A response to the Editor-in-Chief column by Steve Mitnick in our May 2016 issue
Richard Pierce is Lyle T. Alverson Professor of Law at George Washington University. He has written over a dozen books and a hundred and twenty articles on government regulation and the effects of various forms of government intervention on the performance of markets. His books and articles have been cited in the opinions of numerous agencies and courts, including over a dozen opinions of the U.S. Supreme Court.
In the May 2016 issue of Public Utilities Fortnightly, the Editor-in-Chief wrote a column entitled "Consumers Want What?" In the column, Mr. Mitnick omitted any reference to an important tradeoff: cost.
As Paul Joskow explained in his 2012 article in American Economic Review, carbon-free sources of electricity like wind and solar are much more expensive than fossil fuels, even if the per unit cost of the sources are roughly equal, because wind and solar are intermittent sources.
Unless and until we have access to economic bulk storage, substitution of carbon-free sources for fossil fuels will increase cost significantly. The cost must be borne by some combination of taxpayers and ratepayers.
We know that consumers do not want to pay higher electricity prices. And that taxpayers do not want to pay higher taxes. But it is impossible to use survey instruments to make reliable estimates of the willingness of either group to pay higher prices or higher taxes to mitigate climate change.
The revealed preference literature includes a robust finding that most people consistently overestimate their tolerance for higher prices when they are asked how much they are willing to pay to further a social goal.
That difference is easy to explain with reference to principles of cognitive psychology. We want to believe that we are willing to make greater personal sacrifices to further a social goal than we actually are willing to make.