Morning roundup

• William Watson comments usefully on Canada's plan to induce a whole pile of adverse selection

  There are some “life events” where insurance makes sense. You might be hit by a bus, you’d like to be compensated if you are, and you’re willing to pay enough in premiums to make it worthwhile for a profit-seeking enterprise to take the other side of the risk.
  
  But other “life events” are pretty voluntary. Having children is sometimes an accident. But it’s usually planned. You might save for it. But you can’t really insure against it: the moral hazard is too great. Having insurance against becoming a parent would strongly increase the incentive to become one.
  
  If we think everyone should help raise everyone else’s children, then, OK, let’s have kid subsidies but let’s finance them out of general revenue, not a tax on working stiffs.



• The US seems to have somewhat functioning markets in human cadavers for medical dissection. So why can't we have markets for organs to save lives directly? Why does the market become more palatable when focused on higher orders of production (helping to train doctors who will go on to save lives rather than saving lives directly)?


• Sujai Shivakumar's presentation on crafting institutions for development in Somaliland. He's coauthored with Elinor Ostrom on this kind of work. Interesting stuff.

Misreading Ostrom

Peter Foster in today's Financial Post seems to misread Elinor Ostrom. He argues that her work provides compelling evidence that collective voluntary management of the commons can work out, that top-down imposition of solutions tends to be worse than bottom-up approaches, and then insinuates that Ostrom's work argues against top-down Kyoto-type solutions. I'm not sure he's right on the last part.

Nevertheless, the media immediately leapt on Ms. Ostrom’s insights and suggested they might be useful in the “fight” against Mr. Gore’s climate nemesis. And Ms. Ostrom seemed reluctant to pour cold water on grand Kyoto-type schemes, merely suggesting that “solutions” might be found at “multiple levels.” She was quoted as saying that “governments should encourage and aid people where they are trying to solve the problem, such as finding ways to make it easier for them to use solar energy or to bicycle to work.” Elsewhere, she reportedly said, “It is important that there is international agreement, but we can be taking steps at family level, community level, civic and national level . . . There are many steps that can be taken that will not solve it on their own but cumulatively will make a big difference.”

It’s hard to believe that such a sophisticated analyst would really believe that subsidizing solar panels or encouraging bike lanes could help address the threat of Armageddon.

The basic reason her theory doesn’t apply to “the world’s greatest market failure” is that — and this will cause environmentalists to have conniptions — the atmosphere may be a common resource but it is not a scarce one except at the level of local pollution. Carbon dioxide is a trace gas and not a pollutant. Moreover, it may have much less influence on climate than suggested by UN-approved science. Certainly the recent flatlining of global temperatures is a problem that alarmists are trying hard to ignore.

The last paragraph is the important one: it's because no effects are felt locally that we should expect that local collective action won't solve the problem. Ostrom's work shows when local voluntary action works and when it fails. Fresh-water fisheries where problems are local and management can be local -- works. Salt-water fisheries where there's no way of excluding folks who don't want to abide by local agreements -- fails. Now, we may well remain skeptical about the desirability of Kyoto-type arrangements. But I don't think that we can hang an anti-Kyoto argument on Ostrom's work. Fortunately, there are plenty of other hooks that suffice.

More Ostrom

Marginal Revolution points me to Pete Boettke's excellent write-up on the Ostrom prize, who points to Steve Levitt's profoundly disappointing reaction to it. Writes Levitt:

The reaction of the economics community to Elinor Ostrom’s prize will likely be quite different. The reason? If you had done a poll of academic economists yesterday and asked who Elinor Ostrom was, or what she worked on, I doubt that more than one in five economists could have given you an answer. I personally would have failed the test. I had to look her up on Wikipedia, and even after reading the entry, I have no recollection of ever seeing or hearing her name mentioned by an economist. She is a political scientist, both by training and her career — one of the most decorated political scientists around. So the fact I have never heard of her reflects badly on me, and it also highlights just how substantial the boundaries between social science disciplines remain.

So the short answer is that the economics profession is going to hate the prize going to Ostrom even more than Republicans hated the Peace prize going to Obama. Economists want this to be an economists’ prize (after all, economists are self-interested). This award demonstrates, in a way that no previous prize has, that the prize is moving toward a Nobel in Social Science, not a Nobel in economics.

Whose work is more consistent with good economics: somebody who takes methodological individualism seriously and studies spontaneous and emergent order, or somebody whose specialty is coming up with cute instrumental variables strategies for identifying relationships where endogeneity issues otherwise make inference difficult? One's economics, the other is applied statistics. If your view of economics is applied statistics, then maybe you won't have heard of Ostrom.

The part of the economics profession that would hate a prize going to Ostrom is the part I want nothing to do with. Writes Boettke:

But Lin Ostrom is firmly seated in the mainline tradition of economic scholarship from Adam Smith and David Hume to F. A. Hayek and James Buchanan --- As Lord Acton put it: “But it is not the popular movement, but the traveling of the minds of men [and women] who sit in the seat of Adam Smith that is really serious and worthy of all attention.” So in what sense is she not an "economist" in the proper sense of the word (remember her early work was on local public economics and her more recent work was on development economics)? It is because her methods were chosen to be appropriate to the task she was pursuing. Humanly rational choice, institutional analysis, field work, and experimental design were her tools for social understanding. She did not limit her work to that of Max U notions of "choice" nor instituitonally antiseptic models of 'markets' nor one size fits all models of economic development. Instead, she has been a major contributor to public choice economics, new institutional economics, and to our understanding of polycentricity and political economy.