Tuesday, August 7, 2012

BATNA vs. NIMBY: Elites and Externality Compensation

People like getting a good deal. Paying less than your reserve price for something you want is one of life's little pleasures, and I'd be receptive to the hypothesis that part of the history of Western Civilization, particularly following the Industrial Revolution has been one extended effort to deliver this pleasure to the good people of the earth. In my own lifetime, I've seen cinematic film transform from something I'd enjoy maybe a few times a year in a smoky theater (yes, I'm old enough to remember when it was permissible to smoke in movie theaters) to an embarrassment of riches: open up my Netflix account and there sits a dizzying array of movies of all description.

Or coffee. Remember when coffee was the same black sludge everywhere you went, drip-brewed and stored at scalding temperature in an unwashed tureen? I sure remember those days, and un-fondly as I sit here nursing a cup of Kenyan highland that was roasted not two days ago within walking distance of where I sit. Coffee not your thing? Maybe you're a gamer. When I was a boy, I had the fun of watching Frogger give way to the classic Mario games. I recently had the strange joy of complaining softly to myself about the first DLC for Skyrim, Dawnguard. That's right, I complained (a little bit) about a game that lets me navigate my amazingly customized character around a near-photorealistic landscape battling dragons, vampires, werewolves, trolls and the dessicated undead, pausing occasionally to, if the mood so struck me, chop wood, cook, smelt iron or decorate one of my several homes. If you would have shown the seven-year-old me a copy of Skyrim, I wouldn't have recognized it as a video game. It would have been like those apocryphal tales of the natives of Hispaniola who were unable to see Columbus's arriving ships, as ocean-going vessels were so far outside their ken. Modern video games would have been magic as recently as 30 years ago. Try this for a fun exercise. Meditate for a minute on what you remember from sometime in the Reagan administration, then watch this:

Yes, that's in-game footage. That's the character you control. Mesmerizing.

It doesn't have to be amazing video games; pick your poison here. Shoes are better and cheaper, same for cars, air travel, snow sporting gear, parachutes, firearms, home telescopes... you can pick products and services almost at random to make your own list. There's this deep, atavistic desire to capture what economists sadly refer to as "consumer surplus", which means both getting something you want and avoiding as much cost as possible.

Thus NIMBY, another cute five-letter acronym that stands for "not in my back yard". We like using electricity, but we don't like the pollution it generates. We like crime-free cities, but we don't want new prisons built within our hitchhiking radius. We like air travel, but we bridle when someone suggests new airport construction in our neighborhood. Sure, new home construction is faboo, but harvesting wood in our beautiful Pacific Northwestern forests will simply not do.

 Is NIMBY compatible with euvoluntary exchange? Let's work through a stylized example and see what we find.

Imagine an island with two tribes living on it, the Snoots and the Garbs. The Snoot tribe is pretty well-off: they've got running water, plenty of fish, productive gardens, and low infant mortality. The Garbs are notably poorer: they eat mushrooms and tree bark and drink from the same mud puddles that they wash their children in. Both tribes decide to have a moot to discuss construction of an abattoir that will benefit both tribes. Because the Snoots are better at animal husbandry and fishing, we'll say they benefit by 500 clams per year. The Garbs are less productive, so they'll only benefit 100 clams per year. Unfortunately, the facility will generate 300 clams per year of dangerous, disgusting runoff. From the point of view of either tribe, they'd rather have the abattoir built on the other side of the island.

If the two tribes negotiate as political equals, they should be able to find some allocation that is fair and mutually beneficial. For example, they might build on Garb land and the Snoots would pay an annual stipend of 350 clams to the Garbs. That way, each tribe would be better off to the tune of 150 clams per year. And best of all? They did it euvoluntarily.

But what happens when the Garbs cry NIMBY and block construction? Unhappy with diffuse benefits and concentrated costs, all that surplus is destroyed. Worse yet, the Snoots bristle and build the plant anyway, this time protected by armed goons and rescind the compensating differential.

Now, this island may not have all that much to do with what goes on in the real world, but it doesn't take a particularly long memory or deep legal scholarship to recall specific examples of abusive eminent domain cases or shady buyouts. The GTM recently visited the Puget Sound area, my old stomping grounds. King County and its environs sport an impressive record of land use restrictions, much of it grounded in NIMBY reasoning. Some of this is entirely reasonable, since many of the projects undertaken in Washington in the 50s ended up having drastic unintended consequences decades later, uncompensated consequences that current residents have to pony up for. One of the nastiest Superfund sites in the continental US is a stone's throw from my undergrad campus in Tacoma.

However, as understandable as it might be, by reconsidering the terms of negotiation, political entities might be able to increase the extent of euvoluntary exchanges that occur. Negotiation is preferable to outright veto, I think. It's more euvoluntary that way.

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Do you have suggestions on where we could find more examples of this phenomenon?