Robert J. Lempert Steven W. Popper Rand Corporation
The appearance of markets where they have not previously existed can be an agent of profound societal change. Economists have developed an extensive understanding of how markets can produce an efficient allocation of resources and spawned an array of tools that policy analysts use to assess the welfare enhancements of alternative policies. But policy analysts lack any similar, integrated understanding of the not-uncommon transformational effects new markets can have on values, incentives, and institutions, all most often assumed to be invariant in standard economic analyses. Policy makers and the public who intend or fear new market's broader consequences are left without any substantive guidance.
This project both integrates and advances the understanding of market-induced transformations, thereby developing a set of policy analytic tools to compare and assess the effects of alternative policies that seek to achieve their goals by fostering market transformations. In particular, this study seeks to understand: 1) how the potential for market-induced transformations, that is, changes in actors, incentives and institutions owing to the presence of markets -- can lead to different outcomes (some beneficial some perhaps less so) than might be expected when considering only the most narrowly defined efficiency-enhancing potential of markets; and 2) to what extent it might be possible to account for this potential for dynamic market-induced economic change systematically in the calculations of policy analysts and planners. This project addresses these questions by: i) gathering and developing case studies of past market-induced transformations; ii) evaluating and modifying as necessary several theoretical frameworks and their corresponding mathematical models that aim to capture the key features of such transformations; iii) calibrating these models using the findings from the case studies and empirical analysis; and iv) using these models to establish a decision tool set for assessing and comparing policies using market transformations against other possible policy approaches.
Broader Impacts. This project aims to deepen scientific understanding of how markets can induce transformations in human societies. It will also provide several broader impacts. The project uses climate change as its exemplar policy challenge and aims to provide useful insight into current policy debates. For instance, the project may help policy makers better understand any different abilities of carbon taxes and trading systems to produce technological and/or political transformations and help adjudicate the merits of "deep reductions across limited sectors" and "limited reductions over many sectors" as the best means for inducing technological and behavioral transformations at a rate that might forestall potential abrupt climate change. The theme of market-induced transformations also encompasses many of the most pressing policies issues facing the United States today at home and abroad. Through its initial inquiries and extensive interaction with policy makers and the policy community by the project team, this project will help disseminate decision tools and concepts that can improve our government's ability to more effectively exploit and manage market transformations as a policy tool in a wide variety of areas.
