Tuesday, 26 April 2011

A rarity

Hmm, I honestly can't claim to be an expert when it comes to the environmental/health impact of the industry, so I'll stick to what I know.

Apparently there's some money to be made with this controversial industry, but quantifying health and environmental damages are oh-so-annoying to most economists - and more obviously, policy makers.

Most first-year microeconomic students understand the concept of economic externalities - more specific in this case is the negative externality called environmental pollution.

To really cut this short, in case I start to bore people with the entire mechanics of Coase Theorem, there really is an economic alternative to this problem - which is to identify and assign the property rights of the affected public good, which in this case is the land which residents are living on and will be potentially (irradiated?) polluted from the industry's byproduct...although I have seen conflicting arguments that say otherwise...but regardless...

The theory says that after property rights are assigned, a socially optimal amount of production (or pollution) can be achieved. So, in simple words: 
  • If households own the land, they will get compensated by the factory for each unit of production/pollution
  • If the factory owns the land, they will get compensated by the households for each unit of production/pollution denied to them (not likely, for obvious reasons)

So let's look at the most extreme case of household compensation (because economists love to look at the worst case scenario): Moving the entire township to a safe zone.

  • Number of residents in Kuantan: 415,000 or around 100,000 households decide to move
  • Average residential property transaction cost in Pahang (from previous post): RM174,000
  • That's an equivalent of RM174bn or 23% of GDP! 
 That's not counting the loss of economic activity from this forced migration.


But at least now we know the worst case scenario (if Lynas cleans up responsibly)

Hopefully there's a resolution soon, either have the plant, or don't have it. I think debating over it for too long a period will have more cost than either decision.

Term for the day: NIMBY <- no, it's not meant to be deragatory, it's just a descriptive acronym.

Update: a bit of typo with the figure. It's billion not million

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