Sunday, 30 April 2017

Convivial costs

This is a brief addendum to my earlier essays on Conviviality and Good Governance.

In writing my recent paper about diesel cars, I found myself using the idea of “social cost.” The Business Dictionary defines this as “the expense to an entire society resulting from a news event, an activity or a change in policy.” Wikipedia calls it “the private cost plus externalities.” An externality from something is a cost or benefit that affects a party, who did not choose to incur that cost or benefit.

This set me thinking about how a convivial order, which includes a minimal system of good governance, would deal with such costs. (I’m assuming that an unintended benefit to others, or positive externality, wouldn’t require any action by anyone – except that the doer might choose to stop doing it.) The most obvious example of such a cost is the cost to others of pollution, such as air pollution, water pollution and noise pollution. But it can also be applied to other activities, such as the cost to innocent individuals of bad, politicized regulations and taxes. In this paper, however, for simplicity I’ll use the word “polluter” for the party causing such a cost.

In my earlier thinking, I had assumed that things like a small amount of unintentional pollution could be traded off against small inconveniences that we all cause to each other. But the example of pollution from diesel cars convinced me that it’s a little more complicated than that. Good governance will have to be able to deal with negative externalities, after all.

In a convivial order, there’s no such thing as social responsibility. This is because the convivial order is logically prior to any particular society. And thus, in a convivial order there can be no such thing as social cost. But each individual in the convivial order does have a responsibility to all other individuals; not to harm them unjustly. Thus, where a negative externality exists in the convivial order, I’ll call its associated cost the convivial cost.

Convivial costs will not always lead to a requirement to compensate. Often, the amounts will be simply too small to be worth pursuing. But when compensation to the victims is justified, it may or may not be accompanied by a “cease and desist” requirement. If there is no component of intent or bad faith, then such a requirement, I think, should not be levied if the cost to the polluter of doing so would be greater than the costs at issue. It doesn’t make any sense to require scrappage of a car worth £10,000 in order to save £27 worth of pollution a year! Better to pay £27 a year to the people affected by the pollution. So, if the polluter cannot cost effectively abate the externality, the compensation may need to be recurrent.

Convivial costs are of several types. The simplest case is where there is a single polluter and a single victim. In this case, all that is needed is to estimate the cost accurately, and to determine whether, and if so how much, compensation must be made. A harder case is with a single polluter and multiple victims. In this case, it will be necessary to apportion the compensation between the individuals affected, each according to their situation. Harder still is when there are both multiple polluters and multiple victims. Not only must the costs of the pollution be assessed for every single polluter, according to his situation. But also the compensation must be apportioned between all the victims.

In practice, with a situation such as pollution from diesel cars, the polluters would be divided into groups according to how much pollution their cars produce. And the victims would be divided into groups, according to the areas in which they live and how close they are to major roads. The role of good governance in the process then becomes, as I said in the diesel cars paper, a router; making sure the right amounts are collected from the right people, and the right amounts are distributed to the right people.

In good governance, what would trigger a court to investigate a claimed externality? I expect this would usually be through some kind of “class action” suit brought by representatives of the victims. And what would the court do? One, it would identify the polluters, and group them according to their level of pollution. Two, it would identify the victims, and group them according to the level of loss – for example, an increased chance of death or illness – they suffer. Three, it would decide:

  1. Whether the matter is sufficiently grave to lead to a need for compensation.
  2. If so, for how far into the past compensation should be paid.
  3. Whether or not “cease and desist” is appropriate.
  4. Whether the compensation should be one-off or recurrent.
And the court would apportion the costs accordingly.

All this will require considerable scientific and technical expertise, which the court will have to commission. The cost of this expertise will need to be included in the costs to be paid by the losing side. But, in complete contrast to today, the process will be completely objective and apolitical. And the outputs of the technical labours, including the justifications for the numbers, will be made available to both sides in the dispute, and to the public as a whole.

Under good governance, there will be no zealots trying to hype issues such as these, or vested interests trying to block just compensation. And there will be no greedy politicians with their hands in the till. Wouldn’t that be a far, far better system than what we suffer today?

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