Friday, December 2, 2016

ELC Essay #2: Seeing Past the Zero Sum Game in Environmental Policy – Harder than it Looks

by J.B. Ruhl

In Nonzero: The Logic of Human Destiny, Robert Wright offers a sweeping view of human evolution that culminates in his argument that modern society has become so complex and interconnected that there are no true “zero sum” games to be played between people or institutions. Economists and game theorists use the zero sum game concept to describe a situation in which each participant's gain (or loss) of utility is exactly balanced by the losses (or gains) of the utility of the other participant(s). A zero sum game isn’t necessarily a bad situation—in fact, it’s what economists argue markets and trading should produce. The reason is that if the situation is nonzero sum, then by definition one participant can gain by more than another loses, or even both can gain. That’s why sellers sell products and consumers buy them! The market depends on traders to identify nonzero sum situations and trade away until they reach zero sum, which is what economists refer to as Pareto optimality.

Being in a zero sum game can be a sticky situation, however, if there is some reason why redistribution of the pie is necessary.  If it were just up to the participants in a zero sum game, and assuming they are what economists describe as “rational economic actors,” they would not agree to redistribute the pie unless someone (irrationally) volunteers to be made worse off to make someone else better off. But it is not always up to just the participants. Sometimes government, in pursuit of a desired social policy, intervenes to force a “trade” at least some of the participants would not voluntarily (rationally) make.

If Wright’s thesis is right, however, government ought to be able to intervene on behalf of social policy without concern about unsettling participants in zero sum situations, because most social contexts really operate as nonzero sum dynamics. Indeed, this is an expressed or implied premise of much of environmental policy, the idea being that net social welfare is increased—the pie only gets bigger—as we protect the environment to protect ourselves. Many environmental protection advocates eschew talking about policy in these crass economic terms, preferring to emphasize the intrinsic value of nature, social justice, and other non-market justifications for making people change behavior to improve environmental conditions. But the bottom line is that much of environmental policy rests on the promise of improving the greater good by leveraging the ubiquitous presence of nonzerosumness.   

Take water allocation as an example. If environmental policy moves in the direction of conserving aquatic resources, government might intervene to force farmers using water from a river to reduce diversions and let more water go downstream to, say, an estuary. The key here is that the government does not pay fair market value for the water—the reduced diversion is required by regulation, such as under the Endangered Species Act. On the surface this looks like a zero sum game—every additional gallon going downstream is one less gallon for the farmers, and they are not compensated for their loss. But wait! The increase in water into the estuary improves conditions for a fishery; the fishing and tourism industries thrive; more people can buy the farmers’ crops; the farmers can buy less expensive fish; and so on. Everything is interconnected, so nothing is a zero sum game.

Try telling the farmers that. The problem with Wright’s thesis, and with using it to justify environmental policy, is that it turns back on itself. There is no question that social-ecological systems (SES) are highly complex and interconnected, making true zero sum games hard to find. But the sheer complexity of massive SESs is what also makes it excruciatingly difficult to connect all the dots of the nonzero sum game within the SES. At a macro scale, nonzero sum rules; at the micro scale of the farmer seeing more water go by the farm in the river, it looks like zero sum.

One of the major obstacles environmental policy has had in gaining broader and lasting legitimacy is the difficulty of convincing participants who believe they are in zero sum games and being unfairly treated by environmental regulation that they are in fact in nonzero sum games and are going to be fine. Appeals to the intrinsic value of nature don’t get very far with most people who feel rammed into such “loser” situations. Indeed, the perception that one or one’s community is stuck in an “I/we lose, they win” zero sum situation can be so strong that social psychologists refer to it as the zero sum mentality.  And there are many factors at play making it difficult for those “afflicted” with this condition to see past the perceived zero sum game to find the win-win zen of nonzerosumness.

First there is the problem of mixed metrics the participants in the situation are using to assess their positions. For example, in the water allocation scenario, the farmers value gallons of water for crops, the environmental interests value gallons of water for their ecological effect, and other interests value them for other reasons. Counting gallons of water does not get at what groups in the system really value, but it is the easiest metric to count. In a market trading context, so long as each trader knows the value it places on the water, trades will occur until zero sum equilibrium is met. But in a regulatory context, government is acting as the “market,” assigning the values, and forcing the “trades.” The various interests thus are more likely to contest the government’s assigned values than they would were the reallocation taking place in the market through voluntary trades. The result is that gallons of water becomes the default metric, which makes it difficult for the farmers to see anything but a one-for-one reallocation from them to the other interests—a zero sum game. 

Another obscuring factor is the multi-scalar nature of SESs. The appeal to nonzerosumness often involves looking at the macro-scale dynamics and evaluating system-wide impacts of a change in allocation of resources, such as through cost-benefit analysis, to demonstrate net gain in social welfare. But many actors in the SES understandably focus on scales most relevant to their wellbeing, which often are micro-scale in scope. It is at these micro-scales that the reallocation begins to look more like zero sum, as with the farmers in the water reallocation scenario. In short, proving that the macro-scale operates in nonzero sum dynamics does not mean there are no dynamics at smaller scales that come much closer to zero sum. Expecting the “losers” in those small-scale contexts to think big picture is a big ask, particularly when it takes teams of ecologists and economists to describe the macro-scale SES dynamics. 

There is also the temporal transition dimension to consider. When game theorists study zero sum game trading behavior, the trades are usually immediate between the traders. In the real world—particularly the world of environmental policy—the trades tend to stretch out over time. Climate change presents this problem in spades, where most of the “losers” bearing the cost of regulation are in the present and most of the “winners” benefitting from the regulation are in the future. The “green jobs” argument for shifting to renewable energy also has this dimension, as the “war on coal” rhetoric frames the dynamic as one community losing jobs in the present to make jobs for others in the future. Even the water reallocation scenario presents this problem, however, as the rehabilitation of the aquatic resources and the wonderful benefits that will flow from it could take decades to materialize to the point of sending benefits back to the farmers, by which time the farmers that gave up the water and bore that cost may no longer be on the scene.

Both the multi-scalar and temporal transition problems are exacerbated by the distribution of costs and benefits leading to what is often an imbalance in magnitude between the costs borne and the benefits received by the “losers.” Even if the farmers in the water allocation scenario grow to accept that the nonzerosumness operates at the macro-scale, plays out over time, and produces net aggregate social benefit, their particular cost-benefit ledger looks like a bad deal. They bear most of the cost of the water reallocation, but share in the benefits with the rest of the SES community in a diffuse distribution. This problem plagues the Endangered Species Act, where protection of species often affects specific communities while the claimed benefits of biodiversity are far more diffusely enjoyed.      

Even getting a handle on these problems does not necessarily avoid the problem of imprecise valuation. The claim that the water reallocation is a nonzero sum dynamic can be argued coherently as an ecological, economic, and sociological proposition, but proving it in dollars and cents is a far different matter. In short, we don’t have the methods to do it reliably. Biodiversity is great, but how much is it worth? This problem has stymied the integration of ecosystem services concepts into policy decision making—we know that ecosystems provide valuable nonmarket services such as water filtration by riparian habitat, but putting a value on them is quite difficult, particularly at the small scales where one group perceives a zero sum dynamic with them as the “losers.”

Lastly, the polarizing effect of government intervention often complicates environmental policy by immediately and tangibly dividing groups into us-versus-them camps. One can easily imagine the water reallocation scenario as the result of federal regulation supported by national environmental NGOs and opposed by a local farming community and its local government. As the interests square off, all of the factors discussed above get in the way of the appeal to nonzerosumness: it’s crop values versus estuary values, national versus local, long time frames, farmers’ loss of water creating diffuse benefits, no reliable dollar signs on the benefit side, and all being crammed down on the farmers by federal regulation with no compensation. One has to be rather insensitive to expect the farmers not to suffer from zero sum mentality in that story line.  

Environmental policy needs to take the zero sum mentality seriously. Pitching environmental regulation as nonzero while not taking into account pockets of small-scale dynamics that look much more like zero sum has led over and over to conflict, litigation, and bruised relationships. Ignoring the problem by refusing to speak of zero and nonzero also does not help. This is why work on collaborative adaptive management, quantification of ecosystem services, resilience, and other ingredients of adaptive governance is essential to pursue and sustain. Adaptive governance must seek to identify pockets of perceived zero sum games within the larger SES management context and work with the “losers” to achieve a better framing of the dynamics and explore policy options to counter the zero sum mentality. Adaptive governance cannot change the physical and social realities of SESs—they have many metrics, are multi-scalar, evolve over time, are uneven in distribution, and are difficult to quantify—but adaptive governance can change the polarizing effect of government intervention and help all participants communicate more openly about perceived zero sum problems and their solutions.    

https://lawprofessors.typepad.com/environmental_law/2016/12/elc-essay-2-the-zen-of-nonzerosumness-in-environmental-policy-easier-to-say-than-to-achieve.html

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