Social Science Fundamentals

There is lots of emphasis on the physical aspects of energy use but human decisions dictate the usage of energy. Therefore, it is important to understand social science concepts.

What patterns in human behavior can be predicted that influence our energy use and consequences?

Concepts

Some important concepts for us to study are:

• Market
• Market Response Model
• Externalities
• Subsidy
• Commons
• Prisoner’s Dilemma

Market

• A system that allows for multiple parties to participate in exchange
• We have several energy markets
• The free market rests on several assumptions that are not true in practice

For all their power and vitality, markets are only tools. They make a good servant but a bad master and a worse religion. - Amory Lovins, Natural Capitalism

Market Response Model

Predcts that scarcity raises prices resulting in decreased demand or increased supply

• Improved techniques can lower prices and increase supply
• Natural Gas Hydraulic Fracturing is an example

Externality

A cost or benefit borne by everyone from one person’s decision

Coase Theorem

The Coase Theorem states that externalities can be most efficiently controlled by agreements between parties.

The main problem facing our climate–energy system has too many parties for the Coase Theorem to be true.

Commons

• Difficult to enclose

• Available to all

• Prone to defection or free-riders

• A resource accessible to all members of a society and not owned privately

Free riders

• Individuals who gain a benefit from a system without contributing
• These are the folks that choose individual benefit over group cost

Game Theory

• Mathematical analysis of cooperation and defection strategies and outcomes

Prisoner’s Dilemma

The classic prisoners dilemma is two criminals.

By choosing the best individual outcome, you end up with a worse collective outcome.

	Walter Silent	Walter Rats
Jesse Silent	Walter and Jesse	Walter free,
	do 6 months	Jesse 10 years
Jesse Rats	Jesse free,	Walter and Jesse
	Walter 10 years	10 years

We can use the Prisoner’s Dilemma to think about emissions and other externalities by companies.

	VW reduces emissions	VW cheats
BMW reduces	Emissions reduced,	BMW at competitive
emissions	no disadvantage	disadvantage
BMW cheats	VW at a competitive	Emissions increased
	disadvantage	for everyone

• Now imagine the decisions of all companies in the world or all citizens
• Each of us can decide to do the best collective action or the best individual action
• Unfortunately, the best individual option can be a very bad collective outcome

Tragedy of the Commons

This is an influential theory but there are several counter-examples to its main claims.

• Garrett Hardin article 1968
• Population Growth was a commons in the original article
• Proposed regulation or privatization as only solutions
• Elinor Ostrom recognized several functioning commons that didn’t fit this model

CC-PP Game

• Commonize Costs - Privatize Profits Game
• An extension of the prisoner’s dilemma