1
Q
Who argued that society sets the rules for businesses but firms can operate freely within those rules?
A
Milton Friedman
Friedman believes businesses must focus on profit maximization while adhering to societal rules.
2
Q
What does Friedman consider not to be part of Corporate Social Responsibility (CSR)?
A
- Hiring workers struggling to find jobs
- Reducing pollution beyond regulations
- Buying domestically produced goods
- Making donations to communities or charities
Friedman argues these actions do not align with profit maximization.
3
Q
According to Friedman, pursuing social responsibility beyond profit maximization is a form of __________.
A
taxation without representation
(people are forced to pay taxes to a government that doesn’t give them a voice)
He believes that profit maximization leads to Pareto efficiency.
4
Q
What are the two types of market failure emphasized by Kenneth Arrow?
A
- Negative externalities
- Asymmetric (imperfect) information
Arrow highlights pollution and information disparities between firms and consumers/workers.
5
Q
What are potential solutions to market failure?
A
- Regulation
- Taxes and subsidies
- Legal responsibility
- Government-produced goods
- Industry-led solutions
These solutions aim to address issues like pollution and public goods.
6
Q
What does CSR capture regarding business responsibility?
A
Responsibility to the environment, stakeholders, and broader society
CSR involves balancing profit with social and environmental considerations.
7
Q
What is shared value in the context of CSR?
A
Firms benefit financially from CSR initiatives
Companies with consumer brands often find it easier to create shared value.
8
Q
What does ESG investing refer to?
A
Investing in firms that score highly on an ESG index
ESG investing incentivizes firms to engage in CSR.
9
Q
What is the triple bottom line approach?
A
- People
- Planet
- Profit
This approach expands business objectives beyond just making money.
10
Q
What are the four justifications for CSR according to Michael Porter?
A
- Moral obligation
- Difficulty balancing competing values
- Sustainability
- Freedom to operate
These justifications highlight the complexities of CSR in business strategy.
11
Q
What is the dominant winner paradox in a proportional system?
A
A party can win a majority of seats while receiving less than a majority of the total votes
This phenomenon can lead to electoral outcomes that do not reflect the overall electorate’s preferences.
12
Q
What are the two forms of democratic decision-making?
A
- Direct (pure) democracy
- Representative democracy
Each form has its own mechanisms for citizen participation.
13
Q
What is rent-seeking?
A
Using resources to redistribute wealth rather than create new wealth
This process can lead to inefficiencies and wasted resources.
14
Q
What are some challenges for democracy?
A
- Conspiracy theories
- Illiberalism and authoritarianism
These challenges can undermine democratic processes and citizen engagement.
15
Q
What is gerrymandering?
A
Manipulating electoral boundaries to favor one party
This practice can distort electoral outcomes and undermine fair representation.
16
Q
What is the median voter theory?
A
The winning party’s policies tend to align with the preferences of the median voter
This theory explains how political parties adjust their platforms to appeal to the majority.
17
Q
What is the significance of property rights in a liberal democracy?
A
Protects owners and investors from exploitation
Strong property rights are essential for economic stability and growth.
18
Q
What is voter suppression?
A
Discouraging or preventing specific groups from voting
Tactics like banning voting on certain days can disproportionately affect certain demographics.
19
Q
Examples of environmental externalities
A
- Oil sands leak cancer-causing chemicals into downstream water supplies
- Air pollution caused by automobile exhaust and industrial emissions
- Acid rain caused by automobile exhaust and industrial emissions.
- Ozone depletion is caused by chlorofluorocarbons (CFCs) which are used for refrigeration, foam, packaging, and aerosol cans.
Global warming due to greenhouse gases (carbon particles from fossil fuel combustion).
20
Q
Pollution is bad. The optimal amount must be zero. Right?
A
Usually not. Pollution is a by-product of activities that create desired goods.
21
Q
What are some examples of abatement
A
Installation of scrubbers
Waste treatment.
Carbon capture, utilization, and storage (CUSS).
22
Q
What does the Private Marginal Benefit of abatement mean?
A
Note that DWL of under-abatement.
23
Q
Solutions to environment externalities
A
Property rights or internalizing the externality via unfired ownership (mergers)
Legal remedies (torts) and regulation (quantity controls or standards)
Taxes on polluting activities
Subsidies for abatement technologies
Creation of a market: tradable permits allocate “pollution rights” that can be priced and traded (“cap and trade”)
Social responsibility. Utilitarian ethics
24
Q
Cap and trade
A
Government can reduce DWL associated with pollution by setting a maximum overall amount and issuing pollution permits
Like a quota, but firms can trade their pollution rights.
Incentivizes pollution reduction, as firms that can easily reduce emissions can do so and seel their permits
Different options for initial distribution (auction or grandfathering), however, increase efficiency regardless of initial distribution options
Makes sense when firms differ in their marginal benefits and costs of emission
25
Pigouvian taxes
BC has been very progressive by creating a carbon tax.
26
Setting the right tax
Recall that an externality is caused by SMC > PMC.
27
Setting the right tax
SMC = PMC+X, where X is the external damage cost.
28
Setting the right tax
Suppose we set a pollution tax of t = x.
29
Setting the right tax
Then the new effective PMC becomes PMC+t=PMC+X. PROBLEM SOLVED.
30
Setting the right tax
However it can be difficult to measure x!
31
Setting the right tax
Note that taxes will not be effective if demand is inelastic (e.g a lack of substitutes) and there are often fairness issues (relatively high costs to low income earners).
32
The geography and jurisdiction of externalities
An important difference between pollution externalities is whether they are local or global.
33
The geography and jurisdiction of externalities
Particulate air pollution: mainly local.
34
The geography and jurisdiction of externalities
Acid rain: cross-border.
35
The geography and jurisdiction of externalities
CFCs and GHGs: global.
36
The geography and jurisdiction of externalities
With global externalities, even rational governments may set taxes too low.
37
To respond to global externalities
we usually need global agreements (sometimes called protocols).
38
Sustainability and the environment
And now for something completely different! Sex, aliens and cannibalism!
39
History of Easter Island
400AD - Small group of Polynesians ’settle’.
40
History of Easter Island
1100 - Moai carving begins.
41
History of Easter Island
1400 - Population peaks at 10,000.
42
History of Easter Island
1500 - Moai carving abruptly stops. Strong evidence of cannibalism.
43
History of Easter Island
1550 - Population unknown, possibly ∼ 500.
44
History of Easter Island
1722 - First contact with Europeans. Population ∼ 3,000.
45
History of Easter Island
1774 - James Cook arrives. Population 2,000.
46
History of Easter Island
1862 - Population 3,000. Slave traders invade, take 1/3.
47
History of Easter Island
1870 - Some slaves return and bring smallpox.
48
History of Easter Island
1877 - Population 111.
49
What happened to the Rapa Nui people on Easter Island at around 1500AD?
Forest timeline: 400AD - Island is a forest.
50
What happened to the Rapa Nui people on Easter Island at around 1500AD?
900AD - Forest reduction notable.
51
What happened to the Rapa Nui people on Easter Island at around 1500AD?
1400 - Forest entirely gone.
52
What happened to the Rapa Nui people on Easter Island at around 1500AD?
The islanders ate mostly fish and birds. The birds nested in the forest. Some agriculture. The islanders used wood for: Building and moving Moai, Housing, Canoes and fish entrapments, Tools, Firewood.
53
Why only Easter Island?
Relatively cool climate, less rainfall.
54
Why only Easter Island?
Jubea Chilensis is dominant species of palm tree.
55
Why only Easter Island?
40-60 yrs to reach fruit-growing stage.
56
Why only Easter Island?
Rest of Polynesia: Warmer climate.
57
Why only Easter Island?
Cocos (coconut palm) and Prichardia (Fiji fan palm) are dominant.
58
Why only Easter Island?
7-10 years to reach fruit-growing stage.
59
A Simple ‘Population’ Model
In order to think about renewable resources (think fish, trees, etc.) we need a simple model that captures the following sequence of events: To start with a entity reproduces without competition.
60
A Simple ‘Population’ Model
With more of the entity, there is more reproduction.
61
A Simple ‘Population’ Model
Crowding effects kick-in: newborn entities must compete with large existing entity stocks for survival.
62
A Simple ‘Population’ Model
Eventually the stock of entities reaches its maximum size where growth is zero. This is called the ‘carrying capacity’.
63
Doing the math
Suppose: G is the growth (births - deaths) of a stock S r is the intrinsic growth rate of the stock (absent ‘competition’) K is the carrying capacity G S is the growth-rate of the stock M is the point where the crowding effect is such that the change in the growth amount is zero.
64
Harvest Equilibria
We could harvest at a amount H1 at stocks SL or SH, or at a amount H2 at stock level M. All three appear sustainable as the harvesting is equal to growth.
65
Harvest Equilibria
However, Harvesting H1 at SH is stable. If there is a shock that reduces stocks, the growth amount is above the harvesting amount and the equilibrium will self-restore.
66
Harvest Equilibria
Harvesting H1 at SL is unstable. If there is a shock that reduces stocks, the growth amount is below the harvesting amount the stock will be driven to extinction.
67
Harvest Equilibria
Harvesting H2 at M is semi-stable. If there is a shock that reduces stocks, the harvesting amount will exceed the growth amount and so in the next period the stock will fall again unless the harvest is dramatically reduced.
68
Factors Affecting Harvest Choices
What are the factors we should consider? What’s the intrinsic growth rate? High for fish, medium for trees, very, very low for oil.
69
Factors Affecting Harvest Choices
How big/common are the shocks and how good/costly is the monitoring?
70
Factors Affecting Harvest Choices
Is it economic to use the resource? (harvesting costs high, demand low)
71
Factors Affecting Harvest Choices
Is it economic to save the resource? (harvesting costs low, current value very high, growth rate low)
72
Factors Affecting Harvest Choices
Should we fully deplete it? Cyclical management: we might want to over-harvest some years and under-harvest other years.
73
Why did we deplete the Grand Banks to zero?
Tragedy of the Commons: Lack of property rights leads to an over-use of a common resource.
74
What happened to the Cod?
1. Tragedy of the Commons: Over-grazing by countries of a shared resource.
75
What happened to the Cod?
2. Property-rights assignment: In 1977 national jurisdiction extended from 12 to 200 miles from the coast.
76
What happened to the Cod?
3. Open access problem: Harvests are hard to control if preventing access and policing is difficult or impossible.
77
What happened to the Cod?
4. Information problems: We didn’t know the size of the resource (or the size of its shocks).
78
What happened to the Cod?
5. Transfer-seeking: Atlantic-Canada lobbies for greater fishing quotas. Spanish fishermen fish Canadian waters (stealing).
79
What happened to the Cod?
The cod fishery was closed in 1992. Fish stocks started to recover but fishing has resumed and stocks have been stagnant since 2017.
80
Key lessons
With renewables, sustaining the resource is possible, but requires careful management.
81
Key lessons
If harvests remain persistently over the “tipping point” the resource stock will collapse (as seen with Grand Banks cod).
82
Key lessons
Exercise caution: stocks are hard to measure, harvests hard to control. Keep H ≪ G¯ and S ≫ M.
83
The natural resource industry accounts for 17% of Canada’s GDP.
The CIA Factbook lists 18 natural resources for Canada: iron ore, nickel, zinc, copper, gold, lead, rare earth elements, molybdenum, potash, diamonds, silver, fish, timber, wildlife, coal, petroleum, natural gas, hydropower.
84
How many of these are considered renewable?
Non-renewable resources.
85
Fossil fuels and minerals do not renew themselves in human time frames.
Thus it is impossible to exploit them in a way that sustains the stock for future generations.
86
Sustainable standard of living: (Hartwick’s rule)
requires investments in productive assets to make up for resource depletion.
87
Hartwick’s Rule, Norway & Alberta
The goal of Hartwick’s rule is to keep the citizens from falling into poverty when natural resources are exhausted.
88
Hartwick’s Rule, Norway & Alberta
Invest all the surplus profits generated by resource extraction into various forms of capital.
89
Hartwick’s Rule, Norway & Alberta
Norway’s Government Pension Fund Global is funded by Norway’s oil export revenues.
90
Hartwick’s Rule, Norway & Alberta
In 2021 it was worth $1.3tr, or $248,000 per Norwegian citizen.
91
Hartwick’s Rule, Norway & Alberta
Alberta Heritage Savings Trust Fund has just $17bn, about $3,900 per person.
92
Thomas Malthus
Key point: Population grows geometrically whereas food production increases arithmetically.
93
Population pt = 2pt−1 . . .
2 4 8 16 32 . . . Food ft = ft−1 + 2 . . . 6 8 10 12 14 . . . (1) Population grows until it can’t feed itself.
94
What acts as restraining mechanisms?
War, pestilence and famine.
95
Have we escaped the Malthusian Trap?
Birth-rates lower due to improved healthcare, nutrition, educated parents, etc.
96
Have we escaped the Malthusian Trap?
Technological improvements to food production.
97
Have we escaped the Malthusian Trap?
Better institutions to prevent war.
98
Have we escaped the Malthusian Trap?
Medical developments to reduce disease.
99
World population has increased
Your Mineral (metals and fuels) Use 3.7m lbs = 1,650 tons 50 students × 1,650 = 82,500 tons.
100
The uss orrestal
Total displacement: 59,650 tons.
101
Carrying Capacity of Planet Earth
What’s the carrying capacity of humans on planet earth? Estimates vary wildly: 4b-16b, median of 10b (UN 2001).
102
Carrying Capacity of Planet Earth
With resource depletion, typical estimates are 1b-4b.
103
Carrying Capacity of Planet Earth
Even within carrying capacity: animal and plant species will go extinct, certain resources will be consumed to zero, etc.
104
Carrying Capacity of Planet Earth
Probably we are already exceeding the carrying capacity and so placing population stresses on our species. If not we surely will do in our lifetimes.
105
Introducing the Prophets!
William Vogt and the modern environmental movement.
106
Introducing the Prophets!
Only reducing consumption and limiting population will save us.
107
Introducing the Prophets!
Affluence is not our greatest achievement but our biggest problem.
108
Introducing the Prophets!
Unless we change, the unavoidable result will be environmental destruction.
109
Introducing the Prophets!
Cut back, cut back!
110
Introducing the Wizards!
Norman Borlaug and the Green Revolution.
111
Introducing the Wizards!
Science and technology, properly applied, will save us.
112
Introducing the Wizards!
Green movement of 1960s: High yielding crop varieties and agronomic techniques increased grain harvests averting tens of millions of deaths.
113
Introducing the Wizards!
Only getting richer and more knowledgeable will resolve our environmental crises.
114
Introducing the Wizards!
Innovate, innovate!
115
Location of Bads
Waste, hazardous materials, and other undesirable materials need to go somewhere for storage or elimination. But where?
116
Location of Bads
The NIMBY problem is that the relatively small number who live near to a toxic waste dump bear high costs.
117
Location of Bads
Meanwhile the benefits accrue to a much larger but spread out group who are far from the waste site.
118
Location of Bads
Locate waste where it generates the lowest costs.
119
Location of Bads
Those who bear those costs should be compensated by the rest.
120
Location of Bads
In practice, the political struggle over where to place bads can yield outcomes that are inefficient, unfair, or possibly both.
121
Which of these does NOT provide an example of a NIMBY problem?
E Bus stop.
122
International Problems
Policy can only solve problems if it is possible to assign property-rights, levy taxes, impose standards/quotas, internalize externalities, or provide public-good (removal of public-bad) services.
123
International Problems
However, there is no international government! There is often transfer-seeking by countries, particularly given that monitoring is difficult.
124
International Problems
Many global problems are prisoner’s dilemma situations, where all countries would be better off if they cooperated but each country acting in their own interest makes everyone worse off.
125
Reasons to be cheerful?
Ozone and CFCs.
126
Reasons to be cheerful?
Policy is slow, but can work to solve international problems if the stakes are high enough.
127
Reasons to be cheerful?
The timeline for CFCs provides an example: 1930’s: CFC discovered. They are cheap, easy to produce, and non-toxic.
128
Reasons to be cheerful?
1970’s: Scientists speculate that CFCs might deplete ozone.
129
Reasons to be cheerful?
1985: Evidence of an ozone hole above the south pole is found.
130
Reasons to be cheerful?
1987: 24 Countries sign the Montreal Protocol to cut CFCs by 50% by 1998.
131
Reasons to be cheerful?
2003: CFCs virtually eliminated in Canada.
132
Reasons to be cheerful?
2050: Atmosphere should regenerate to 1985 levels.
133
Environment Policy 2: The Takeaway
Exploiting non-renewable resources cannot be done sustainably, however some of the wealth can be reinvested in other types of capital (Hartwick’s Rule).
134
Environment Policy 2: The Takeaway
The world’s growing population will likely be restrained by depleted natural resources.
135
Environment Policy 2: The Takeaway
There are two schools of thought on how to address our environmental crises: The ‘Prophets’ and the ‘Wizards’.
136
Environment Policy 2: The Takeaway
The NIMBY problem is a barrier to achieving efficient outcomes and can also have fairness issues.
137
Environment Policy 2: The Takeaway
International problems require collective agreements from national governments. The story of CFC’s and the Ozone layer demonstrates that it is possible to address global problems.
138
How much has our planet warmed already, on average, since the beginning of industrialization (1850-1900)?
C 1.5 celsius.
139
Compared to 1850, how much more carbon dioxide is in our atmosphere today?
B 40%.
140
What is considered by climate researchers as a “safe” level of GHG concentrations in our atmosphere?
A 350ppm.
141
If our planet warms by 2–3 degrees celsius, what percentage of our plants and animals are NOT likely to survive?
D 20%–30%.
142
Evidence of Climate Change
Global Temperature Rise: Earth’s average surface temperature has risen about 1.5◦C since the late 19th century.
143
Evidence of Climate Change
Most of the warming occurred in the past 35 years.
144
Evidence of Climate Change
A 2019 federal government report has found that Canada is warming at twice the average rate of the rest of the rest of the world.
145
Evidence of Climate Change
Canada’s arctic has already risen by 2.3◦C and the rest of Canada has warmed by 1.7◦C.
146
Warming Oceans
The oceans have absorbed much of this increased heat.
147
Temperature Rise
Earth’s average surface temperature has risen about 1.5◦C since the late 19th century. Most of the warming occurred in the past 35 years. A 2019 federal government report has found that Canada is warming at twice the average rate of the rest of the rest of the world. Canada’s arctic has already risen by 2.3◦C and the rest of Canada has warmed by 1.7◦C.
148
Warming Oceans
The oceans have absorbed much of this increased heat, with the top 700 meters of ocean showing warming of more than 0.2◦C since 1969. The upper few meters of the ocean increase by ≈ 0.13◦C per decade over the past 100 years.
149
Shrinking Ice Sheets, Declining Arctic Sea Ice
The Greenland and Antarctic ice sheets have decreased in mass. Data from NASA’s Gravity Recovery and Climate Experiment show Greenland lost an average of 281 billion tons of ice per year between 1993 and 2016, while Antarctica lost about 119 billion tons during the same time period. The rate of Antarctica ice mass loss has tripled in the last decade.
150
Glacial retreat & Decreased Snow Cover
Glaciers are retreating almost everywhere around the world — including in the Alps, Himalayas, Andes, Rockies, Alaska and Africa. Satellite observations reveal that the amount of spring snow cover in the Northern Hemisphere has decreased over the past five decades and that the snow is melting earlier.
151
Sea Level Rise
Global sea level rose about 20cm in the last century. The rate in the last two decades, however, is nearly double that of the last century and is accelerating slightly every year. Estimates range 2-11m in 500 years; 0.2-2.5m in 100 years.
152
Ocean Acidification
Since the beginning of the Industrial Revolution, the acidity of surface ocean waters has increased by about 30%. Carbon dioxide is being absorbed into the oceans, with the upper layer gaining about 2 billion tons per year. Ocean acidification destroys ecosystems such as the Great Barrier Reef.
153
Extreme Events
The number of record high temperature events has been increasing, while the number of record low temperature events has been decreasing, since 1950. Increasing numbers of intense rainfall (heavy downpours), drought, floods, hurricanes (intensity, frequency).
154
Coffee requirements
Coffee requires specific conditions to grow: Arabica beans require a steady 18-21 Celsius, dry conditions to build up buds, and rain to trigger flowering; if it rains too much, the fruit don’t set. New Scientist magazine, 5 January 2013, reports: 'Under the most optimistic scenario, 65% of the places where wild coffee grows will become unsuitable by 2080.' Make that 99.7% under the IPCC worst-case scenario.
155
Tipping Points and Feedback Loops
Tipping points are thresholds that make a system change from one to another qualitative state. Threshold behaviour is based on self-reinforcing processes or 'feedback loops.' Melting ice bodies: albedo effect (water is darker than ice). Changing ocean circulation: e.g., shutdown of Atlantic thermohaline current. Changing air circulation: jet streams weakening or slowing down can lead to persistent weather systems and more extreme weather. Threatened large-scale ecosystems: e.g., boreal forests can turn to scrub or grassland ecosystems, releasing large amounts of CO2.
156
Kyoto Protocol
Signing nations agreed to reduce GHG emissions to 5.2% below 1990 levels. The US would not ratify the agreement. Developing countries such as India and China were excluded. No penalties for non-compliance! Many signers did not meet their commitments: Canada was 24.2% above 1990 levels in 2003, also Spain, Portugal, Greece, Ireland above. But some did: Russia, Germany (21%), England (13%) below 1990 levels. Overall developed countries 5.9% down. Canada pulled out of Kyoto at the end of 2011.
157
Paris Agreement
2015 UN Climate Change Conference aims to limit global warming to less than 2 deg Celsius above pre-industrial levels. 'Binding' as at least 55 countries, together representing at least 55% of emissions, signed by April 2017. However countries can withdraw. Like Kyoto, no penalties for non-compliance.
158
Paris Agreement (criticism)
Some critics say that it is also too vague and doesn’t do enough for the poor. The New Scientist suggests that it might help in limiting temperature increase to 4 degrees. Following the 2016 and 2024 elections of Donald Trump, the US withdrew from the agreement. The US accounts for over 15% global emissions. There have been a number of recent follow up rounds (COP27, COP28, etc) to try to accelerate action towards the goals of the Paris Agreement.
159
Policy response to global warming (1)
Michael Mann in his book ‘The New Climate War’ argues for the following: Special interest groups influencing government policy are an important reason for slow climate action. Widespread carbon pricing is necessary. Allow renewable energy to compete fairly with fossil fuels (e.g. removing subsidies for oil and gas). False arguments should be debunked (e.g. 'it’s up to individuals'). We need to combat climate 'doomism'.
160
Policy response to global warming (2)
Relying on technology for a solution is very risky. Significant GHG reductions are very advisable: if we have no climate policies, we could have over a 5 degree increase by 2100 which would be completely catastrophic. Likely to reach a tipping point where previous state is unrecoverable. Feedback loops are a key reason for the uncertainty around the effects of climate change. A key challenge is how we can improve commitment to the goals set out in the Paris agreement and overcome the Prisoner’s Dilemma problem. Global inequality will increase as a result of climate change. Resources are needed for those most impacted.
COMM 394
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