Privatising Obligations

(Apologies for the slightly half-baked nature of this post; that's because I don't have the answers in this case: I need some help.)


I was having the general thought: if the financial system does not produce anything, but it does change behaviour (for example by providing liquidity/ready-cash for those who did not originally have access to such things), then it could be used as an analogy to try to solve collective action problems like climate change. The government could create an artificial world of contracts and options which changes behaviour without producing anything itself.

The general idea is that of concentration of power: if we can concentrate ownership of something, then we suddenly have a strong incentive to protect it.
(You can see here that I am trying to 'think out of the box' and I am not afraid of slaying some liberal/leftish/georgist sacred cows in the goal of better understanding, "to be go to hell for a heavenly cause")

The question I have is how do we concentrate ownership of something negative (the example I give here is legacy nuclear decommissioning liabilities)? How do we privatise an obligation that has unknown cost? If that could be achieved, then I think we could be closer to solving our collective action problem.

How Do We Privatise Legacy Nuclear Decomissioning Obligations?

The economic advantages of privatisation are well known. Privatised companies tend to be more efficient, and, since they are heavily regulated often better at solving environmental problems (witness the extremely healthy state of Britain's rivers and beaches compared to a few decades ago - this is partly due to the investment of the privatised utilities).

Now it seems easy to privatise something cash-positive -- a right to certain assets and/or an implicit right to the monopolistic power of a customer base. Often the rights to the assets and the customer base come with implicit obligations (e.g. environmental ones). So long as the liabilities are less onerous than the value of the rights (the assets), then the company is solvent and it is possible to privatise the obligations 'attached to' the rights.

Sometimes, however, it would be advantageous to privatise a pure obligation. Such is the case with the nuclear decomissioning obligation. The cost of this obligation is huge and the danger of it being in the public sector is that costs would overrun.

Some will say that private companies will not do a good job, but this is belied by the behaviour of the water companies for example. So long as clear regulatory standards are in place.

In any case it's not clear that we really need to decomission to such a high standard.

One way to privatise is to say: "we will pay X billion for the job: if you can do better, you can pocket the difference".

I'm not sure how you privatise an obligation: perhaps my readers will know the answer.

(This paragraph is a little incoherent, sorry again).
Why is this relevant to climate change? Well, if there was a collective action problem involving a benefit that accrued to the world only if everyone did some action, then a global government could set up options that pay in the event that the brilliant thing happened. A company could buy some of these options and then could persuade others to change behaviour by paying individuals to make that behaviour change. Unmatched derivative contracts designed by the government could help: it could even sell these at a benefit to the public purse. Even in this situation you have the 'natural tragedy of the commons' but that is counteracted by an 'artificial happy story of the commons'.

Difficult stuff. Anyone knows how to privatise an obligation let me know.


Robin Smith said...

Steve, On the economic questions. You know my views and you know they work. What's the problem?

On the Nuclear decommissioning I don't really know. The industry has been so corrupted by the right and undermined by the left, how will we ever know where to start. You really need to be an insider still to be able to make any choices.

Hugh Laue said...

One very fundamental problem is that neo-classical economics, which you seem to want to use to get appropriate action, is disconnected from biophysical reality. See
and especially
2009 biophysical economics conference papers can be downloaded and give a good background.

Robin Smith said...


All modern economics is disconnected is it not? Socialist economics had to be forced upon the world in blood and still people seem to want it amazingly.

Economics that will always be connected to the earth is economics that harmonises with the natural law.

That law allows infinite growth and protects the earth simultaneously. There is nothing mutually exclusive about these 2 noble goals.

We have simply got use to a negative habit that says they are and ignore the epidemic man made corruption that makes it appear so.

Green economics I would say is just as corrupt as neo classical economics. There is plenty of evidence. Much of it in the anti nuclear lobby that is allegedly big oil funded ironically.