Mexican Mine Acid Spill: Does Coase Theorem help?

A copper mine in Mexico is leaking acid into a river, which cause the maniple water supply to seven towns to be shut down because of the danger. The Coase Theorem says that the people affected should be able to bargain with the mining company for some type of settlement. However, because seven towns were affected any one of them could throw a wrench into the process by holding out. There is no sign of the governments of the towns, on behalf of the population, bargaining with the mining company for a settlement. However, the mine has set up a fund $147 million in order to pay for environmental damages, but it does not seem that they are helping the people whose water supply was affected. 

I think it is bullshit that they seem to be getting off pretty easily from any damage they have caused to the people in those towns. The company did not notify anyone about the spill until 24 hours after it occurred. The spill not only meant people couldn't get water, but education as well. Eighty eight schools closed because of the uncertainty of drinking water. The mine is only going to pay for the damage to the environment, but they caused much more damage than that. People went without water and education because of the spill. 

I believe this is why companies that use dangerous chemicals should be heavily regulated. The spill did not occur because of malicious intent, it happened on accident because of heavy rains. Had there been enough supervision, the accident might not have occurred. Maybe the regulation would have caused “undue” burden on the firm at the time, but if it had been in place at the time of the spill this could have been avoided, mitigating the undue costs of regulation. 

This is a situation where the coase theorem is useless. No one in this situation has property rights over the river. Each town affected most likely has rights over their municipal water supply, but the copper mine has been unwilling to bargain. Each town would have to work together to bargain with the mine since the pollution in the river affects each of their municipal water supplies. This is yet another example of why everything cannot be solved by the free market. The mine did not notify anyone until 24 hours afterward and has been resistant to investigation ever since. If regulation had been a main priority, the spill probably does not happen in the first place. The government now needs to step in and be more firm towards the mining company, in order to secure a proper settlement for their citizens.

http://www.news.net/article/1957300/mexican-authorities-say-mine-still-leaking-acid

http://thinkprogress.org/climate/2014/08/18/3472343/mexican-mining-spill-border-88-schools/

Should Water be Privatized?

The debate about how clean drinking water should be allocated is contentious. There are some who believe the free market could do the job better than the government. Clean drinking water is mostly managed by local governments in the United States, but there have been some cities that have tried water privatization. Subscribers to austrian and conservative economic theory would argue that the market will improve the efficiency of the water system. 

In my opinion, water privatization is an awful idea. Water is vital to human survival and it is asinine to think that prices wouldn't increase dramatically because of the switch to privatization. The increase in price would no doubt leave poor people out of the marketplace. If water is privatized, it will lead to drastic consequences such as the misallocation of water to people who can afford it, while others are left with less. The profit motive it obviously there for any private company that would invest in a water system. They need to make a return off of that investment.  The basic necessity to human life should not be at the whim of the market.

Water resides in a grey area when in comes to labeling the type of good it is. It could either be public or common pool. Water could be rival because consumption of that water means another cannot drink it, but they could once it goes through the water cycle. Either way, water should not be part of the free market. Leaving clean drinking water up to the free market could lead more problems than we had in the first place, including a shortage of water for poor people. 

Air Pollution Deaths Show That the Market Cannot Handle Pollution

Whenever I think of air pollution, the first thing that enters my mind are greenhouse gases and the dangers associated with them. However, I rarely think of air pollution as something that can have immediate health impacts on people, which is why I found it interesting that the International Agency for Research on Cancer (IARC) stated that there were 223,000 deaths from lung cancer that were caused by air pollution. These were only deaths from lung cancer, but there is also evidence that increased air pollution can lead to bladder cancer as well as respiratory and heart disease. It is obvious something needs to be done to limit the loss of life that is associated with pollution.

Pollution is a negative externality because it is overproduced in relation to its social costs. It is clear that polluters are getting a free ride because they don’t have to pay the costs of these deaths. The market for pollution is not in equilibrium. We have not arrived at the socially optimal level of pollution because the polluters are not bearing the costs associated with their pollution. 

This pollution is mostly happening in developing countries where industrializing is key for survival. However, we should not expect these developing countries to fix the problem on their own. Developing nations simply don't have the resources for pollution control, which is why developed countries have an obligation to assist these developing countries in their fight against pollution. The issue is not only limited to developing countries, the United States have done next to nothing to reduce their pollution levels, in comparison to other developed countries. The US is probably best equipped to handle their pollution issue, but negligence has taken over. If they wont take care of their own problems then it is far fetched to believe they will help out foreign countries. 

The governments of the countries affected will need to get involved in pollution control in order to bring the market for pollution back into equilibrium. If they could convince the international world to to cooperate on some sort of emissions trading system it would improve their prospects. Producers in developing countries would need to buy the emission permits, while producers in developed countries would be able to sell them. They have better access to technology that help reduce emissions. It would be much easier to get help to developing countries if we had a better equipped international government, but since we only have the UN, developing countries are, sadly, on their own for now. 

http://www.scientificamerican.com/article/air-pollution-a-leading-cause-of-ca/

The Case for Government Involvement in Pollution Issues

New research published in Climate Risk Management journal showed that increases in the global temperature over the past 60 years are 99.999% sure to be caused by human activity. This news shows that the government needs to take on a bigger role when it comes to tackling pollution. The United States decided to back out of the Kyoto Treaty and gravitated towards a free market approach, which did not even come close to meeting the standards set in Kyoto. It is clear that Conservative and Austrian perspectives will have a difficult time in reducing pollution because they believe there is no room for the government to get involved in private affairs. Without the government setting ceilings for the amount of pollution allowed, the free market would have difficulty in finding some sort of standard at which to stop polluting. If there is demand they will supply the good regardless of pollution because businesses are looking for profit and nothing else. The government can handle this using a cap and trade system. Cap and trade is a market friendly solution because it provides incentives for businesses to alter the way they produce or move to developing cleaner energy. Cap and trade caps how much pollution should be emitted then it issues permits to businesses to expel a certain amount of pollution. Businesses who do not need the permits because they have found other ways to produce their product or moved to cleaner energy can trade their permits to businesses who are a little behind the curve and need to pollute more than their permits allow. This will keep pollution under the socially optimal level. Now that we are almost 100% sure that recent global warming has been caused by humans, it is clear that the free market has not lead us to the socially desirable outcome when it comes it pollution. Firms and people are over polluting and it looks as if there is no end in sight. It is time the government had a fair chance to try its hand in curtailing pollution. 

Source:

Philip Kokic, Steven Crimp, Mark Howden, A probabilistic analysis of human influence on recent record global mean temperature changes, Climate Risk Management, Volume 3, 2014, Pages 1-12, ISSN 2212-0963, http://dx.doi.org/10.1016/j.crm.2014.03.002.