Thinking around environmental economics is starting to be my favorite spare time activity. Not entirely sure if that’s a good thing :> I have been writing about democratization of consumption data, the idea of providing accurate and real-time data and information on individual consumption of natural resources to consumers. Data on individual consumption – today largely hidden – would, thus, be accessible at the source. The naked numbers of data could then be presented as information, for instance, through software that supports individual benchmarking.
Recently, I read the Environmental informatics special issue editorial of the Environmental Modelling & Software journal [1]. I think, the idea of consumption data democratization is related to what the authors call environmental awareness, the “main effect of environmental information.”
In economics, one of the fundamental assumptions on individual human action is rational self-interest. I think, a necessary condition for rational self-interest is complete information, meaning that for an action to be rational w.r.t self-interest one needs to consider all the information associated with the action. Of course, this is impossible given that the information we typically have access to is inaccurate and incomplete. Thus, individual human action is likely to be rational w.r.t self-interest only to a certain degree of probability. An example. Assuming long life is in my self-interest the action of smoking a pack of cigarettes a day is likely to be rational to a different degree of probability depending on whether or not I have the information that I’ll prematurely die of lung cancer (no confounding).
Environmental awareness, of which knowing individual consumption might be a specific instance, enabled among others by information technology might deliver a further brick in the information wall towards more complete and accurate information, a necessary condition for rational human action. For instance, in knowing the cost of my TV on stand-by I might realize that for me the benefit of switching it off is greater than the associated cost (i.e. to poke my laziness). Switching off the TV might, thus, be the rational action w.r.t self-interest.
Knowing the magnitude of the opaque monetary cost of consumption is probably the single most important factor. I argue that, if anything, self-interest motivates most to optimize spending. Which, I think, is perfectly rational (at least on individual scale). The trouble from an environmental perspective is, however, that likely nothing is conserved; as some argue, conserving conserves nothing. I’ll spend the money elsewhere. Probably. However, my capital allocation is likely to be rational to a greater extent, which is good.
An action that is rational w.r.t self-interest is expected to maximize welfare. Typically, only the welfare of those involved in the transaction is, however, considered. Though, it could be that the action causes a problem to somebody else. A different, more informed, action would maximize total welfare, i.e. it makes somebody else better off without making me worse off, a state that, I think, is perfectly in my self-interest. The former case is suboptimal in that my action externalizes costs (borne by somebody else). Quantifying environmental externalities is a particularly daunting task given that the value of environmental assets is not directly reflected in a market [2]. Internalizing such costs is, I think, another necessary condition along the way toward rational human action.
[1] Lorenz M. Hilty, Bernd Page, and Jiří Hřebíček. Environmental informatics. Environmental Modelling & Software, Volume 21, Issue 11, November 2006, Pages 1517-1518, doi:10.1016/j.envsoft.2006.05.016
[2] Michael Harris. Environmental Economics. Australian Economic Review, 1996