Stockbridge 217, UMass
Dr Linus Nyiwul’s dissertation defense was conducted almost exclusively in the language of math, with very little generic English explanation for the non-resource management layperson. So I cannot write very much about it, except that it was obvious that his faculty members are excited about the potential of this framework Dr Nyiwul has created for government regulators to exploit market mechanisms by leveraging emissions standards against the needs of firms to attract investors.
There are a couple of premises that Dr Nyiwul builds upon, including a perception that investors would prefer to put their money into “green” companies, and evidence that companies who improve their own environmental management systems experience increases in stock value (e.g., Feldman 1996). Dr Nyiwul described a whole lot of complicated stuff that needs to be properly balanced:
- setting a standard,
- needing to monitor to ensure companies are meeting the standard,
- keeping the cost of monitoring low enough to be reasonable (for government) while
- making the threat of monitoring real enough that companies prefer to comply rather than risk being caught and having to pay the penalty.
Somehow all those things get crunched through some equations that calculate
- “marginal damage” (whatever this means! it apparently refers wholistically to “society”) and
- monitoring costs (to the government) and
- costs of compliance (for the firms)
…. now, where it gets real interesting is when the government establishes two emissions standards: a regular standard (the minimum to be deemed “in compliance” and avoid penalties) and an overcompliance standard – which would earn a special certification proving uber-greenness (or something en route to such glorified status). There is pilot project currently underway, the National Environmental Performance Track (NEPT), which has weaknesses but whose results – plugged into Dr Nyiwul’s equations – demonstrates that TWO STANDARDS IS GOOD POLICY! Not to mention that firms which earn the overcompliance certification have a special marketing asset to appeal to investors. (They have to meet the minimum “regular” standard first, then apply and demonstrate accomplishment of the overcompliance standard.)
There was some fancy problem-framing, as Linus described one finding, saying that it came about in one way if you set the problem up this way, and comes about in another way if you set the problem up that way. (I love the fact that subjectivity can be found in math!) There are some issues with firms getting to self-report emissions (apparently without verification, unless the regulator goes to conduct the actual monitoring?) And there was quite a discussion about looking at the problem endogamously: with free entry into and out of the market. And output and size effects really matter (but cannot be reversed) in terms of the direct and indirect effects of enforcement costs. Yea, I don’t really know what those sentences mean in “real” economic terms, but there may be other things in play at times which can lead to inconclusive results.
but…. drumroll please! Dr Linus Nyiwul concludes, and his faculty agree:
The challenges that issue forth from Dr Nyiwul’s work include (in no particular order):
- identifying which are the important uncertainties (given that anything could be uncertain except for whatever is under direct regulatory monitoring)
- defining clearly what “overcompliance” means (if “compliance” means paying the right tax, i.e., reducing emissions in order to minimize tax…. does overcompliance move a firm into a “credit” situation?)
- how to extend the framework from a single firm to an industry
- identifying how the framework as it is fits within known policy issues and concerns, and
- extending the frame beyond emissions to look at a lot of other policy issues.