A recent study in the International Journal of the Economics of Business shows that the European Climate Exchange (ECX) has been an efficient way to curb carbon emissions. Free markets, yet again, provide a simple and holistic way to price divisible and tradable benefits and dis-benefits to society. Free trading participants of a system are the most likely to impute efficient prices to outcomes and drive optimal policies. Ignorant politicians and paranoid scientists are unlikely to devise the best policies for society – worse, they make the situation worse.
More generally, society is in the best position to determine the price of an outcome for itself. Attempts at prescriptively driving policies either through the analysis of incomplete data or the adherence to political agendas by a few, will always result in worse outcomes. The basic idea that there is an efficient price to pollution is missing in these emotional debates. Since pollution affects society and its participants, only a large cohort of these participants, expressing freely could determine the cost of it.
There is a need to focus on two areas – first, market mechanisms, that will efficiently price any anticipated positive or negative outcomes to society, including pollution have to be prevalent with easy access to all participants and second, entities that manipulate prices have to be tried with the possibility of the highest penalty – they are engaged in crimes against humanity.
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