So any anti-global-warming measures which add more than 21 cents to the price of gasoline will end up hurting the world overall.

Besides the issue of wealth, what about equality? “Privatized benefits, socialized costs” doesn’t sound so bad when everyone gets the benefits. Pretty much everyone emits CO2 – most poor people in the US drive cars, and soon the developing world will be emitting as much CO2 as the West. The benefits received by people differ somewhat – but hardly enough to compare to the financial sector, where a handful of companies had immense success and the rest of us had to pay for their eventual failures.

I live in Paris and the Mayor started this kind of incentives several years ago (high-priced parking places, dedicated bike lanes, parts of the docks closed to car traffic…). As of now, my feeling is that we live in a better, healthier city. But car commuters just hate the guy…

Now, I think the cost of infrastructure for subways is an order of magnitude bigger than what you can get by taxing the polluters, so it won’t be easy to achieve the shift towards an already crowded subway. So you’d have to invest to renew the infrastructure first, and then tax people to incentivize them to use it.

In the car case you cite, seems like this is a reasonably straightforward decision – comparing dollars to dollars complicated by some information risk (will I really save that much gas) and future returns. What about a more complicated situation like how much should I pay for my kid’s college where return isn’t only measure in dollars, it doesn’t return to me, it is far in the future, and I’m not really sure what it is?

You are right. Strictly speaking, I’d need to be assuming a continuum of policies here, or at least benefits-to-costs ratios.

In reality, of course, where we are never at MB=MC, there’ll always be another policy with a B-to-C ratio closer to 1:1 that will nudge us closer to that elusive MB=MC goal.

Even at 2:1, you are doing too little abatement. Any additional unit will yield another $2 worth of benefits but only cost you $1. That’s a policy worth pursuing.

And you should keep going until you get $1 worth of benefits for every $1 of investments.

Perhaps you are talking about an ideal policy where marginal benefits equal marginal cost? But then comparing the ratio of gross benefit to gross cost doesn’t tell us where to stop. And at 1:1, we may in fact have abated too much.

Thanks for the blog – brevity and clarity are your foremost strengths. A break from a lot of the banter. Keep it up!

I love the above quotes attributed to Steve Jobs and Henry Ford. I’ve thought about them many times especially as they relate to leadership. Leaders have to come up with something new, not just incrementally improve on the existing.

Most of us can see the small improvements that would make our lives easier (faster horses in Henry Ford’s time), but few of us can imagine a different way of doing what we do.

But leaders need to listen to people too. To have a sense of what direction their revolutionary ideas need to go. To say people want a mobile music system is easy, the hard part is determining whether they’re willing to pay for songs they can already get for free and whether they’d rather have a smaller device or be able to take pictures with their MP3 player.

Often you need to produce a concept and then put it in the hands of a layperson and ask, what do you like about this product?

Leadership is not without customer input, it’s knowing how to use it effectively.