Featured image: Manolo Gómez/Flickr CC BY 2.0
NIMBY – not in my backyard – refers to a problem with both economic and behavioural angles. Might that suggest a way to tackle it?
As children, many of us were told about the importance of sharing things with our siblings, whether it was a bag of sweets received from a visiting aunt, Easter eggs collected from the garden, or that new toy. Equitable sharing is an important principle that, as adults, we generally still implicitly honour. But in our childhood, something was missing from the picture that tends to complicate matters in the grown-up world. Even if the benefits of something are shared sensibly, the same does not always hold for corresponding downsides, for example when it concerns the construction and operation of major infrastructure, from railways and motorways to wind farms and airports. The overall economic benefit of such facilities is often clear, and most of the population enjoys them directly or indirectly. But their disadvantages fall disproportionately on the shoulders of the people who live nearby. Sure, we want them – but not in our backyard!
An economic perspective
On 14 July, Belgian deputy PM and minister for mobility Georges Gilkinet announced plans to reduce noise pollution at Brussels Airport between 11pm and 6am by 100% – equivalent to a complete ban on night flights. Minister Gilkinet, a politician from green party Ecolo, claims to act “in the interest of all the local residents”, but is also motivated in part by the fact that, in recent years, the government has had to pay out fines totalling 25 million euros (£21.5M, $28M) for exceeding the prevailing noise limits, with most violations during the night.
The noise presents a negative externality to the people living in the vicinity of the airport. The flights are the result of an economic transaction (between the aircraft operators, their customers, and the airport) in which the local residents do not participate, but which is detrimental to them. According to the Coase theorem (named after economist Ronald Coase), under certain ideal conditions, such externalities can in principle be internalized, i.e., the parties involved can negotiate an economically optimum solution in which the active participants either the minimize the detriment, or adequately compensate those who suffer it. In practice, however, the cost of a negotiation is usually prohibitive, especially if the number of parties involved is large – as it is here. Externalities are therefore often addressed through government intervention in the form of regulation. The prevailing noise limits, and the proposed ban on night flights, are manifestations of such interventions.
Unfortunately, regulation rarely produces an optimum solution, as it sets a maximum level of activity without establishing how much nuisance the residents would tolerate for a given level of compensation by the airlines. There is no mutually acceptable trade-off. In some cases, it even institutionalizes NIMBYism, as in Mr Gilkinet’s proposal (no night flights in my backyard!). More generally, when a choice is made purely on the basis of its benefits (irrespective of the costs) or of its costs (irrespective of the benefits), it is rarely optimal.
A behavioural perspective
But this is only the economic perspective. There is also a behavioural perspective, in which the local residents are cast very much in the role of the responder in the stylized game theory instrument known as the ultimatum game. This made a brief appearance * in my post a couple of weeks ago, as an example of apparent (but not actual) irrationality. The setup is as follows: the first player, the proposer, receives an amount of money, which they can share with the second player (the responder), in a proportion of their choice (between 0 and 100%). The responder may accept the proposed division, but may also reject it (if it is deemed unfair), in which case neither gets anything.
How is the night flights problem like this game? The airline and its customers are given the valuable opportunity to operate during the night, so they function as the proposers. The population as a whole enjoys some benefit from their activities, too. The cargo that is flown in and out overnight can be anything from fresh produce and parcels sent (from) abroad, to components for the manufacturing industry and chemicals for making medicines, and this ultimately serves them, as workers and consumers. The charter flights take them to and from destinations like Sharm-el-Sheikh and Tenerife as holidaymakers. For most people, that is perfectly fine: a little benefit, and no cost. But the local residents face a significant, uncompensated cost: the noise. Given their power, either directly (if they are consulted about the flights and can object) or indirectly (by lobbying politicians), if they are unhappy, they will, just like the responder in the ultimatum game, reject the offer and, here too, nobody will get anything.
This is not just a matter of economics. In the actual ultimatum game, people tend to reject offers below 25-30% of the total (even when this represents several days’ wages), which, economically speaking, is a pure gain which would be irrational to refuse. However, people are clearly willing to thwart a transaction if they deem it as unfair within the context, even if it is costly to them. In the ultimatum game, that perceived unfairness lies in the excessive proportion of the gains the proposer keeps for herself or himself. With the night flights, it lies in the fact that the local residents are being burdened with noise pollution without any compensation – and have no choice in the matter. The economic gain for society as a whole may be larger than the cost (in the shape of noise), but that cost is not shared equitably by society as a whole, and falls on the locals. In both cases, they respond by torpedoing the proposal.
A solution
A little while ago, someone complained on Twitter about the British government’s unwillingness to grant permission for the construction of on-shore windfarms. In a reaction, Rory Sutherland, the head of ad agency Ogilvy’s behavioural practice and a heavyweight behavioural practitioner, suggested a simple solution: half-price electricity for everyone who lives within sight of the turbines. The exact magnitude of the discount, or even the exact nature of the concession is less important than the fact itself that those who experience harm receive some special, dedicated compensation. Provided the residents perceive its value as equitable, they will be inclined to see the bargain as a good and fair, and no longer have a compelling reason to object to the idea.
The overall economic value achieved will be certainly be higher with this approach: if the energy generator operating the windfarm, or the airlines operating the night flights, can still make enough profit when financing this compensation, that reduction in profit is outweighed by the gains for the local residents. But in the perception of those residents, what matters more is the idea that this profit is not made unfairly at the expense of people with no say, and instead follows from an arrangement in which costs and benefits are shared reasonably.
This is not entirely surprising. People deliberately choose to live in all kinds of places, quiet or noisy, remote or well-connected, urban or rural, in a house or in a flat. They know they will need to make a trade-off when deciding where to live – and everyone makes it according to what they find more or less important. Some will even opt to live under the flight path, if that trade-off works for them.
But people don’t like their backyard status quo changed for the worse without a say in the matter, and without some quid pro quo. Fixing these two issues – offering residents both choice and compensation – can solve many backyard problems, because of the material benefit, and perhaps even more so because it addresses the perceived unfairness. Rory Sutherland’s suggestion definitely has potential, and policy makers would be well-advised to take note when they consider regulation.
Koenfucius 