This is how investors can really help mitigate climate change
Benefits of keeping the climate from overheating will be shared by all, regardless of whether we pay our share of the cost of cooling.
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Mark Hulbert, an author and longtime investment columnist, is the founder of the Hulbert Financial Digest; his Hulbert Ratings audits investment newsletter returns.)
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CHAPEL HILL, N.C. (Callaway Climate Insights) — Embedded in the markets may be a solution that goes a long way toward solving climate change’s intractable free-rider problem.
That’s the surprising conclusion of a study that has been accepted for publication at the Journal of Political Economy. Titled Exit vs. Voice, its authors are Eleonora Broccardo of Italy’s University of Trento, Oliver Hart of Harvard University, and Luigi Zingales of the University of Chicago.
The free rider problem is well known, but it’s still worth reviewing the challenge it poses. The benefits of keeping the climate from overheating will be shared by all of us, regardless of whether we have paid our share of the cost of cooling. So individuals have an incentive to wait for others to take the lead, even when they know that the cost of mitigating climate change will be far less than letting the globe overheat—and that the longer we wait the costlier the solution.
The professors’ response is elegantly simple, at least for publicly-traded corporations that are not dominated by a few large shareholders and which don’t have restrictions on shareholder voting: What’s needed is for a majority of investors to even be slightly socially responsible and for them to make their wishes known to corporate management through shareholder voting.
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