Scarce resource conservation optimization

2008-07-24

in Economics, Politics, Science, The environment

Notre Dame, Ottawa

There is a catch-22 involved in some forms of resource planning. Take, for example, helium (as discussed recently). As of now, we only know of one place from which to get it – certain natural gas deposits. We have no idea where, or if, it might be found elsewhere.

One perspective is to say: “For all we know, this is all the helium we will ever be able to access on Earth. We should avoid excessive (airships) and frivolous (party balloons) uses, and save the stuff for cooling sophisticated electronic equipment and so forth.” One could add to this: “If we ever come across a big new source, or an unlimited source, we can reevaluate the prohibition.”

The trouble here is the reduced incentive to find new supplies. There have surely been countless historical cases where scarcity has generated rising prices which has in turn (a) led to the discovery of new sources of raw material (b) led to new techniques of production and (c) led to less intensive patterns of usage. The conservation mindset could impede these. Our solution may be akin to a policeman adrift on a lifeboat with a highly trained and valuable bloodhound. Every day, he is presented with a choice to either use the dog now as a collection of calories, or save it for a more valuable use in a future that may never come. Of course, the situation with any particular resource is far more complex. Our present needs are less acute and singular, the uses of the thing are broader, and our opportunities for near-term and (likely) long-term substitution are usually higher.

At issue are factors including (1) the most critical use of the resource (2) the probability of a, b, or c taking place over any time period (3) the urgency of the present uses, etc. A rational calculation taking into account all these factors (and necessarily making educated guesses about future trends) is a daunting prospect. To what extent does the usefulness of helium in medical imaging affect how we should manage supplies? Will we soon develop technologies that require more or less of the stuff? Is there any entity that is actually capable of managing helium use?

Of course, such choices are rarely made explicitly. Typically, nobody has the power to control the allocation of a global resource. As such, they are used up heedlessly in response to the economic imperatives of the moment- ignoring the fact that the same material might have a far more valuable purpose down the road.

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{ 5 comments… read them below or add one }

Anon July 24, 2008 at 11:44 am

Our solution may be akin to a policeman adrift on a lifeboat with a highly trained and valuable bloodhound. Every day, he is presented with a choice to either use the dog now as a collection of calories, or save it for a more valuable use in a future that may never come.

This is a terrible simile! The choice to use resources now or save them for later has very little to do with the choice to eat or not eat your canine companion at sea. The huge flaw is the degree to which choices are severely confined on a lifeboat, but almost infinite in life more generally. As such, the first is a very poor proxy for the second.

ToryC July 24, 2008 at 12:57 pm

“A rational calculation taking into account all these factors (and necessarily making educated guesses about future trends) is a daunting prospect”

This is why we shouldn’t try to do it. Markets convey price signals which induce behavioural changes, exactly as you suggest. Trying to anticipate the future of technology and commerce, then forcing people to adhere to your vision, is a sure way of chocking off progress.

ToryC July 24, 2008 at 12:59 pm

*choking off progress, sorry.

Milan July 24, 2008 at 5:53 pm

The basic idea of classical and neoclassical economics is that individual choices plus free markets generate societally optimal outcomes.

This assumes things like perfect information, which is arguably the biggest market failure that exists in relation to resources like helium. It may well be that versions of ourselves from twenty years in the future would be screaming at the top of their lungs for us to conserve the stuff. It’s also possible that scarcity is no big deal for them.

Markets by themselves cannot do a good job of making this decision. While markets are extremely powerful tools in many situations, they are not inherently equipped to deal with long-run issues of potentially extreme scarcity and uncertainty.

Milan July 24, 2008 at 5:54 pm

The huge flaw is the degree to which choices are severely confined on a lifeboat, but almost infinite in life more generally. As such, the first is a very poor proxy for the second.

I basically agree. That is why the simile is nested in caveats.

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