Cost-Benefit Analysis, Global Poverty, and Greenhouse Gas Emissions

A hot debate in the pages of the Wall Street Journal between Princeton professor Peter Singer and Copenhagen Business School professor Bjørn Lomborg over whether we can afford to both reduce poverty and clean up the environment.

Singer asks:
"What should we do? Sometimes we should choose to protect the environment and the nonhuman animals that depend on it, even if that denies economic opportunities to some people living in extreme poverty. Areas rich in unique biodiversity are part of the world's heritage and ought to be protected. We should, of course, try to find alternative environmentally sustainable opportunities for those living in or near these areas. But there is no single currency by which we can measure the benefit of saving human lives against the cost of destroying forests that provide the last remaining refuges for free-living chimpanzees, orangutans or Sumatran tigers.
Cost-benefit analysis certainly can't handle this task. Even when economists ignore environmental concerns, their usual method of assigning a value to human lives leads to the ethically embarrassing conclusion that the poor count for less because they earn less and cannot pay as much to reduce life-threatening risks. (...) Giving equal weight to the interests of future generations provides us with strong reasons to be concerned about environmental preservation, as well as about the more immediate concern of reducing global poverty. We should help today's global poor, but not at the expense of tomorrow's global poor."

Lomborg replies:
"Mr. Singer criticizes the use of cost-benefit analysis because it doesn't value human lives at the same rate in developed and developing countries. As uncomfortable as it may be, the reality is that we don't actually think of all people as equal. If we did, we would be building all of our new hospitals in developing countries. Mr. Singer may regard this fact as shameful, but ignoring the ethical judgment of nearly everyone makes his analysis less helpful. Similarly, Mr. Singer criticizes the way that discounting is used by economists to make future costs comparable to values in the present. He argues that we should give "equal weight to the interests of future generations." Once again, this may sound admirable. But think about the consequences of heeding Mr. Singer's advice. By choosing a discount rate close to zero, we effectively say that the desires of infinite numbers of future generations are vastly more important than our own, meaning that we should save the great bulk of our resources for the future and consume just enough to survive. Essentially, our generation should eat porridge, while we leave virtually all benefits to the future."

Singer concludes:
"All of us living comfortably in industrialized nations should use more energy from sources other than fossil fuels, use less air-conditioning and less heat, fly and drive less, and eat less meat. And we ought to start doing these things now, for our own sake, for the sake of the global poor and for the sake of future generations everywhere."

And Lomborg counter-replies:
"This is a poor prescription, not only for those of us in developed nations but for developing countries and for future generations as well. It is an incredibly expensive way to achieve very little—and it won't happen (...) We are perfectly capable today of tackling the problems of both poverty and environmental pollution. But to do so, we must think clearly and rationally, and we must carefully weigh the costs and benefits of the approaches available to us."

Link to Singer's op-ed piece here and to Mr. Lomborg's article here.

Experiments in Ethics - Honesty, Deception, and Bystander Effects

It is not "What Would You Do?" but what do people do. And why. Is it just the situation?

A replication of Milgram's experiments

Jerry Burger, a psychology professor at Santa Clara University, conducted a partial replication of the Milgram’s experiment we discussed in class yesterday. Seventy adults participated in the study up to the point where they first heard the learner’s verbal complaints (150 volts). The obedience rates were only slightly lower than those obtained by Milgram 40 years earlier. This research was featured in ABC News’ Primetime.

For those of you who missed class yesterday, you can watch the original experiment below:

Money for Nothing

Canada's broadcast standards council has ruled that Dire Straits' 1985 hit "Money for Nothing" should be censored because of a homosexual slur in its lyrics. The council said the British band's use of the word "faggot" referring to gay people three times in the song breaches the national broadcasters' code of ethics. Yet, an edited version of the song can be played.
Helen Kennedy, executive director of Egale Canada, said last week the decision is the right move given a number of teenage suicides that took place in the U.S. in 2010 after they were subjected to homophobic bullying. The council said it realized Dire Straits used the word sarcastically but said it was inappropriate.
"Money for Nothing" was a massive hit upon its release in 1985. It won a Grammy, reached No. 1 on the charts in Canada and the U.S. and spawned a famous music video that featured crude computer animation and became interwoven with the popularity of music network MTV.
For a critical examination of this decision, watch the clip below:

FIAT & Chrysler: New labor contract, new right violations

Fiat workers approved last week a revamp of the carmaker’s oldest factory in Italy, clearing the way to implement a venture with Chrysler. 54 percent of employees voted for the investment in the Mirafiori plant in Turin in exchange for measures to limit strikes and curtail absenteeism (94% of the workers took part in the ballot).
FIAT CEO Marchionne needs a majority of the 5,500 employees at the factory to sign off an accord approved by most unions as he seeks to turn around Fiat’s unprofitable Italian operations and revitalize an alliance with Chrysler by sharing production for Jeep sports and Alfa Romeo cars. More importantly, the vote marks a milestone in Italian labor relations.
The CEO had said he may shift production abroad if the plan wasn’t approved. His tough talk has made Mirafiori the most important topic in the country the past two weeks, with daily front-page coverage by major newspapers and prompting commentary from political leaders including Berlusconi.
Fiom Cgil, Fiat’s biggest union which represents 10,000 of the carmaker’s 83,000 workers in Italy, was the only group that didn’t sign the Dec. 23 accord, saying the proposal curtails workers rights and worsens their conditions. Fiom has called a strike for Jan. 28 and said it may take legal action.
According to the Financial Times, productivity at Mirafiori averaged 30 cars per employee a year, compared with almost 100 at Tychy. Fiat’s European carmaking operations could generate a profit of 390 million euros in 2011 if Fiat shifted all production to Serbia and Poland, according to Kristina Church, a London-based analyst at Barclays Capital, who predicts a loss for the business of 855 million euros for this year after a 684 million-euro loss in 2010.
In addition to extra hours, workers would face shorter breaks and postpone lunchtime until the end of a shift. Absentees would risk having their pay withheld and unauthorized strikes face disciplinary action.
In a similar referendum last June, about 60 percent of workers at Pomigliano near Naples, Fiat’s least productive factory, supported a reorganization plan. Is it OK to trade off rights for the promise of higher productivity (or the threat of divestment or relocation)?

A kidney for freedom

Mississippi Gov. Haley Barbour (R) announced late Wednesday that he will grant an early release from prison to two sisters serving unusually long sentences for armed robbery (see clip above). Sally Satel and Ira Brody wrote a piece in the WSJ with a proposal for kidney donation:
"A prisoner donates a kidney and receives compensation only when his or her sentence is complete—no shortened sentences, no parole, no special considerations. The organ goes to the next person on the national transplant waiting-list, the way all organs from anonymous donors do."
The advantages, they say, are threefold: a patient languishing on dialysis is rescued, the government realizes savings and a cushion of financial security offers the prisoner a better chance at successful re-entry into society.
Link to the WSJ piece here.

Chinese students ranked best in the world at maths, reading, and science

The Program for International Student Assessment, known as PISA, was released in December. PISA is a standardized test given to 15-year-old students by the Organization for Economic Cooperation and Development, a Paris-based group that includes the world’s major industrial powers.
Results on standardized tests are becoming a common way to evaluate student performance in different school systems. These tests are especially important in international comparisons of student performance since school systems differ so much across countries.
While international tests in mathematics, science, and reading have been given to high school students in different countries since 50 years ago, the PISA tests started in 2000, and the number of countries included has been expanded by 2009 to over 60.
Main finding: Chinese students in Shanghai outscored their counterparts in dozens of other countries, in reading as well as in math and science. The stellar academic performance of students in Shanghai was noteworthy, and another sign of China’s rapid modernization. For our purposes, let me emphasize this conclusion:
"The results also appeared to reflect the culture of education there, including greater emphasis on teacher training and more time spent on studying rather than extracurricular activities like sports."
A link to a NYT piece discussing the release in available here and the complete report can be accessed here.

Conflicts of Interests and an ethical code for economists

We recently discussed in class the MBA oath. Now, the NYT reports that the American Economic Association, the world’s largest professional society for economists, founded in 1885, is considering a step that most other professions took a long time ago, namely, adopting a code of ethical standards. Apparently, this is a reaction to a documentary film released in October - "Inside Job", watch the trailer above - that excoriates academic economists for their ties to Wall Street.
“You could call this the ‘Inside Job’ effect,” said David H. Autor, an M.I.T. professor who is a nonvoting member of the committee but had not heard of the proposal. “Certainly the implication of the movie was that people were selling their academic reputations to further the interests of moneyed individuals and institutions.”
The film is particularly critical of R. Glenn Hubbard, dean of Columbia Business School and a director of MetLife; Frederic S. Mishkin, a professor at the same school who advises investment firms; and Martin S. Feldstein, a Harvard professor who resigned from the board of the AIG after it was bailed out by the Fed and the Treasury. They have held top posts: Feldstein was chairman of the Council of Economic Advisers under President Reagan and Bush and Mishkin was a Fed governor.
The question is whether economists should be required to disclose (and how) who finances their research, which corporate clients they advise, consult for or give speeches to. And even whether they should be allowed to serve as corporate directors and officers, as many business and finance professors do.
Robert E. Lucas Jr., a Nobel laureate at the University of Chicago, said universities are better suited to handle the matter: “It’s good to get this stuff out in the open, but I don’t like the idea of the A.E.A. watching over this. What disciplines economics, like any science, is whether your work can be replicated. It either stands up or it doesn’t. Your motivations and whatnot are secondary.”
Of course, we disagree.