A Coasean solution for New Delhi?

If the late Ronald Coase could be called upon to advise the Delhi government, he would persuade chief minister Arvind Kejriwal to pay farmers in Punjab and Haryana to stop burning crop residue.

In recent times, air quality in Delhi has remained poor throughout the year for various reasons, including the rapid loss of green cover, construction of homes and infrastructure projects, and vehicular as well as industrial pollution. But for a few weeks every November, it gets almost impossible to breathe. The last straw has been the crop residue burning (CRB) by farmers in Punjab and Haryana, which causes a heavy smog to settle over Delhi…

The good news is that these [health] costs—avoidable by Delhi residents if CRB were eliminated—are about 10 times the cost that would be incurred by farmers in adopting substitutes to crop burning. Where policymakers see costs, Coase saw potential for gains from trade.

Here is more from Shruti Rajagopalan.

Comments

The words of the prophets are written on the subway walls and tenement halls.

Dream Police!!

You know that we are living in the material world, and I am a material girl.

I've never understood economists level of relative comfort with externalities?

https://en.wikipedia.org/wiki/Externality

Why pass the cost of business externalities (i.e. causing poor air quality) on to consumers? Fine the farmers instead and let them find alternative solutions rather than creating yet another (inevitably permanent) government subsidy.

All depends on who owns what! :-)

Hopefully people still have a right to breathable air. We haven't become such obsessive capitalists that we've privatized air, have we?

Agreed. But, if you lived in the US you would do one better: give price supports and market orders to farmers who use "free" water so that cities down stream can't grow. We have to have that cotton farming and nut groves, and plant more nut trees because water is getting scarce and the price of those nuts are going up. Of course, if the price of nuts go up because of scarcity, the price you would have to pay to take water from that farmer would go up again. The only nut is the taxpayer.

Consumers still bear costs, as farmers raise prices or reduce output. That's the point of the Coase theorem -- different roads lead to the same place.

((( different roads lead to the same place )))

Don't get me wrong. I am a big fan of Coase, Oli Williamson, Doug North, Demsetz et al ( the TCE gang).

But - Indians have known this principle for far too long. Say 1000 years.

Ekam sat vipraha bahudaa vadanti. Different roads lead to (the same) god.

Sarv dev namaskaram keshavam prati-gachchhati !

( sorry for being esoteric, philosophical, theological, and use sanskrit. Couldn't resist. )

"Fine the farmers instead and let them find alternative solutions rather than creating yet another (inevitably permanent) government subsidy."

It could be a one time payment, that is buying the right to burn from them?

That's exactly what the government has done: made it illegal and fine people, it's just that in reality enforcement is weak and it doesn't happen in practice. Trading a permit makes a way to enforce a law on paper which is not in currently law in practice.

That's basically what the Chinese government did in the last 2 years to sharply reduce the air pollution in Beijing. Though it was not voluntary. Farmers in nearby Hebei were prohibited from burning coal for heat. They were compensated somewhat with subsidized natural gas. Many steel factories were just closed--no compensation. These measures eliminated about half the air pollution in the city. The other half comes from motor vehicles. Unfortunately, their owners have more political power, so it's harder to force them to stop polluting.

They've done several things in Beijing to limit internal combustion pollution. All scooters and motorcycles are electric only and the number of cars are strictly limited. Anyone wanting to licence a new gasoline powered car has to enter a lottery, with one chance in 2,000 of winning.
https://www.bloomberg.com/news/articles/2019-02-27/in-beijing-you-have-to-win-a-license-lottery-to-buy-a-new-car

Why not turn waste biomass into biochar (charcoal added to soil). It lifts productivity and also sequesters carbon long term.

Coase would also say he House should bribe the Senate once a year to minimize the small/large state division in Congress.

Coase would say to go ahead and default on about a third of our government debt to prevent the uprising of young people who never voted for the stuff.

Cute but unconvincing. If the agricultural states do not enforce the environmental laws now, why should we expect them to enforce a requirement for a tradable permit? With or without the trade, this needs a plausible enforcement mechanism.

Yes, exactly right. Permit-trading requires contract-enforcement, which is lacking almost as much in India as in Tyler's beloved but benighted Pakistan (persecutor of Hindus, Sikhs & Christians but what does Tyler care?)

We used to have the problem in Britain: "stubble-burning" the farmers called it, but in fact they were burning not just stubble but lots of abandoned wheat straw. It was forbidden on pain of prosecution. So now you see lorry loads of low value straw on country roads.

How much of the straw is instead deep-ploughed into the soil I don't know. Anyone?

I found this, a discussion of the options.
https://cereals.ahdb.org.uk/media/418249/T2F-April-2014-straw.pdf

Would it be a one time payment, that is buying the right to burn from them?

The Willamette valley in Oregon is a major grass-seed producer. Burning the fields to control weeds is now controlled by law. It was done very liberally at one time, but air quality concerns and traffic deaths from smoke changed that. I don’t know of the impact on the price of the crop.

I know that I'm foolish to think that me saying this will matter, but Coase wasn't exactly a big believer in so-called Coasian bargains. The point of his work was more to examine why such bargains don't happen in practice than to advocate for them.

You are advicing Kejriwal babu to do payment to farmers? He cannot even stop urban defecation, but that would make him front runner to be mayor of the san francsico

Coase in application: Increase social security benefits so the old farts retire and go away and make room for productive younger workers. A win-win.

Lump of labor fallacy, that's going to cost you -5 internet points

And thereby incentivise burning in every other urban hinterland in northern India?

^ The fatal perverse incentive behind almost every Coasian Bargain. If the victim pays for abatement, then the perpetrators have a perverse incentive to cause as much external public destruction as possible to maximize their payout. It's malpractice that my university professors taught otherwise.

If you want a long term solution have the government subsidize the building of small electric plants that burn the bio-fuel that have mandated scrubbers. Then pay subsidies for electricity produced with bio-fuels. The market will take care of the rest. It's quite likely that the subsidies involved will cost far less since the electricity generated will cover much of the cost. You'll also contribute to your electrical infrastructure.

Good idea to search for Coasean solutions, but the numbers used here, specifically on *yearly* benefits in DALYs, appear off (by orders of magnitude) to me. In my reading, the quoted DALY benefits would be achieved over the lifetime of the population, not *every year*.

Looking at the key table (Table 3) from the cited paper https://academic.oup.com/ije/article/48/4/1113/5366950
If we look at Acute Respiratory Infection (ARI), we see that in Haryana the DALY cost per 1000 popn. is 1311. If this is a DALY cost per year, then just by eliminating ARI, we should be able to add 1.3 DALYs to each life *per year*. This seems intuitively wrong. The 1.3 DALYs should be the cost of ARI to each member of the population over the course of their lifetime. In line with previous research estimating the total lifespan cost of Indian air pollution of ~2 years. https://www.thelancet.com/journals/lanplh/article/PIIS2542-5196(18)30261-4/fulltext

Further, using the authors own numbers from the table, the total GDP of these 3 states is $192B (67B+48B+77B). if the economic cost of crop burning *alone* is $35.6B per year, that would mean 18.5% of GDP. As Crop Residue Burning *at most* accounts for 1/3 of the air pollution burden (likely a lot less when you consider air pollution over the full year and the narrow time concentration of CRB) that would mean air pollution hampers GDP by over 50%. Also implausible in my view.

The column presents the Coasean bargain as between urban Delhi residents and farmers in Punjab and Haryana, but as per the paper, 75% of the health and economic cost is incurred in Punjab and Haryana themselves.

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