(Photo by iStock/Petmal)
Working at the intersection of economics and political science, Torsten Persson researches the effects of policymaking—a focus of traditional economics—but also the politics of how policy gets made. In a new paper that takes a cross-disciplinary approach to tackling climate change, Persson, a professor of economics at Stockholm University and Centennial Professor at the London School of Economics, asks how patterns of production and consumption can undergo a “green transition” to a new economy that relies entirely on environmentally friendly technology.
Together with Sir Timothy Besley, a professor of economics and political science at the London School of Economics, Persson draws on literature from sociology and anthropology to account for values and lifestyles, which sit beyond the realm of conventional economic analysis. The two formulate a new, more sophisticated model of how a green transition may or may not take place.
“Many people seem to agree that what we need now is a green transition, meaning that both production and consumption are done in a greener way,” Persson says. “But if you ask a scientist and you ask a social scientist, they have different views on how that should happen.”
The researchers set out to determine what happens when consumer values are integrated with the economic instruments typically adopted by policy makers: carbon taxes and subsidies on brown (polluting) or green (nonpolluting) goods. They arrive at two major insights. First, there is two-way feedback between consumers and producers that changes over time. Thinking of consumers as living in a sequence of generations, and about how young people form values—borrowing from anthropologists for whom parents are not only biological but also cultural agents—the researchers theorize that the more people there are with green values, the more producers will choose a green technology. And the more producers are green, the more convenient it is to be a green consumer.
Most economists view regular consumers as all the same, but the researchers conclude that shifting consumer values, together with market forces, can result in a “green long-run equilibrium,” which accelerates a green transition, Persson says—or, conversely, a “brown long-run equilibrium,” which impedes transformative change.
“If there are not many green people to begin with among consumers, then not many firms will be green. Then when people find themselves in the position of making choices, they don’t find the green option convenient,” Persson explains. “Fewer people become green, and therefore fewer firms do.” Reaching a green equilibrium, therefore, requires a large share of green consumers to begin with. This means that education and other factors, such as businesses encouraging individuals to make green choices, affect whether a market-driven green transition is possible.
The researchers’ second insight is that traditional economic policies, such as taxes that help individuals internalize the costs of environmentally harmful consumption, can encourage change but do not guarantee a green transition. Even when politicians champion green taxes as part of electoral campaigns to win over green voters, green consumption and production patterns may not follow. The researchers show how policy serves as more of a facilitator of change than a driver of it and how political failure can compound market failure.
In an effort to make sense of the relationship between politics and what people want, the researchers introduce a moral component to their analysis. When there are more consumers who hold moral concerns for the environment and not simply a taste for green consumption, politicians who are motivated to win elections are pressured to adopt green policies. But in wealthier contexts, the researchers note, green and brown lobbying firms will try to shape policy through campaign contributions. If brown firms are richer and better organized, a green long-run equilibrium is less likely, and the green transition, if it occurs, becomes slower.
Another extension to their analysis is “private politics,” or activism by private individuals and households. The researchers find that individuals and groups can pressure firms by acting directly in the marketplace, not just at the ballot box, thereby increasing the likelihood of a green equilibrium in the long run.
“This paper adds tremendously to our understanding of the constraints facing policy makers and societies in implementing a green transition,” says Stefanie Stantcheva, professor of political economy at Harvard University. “The authors take seriously the fact that there are not only technological considerations but also values that can change with technologies and polices as well.”
Timothy Besley and Torsten Persson, “The Political Economics of Green Transitions,” The Quarterly Journal of Economics, forthcoming.
Read more stories by Daniela Blei.