3 Ways of escaping the Tragedy of the Commons
- Centrally Enforced Solutions
- Privatization
- Governing the Commons (Elinor Ostrom)
Definition of Centrally Enforced Solutions
- Price the externality: Find the optimal solution, charge an access fee equal to the total externality caused by an extra use
- Set legal limits on quantities extracted by each individual
Problems of centrally enforced Solutions
- Require knowledge and payoff functions and public observability of activities of each individual
- They require a non-corrupt central authority (includes that all must share the same understanding of the problem – climate change?)
- They require intelligent political decision-making by central authority
Definition of Privatization
Privatize the commons by assigning property rights to exclusive use
Problems of Privatization
- Privatization might postpone but not fully solve the problem (e.g. owner might extend to his/her generation but not preserve for future generations)
- Some global commons such as atmosphere or flowing water are difficult or even impossible to privatize
- Transferring property rights to a single owner introduces the holdout problem
How can common goods be governed in a sustainable way? (Governing the Commons (Elinor Ostrom))
- Clear boundaries (the “community” doing the managing must be well-defined)
- Reliable monitoring of the shared resource
- A reasonable balance of costs and benefits for participants
- A predictable process for the fast and fair resolution of conflicts
- An escaling series of punishments for cheaters
- Good relationship between the community and other layers of authority, from household heads to international institutions
Problem of Governing the Commons (Elinor Ostrom)
Very difficult to implement for common goods that transcend national boundaries
Financial Reporting
- quantitative using established key performance indicators (KPI)
- Short and medium term, i.e., quarterly results, annual results
- History & experience: 100 years
- Accounting Standards Board
Sustainability Reporting
- qualitative: less precise, may or not may be focused on outcomes
- Medium to long-term: 1 year and beyond
- History reporting: 20 years
- ESG is more complex and diverse
Why does EU change the NFRD?
- Voluntary reporting (before huge differences in ESG reporting)
- Subjective reporting (focus only on the negative points)
- Bring reporting to the next level
- Make applicable to more firms – critical mass for changing behavior
- Limited assurance – from reporting to action
Public policy
- Public Policy Inputs
- Public Policy Goals
- Public Policy Tools
- Public Policy Effects
Market Failure
Denotes the inability of the marketplace to properly adjust prices for the true costs of a firm’s behavior
Negative externality
When the manufacture or distributon of a product gives rise to unplanned or unintended costs borne by consumers, competitors, etc.
Natural Monopolies
Occur where a concentration of the market is acquired by a few firms due to the nature of the industry rather than because of company practices
4 Process steps to measure and manage impact
- Set Strategy – define target SDG outcomes
- Integrate – assemble resources, tools & processes
- Optimize – collect data & make decisions
4.Reinforce – shape process & deepen governance
ABC Goals
- Act to avoid harm
- Benefit stakeholders
- Contribute to solutions
