18 April 2006

More energy obsessions.

I've been slightly obsessed with this energy thing lately. A previous post questions the effects our waste has on future generations. This is the classic negative externality. We benefit from energy production and we pay for that benefit, yet we do not pay for the negative effects that will accrue on future generations, and thus we produce more than the socially optimal level of pollution/fuel depletion. (note: perhaps socially optimal excludes future generations, but that doesn't seem socially responsible!)

There is another way to look at this. Perhaps the benefits of our energy production is not entirely consumed by us. A toy factory that will employ future generations is only economical to build today because of affordable energy. The toy makers increase the demand for energy and elicit more supply. Producing this supply causes pollution. It also allows the toy makers to operate, creating jobs not only today but the possibility of jobs for future toy makers.

So the next generation incurs some costs, (additional pollution, viewing a huge factory where there once was a beautiful meadow, etc.) and is not paid any compensation for such. Yet they also gain benefits, the availability of additional employment opportunities for toy makers. That is a positive externality; toy makers are paid nothing for providing this benefit.

Perhaps it can be said that future generation pay for these positive benefits by enduring the negative ones. The problem is that they choose neither which benefits they receive nor the costs they incur. To me this is a suboptimal outcome. Hence the delema: how much energy should we produce, using which methods, and to what extent must we allocate money/effort to mitigate pollution thusly caused?

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