Pull a punch, Will Ya? Not This Round !

Pull a punch, Will Ya? Not This Round !

Ganga Prasad G. Rao
http://myprofile.cos.com/gangar

These days, even the guy on the street is familiar with global warming, climate change, emissions taxes and emissions credits. After decades of wrangling, it is perhaps safe now to openly support (without triggering ‘RTI hits and FOIA misses’!) the claim that fossil fuel use has induced and accelerated climate change. Economists, ever so prescient, have proposed various schemes – from per capita emission limits to tradable, bankable emissions credits. Why, and notwithstanding the currency crisis, there is even a European Carbon Credit Trading market (that is when you trade Gouda cheese and thermal power emissions for Swiss cheese and home heating emissions!). But seriously, or more aptly, to tickle your cranial nerves, here’s one that you haven’t come across yet (unless someone smoked it outta me as I showered, and posted it before I trudged my last mile to the public computer center). So, what do I have to gain, and you to lose with a blog/column on the subject? Nothin’ much, no matter which side of the debate you stand on. And, what do I call this piece? Not my comatose day-dreaming and delirious rantings as I snake my way thru ‘Alice in Wonderland’ !

The Problem

In the beginning there were two Sultanates headed by, respectively, the ‘Blue IEA Sultan’ and the ‘Green GEF Sultan’ answerable only to the ‘World Bank Monarch’. The IEA Sultan sought the exploitation of all fossil fuel reserves and discoveries. The GEF Sultan wouldn’t hear of it until his adversary ‘diligently’ pronounced ‘Environmental Sustainability’. This impasse continued until the Big One, as the Monarch would imagine himself to be, asked them to hammer out a middle road between their polar positions. To cut the story short, and much as they hated each other, the two Sultans sat on opposite corners of the palatial hall and shouted across as to how much energy the global economy should consume and how much the earth could warm. With the world stock markets awaiting their word ever so impatiently, they decided to go with the advice of the Monarch’s scientific and economic advisors. The advisors put up charts indicating the causality and relationship between global economic output, energy intensity, carbon intensity of fuels, carbon emissions, CO2 concentration, and the Steady State Long-run global mean temperature, SS-LR-GMT, (the chosen measure for global warming) consistent with those emissions/CO2 concentration. To the relief of bond managers managing trillion dollar portfolios, the advisors also estimated the ‘Optimal Steady State Long run Global Mean Temperature’, T*, one that ostensibly maximized intergenerational global welfare while minimizing economic, environmental and social damages. The Sultans sagaciously accepted the advisors’ recommendations.

The Answer?

Required to dovetail their policies and realize the optimal SS-LR-GMT target, T*, or risk losing their Sultanate to the Monarch, the Sultans scratched their heads to come up with a solution to achieve it as early as possible without giving up either the natural resources at hand, or the profits churned up by the global economy. Wisely, they turned to their trusted Chair of Environmental Economics for answers. The academic, wizened by decades of wrangling for funds, the punches, barbs and stings from sponsors, stakeholders and critics in the academe and beyond for every paper he published in his illustrious career, chose to play a simple, yet effective ball game. He decided to pit the two Sultans in a head-to-head, multi-round boxing match!
All zealously profit-minded firms, were asked to line up behind the IEA Sultan. Those other firms that gave more than mere lip-service to ‘Corporate Social and Environmental Responsibility’ were suggested to accept patronage of the Green GEF Sultan. The Academic asked the two Sultans to administer the group of firms under them. The IEA Sultan was asked to maximize in each period, the aggregate accounting profits, Ht, of ‘n’ Blue firms under him:

The GEF Sultan was suggested he maximize a static ‘Net Resource Rent’ function, Dt,

where ‘OilRev’ stood for the total proceeds from Monopoly Oil sales to the IEA Sultan, ‘RF Outgo’, the cost of Carbon-Zero Renewable Fuel, CZRF, purchased from the IEA Sultan, P^ERt, the price of an emission right modified by the amount of change in SS-LR-GMT that it induced (the dollar price for a 1 degree temperature change in SS-LR-GMT), TProj, the current period projected SS-LR-GMT as determined by actual past period GMT, Tt-1, ERt, the emissions in the current period, and T*, the global welfare-maximizing GMT.

Now, the Blue IEA Sultan was eager to lead the Resource bandwagon, and anxious to fulfill all energy needs of the world. But, as ordained by the Divine Lord himself (The Monarch favored the Green Sultan who shared the Big One’s vision of the Earth being a Garden of Eden), the GEF Sultan cornered all rights to fossil energy production and supply. Entrusted with securing the Green Orb for the future, the GEF Sultan further sought and obtained the right to administer the Emission Rights (ER) Bank in which firms could deposit, hold and redeem their ERs.

Paradoxically, thankfully, and perhaps even appropriately, the IEA Sultan, now forced to buy Monopoly Oil from the GEF Sultan for firms under him, won both the right to control supply of ‘carbon-zero’ renewable fuels, CZRF, and the power to issue Emission Rights, ERs. Upstaged by the Green Sultan in resource rights, and green with jealousy, the IEA Sultan wrought his vengeance, first by monopolizing the production and supply of CZRF, and then, by allotting ERs free to Blue firms in amounts equal to the number of Oil barrels they purchased from him in auction each period. Blue firms could either apply the ERs toward oil consumption, bank them in an ER Bank, exchange them for CZRF barrels, or, trade them over to the Greens in ‘Blue’ ER Auctions.

His stature in the fossil energy market notwithstanding, the GEF Sultan was forced to buy CZRF from the IEA Sultan at monopoly prices and auction them to his Greens. Post the CZRF auction, the GEF Sultan also offered ‘gratis’ to Green firms those oil barrels not purchased by the IEA Sultan, on condition every barrel be consumed with an ER. Sharing their Sultan’s vision, the Greens bought ERs from the Blue firms in competitive, market-based, secret auctions. Green firms could apply the ERs to Oil consumption, exchange them for CZRF barrels, bank them in the ER Bank, and/or turn them in to their Sultan for ER credits, ERCs.

The Pay-Off

His brain sharpened by the decades of ‘walk the tightrope’, the academic tied the Sultans in to a further obligation. Fully cognizant of the conflict of interest, he specified a ‘Pay-off function’ for both Sultans - a function that determined their ‘take’ at the conclusion of each ‘boxing round’ which they themselves administered – a test of their morals and ethics. The IEA Sultan’s Pay-off function was, simply:

IEA Sultan Pay-off, POBt = ‘Blue’ Oil Auction Revenuest – Monopoly Oil Purchase Costt

The GEF Sultan’s Pay-off function was similar:

GEF Sultan Pay-off, POGt = ‘Green’ CZRF Auction Revenuest – Monopoly CZRF Costt + Aggregate Blue ER Auction Profitst

Rich Pickings? or Lean Meat!

At the conclusion of each round, the Monarch called upon the Sultans and satisfied himself that the economies were turning incrementally efficient and environmentally sustainable, even equitable. He further ensured the Sultans computed their Pay-offs only after reconciling Oil transactions in his office. In a strategy that revealed the Chair’s genius, revenues from monopoly oil sales to the IEA Sultan were distributed each round among Green firms in proportion to their ERC balance in the complement of the percentage ER profits that the Blue firms turned in to the ‘Blue ER Profit Bank’. The rest of the Monopoly Oil sale revenue (equal the % ER profit turned in by Blue firms in to the ER Profit Bank) went in to the Monarch’s Granary (Yes, the ‘Royal Resource Sink’ Bank!) until such time TPr exceed T*.

As further required by the Chair, the GEF Sultan, bound to his ‘Garden of Eden’ charter, turned in any excess from his Pay-off (POG-POB) over his counterpart’s, to an Environmental Remediation Fun, ERF. And in those periods, when the IEA Sultan’s pay-off exceeded the GEF Sultan’s, he turned the excess over to the Equal Opportunity Compensation Fund, EOC – a dole for firms at the bottom of the Blue Ladder meant to ensure their survival while yet new and small. The Green, recipients of residual oil barrels post the Blue auction, did not mind the EOC diversion.

After a re-computation of ER balances, and a re-jig of firms on the Blue and Green Ladder, respectively by cumulative profits and ERCs, the IEA Sultan, just as soon turned his attention to the next round, gauged the input and output prices, as well as the position of banked emission rights before deciding how much Oil to bid from the GEF Sultan. Not to be outdone, the GEF Sultan took stock of how much the past period GMT and emissions impacted upon TProj(‘Impact Function’), how that deduction impacted upon his Objective Function, and made anticipatory, compensatory adjustments to the amount (and implicitly, the price) of Oil he offered to the IEA Sultan next period. In that matter too, the GEF Sultan followed the advice of the Chair who guided him with a ‘Response Curve’ to quantify his decisions. The ‘Response Curve’ indicated how the GEF Sultan ought to alter the quantity of Oil offered to the IEA Sultan from period to period for various projections deviations from T*.

And as the bell rang for the next round, the Blue firms and the Green firms – the boxers – began to pull punches all over again. The Blue firms maximized profits while the Green firms were intent on generating income to purchase ERs and turn them in to ERCs, the measure by which Monopoly Oil revenues were distributed among them (and in fact, their ticket to ‘Nirvana’). Together, the Greens and the Blues, bid up or down the price of Oil, ERs and RF in a manner that signaled to the Sultans appropriate remedial policy measures to jointly maximize their take and yet conform to the Monarch’s objectives.

Signals and Incentives

The Monarch’s advisors examined the many stocks, flows and ratios in this ‘proxy boxing match’, but in particular, a) the number of banked ERs, and b) the ratio of the price of ER to the price of the marginal oil barrel. A positive change in the magnitude of banked ERs indicated an expectation of increasing economic activity, resource scarcity, and/or environmental sensitivity in future periods. Similarly, an increase in the ratio of the price of ER to the price of Oil suggested a lower pay-off for Oil exploration. The same were considered as macro-economic ‘signaling instruments’ to influence economic, environmental and resource policies.

Nirvana

At the Tea, a closing ceremony sponsored by the Monarch following a round, the two Sultans took stock of their ilk. The IEA Sheikh re-arranged Blue firms on the basis of cumulative accounting profit criterion; firms that had churned the largest cumulative profit holding the top rungs of the ladder. Rankings on the Green Ladder were decided by cumulative ERCs. Firms were then permitted to cross the road albeit on a case by case basis. Lured by the prospect of sharing the Oil auction rents, many firms sought to cross over the ‘Laxman Rekha’, and jump on to the Green Ladder. In other periods, some Green firms decided they had a better chance of climbing the ladder by churning out profits on the Blue side. Unmindful of the treachery, the two Sultans permitted firms to change sides, albeit on a case by case basis (the Blue Sultan wouldn’t as much give audience to the RF supplying firms). Moving firms could carry their ‘banked assets’ across the road but would need to conform to the rules and criterion on that side of the road.
As an incentive to compete and excel, the Monarch, in consultation with the Sultans, chose following each round a Blue firm and a Green firm at the head of the two ladders, for ‘Nirvana’, an exalted state signifying ‘principled success’. The Monarch bought out the Chosen Green of the round, while the corresponding Blue firm was rewarded with a ‘share buyback’ from the ‘Blue ER Profit Bank’ (In both cases, the shareholders had a little something to cherish). The Owners/promoters of the ‘Nirvana-Blue’ firm joined the Blue Sultan as ‘Slave Drivers’ (albeit ‘Administrators’) and took charge of managing the ‘Blue Line’, in particular the administration of the Oil auctions, the distribution of ‘EO Compensation’ monies to Blue tailgaters, as well as decision-making involving the various economic parameters necessary for the IEA Sultan to optimize aggregate profits. Owners/Promoters of the Green firm achieving Nirvana were privileged to serve as Environmental Judges on behalf the Monarch and entrusted with the administration of the Environmental Remediation Fund. To limit collusion, and self-audit the system, the Sultans occasionally winked at an exchange of administrators.

Death, ‘Punarjanma’, and the Birth of the Closed Cycle

To permit business failure concomitant with the graduation of ‘Nirvana firms’, and leverage it for the better of the Earth for a future economic cycle, the Monarch bought out one ‘failing’ firm each round from between the Greens and the Blues and re-structured it in to an entirely new Closed Cycle entity at the bottom of the ladder – alternating between Green and Blue ladders each round. The new entity was permitted to expand and move up the ladder only if it could conform to the guidelines of a closed-cycle economy.

Epilogue? Or a What If?

As it turned out, nations of the world were confronted with a horned-dilemma between choosing global economic depression and engendering irreversible global environmental damage. On the one hand, the Emissions Trading System, ETS, of the Developed world was distorted by the monetary greed of currency funds, hedging strategies of commodity funds, and geopolitical strong-arming of sovereign funds; on the other, developing nations, held back by per-capita policy-based subsidized economies, shied away from participating in the ETS, and turning it largely ineffective at controlling global GHG emissions. The proxy Moulin Slugfest between the Sultans’ Loyals was not an inappropriate strategy, perhaps even a middle road to an economic and environmental resolution between die-hard opponents and enemies.

This ‘Technology-Resource – Efficiency-Equity’ tussle between the Developing World and the Developed World continued while firms in ‘Moses Pariah’ nations played a Zero-Sum within their economies (as opposed to a ZS among firms across nations in the ETS) until they turned a lot more efficient, even a shade greener, and moved up in to the ‘Club of the Empowered’ (the G20). Both groups found the challenge of duopolic sparring rounds, the allurement of resource rents, and the dream of ‘Nirvana’ while achieving T*, ‘the grand utopia’, an economic-environmental alternative worth considering.

And as Moses herded his sheep across the River Jordan, the incentives to cross the Blue-Green divide diminished eventually, until it didn’t matter whether a firm or nation chose one or the other side of the road to the Garden of Eden!

ps: As for the Green and Blue Administrators, they had just enough coins, pennies and dimes left over to order an elaborately designed carpet for the boxing rink (and, matter of fact, did not mind a few loose ends!).

Public Funding of the Election Dance – Try the ‘Rao Twist’ !

Public Funding of the Election Dance? Try the ‘Rao Twist’ !

Ganga Prasad G. Rao
http://myprofile.cos.com/gangar


We may be between elections, but corruption is a perennial river - a river with many sources, one dirtier than the other, each seeking the rainbow, and, both the setting sun on the horizon and the rising moon as the serpentine merges in to the confluence of the sky and the sea. Elections, doubtless, are one of the largest of these corruption sources; the reason being that a change in government brings about changes in policy that affect large domestic business houses, VHNIs, and foreign industries, beyond impacting, in a fundamental way, the multitudes invested in stock markets and fixed assets. The consequent large shadow values attached to electoral results is the motivation behind many-a-backroom pre-election moves. Practically, every one of these moves is an underhand deal with payoffs arranged in one of the many discrete and not-so-discrete ways. So, what can we, as Anna Hazare faithfuls, do, to correct this corruption curse, a monstrosity that visits upon us every few years (and sometimes is the reason for the premature change in government?) Yes, we could adopt PR at the ballot box, but that does not get to corruption. Are we then to turn, either meek witnesses to the rape of our constitution and the loot of public wealth, or, God forbid, storm the Parliament, to impose our will? Thankfully, No.

Let us, instead, consider an ‘overground system’ for the funding of elections. Political parties are aware of and exploit voting blocs among the masses – Employees-HomeOwners-Investors, Businesses-Producers-Capitalists, Voters-Subsidy Recipients-Consumers, Retirees-Pensioners, Farmers, Environmentalists, Religious Groups (if constitutionally permitted), to name a few. Presume that a mechanism can be created to channel a small percent, say 0.1 %, from the financial transactions of each citizen/business entity/organization in to one or more of the public Voting Bloc funds. These Voting Bloc Funds would be overseen by the CEC (perhaps a triumvirate of officers for each voting bloc deputed by the CVC to the CEC). Upon the announcement of elections, these Voting Blocs announce auction-based funding rounds. Funds are offered on a per-contested-seat basis, albeit with a lien. The lien is removed post election results when a certain fraction (‘take back’) is held back depending on the party’s electoral performance. This ‘take back’ fraction is bidded upon in online auctions in successive funding rounds across all voting blocs. Thus, a 90% take-back round is announced for all voting blocs simultaneously, and parties willing to ‘give back’ 90% for every loss may approach one or more of the voting blocs for funds. This is followed by a 80% take-back round, then 70%, and so on, until the officers declare the funding rounds closed. The CEC would, at the conclusion of the elections, publish consolidated accounts that reconcile liens and ‘take backs’ from each party. This mechanism ensures, on one hand, that only the politically viable parties approach the voting blocs first, and on the other, guarantees propriety in party electoral expenses, which otherwise would tend to inflate with freely available public funds in a competitive election arena involving parties that must outspend each other to catch the voter’s attention.

Voters, who previously had little clout, now have an organized, legal, even a public channel to pursue their agenda. Each voter would have indicated, online, his choice of voting bloc for the channeling of his contributions. Conceivably, each voter could opt to channel his contributions, cumulated and apportioned annually, to one or more of the (overlapping) voting blocs (a consumer is also a ‘green’, an investor and a retiree). At the ballot box, voters evaluate each party’s manifesto, its funding sources, and the compatibility of their manifesto with that of funding sources, and with one’s own preferences and opinions on various issues of national importance, and societal/personal interest.

Parties, which previously resorted to large scale corruption to fund their campaign, or that approached large business houses and those unnamed foreign sources for electoral funding, now turn to public funding sources. They cast their manifesto and choose candidates to maximize some joint function of electoral success and (retained/net) electoral funding from public sources. Clearly, the availability of legal and public source of electoral funding reduces the incentive to seek out ‘high-risk’ and illegal electoral funding sources whose patrons exact their pound of flesh upon the nation, its citizens, and its future. The overt nature of funding and transparency of the electoral process also contributes to a less-corrupt electoral process, and in turn, to a more upright Parliament and Government.

Bottom line, a less-corrupt, more efficient, and a more equitable society. Not a bad way to fight corruption, huh?

Wanna vote on my proposal?

(Comments and Suggestions? Direct them to the CEC and the CVC !)

A 2-Part Vehicle Insurance Proposal that Enhances Road Safety and Saves You a Buck (or two)!

A 2-Part Vehicle Insurance Proposal that Enhances Road Safety and saves you a Buck (or two)!



Ganga Prasad G. Rao
http://myprofile.cos.com/gangar


Man (or, was it the ape?) invented the wheel eons ago. 4-wheeled powered transport is all of 2 centuries old. Road networks came in to existence a hundred years ago. Car insurance some 50 years back, GPS and interactive maps yesterday…..and yet, accidents continue to recur on our roads at a frequency that would shame those who conceived transport as a panacea - a means to foster equity across a large, spread out population. Every nation, whether advanced or developing, loses a not insignificant fraction of its well-heeled, even well-educated population in accidents; in fact, accidents have claimed some of our better known social personalities. No one seeks an accident so why does it happen? True, the improvement in automobile safety features and better road infrastructure have tended to cut down on fatalities if not on accident frequency, but the many-fold increase in average and peak speed has increased the severity of accidents. The increase in traffic density and lack of traffic discipline has tended to exacerbate both the frequency and severity of accidents. Human error, both immediate and in planning trips has always been an overwhelming influence.

Talking of human error, the question to ponder about is: Could we not force drivers to plan their trip, anticipate risks and reduce the risk of accidents to self and other drivers on road? What would aid such planning? Isn’t there a market mechanism to induce safe behavior on road, and dissuade the less-than-prudent drivers to stay off road? If not, why, and what can we do about it? Unlike planes and trains where your fate is decided by the operator (or the drunken bus driver who claimed his right to cross what seemed like a horizontal ladder on the road ! The passengers did not live to verify the truth), automobile safety is largely in the hands of the driver/owner. Human error then manifests from lack of planning and anticipation, either from carelessness or from lack of priority relative to other ‘pressing engagements’. Insufficient information about static (section of poor road) and dynamic road risks (trucks riding the fast lane in tandem or buses competing to get to the next town for passengers) is an important contributing factor behind road accidents. In the days of yore, there wasn’t much that one could do about it. But with advances in information technology and automobile sophistication, one now has potential access to information critical to ensure superior safety on roads.

Human nature being what it is, any action that attenuates a risk or the damage from risk results immediately in further ‘use’ of the risky activity. Insurance is a well known moral hazard. The fact that motor insurance is collected largely invariant to the extent of driving is an important source of excessive vehicular use. So are transactions cost, free ridership and the ‘commons externality’. If it were not for damage to self and one’s own or rented vehicle, a driver would carry minimal if at all any insurance regardless of the fact that his vehicle and his driving contributes to the background, or sometimes the incremental risk of on-road vehicular accident. This lack of regard for the safety of fellow drivers on road is an important cause of accidents, especially those accidents in which human error is indicated. The bottom line is a lack of willingness to pay for public risk-alleviation and risk-alleviating strategies. This lack of willingness to pay for enhancing group safety results in lower than optimal investment in safety – whether safety features in vehicles, training in defensive driving, pre-emptive automobile maintenance and repair, or, as proposed here, a commercially feasible trip-planning-cum-insurance service. Consequently, technologies and services that would have provided services that enhanced road safety are pre-empted from existence. After all, who would invest sizable resources to inform the millions of car drivers of risks on a real-time basis? And that, fellow citizens, is the crux of the matter. There must be an incentive for the dissemination and use of safety information.

To an economist, the message is simple. Drivers must be induced to perceive a monetary gain or loss related to their safety performance on road. And entrepreneurs must perceive sufficient profits to set shop and disseminate trip planning and safety information that enhance safety while on road. The first condition only obtains when motor insurance is tied to (incremental) accident risk, which derives from commuting/travel distance, driving performance and other on-road risks not explicitly considered in a traditional insurance policy. To realize the first condition, one could, in a guarded way, suggest motor insurance quotes be separated in to a ‘fixed annual’ part provided by traditional insurance firms covering for daily commute within a certain radius around one’s primary residence, and a ‘variable part’ that covers for discretionary long distance trips including business and pleasure trips. Commuting and local driving constitutes the 'inelastic' part of driving. Such driving is relatively less-risky, largely invariant to income and weather fluctuations and even anticipated. Inter-city driving, on the other hand, is less-frequent, subject to vagaries of weather if not income, is less-well anticipated, and hence carries a larger risk - thus motivating and justifying a separate insurance cover. Partitioning motor insurance thus could reduce premiums substantially, especially for local driving. If a large fraction of that driving is employment-related, it could even be subsidized by the employer or prevalent/amended tax laws.

Let us focus on road safety in discretionary driving. To maximize on-road safety performance, it is necessary to relate insurance premium to driving diligence in a perceptible and immediate manner. The trip planner’s insurance has a significant role to play in establishing such an incentive. The variable insurance assessed by the trip planning services is offered as a ‘Deposit Refund’ quote – a strategy in which drivers pay for each business/pleasure trip an amount quoted by the trip planning service, a part of which is returned based on the post-journey driving assessment as provided by the on-vehicle driver evaluation software.

The second condition, that of innovation-driven feasibility of business, is realized when the cost of providing real time road safety information falls sufficiently, in real terms, to provide it competitively (sufficient insurance savings for vehicle owners to flock in and buy in to the service) and make a profit. Witness 3G, 4G and 5G bandwidth for sale! Heck, if Piramal can buy in to Vodafone to offer medical services over the airwaves (or, so I presume), so can I to save the lives and accidents on road! True, it might require sponsoring an ISRO satellite launch, but the gains are tangible and long-term, if not immediate. A dedicated ‘ISRO-TRANSAT’ would lower costs and enable the provision of real-time, online, raod-trip advisory services. The online service, aware of the driver’s credentials, his/her driving record, driving plans, vehicle age and condition, would evaluate risk and be in a position to offer individually tailored insurance quotes for each trip. With ‘IT-enabled’ vehicle, an owner registered with an online trip planning service would login, provide necessary information, answer a list of ‘diligence’ questions and obtain a quote. A ‘trip ticket’ would be generated after paying the quoted amount which would double both as trip insurance premium and a ‘diligence fee/deposit’. The fee/premium would entitle the driver to real-time Road Information System (RIS) while on road. Information on road condition, weather and other impending risks – even processions and protests - would be communicated wirelessly to the subscriber on his vehicle console. Even moving transient hazards, such as unsafe drivers and vehicles could be anticipated and informed with 'just-before-time' precision. If, as alluded above, the vehicle were fitted with a ‘driver rating software’, the trip-planning service would, at the conclusion of the journey, pull up the insured's driving evaluation for the trip and return the diligence deposit to the extent his driving passes the safety benchmarks. Easy money for safe driving! Howzzat?

Such a system would be a boon to drivers who are careful with their vehicle and their driving. In fact, it induces drivers to drive extra safe for larger refunds, and incentivizes this group with lower insurance premiums. Conversely, the system would require higher premiums from the less-informed, less-diligent, and less-trustworthy on the road, and perhaps even induce them to seek alternative means of transport. By providing divergent incentives to drivers at opposite ends of the safety spectrum, the proposed insurance system enhances road safety. On one hand, it increases the proportion of safe drivers and safe vehicles on inter-city roads, and reduces the number of unsafe drivers from undertaking long and risky journeys on the other. The 2-part insurance would, beside furthering competition, provide an opportunity for insurance firms to self-select their risk niche, and perhaps even contribute to lower insurance costs for those urban dwellers who limit their vehicle use to commuting to work, dropping off their children at school and weekend shopping. Discretionary driving is anticipated and priced for each instance, thus enabling the trip planning-cum-insurance firm to tailor its quote specifically for every driver, vehicle and trip.

Now, you wouldn’t mind paying a small incremental ‘surcharge’ toward abating global warming with your discretionary driving quotes, would you?

Welcome to Shangri La!

A Deposit-Refund Population Control Policy - Private or Public?

A Deposit-Refund Population Control Policy - Private or Public?


Ganga Prasad Rao
http://myprofile.cos.com/gangar



It has turned in to a quaint political ritual of its own. Procrastinate on those environmental issues for weeks, even months at a time, but back down just a bit and just in time for the World Environment Day. Yes, it is politically astute to recognize that ‘green’ too is part of the ‘VIBGYOR’ we seek! Now, population isn’t exactly ‘environment’; it is a bigger, all-encompassing issue that straddles the environment, the economy, and all future generations – in fact the future of the nation. It is a lesson in history and socio-economics that almost every populous nation continues, to this day, to be a ‘developing’ third-world nation. Population growth is ‘numero-uno’ of the various problems that bedevil social scientists.

So, when it is World Population Day, our democratically-elected leaders give pause and faithfully mouth policy statements meant to assuage the voting public that their leaders are indeed conscious of the magnitude of the problem and even acting on it. Perhaps the truth is dark and sinister, and in fact just the opposite of official policy statements? Truth be revealed, Western capitalists and Indian industrialists have turned in to strange bedfellows who abet the unholy agenda of those elected to power on the back of populist vote-gathering policies. Together, they conspired to delay population control and create a subsidy-funded growth economy fed by, and in turn dependent on population growth. In fact, population growth has, perversely, served the interests of capitalists who have the mass-producing automation necessary to feed and profit off the starving millions in a per-capita subsidy economy. For the government to stand, the industry and the stock market must flourish. For the industry to flourish, there must be demand growth... and that implies population growth! Now, who would kill the goose that lays the golden egg in the stock market? And who will bell the cat….. Our elected politicians and their bankrollers/sponsors?

I hardly need list the policy initiatives that successive governments have taken on the population front – from Sanjay Gandhi’s forced ‘castration’ to the famous ‘Father-Mother-Child Triangle’ ‘emblem’ with the ‘hum do hamara ek’ message that has since shrunk to ‘naangu erundu namathu onnu’ (Me ain’t no native tamil, but you get the message nonetheless). Free condom-dispensing machines and pills notwithstanding, our population continues to surge, and by official estimates is set to cross China’s within a decade. Wow! What an achievement for a country only 65 years old! Care to peep in to our 200th Republic Day?

Too crowded to even stick your neck out, heh? Exactly. So what do we do about it – short of awaiting the infamous Surat plague or an AIDS epidemic contracted from hip-swinging gals and guys on the local news channel?! A policy that preserves our personal freedom to choose the timing of the holy knot and the number and spacing of children; a policy that is discriminating of income (and child gender) differences and its impacts on family formation, and yet cognizant of the population externality that each additional birth brings about, indeed a policy that is both equitable and quasi-efficient? I motivate my proposal (while laying no claim to originality) in the policies of the recently elected TN government. While the world talks of population control and sustainability, the TN government has proposed, wait a minute, a ‘marriage bonus’ – a lumpsum reward on marriage day! It could be that the government values public morality among the NextGen more than environmental disaster, or that the ‘home-builder’s-cum-home loan provider’ lobby has, for mysterious reasons, special access to the CM’s office. But it sure sets a poor precedent and a wrong message to international organizations that have a stake in our economy and stock markets. Shouldn’t we be taxing married couples if not for the population externalities engendered by early marriages and unwanted pregnancies, but as a test of their ‘conjugal’ commitment and their financial sustainability given the distractions of the modern day?

A marriage registration tax is already in place in every state in India. It takes but trivial effort to upgrade the tax in to an effective population control policy. The policy, at the core, is rather simple – a deposit-refund system. Every couple at the altar pays in a substantial sum as marriage registration fee (the 'Deposit'). The fee varies by female age and the income tax slab of the couple. It earns interest and accumulates over a 20 year period. The birth of a child, whether 1st or 2nd, draws it down – a quarter of the original amount in the case of the first, and a third or half for the second. The amount accrued at maturity (the 'Refund') is returned with a 100% bonus if the couple chooses to stop with two children; the couple forfeits all monies if it chooses a third live birth. (The government could seek the participation of the employer or even the PF Authority in doubling the payoff at maturity.) A marriage tax deposit-refund system implicitly doubles as a 'birth tax' and flexibly induces delayed marriage, delayed first birth and spacing of second birth. A 'Double or Lose it all' strategy sharpens the incentives, thus ensuring against proliferation of family size. These incentives at the personal level are expressed in the population as delayed marriages (less number of marriages in any given period), and a sharply lower birth rate, particularly for the second birth – an outcome (not even measured and perhaps) not obtained as fast by other voluntary population control instruments. A lower birth rate, ceteris paribus, implies a slower rate of population growth, an early stabilization or even a reversal of population growth.

In the figure, a female/couple 1 in a higher tax bracket faces a ‘Marriage Registration Deposit’ schedule denoted by MRD2. Paying a much higher deposit, k, to start with, the couple receives 2B by limiting themselves to one child. A second child causes a deeper loss, reducing their payoff at maturity to 2F. The same couple would have paid a much smaller MRD of ‘m’ had they married a few years later to start with. A poorer couple, 2, that paid ‘l’ as MRD would stand to gain 2E with one child, but only 2G with the second.

There is an option to fine tune the interest rate before and after the birth of the first child. A reduction in interest rate following the birth of the first child matters less to the rich and more to the poor. Therefore the rich will not defer their second as much as the poor. Thus the ‘interest rate stepdown option’ has the potential to induce differential spacing of the second birth across couples in different income slabs.

There is much to commend this system of 'private incentives'. It discriminates by age of the bride and income slab. By increasing the marriage registration fee for younger brides, the policy discourages too early a marriage; yet does not forbid it for those who well-off, those successful at an early age, or those strongly desirous of early marriage. By income discrimination, it ensures the tax is neither too harsh upon the poor nor too frivolous on the rich. It does not mandate the number or spacing of births. To the contrary, it forces couples to consider the long-term cost of their family planning decisions and thus internalizes the externality they cause to the nation with unplanned, too early, or two many births. Correctly benchmarked, the policy has the potential to induce each couple to plan the timing of marriage, and the number and spacing of infants optimally – both privately and for the national good.

Much the same outcome of the 'Private' approach can be obtained with a 'public' government program that credits to each couple at the altar a lumpsum toward a 'Family Provident Fund', a variable sum that vests with the couple after 20 years subject to drawdowns after the first (and the second) birth. Apart from the source of the initial lumpsum, the proposal is much the same. If tailored appropriately, this program could achieve results similar to that in the 'private' approach. This option is particularly attractive to the oil-rich muslim nations grappling with a population crisis.

With the mechanics of the proposal laid bare, the focus moves to ‘who will foot the initial bill’?. Will the proposal reduce to worsen the burden on the bride’s family. Will it substitute and therefore lessen the scourge of dowry? Wouldn’t it increase abortions? .... But the couple does not plan its size on marriage day.... What about the 'income' and the 'price' effect? Shouldn’t the maturity bonus vary with income slab? How do you measure ‘income’ among those already subsidized with ‘roti, kapda, and makaan’? What about….?

And if you ask our politicians, they just might just encourage you to mail in your proposals and fund each one of those questions with a research grant.

Care to apply?

Do You Have an Idling Timer?

Do You Have an Idling Timer?

Ganga Prasad Rao
http://myprofile.cos.com/gangar

I have been awaiting the UID enumerator to show up at my door if for nothing else but to wail my angst at the system that seems to have targeted, engulfed and victimized the ‘green-class’ in our society. But wait as I might, the enumerator gives the slip daily leaving me fuming from breathing diesel soot and benzene from vehicles passing by our dusty potholed street. Must I choke to death with ‘PAHcancer’ and turn a ‘statistic’ before I find a place in the Gobarnment database of Sheikh-subsidized citizens?

Talking of Sheikh subsidies, the other day, my hired autorickshaw lined up at the gas station behind a SUV. And while we waited, I wondered at the incongruity of the SUV revving up and leaving us in a pall of subsidized diesel soot. Vehicles that gas the immediate neighbourhood with soot or the green orb with ‘excess’CO2 for the same mile on road in fact pay less than those other clean and efficient vehicles. Call it a child’s ‘beat up the bad guy’ urge, the environmentalist’s lava of rage at the profligate, or just plain old yellow slime of the ‘have-nuts’, but why should the rich pay less to pollute more when their poorer brethren pay more despite polluting less? More to the point, what do we do about it knowing vehicles that exploit lower cost fuel will invariably cost more and therefore find favour with the rich and among ‘intensive’ users? Shouldn’t we favour a policy of environmental pricing of fuels that differentiates between ‘rich profligates’ driving gas guzzlers and ‘intensive’ users - the former being wilful exploiters of vehicle pricing and the fuel subsidy policy, the latter rather price-sensitive?

In truth, there is a built-in incentive to choose fuel-efficient vehicles to the extent fuel costs factor in the buyers’ buying and driving decisions. While that incentive is environmentally compatible, it manifests more among the less-affluent and intensive users (the incentive is 'sorta' proportional to the fuel-expenditure share in income). Affluent users stress other vehicular and driving attributes, notably safety, terrain handling, looks and upholstery, interior space, air-conditioning, to name a few, in making their purchase and driving decisions. Those attributes, found in gasoline-fuelled luxury vehicles and in upscale diesel SUVs, are likely to imply or to be associated with lower vehicle fuel economy. However, strangely and perversely, that lack of environmental incentive among the affluent is either ignored (as in the case of gasoline), or, reinforced at the pump with (diesel) fuel subsidies.

The Sheikh-sponsored government and fuel-policies notwithstanding, there must be a way to address this incongruity. Where there is a will there is a way, and where there is vile injustice, there is a wave, if not a ‘brine wave’! Could we tackle the issue of environmental mis-pricing of fuels with a VID? A Vehicle Identification Database Administration that enumerated every vehicle on the road and issued a vehicle-specific VID card. A VID card that doubles exclusively as a fuel credit/debit card and provides instantaneous access to all vehicle and owner/driver details – technical, traffic-related and socio-economic – at the gas station. Flash the VID-cum-debit card and, lo and behold, your card is debited for gas/diesel at a price appropriate for your vehicle and user characteristics.(Yes, it’d register multiple drivers for a vehicle)

With the means to identify the vehicle and user characteristics of every vehicle owner/driver no matter where or when, the challenge turns to ‘vehicle/driver-attuned’ environmental pricing of fuels. What if the price of fuel at the pump reflected not merely the 25% mark-up on the government-endorsed collusive ‘average cost’ of the month (You mean it is not transmitted every week by the Sheikhs thru CIA to Deora?!), but also the fuel economy realized with the current tank of fuel as well? Wouldn’t it be appropriate to discount fuel-efficient vehicles, and for good measure, good driving practices as well at the pump? Such differential pricing would induce environmentally appropriate, even safe driver behaviour that internalized both environmental and traffic-related externalities.

Consider an affluent diesel SUV owner with several points on his DL, a Construction contractor-safe driver owning a diesel pickup(both with approx. the same engine make and size) and a commercial tractor-trailer at a gas station. Under the extant pricing scheme all three fill their tanks with diesel and pay the same subsidized price (albeit the tractor trailer might qualify for bulk purchase/contract prices). With a VID card however, the SUV owner would be identified as an affluent and the diesel priced at a premium to him despite nominally being in the same engine size class as the pickup truck owner. If that were all there was to it, I wouldn’t be writing this blog, but the card would provide mileage readings that help determine actual on road fuel efficiency at the re-fueling point. If the pricing algorithm were calibrated to a‘fuel economy benchmark’ (preferably independent of engine size), then, deviations from that benchmark would factor in to the price – higher fuel-economy rewarded with lower price. The contractor, ever so careful with his vehicle maintenance, scores at the pump with lower diesel prices whereas the SUV owner, burdened with the dual curse of a large engine and low fuel economy, pays a hefty premium for every litre of fuel – a premium conceivably large enough to pay for the GHG externality caused by his vehicle. Factor in the DL points, (in these days of GIS-tracking),and the VID is the horse-blinded road-safety automaton the safety/insurance regulators and traffic cops are desperate for!

The fuel-pricing formula for trucks and tractor-trailers could take account of the number of axles or the load per axle in computing fuel prices. Trucks that exceed or comply with axle-loading norms would find favour at diesel stops. Even vehicle vintage could be accommodated in the formula, empowering the policy maker to offer selective discounts for the purchase and/or operation new generation vehicles, thus providing an additional incentive to replace aging, polluting vehicles.

This system of vehicle-specific fuel price-differential raises many questions: What would the impacts be? What would be the monetary incidence of the policy be? What are the efficiency issues at stake? The VID regime is likely to bring about an immediate switch in fuel choice especially in the extremes of the fuel-economy spectrum. Large, fuel-guzzling vehicle owners, in particular the intensive users, might switchover to lower quality fuel; small fuel-efficient car owners might find themselves affording premium fuel. The magnitude of the fuel quality differential will determine the magnitude of the quality switch. Beyond the fuel-quality switch, regulators may anticipate changes in driving/commuting patterns, changes in the intensity of use of vehicles of different sizes, occupancy re-adjustments in multi-vehicle families, and, a switch among car buyers to smaller and/or fuel-efficient cars, if in the medium to long run. Vehicles that boast of higher occupancy are at some disadvantage under this pricing regime, but that wrong likely petersout when evaluated against the alternative of those occupants driving separately. It’d also be necessary to rollout the program across vehicles fuelled by gasoline and diesel to avoid ‘inter-fuel vehicle competition’.

As for the critical question: Who will bell the cat?… I mean, get the pricing algorithm right?….Damn it, Isn’t the PNGRB overstaffed? Give ‘em CEOWs some fodder to chew, if not some moolah to lug home, heh? Perhaps revenue neutrality would be a good starting point for the VID regime. A pricing algorithm that preserves total revenue from fuel sales could accommodate premiums and discounts that incentivize the environmentally-preferred outcomes. The gains and losses could then be apportioned across the OMCs by market share. Over time, the OMCs would find their niche and the revenue neutrality could be discarded in favour of more complex, free market pricing.

Revenues from charging trucks with excess axle loading would accrue to NHAI/HD, and those from charging DL points to Police/Traffic Safety Organizations. The VID offers a superb collection of vehicle use and fuel consumption/choice data. Such data enhances the ability of the regulator to better anticipate impacts and design fuel/auto/traffic policies that achieve efficiency, equity and environmental goals in the road transport sector.

Now, if only the VID could record the number of start-stops and idling minutes while parked, charge it at the pump and recycle the revenues back as asthma inhaler discounts. Why! I might yet avoid a COPD death this life. Ain’t that good news for those ‘RTI terrorists’ planning a ‘vegetable harvest’ of me?
…and bad news for those others bent upon raising the sea level until the salty spray splashes on the yacht parked by their rural farmhouse miles inland from shore!

Choke Out River Pollution – a la Robin Hood!

Choke out River Pollution – a la Robin Hood!

Ganga Prasad G. Rao
gprasadrao@hotmail.com
http://myprofile.cos.com/gangar



What does a 'Green Robin Hood' do for a living? Rob the rich-right to feed the poor on the left? Not exactly, but not far from the truth either! So, what will a 'Green Robin Hood' propose if he is handed charge of controlling pollution in the infamous Cooum river? We're all aware of how rivers run across jurisdictional boundaries and how upstream pollution affects downstream water quality. But what do we do about it – beyond giving a couple of billion rupees to a Singaporean firm to clean it up? What's the prescription?

The Green Robin Hood, as it turns out, also has a modicum of economics. So, he proposes a property-rights solution to solve river pollution. Consider the river basin as the unit, and 'hack' it in to 5 or 10 kilometer cross-sections, or better yet, in to cross-sections each representing a twentieth of the river-length. (The number of divisions would affect transactions cost). Call for a public auction for a multi-year lease of each river cross-section with the condition the auction will proceed upstream from the river mouth. Each lease comes with the right to charge the upstream lessee for 'inlet' pollution, and the obligation to compensate the downstream lessee for the pollution 'transferred' to him. The charges and the compensations could take the form of either a pollution tax, or a pollution license/fee. Additionally, the 'river-mouth lessee' must fulfill standards applicable for waters discharged in to the sea/ocean.

There are several twists of the 'turn-you-livid-with-rage' kind to this proposal. The river mouth parcel and sections immediately upstream are offered to 'Green institutions' (and/or to the poorer sections of the society). The 'green identity-cum-equity' criterion is gradually relaxed as the auction moves upstream (Plainspeak: a Mittal could bid, but only for the upstream reaches of a river). The property-rights are transferable, but only within the 'criterion-class' (a Mittal can sell his upstream lease to Gates, not Rao!). Finally, and given the water-quality impacts adjacent the river, each lessee is liable to compensate owners of adjacent land parcels for ground-water quality degradations due pollution in the river.

The intention and hopefully, the outcome of the auction, will be the bidding up of downstream parcels to what the 'Robinhoods' of the society value the environmental purity of those parcels for, (or the degree to which the society trades off environmental cleanliness for equity). Notice that the auction price of the river-mouth section has a cascading, almost domino-impact upon auctions upstream of it, and upon the taxes/fees charged. For this reason, the stringency of the standards governing discharge of river water to the sea/ocean will be paramount. Under this proposal, each lessee has the incentive to both monitor the quality of water entering/leaving one's jurisdiction and minimize the pollution entering river from any tributary. In turn, polluting industrial and commercial entities will factor in the water pollution levies in their technology and siting decisions, thus bringing about a measure of abatement-efficiency.

The system of taxes/fees/liability is best enforced online with the supervision of the river basin authority. Blah....Blah....Blah.....

Hey, will my grandson ever swim the Cooum?!

Hybrid Dividends? In Mutual Funds?

Hybrid Dividends? In Mutual Funds?

Ganga Prasad Rao
gangaprasad.rao@gmail.com
http://myprofile.cos.com/gangar



SEBI recently came out with a ruling that mutual funds may only distribute the 'surplus' appreciation over an arbitrarily-defined benchmark NAV - the NAV of the previous dividend declaration. This has been widely hailed as a financially prudent step in the 'left' direction. It limits the practice of mutual funds garnering fresh subscriptions by declaring large dividends that eat in to the NAV and the networth of existing investors. But it is also a 'retrograde' policy that steps on the toes of the fund managers' freedom who are limited in their decisions concerning the timing and quantum of dividends. The policy also punishes the small investor in funds that declare small dividends just ahead of a big market crash. With another market crash in the offing (hopefully not!), and with the coffers of the 'Investor Education and Protection Fund' overflowing, ain't it the right time to consider, even propose, an alternative?

The proposal is not unlike an inverse-analog of the 'auto-pay' option offered at select fund houses. Under the 'auto-pay' the NAV of the mutual fund holds but the number of units is reduced to issue the dividend; the proposed dividend payout-variant holds the number of units constant, but varies the NAV to accommodate individual dividend needs. The proposal is implemented by conceptualizing a 'hybrid' structure for a mutual fund - a fund that is both open and closed. Open in the sense that investors may make fresh purchases, and closed in the sense that investors may not redeem units. Instead, investors elect to receive differential dividend payouts. The trick behind 'differential dividend payouts' is to declare a 'base rate' of dividend applicable to all investors invested in the 'dividend payout' option, and then permit every investor in the 'differential-payout' option to receive dividend at some multiple or fraction of the declared base rate. Each investor in the payout option will have the right to periodically re-set his dividend 'beta' (the update taking effect a week later/month-end to preclude dividend anticipation, though and given the intent of the proposal, one could argue against such limitation. The fund house would also place restrictions on the number of switches permitted in a year and the minimum balance to be maintained, but those issues have ready solutions.). Since investors differ with respect to their risk-apetite and their view of the market, the mechanism to set a investor-specific dividend-payout rate facilitates participatory-, risk-based decision-making by individual investors that is lacking in the mutual fund market. Fund managers may breathe a tad easier with their decisions concerning the timing and quantum of dividends, comforted by the knowledge investors now have an option to tune their dividend-payout 'betas' to personal preferences, risk-apetite and view of the market.

An illustration would be useful. Assume two investors - one with a higher risk apetite and a long-view of the market, and the other - either a resource-constrained investor and/or with a lower risk-apetite and/or a short-view of the market, invest 1000 units in a Mutual Fund IPO issued at Rs 10 in the dividend payout option. Investor A opts for a dividend payout at half the 'base rate' declared by the fund, while Investor B opts to receive dividend at twice the base rate. When the fund house declares a dividend of Rs 2 on the fund's NAV appreciating to Rs 15, Investor A receives Rs 1000 as his dividend, and Investor B, Rs 4000. The NAVs for the two individuals diverge from that point from Rs 13, the 'benchmark' NAV for the fund. One could fault the proposal for the incremental cost of computing a investor-specific NAVs and dividend payouts, but in these days of gazillion-Hz supercomputing and FIIs and fund houses profiting from every paise of arbitrage, computing investor-specific NAVs - as is prevalent in retirement basket investments - is no hassle at all.

There are definite efficiency advantages to this system. The fund could be closed for the long term - a decade or more, permitting it to be positioned as an 'endowment' or 'lifetime' fund, and thus garnering a share of the inter-generational wealth-planning market. The freedom to vary one's 'payout-beta' even while permitting the fund manager to decide the timing of the dividend declaration is a strategy that optimizes individual preferences with 'group-decisions' (since the fund manager is better-informed, 'better-positioned, and invests for the group). Further, and since investors may change their personal dividend-payout 'beta', the hybrid scheme permits, on one hand, the 'resource-constrained' investor, and on the other, the wealthy and more aware investor to exploit the fund manager's wisdom to one's advantage without playing the 'invest and redeem' cycle - a strategy that has been the downfall of many small investors. The former appreciates the freedom to take a large lump-sum dividend in a year of his or her need by increasing the 'payout-beta', even while the latter - a higher-risk apetite, long-investor - 'goes against the grain' and chooses to bank rather than bleed his dividends in an 'up' year.

This brings us to the question of the investor-composition of these funds and how it affects the fund manager's dividend declarations. Is the fund manager more answerable to the mass of small investors who constitute 95% of the fund members, or to the handful of large investors who constitute 50% or more of the fund's assets? If the former, the manager is likely to declare frequent, if small dividends. If latter, the dividends are likely to be infrequent and strategic (as at the verge of the end of a long bull-run). Now, there are those other issues, notably the tax treatment of 'hybrid dividends' when an individual's dividend erodes in to his invested capital. Also, and truth be said, large investors, with the 'inside' on the stock market, are likely to exploit the features of this scheme to their advantage, but that is as much a problem with the existing system.

A little bit of extra 'wiggle-room' for the fund manager and the hapless small investor won't do any harm to the market, would it? I don't think so. Whatchabouju?

Closed Cycle Economy - Miracle or Myth?

Closed-Cycle Economy - Miracle or Myth?

Ganga Prasad Rao
http://myprofile.cos.com/gangar



If the 9/11s of the world have taught us anything, it is that the human society, ultimately fails not for lack of technology or efficiency, but for equity and enviromental sustainability. Not that economists or sociologists did not anticipate it. Infact, and to the contrary, many have espoused such concepts as a 'closed cycle economy' or a 'technology-driven rama rajya'. So what stands between our egalitarian dreams and the wretched reality - the veritable 'closed-cycle cup and leap'? Greed-based economic systems coupled to 'beggar-thy-neighbor' competition? 'Subsidy-based satisfice-the-voter' economies coupled to 'feed-on-the-growth, forage on the recession' stock markets? or 'Foul the commons and pass the buck' syndrome? Ace, YES, and Sssshhh!

Industrial economists have long espoused the 'closed-cycle economy' - an ideal system in which the society comprising the industry and consumers recycles what it produces/consumes in to new products so the economy need not scour the earth to mine minerals and fill it with unsorted garbage, pollute the air, or turn the oceans of the world so thick with effluents that fishes would rather jump in to the nets and on to your dinner plates than swim merrily in their school! Honestly, the recycling technology is already here. After all, we do recycle metals, bottles, paper and even plastics. The story, however, is in what we do not recycle. And therein lies the problem. How do we get the industry to recycle what they do not find economic to recycle?

One could always tax the polluting activity or subsidise recycling or both. Perhaps that explains the variation in the degree of recycling across economies of the world. But are we willing to tax ourselves to the point that the industry finds it profitable to 'close' its production cycle, even if that means doubling or tripling prices? More to the point, is that the only way out? Perhaps not. If the motive is merely to induce producers and consumers to adopt a certain practice as a profit-maximizing or cost-minimizing alternative, the same can be arranged in a myriad ways. One of those ways is to reward producers, consumers and investors in the stock market. But how?

Since the capital markets around the world are a 'common meeting ground' for producers, consumers and investors alike, (and since in a trade-driven world, the higher cost of closed-cycle production is likely to favor the 'Archaean economy'), it'd be prudent to introduce closed-cycle policies thru the global capital markets so they apply equally to all participants - regardless of which part of the world they are in, what industry or investor they represent. But what form do these incentives take? Who'd pay and why? As the trustees of the global environment, the UNEP, the GEF, the Greenpeace and the WWF would be the sponsors of a system that incentivizes 'closed-cycle' scrips at the stock market with a formula-based valuation upgrade. The formula would require these sponsors to support 'green' scips at a premium determined by their 'degree of closure'. The 'degree of closure' would be an internationally agreed-upon construct that draws upon company-level data on material balances, environmental releases and product attributes to compute a single measure of environmental sustainability (Call it a 'Closed Cycle Sustainability (CCS) index', if you like). The index would be a broad-based construct that subsumes such concepts as degree of recyclability/recycling, environmental degradability/half-life, toxicity, dispersion potential and so on.

For instance, a publicly-listed firm that completely internalizes its environmental releases and recycles its products - whether in its own network or thru the market - would be eligible for a 100% up-grade in its P/E or PEEG. You may wonder what incentives the sponsors have beyond their immediate charter to safeguard the environment. But these are the very same institutions that pay for your oil spills, plastic cleanup in the oceans, remove old cars from the roads, and sponsor 'garbage hunts' along the Himalayan mountaineering routes. It'd stand to reason that their investments in the capital markets, over a period of time, tilt the balance in favor of a environmentally sustainable, closed-cycle economy, and the same results in reduced cost to them over the long term. Stock market participants, looking for returns, would naturally favor those firms and industries with high sustainability index. In turn, these favored firms, finding capital easy to come, would expand at the expense of the 'archaean dinosaurs', and increase the penetration (or the market share) of the closed-cycle economyo. And we would slowly but surely converge to a 'closed- and environmentally-sustainable economy', avoiding along the way, the 'price-hiccups' under a pigouvian tax regime, and the well-known problems of a subsidy regime.

Now if only one could find a way for consumers to favor healthy foods over unhealthy foods in an analogous way (and subscribe to a system of equity driven by a universal scale of character and virtuosity).

Plastic waste recycled to fibre-rich popcorn at prices appropriate to your 'rank' on the virtuosity ladder!

Rama Rajya, Here we come !

Simple Simon, Yes, Sam, Ample - Pizza Man, and Gibbous-(the)-Moon Man!

Simple Pieman, Yes, Sam, Ample-Pizza-man, and 'Gibbous (the) Moon man !

Prasad Rao
http://myprofile.cos.com/gangar



'Simple Criminal' met an 'Adept'
Enjoyin' the Sun
Asked the 'Simple' of the 'Adept'
"Pray, What secret you possess?
The Secret that hath made you
twice as rich as I ever dare to be?"

Said the Adept to the Simple
Suno mere bhai!
Jus' make sure there is someone behind,
A 'someone of the future'
who will follow in your path.
Commit any crime, any sin, You may!
You take the cake, he does the time
For he hath no way out!
So it has been for eons now
So shall it be for centuries to come!

Said the 'Simple' to the 'Adept'
Enlightened I am today,
How can I ever repay you
for this priceless 'Gurudakshina'
Said the 'Adept' to the 'Simple'
'Not so easy, and not so soon'
for I must initiate you
to this 'O cult' tradition!
As your Guru, and for a start,
I ordain you 'Satyam vada, Dharmam chara'
Cover for me while I loot as
your Hon'ble Mantri Mahoday !!!

(I'll take turns and lead the pious life when it's your turn at the Ministry!).

Gold ETF se Uranium ETN tak !

Gold ETF se Uranium ETN tak !
(Plis, No Yeenglees !)


Barsat Roww, D Great U Genus!!
http://myprofile.cos.com/gangar


Dekho dekho dekho !!!
Mittal ka Qutb Minar dekho,
RIL-RINRL-NTPC ka 'diamond-triangle' dekho
Ye hai Ambani ka KG-6 mahal
Aur ye raha Deora Doodla pipeline, dekho, Yeow!
Thoda samjho ! … .thoda dekho....!!!

Iron ore export ghotale ke peechche dekho
NMDC FPO ka 'misaal' dekho
CIL ka 'compensate & rehabilitate' policy paddho
Sterlite-Posco 'dual-strategy' dekhooooo
Dekho aur kuch samjho, resource-rent ka matlab samjho !

RBI monetary policy-lajawaab dekho
UPA Government 'stimulus withdrawal' pehchano
Planning Commission se sawaal poocho
Parnab Mukherjee-da-budget dhabha dekho
dekho nahi socho, kuch to socho !

((Ab jo) samne vaale le gaye baazi …...... )
Stock market crash ke odds dekho
Mid-term elections bhi hedge kar do
Double-depression? kuch yaad to karo
Vote to fenkh diye, ab investments kuch bachao !!

Peso fenkho tamasha dekho !!!