Free Rider Problem Slowing Down Climate Change Progress

by Chloe Rodman

Yale University economist Robert Shiller (2015) explains how global warming can be slowed by a combination of idealism and economics in his article “How Idealism, Expressed in Concrete Steps, Can Fight Climate Change” for the New York Times. Little progress has been made regarding climate change and global warming. There have been many international conferences in the past few decades but they have been relatively unsuccessful in creating reasonable climate solutions or taking action. Economists have cited externalities as the cause for such large-scale inaction. People and governments have been unresponsive when asked to counter the negative externalities of climate change, such as pollution, by bicycling to work, turning off lights, creating regulation laws, or implementing other sustainable actions. However, in the rare occurrence that communities or people do decide to act, the positive externalities of these actions are consumed by free riders. The free-rider problem has been significant, where the benefits (cleaner air, for example) of sustainable actions are shared by every nation and every person, but the costs rest solely on the shoulders of people who decide to make a change in their daily lives. This free-rider problem reflects traditional economic theory, which states that most citizens and nations will decide not to make a change, because they believe that they can benefit from the change the few are making with no cost to themselves.

However, two individuals have questioned this portion of the theory recently. Harvard economistic, Martin Weitzman, and environmentalist, Gernot Wagner, created the Copenhagen Theory of Change, which elaborates on the idea that change will come from asking people to save the world through small actions. The theory is named for the phenomenon in Copenhagen, Denmark. Since the oil crisis of the 1970’s, over half the city’s population rides bicycles instead of driving cars. The citizens of this community believe that they have a social responsibility to limit pollution and bike to work. This social responsibility induces a social pressure to bike as well, as the majority of people participate in biking rather than driving. In fact, so many residents participate that they have eliminated the free-rider problem in the area.

Other tactics are being used to encourage more sustainable actions. Ethical investing is growing, where investors will not invest their money in companies who are not environmentally friendly. The president of the American Economic Association, William Nordhaus, proposed another idea: climate clubs. These climate clubs would consist of a group of nations that pledge to create incentives for their citizenry to cut back on greenhouse gas emissions in addition to raising tariffs on imports from countries that are not in one of these clubs. The clubs will grow as non-club participants see the advantages of membership. The Economic Theory of Clubs assumes that members in the clubs are completely self-interested but in this case, there must be an exception. These clubs will trigger a sense of global community and responsibility and will use these feelings to create a healthier world.

 

Shiller, R. 2015. How Idealism, Expressed in Concrete Steps, Can Fight Climate Change. The New York Times. http://www.nytimes.com/2015/03/29/upshot/how-idealism-expressed-in-concrete-steps-can-fight-climate-change.html?_r=0&abt=0002&abg=0

 

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