jefferson wrote to James Madison in 1789. He also wrote that “between generation and generation there is no municipal obligation, no umpire but the law of nature. We seem not to have perceived that, by the law of nature, one generation is to another as one independent nation to another” and not as individuals who can contract with each other in markets under rules that make exchange between them possible.