Who gets the apple? Part II: A salty problem

Here's another analogy; one that includes a nod to dispute resolution. For those who know and/or love Coasian economics, it's our old friend the pollution example, though tweaked to be radio interference in light disguise. It's also, incidentally, based on a true story I heard from someone who works for a large county's water district.

Imagine a city along a river, and a downstream farming community. Urban development results in more salt being added to the river; increased salinity can reduce crop yield. Salty water is therefore analogous to radio interference between transmitters (cities) and receivers (farms).

The harm to crops is a shared responsibility, though. For example, the city can reduce the amount of downstream salt by building a water treatment plant, and the farmers can accomodate more salty water by changing crops - spinach will be fine on water that's too salty for celery.

Let's imagine that a Federal Crops Commission (call it the FCC2) is responsible for managing this problem. It might instruct the city and farms to "coordinate" to find a solution to the problem, with a guideline that water may not be "too salty". As in the apple example, this is difficult to do without defining what counts as too salty, and who bears the responsibility for salinity.

If the FCC2 limits the salt the city can dump in the river like the FCC controls radio emissions, it would specify a ceiling of, say, 5 tons of salt per day - with a rider that the resulting water can't be "too salty". This is not very helpful to the farmers, however, since they care about the resulting salinity; seasonal variations in water volume or the salinity entering the city limits from upstream affect the resulting salinty. It doesn't help the city either, since it can't be sure how much water treatment capacity to build; 4 tons/day of salt might still turn out to be too much if the farmers downstream choose salt-intolerant crops and/or the river level is too low.

Matters are compounded when the city and the farming community fail to reach agreement, and go to the FCC2 to resolve a conflict. (They have nowhere else to go, since the courts defer to the FCC2 as an expert agency to decide what "too salty" means in a particular case.)

Neither side can predict what the outcome of the FCC2's deliberations will be, since it doesn't always decide the merits of individual cases in isolation. It has many proceedings before it at any given time; for example, the FCC2 might be pushing the farmers to get organic certification, and negotiating with the city about the rezoning of agricultural land for urban development. The solution the FCC2 negotiates between the city and the farmers might encompass all these other matters, not only making the result of the salinity dispute unpredictable, but failing to establish a precedent that others might use later.

A better approach would be for the FCC2 to regulate the resulting salinity in water leaving the city (to, say, 5 ppm), remove any mention of "too salty" from its regulations, and provide a way for contending parties to get a specific case resolved efficiently. It might give the farmers the right to stop the city water plant releasing water into the river if the salinity exceeds 5 ppm (leading to a negotiated solution, where the city might pay the farmers' coop $300,000 to raise the limit up to 10 ppm in dry months), or if there are too farmers to negotiate with individually it might choose a liability regime (leading to a court-imposed payment of say $30/acre if salinity exceeds 5 ppm and some farmers sue the city).

Who gets the apple?

I’ve been looking for a metaphor to illustrate the weaknesses I see in the FCC’s “you two just go off and coordinate” approach to solving wireless interference problems among operators.

Let's think of the responsibility to bear the cost of harmful interference as an apple.*  It’s as if the FCC says to Alice and Bob, “I've got an apple, and it belongs to one of you. I’m not going to decide which of you should have the apple; you decide among yourselves.”

Now, if Alice were the owner of the apple and valued it at 80 cents, then the answer would simply depend on how much Bob valued having the apple (and rational negotiation, of course). If having an apple was worth 90 cents to him, he’d get it for some price between 80 and 90 cents; if it was worth only 60 cents to him, Alice would keep it. Problem solved.

Trouble is, the FCC doesn’t tell them who actually owns the apple, and even if it did, it doesn’t tell them whether it’s a Granny Smith or a Gala. The odds of Alice and Bob coming to an agreement without going back to the FCC is slim.

The analogy: The FCC’s rules often don’t make clear who’s responsible, in the end, for solving a mutual interference problem (i.e. who owns the apple); and it’s impossible to know short of a rule making by the FCC what amounts to harm (i.e. what kind of apple it is).

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* There's always interference between two nearby radio operators (near in geography or frequency).  While the blame is usually laid on the transmitter operator, it can just as reasonably be placed on the receiver operator for not buying better equipment that could reject the interference.