DIALOGUE AND UNIVERSALISM No. 1-2/20 I1

Teresa Kwiatkowska and Wojciech Szatzschneider

IN QUEST FOR A SOLUTION TO ENVIRONMENTAL DETERlORATION: USES AND ABUSES OF UNCERTAINTY

ANDMODELS

ABSTRAeT

Adverse environmental and economic impacts of lcelandic volcano triggered discus­sions about nature's astounding and unpredictable fury, alongside the inadequacy of human ingenuity and science to deal with factors that are totally independent and practi­cally impossible to control.

The first part of this article discusses questions related to understanding and ret1ect­ing deep uncertainty and possibility of effectively combining qualitative and quantita­tive analysis. Apparently the problem of incorporating surprise, critical threshold and abrupt changes is well studied in finance, but its poor application led to recent financial crisis. It would be by far more complicated when applied to any dramatically adverse events concerning climate and environment. The authors identify a range of problems in global idea of 'sustainability' and explore complexity of uncertainty. The second part reviews innovative approach that pretends to reconcile the needs of communities with the protection ofthe natural world.

Keywords: Sustainability; Uncertainty; Models; Principal Agent.

OVERTURE

Ifa religion is defined to be a system ofideas that contains unprovable

statements, then Gadel taught liS that mathematics is not only a religion,

it is the only religion that can prove itselfto be one.

John D. Barrow

2 Teresa Kwialkowska and Wojciech Szalzschneider

At the second International Congress of Mathematicians held in 1900, David Hilbert ended his famous talk entitled "The future problems of Mathematics" with strong assertion: "There are absolutely no unsolvable problemso Instead of foolish ignorabimus, our answer is on the contraryo We must knowo We shall knowo"

Later on, confinning his ideas about fonnalistic proof theory and the future of mathematics he wrote that the formula "(o oo) besides its mathematical value, has an important general philosophical significanceo (000) The fundamental idea of my proof theory is none other than to describe the activity of our understand­ing, to make a protocol of the rules according to which our thinking actuaHy proceedso (o o.) 1f any totality of observations and phenomena deserves to be made the object of a serious and thorough investigation, it is this one-since, afier aH, it is part of the task of science to liberate us from arbitrariness, senti­ment, and habit and to protect us from the subjectivism oo. (00.)1

Paradoxically, at the same time when Hilbert tried to identify mathematics with the stock ofprovable formulae, Godel presented his incompleteness theory. His arguments show that there are countless statements even in elementary number theory that cannot be proved or disproved, in a sense that new axioms should be added and new theory created, and so on ad infinitum. In other words, no previous limits can be placed on ingenuity of mathematicians in developing new and richer theorieso

Before we explore so called Hilbertian program for Earth system Science,2 it would be worthy of noticing that philosophers have been working on "cata­loging" mathematics for millennia without real successo For instance, Kant be­lieved that the "truths" of mathematics as synthetic a priori judgments what he caBed intuition (Anschauung), can contribute significantly to our knowledge of the world by explaining and predicting future eventso He took for granted HiJ­bertian Euclidian Space proof as convincing because on each particular applica­tion of an axiom, the correctness of what it claims in each particular case is evident. Nonetheless, Kant greatly overestimated the role and the extent ofthe a priorP and was wrong assuming that reality is organized according to our in­ventions called axioms or ruleso The natural world yields an infinite sequence of questions which reasoning is unable to answer. Besides, the world mathematics and science display is not a real worldo The laws are not imposed by nature upon us, but it is our mind that furnishes the nature with our devices. This idea was nicely expressed by Nietzsche who challenged the operative application of mathematics to describe biological or ecological processeso He claimed that the real knowledge of natural science must be 'essentia]]y illogical' if it is to aspire

1 David Hilbert (1996, pp. 228-242). 2 We mostly point toward its strategic question 21 "What is the optimal decomposition of pla­

netary surface into nature reserves and managed areas?" 3 (Ewald, 1162).

3 In Questfor a So/ution to Environmenta/ Deterioration

to any kind of approximation or tentative correspondence with the real world, as a practical or real science of nature. "As a marter of fact, logic (like geometry and arithmetic) only holds good of assumed existences which we have created.,,4

Hilbert believed that every mathematical problem can be solved. Therefore, it may seem conceited to formulate Hilbertian like problems for whatever thing beyond pure mathematics. How it is possible to develop a program about con­cepts that are only vaguely defined like the strategic question: "What is the optimal decomposition of the planetary surface into nature reserves and ma­naged areas?" Answer to this "wicked" question, using Mark Sagoff's expres­sion, depends on the conceptual inclusion of scientific though normative fea­tures and definitions. Mathematics can not be used in irresponsible and wild way to understand and explain behavior of natural processes. It should be strongly pointed out that while the mechanisms and principies inherent in ma­thematical models may represent part ofthe 'truth' behind the observed natural parterns, they by no means should be considered as definitive exactness about the complexity of the natural world. "Furthermore, mathematical descriptions are not explanations, and never on their own can they provide a complete solu­tion to the biological (or other) problemoo."s. It can be said that all mathemati­cal models are flawed to sorne extent when applied to complex natural pheno­mena.6 Thus the magic word optimal, when short of comparisons criteria among its outcomes, may turn out to be thoroughly empty, and lead to never-ending conjectural debates.

Modern physicist Robert B. Laughlin accentuated what he calJed 'dark laws' of nature that (oo.) "abound and destroy pred ictive power by exacerbating errors and making measured quantities wildly sensitive to uncontrollable external fac­tors".7 And again, not long ago, Joseph F. Traub, renowned computer scientist from Columbia University and Santa Fé Institute, highlighted the dissonance among natural world, simulation, and models. He wrote: "Information- based complexity is defined as a branch of computational complexity that deals with the intrinsic difficulty of the approximate solution of problems for which infor­mation is partial, contaminated, and priced."(Working paper, pp. 4-5) Further­more, he underlined that "partial or contaminated infOlmation causes uncertain­ty (oo.). This uncertainty is intrinsic and caused by the limited information".8 In quest for order and sound knowledge amidst the ambiguities of life and Nature, we have formulated sorne limited and possibly inaccurate quantitative and scientific conceptions to bridge the gap between the human being and the un­

4 (Vladimir Tasié (2001, p. 62). 5 (Adam: 6).

6 For instance, climate models do not take into consideration mostly unknown working of the 'jet stream" and its impact on c1imate.

7 Lallghlin (2005, p. 2) O). 8 Trallb (2003, pp. 850-854).

4 Teresa Kwiatkowska and Wojciech Szatzschneider

iverse to introduce harmony and, last but not least, to predict the course of events. As Thomas N. Neubert, in his book A Critique 01 Pure Physics wrote: "Mathematical ideas (such as point, real numbers, infinity, line, magnitude, form and order) must be assumed, defined and postulated before mathematics can be applied to the natural world.,,9

CONNOTATION OF SUSTAINABILITY

.. ,When politicians, industrialists, and environmentalists run out of practical advice, they ofien take refuge in appeals for a new vision, new values, a new commitment, and a new ethic. Such calls ofien ring hol­low and rhetorical. This is the crux of the problem of sustainable devel­opment, and perhaps the main reason why there has been acceptance in principie, but less concrete actions to put into practice.

Schimidheiny, S, 1992

The publication of the UN-sponsored report Our Common Future (1987) opened the door to this misty concept that became highly instrumental in devel­oping a "global view" of our planet's future. A number of local successful out­comes paved the way to discussions about global policies that are thought to cope with the vast of human and ecological challenges worldwide. This catch phrase has become part of many policy documents, ending in a wide variety of definitions and interpretations. 1o

It seems that we still are struggling with the paradoxical realization that the natural world as it actualIy is, and the world as we conceive it in our minds, are separate and distinct, yet somehow have to come together in the programs we elaborate on paper. When we think about "sustainability" we have to keep in mind that physical and biological nature is continually altering the environment changing the fate of the species on local and global scale. We also have to think of overpopulation, poverty, disease, instability, indeed, a huge labyrinth of eco­logical, climatic, economic and social challenges that pushes us into disoriented changes at unprecedented speed.

The bright vision of "sustainable future" streams from linear 01' other deter­ministic prognosis that grants a false sense of security, and easily makes us for­get negative occurrences of the past. Going along with optimistic view of Hil­bert "( ... ) it shalI be possible to establish the correctness of the solution by means of a finite number of steps based upon a finite number of hypothesis which are implied in the statement of the problem and which must always be exactly fonnulated" (Mathematical Problems);

9 Neubert (2009: 119). 10 (Lele, 1991).

5 In Quesljor a Solulion lo Environmenlal Delerioralion

Consequently, many practical questions are arising. Anyone can universal­ize whichever idea or policy as long as he/she is single minded enough, yet it can lead to a fully abstract reasoning in which art of it is valued on and of itself. The scientists might flatter themselves that science, even bad science, has the power to seduce common sense. Science and innovation can be applied to meet human needs while preserving natural systems. However, the illusion of assum­ing that we have a clear scientific solution to sustainability can carry on myriad unintended ecological, social, and economic effects. "One lesson from envi­ronmental history is specially striking: it is that precisely the large solutions to certain environmental problems always create new and very complex environ­mental problems."I' The steadfast reliance on positivist notion of objective science as a representative ofthe environment, combined with the rhetoric about how nature (and climate) has to be protected from humans, relies on the faulty belief that large scale interaction between environment and society, shaped by an array of natural and human factors, can be put in a nutshell of analytical models or computer simulations.

Without doubt, aH the definitions turn around the severe environmental crisis we have to confront and overcome by improving livelihood ofthe poor, stabiliz­ing the populations, and arrive at stable, just economic growth. But the ques­tion remains: Does the meaning of sustainability lies in the establishment of a fixed, theoretically founded definition from which practice is to proceed? Or the meaning of this concept has to be found in the process that sets in motion a ple­thora of local perceptions that provide basis for subsequent practices. Should the vision of "sustainability" be the outcome of scientific reasoning or public dis­cursive practice?

This concept is essentially woven out of the rich fabric of theory and prac­tice. However, our capacity to abstract concepts and to look at the world from the distance is a double edged sword when it becomes too assertive and persis­tent. What the sustainability science might end up with is not a description of the world but an abridged view of one aspect ofthe world in highly abstract and reduced terms. 12 However, the perception of sustainability in a strict sense in­vokes an analogy to closed micro canonical ensemble in statistical physics. lt means that particles contained to sorne specífic region cannot pass the frontiers.

Each of different formulations of "sustainability" makes a distinct and sig­nificant contribution to our understanding of this notion, but also suggest that we are not reaHy in position to comprehend and apply this "science", until we have recognized all differences among the classifications.

Theoretical concepts lead to policy prescriptions in terms of international trade and economic relations, sustainable global agriculture, and preservation of rainforests. These macro strategies adopted in the face of incomplete knowledge

11 Radakau (2008, p. 201). 12 Holdrege (2008, p. 326).

6 Teresa Kwiatkowslw and Wojciech Szatzschneider

and ambiguity, fail to see and understand the complexity of social, structural, technological and cultural problems, behind these global solutions. For any development program to succeed, even in the short run, it has to be based on a participation process, especial!y at locallevel.

Furthermore, there is a real tension between our concepts, the bOllndaries of our knowledge and the essential practice. Can we transform our concepts so they become less abstract and more related to the experience? As the German poet Goethe pointed out: "If we want to approach a living perception (An­schauung) of nature we must fol!ow her example and become as mobile and flexible as nature herself.,,13 Shal! we adjust social and economic structures to natural systems, re-conceptualize the whole theory of development, or develop environmental care at the community level to meet basic need of local popula­tions? "The Romans-wrote M. Heidegger--called a matter for discourse res ( ... ) Res publica means, not the state, but that which, known to everyone, con­tains everybody and is deliberated in public." 14

The question is does it really function in our time? In the world of nature, various factors work together to maintain stable and healthy population. "Beyond a critical point within a finite space", writes F. Herbelt, "freedom di­minishes as numbers increase. This is a true of humans in the finite space of planetary ecosystem as it is of gas molecules in a sealed flask. The human qlles­tion is not how many can possible survive within the system, but what kind of existence is possible for those who do survive". Although the allthor of Dune talks about the awesome world sometime in the future, the mankind of today has to assume any projections from the perspective of the population growth. And it is precisely one of the major threats to sustainability of resources such as drinking water and food.

"Sustainability" as a guiding model has multiple meanings and can never be completely attached to a single conception or specific technology. Expelt know­ledge, based upon preconceived theories of science, Earth systems and space, will generate regulatory practices of governance and the concepts of sustainabiJ­ity that suit uniform ideals of law, justice and society of a central state. The practice of dwelling within the region with its res publica characterized by a long tradition rooted in customs and convention, wil!, on the other hand, tend to create an ideal of policy that emphasizes local idiosyncrasy, diversity and look afier Jocal community interests. One can morally act only on policies that could be truly universalized in the sense of being freely adopted by al! who could be affected by them.

13 (Goethe, 1817). 14 Heidegger (1971, p. 175).

7 In Quesljor a So/ulion lo Environmenla/ Delerioralion

ABOUT UNCERTAINTY

Another background to these controversies is the problem of what kind of practical conclusions we should draw from the infinite complexíty of nature and the inadequacy of our knowledge about many aspects of it. "It is necessary and true"-wrote Feynman-"that al! thinks we say in science, all of the conclu­sions, are unce11ain, because they are only conclusions. They are guesses as to what is going to happen, and you cannot know what wi 11 happen, because you have not made the most complete experiments.( ... ) AH scientific knowledge is uncertain".ls Therefore, in spite of extensive effort inverted over decades in reasonable approximation to measure pro and cons of any experiment in envi­ronmental science, it has resulted only in bewilderment. Besides, the uncertainty brought about by randomness in nature, "another uncertainty is caused by in­struments, by data acquisition and reduction procedures ( ... )".16 Models may be considered "marvels of mathematics", but they are only models, and as such, they are "caricature" of the real world as ideal gas model (theoretical gas com­posed of set of randomly moving, non-interacting except for coHisions, massive point particJes) of Mark Kac (1914-1984) famous mathematician of PoJish ori­gin.

Stochastic models with time factor involved - even the most symmetric­exhibit the possibility of asymmetry and large deviations from the actual state. The most beautiful, continuous time and continuous paths stochastic model is Brownian motion that although symmetric and recurrent to an initial state, can produce very large displacements, positive or negative. It represents, under sorne conditions, the trajectory of a tagged particle due to collisions with other ones. These conditions assume that the particles are in, or close to equilibrium state. Even ifthe system as a whole tends toward equilibrium, the motion of one particle can be dramatically different. 17 Any serious analysis and subsequently predictions must be given in terms of probability of occurrence of specific re­sults; however, if the model or its parameters are practically unknown, the only reasonably approach goes through hedging mechanism to construct protection against adverse contingent events.

We do not know how many of natural systems are unstable or to what grade resilient meaning capable to function after major change. "Again, understanding the patteros of functional compensation and abundance shifts under changing conditions will require more data and greater range of conditions that we have here.,,18 However, in the case of instabiJity relatively small departure of the system from equilibrium gives rise of forces that move the system away from

IS Feynman (1998, p. 26). 16 Bertrand-Krajewski and M. Muste (2008, p. 65). 17 See: Szatzschneider, 1978. 18 (See: Walker, R. Kinzig and J. Langridge, 17.)

8 Teresa Kwiatkowska and Wojciech Szatzschneider

equilibrium and can cause avalange Iike reaction, and produce dramatic changes. Interactions among a variety of parameters of complex natural processes occur in unpredictable and unexpected sequences at various time spans, different intensities and directions.

At the present time, philosophers, literary theorists, anthropologists and many others from the social sciences have enthusiastically appropriated the attractive and slippery express ion of uncertainty, only to confuse its real mean­ing with whatever sort of arranged fictitious connotation they found fitting. Science, they assumed, no different than the arts and humanities, offers us mod­els, images, and metaphors of the world, and there is no reason why the layman should not make use of these models in his or her dealings with the world, without having to become a nuclear physicist to do so. In a majority of cases this kind of elucidation is, generally speaking, plain garbage from the scientific point of view. While there is understanding of probabilities and unceltainty in the hard sciences, particularly in mathematics or physics, there is little under­standing of such concepts in the social sciences in spite of the appearance of "expe¡ts". We hear that oft-repeated "it has never happened before" phrase, as if indeed its absence from past history is enough for it now to be a surprise. If we were dealing with a deterministic world, the universe stripped of randomness, the pattern of the series would reveal predictive information. But we live in a world that is not well charted. The judgments derived from past features, some­times relevant, may be meaningless on other occasions. As history reveals, the things that never happened befare do happen-in other words, time gane by teaches us to avoid the brand of na"ive empiricism that consists of Jearning from casual historical facts. The sad truth is that quite often in soft sciences people confuse science and scientists, who are biased as we all are.

Recently, in finance an entire theory of "risk measure" has emerged, specia­lizing in assessing risks in different scenarios, different probability laws. These ideas go back to the concept of Knightian uncertainty exposed in his seminal work Risk, Uncertainty, and Profit, that deals explicitly with decision making under conditions of unceltainty. Knight's distinction between unceltainty and risk is quite well preserved in classical decision theory.19 A decision is made under risk when the probability of each end result is known, and under uncer­tainty if the outcomes of the alternatives are known or not but the probabilities of these outcomes are "completely unknown or are not even meaningful".20 Many economists argue that Knightian risk and uncertainty is one and the same thing. In palticular, the distinction is challenged by Bayesian decision theory. Central in this theory is the idea that a subjective probability, or degree of be­lief, can be assigned to any state of affairs. Others assume that there are actually no probabilities out there to be "known" since probabilities are just individual

19 (Luce, et al. 1989). 20 (Luce, et al., p. 13).

9 In Questfor a Solution to Environmental Deterioration

expressions of our beliefs and have no eonneetion to the blurry randomness of the "real world". If one ean not construct qualitatively well defined stoehastie model for Nature related topies, it seems even more difficult to make correet quantitative parameterization of one already eonstrueted.

A11 decisions about environmental impaets generally fall into the category of decisions under high level of uneertainty. The solutions depend on science, engineering, logistics, and eeonomie and moral assumptions about what is good and bad for humans or other life forms.

Recently, sorne have suggested that alJ kinds of non-market benefits (pre­serving a species, aesthetic appreeiation of forests, and scientific values of bio­diversity, reereational or spiritual pleasures) be included in cost-benefit analy­siso The idea of this more extended kind of analysis in the environmental eon­text is to eompare the benefits (immediate and diffuse, monetary and non­monetary) of a decision (such as preserving wilderness, alleviating poverty and equity) to the costs (direct or potential). It has to be stated that many policy­related researeh develop increasingly eomplex models that generate a never­ending debate about their applieability. Espeeially cost /benefit analysis is dim trying to attach correet vales to environmental goods, as pointed by M. Sagoff. Recently Sallie Ann Keller wrote that " ... the field of climate change, which is fundamentally concerned with quantifying uneertainty, hasn't fully embraced statisticians. A panel investigating the behavior of scientists at the University of East Anglia's Climatic Research Unit in Norwich, UK, reeently concluded that "inappropriate statistical tools with the potential for producing misleading re­sults have been used by sorne other [climate researeh] groups, presumably by accident rather than design." The panel noted: "It is regrettable that so few pro­fessional statisticians have been involved in this work, beeause it is fundamen­tally statistical. ,,21

The use of statistics in climate change topics is frequently dominated by non statistieians that employ Bayesian approach in rather shaIJow way. We beJieve that the analogue of financial risk measures is the most adequate method in climate ehange analysis for it considers different seenarios and proteets against the unexpeeted, just as it has been done or should have bee done in finanee.

INCENTIVES: THEIR SCOPE AND LIMITS

1 maintain that in every particular natural science the amount 01 ma­thematics it contains is equal to the amount 01genuine science we can find in it.

E. Kant

Until now, various recommendations to bring together ecologically sound ways of living with the eall for renew growth to alleviate poverty in the deveJ­

21 Nature, Vol. 467.21 ofOctober2010. Vital Statistics. Cornrnent.

10 Teresa Kwialkowska and Wojciech Szalzschneider

oping world scarcely brought the required results. The conjecture that once the site was designated as a "nature reserve", its biodiversity was preserved proved short-sighted. The shelter of its legal status did not resolve the problems of land tenures and speculation, or stopped the harmful agricultural activities. FUl1her­more, none of the proposals including the Kyoto Protocol with its Clean Devel­opment Mechanism and permits to pollute is aimed at stopping deforesta­tion. There are sorne expectations that in Cancun 2010 agreements in this direc­tion would be reached.

Environmentalists thought that a strong case can be made for conservation based on the local, regional and global values of forests to be incorporated into decisions on "sustainable" management of this important resource. The idea was to help forest dwellers and rural settlers profit from the wilderness without destroying it. However, in many developing countries, it did not stop the de­struction; selective timber harvesting proved costly, inefficient, and with long term incentives only. Ecologically friendly activities such as collecting wild fruits, rubber, nuts (non-timber products), including pharmaceutically active substances are either money-Ioosing propositions or push sorne plant species to the brink of extinction. Many of well meant "sustainable" programs lost touch with the development necessities of the communities. They focused exclusively on the alternative activities like industrial reforestation or intensive, multi-crop land use that may appeal to the healthy self-interest of the local people by pro­viding trees and harvests ofvalue to them.

But they missed the real connection between the complex community prob­lems, external market pressures and biodiversity loss. The overwhelming major­ity of proposals to conciliate economic progress and quality of life with the necessities of biological conservation have financial incentives attached to them. On the one hand, the governmental subsidies (local and national) fre­quently have been bringing more harm than benefit. On the other, the interna­tional fund-Iending institutions tend to promote unrestrained development threatening directly biological, ecological and cultural diversity. The aid has also been used by power groups without changing local ideas and uses of the environment. Many conservation proposals have only succeeded in enormous squander of money.22 The subsidizing agencies never visualized the complex interactions between protection of biodiversity, requirements of development and the community life. Nor have they analyzed the direct connections between the local activities and the possible reduction of deforestation or other environ­mental pressures. As James et al. pointed out "governments could safeguard the world's biodiversity with a smal! fraction of the money they spend on halmful environmental subsidies". 23

22 (Garcia-Frapolli el al., 2009). 23 (James et al, 1999, pp. 323-324).

11 In Ques/ for a So/u/ion /0 Environmen/a/ De/eriora/ion

AIl agree with Aldo Leopold (1949) that "system of conservation based solely on economic self-interest is hopelessly lopsided", yet the question of financial incentives that can alleviate the poverty, and indicate the alternative to the environmentalJy damaging practices, has to be addressed promptly. Accord­ing to some views expressed at the European Conference on the Biodiversity (2004) one of the main reasons of continuing biodiversity loss has been a mar­ket failure to playa fundamental role in halting deforestation and overall envi­ronmental degradation. Benefits associated with conserving biodiversity are mainly of use for the society as a whole, and mostly are not covered by the market. Nearly all of the non material life SUPPOlt functions represent "collec­tive goods". Intrinsic values by definition have no price and many other values as for instance, unpredictable preferences of future generation practically escape monetary evaluation. "Freely functioning markets are based on narrow self­interest. The upstream poJluter has no incentive to account for the cost he im­poses on a downstream user of the river. The non-consideration of such 'exter­nalities'-the third party costs-may lead to decisions that are 'wise' for the individual now, but 'unwise' for the society as a whole (and that may also be harmful to the individual). This is a market failure." 24

Conceivably, the monetary valuation could playa supportive role in envi­ronmental policy in spite of many objections, but its multiple practical and nor­mative probJems have to be considered when using such a method. However, the comprehensive approach to conservation of the entire biological diversity requires a strategy that goes beyond economic cost- benefit valuation. Philip E. Graves wrote:

"To the extent that we value public goods, we also realize that getting extra income to buy them will accomplish nothing, for they are determined coJlec­tively and our private decision to generate income to buy them will have a negligible impact on that decision. There is no ordinary market in which we can buy, say, reduced global C02 levels 01' endangered species preservation".

(Graves: 2003. working paper)

A number of proposals like permits to pollute 01' transferable development rights are essentially market approaches that set Iimits on environmentally harmful activities. Similar method called cap and trade is used in Sulfur Diox­ide Program in the United States. However, as observed by Blackman and Har­rington in reference to developing countries "tradable permits are generally not practical".25

24 (Joosten. CJark, 2002, p.138). 25 (Blackman and Harrington, 2000).

12 Teresa Kwiatkowslw and Wojciech Szatzschneider

BETWEEN THINKING AND ACTING

The market mechanism provides the best Iramework we know lor maximizing the instrumental or economic value 01 nature.

Mark Sagoff, Price. Principie and Environment, p. 16

It is said that imagination has a pragmatic value that leaps ahead of slow moving caravan of well ordered ideas and meticulous strategies. Thus, it is im­portant to point up that we do not pretend to price environment by endowing it with market value considering this approach truly Nirvana. What we put for­ward is the direct market out of traded certificates on environmenta! improve­ments, always when high reliability measurement of actual state could be en­sured: for example the number of wind turbines, lower pollution levels, etc. While, as sorne point out, "environmental groups are, ( ... ), businesses like any other,,26 and might be rather focusing on degradation than progress, the "condi­tional carrot" approach using "Principal-Agent" methodology27 can be the only accountable way to deal with escalating environmental crisis. "Good" environ­mental certificates28 would recompense planting trees or decreasing pollutant levels. These certificates being only Good environmental certificates cannot set a price on the environmental goods. M. Sagoff rightly stressed that "( ... ) the immense effort economists have invested over decades in trying to measure the benefits of environmental resources and services has resulted and can result only in confusion.,,29

On the whole, the PrincipaJ-Agent method (Nature being the Principal repre­sented by a financia! institution) aims at creating new investment opportunities that will stimulate economic development ofthe region, benefit local communi­ties and the wildlife. Agent could be anyone who buys the certificate or, in situations involving reforestation, these certificates could be given free of charge to the inhabitants of a community.30 In another words, agents are people, sorne of them with null participation. Participation means the ownership of cor­responding certificates. This method also offers transparency in handling con­servation funds that will be created from taxes, or voluntary contributions, off­setting (compulsorily or voluntarily) environmental1y harmful actions. It can be taken for granted that the main problem of any environmental decision is not

26 Graves (2003, pp. 951-957). 27 (Laffont and Marimont, 2002). 28 Good certificate is meant to stimulate and encourage positive environmental actions like re­

forestation, restoration, conservation of biodiversity or reduction of pollutants. These certificates can be freely bought by alI interested agents.

29 Sagoff (2004, p. 11). 30 The reforestatíon issues jointly with a performance study of sorne certificate have been ana­

Jyzed in our study: "Principal Agent approach to environmental improvements policies" published in 20 IO. Banach Center Publications by Polish Academy of Sciences).

13 In Ques/for a So/ulion /0 Environmen/a/ De/eriora/ion

how to impose additional taxes, but how to use the collected money wisely and effieiently. After the total failure of Copenhagen there 1S a hope that Cancun 2010 would provide better results perhaps only in transparency and effeetive­ness how environment funds should be used, and also in free or cheap transfer of teehnologies. Our approaeh is just aiming par excellence in this direction.

Different approach with the use of Principal-Agent method has been con­sidered by Franckx and D'Amato. They wrote:

"We have considered there the regulation ofa (private or public) agent by an EPA (Environmental Proteetion Agency).This EPA is constrained to basing its incentive schemes (both rewards and punishments) on environmental per­formance, and can also allocate funds to an alteroative project with environ­mental benefits. The private agent can allocate its effOlt either to environ­mental proteetion or to its core tasks".31

Our approach does not need precise specification of parameters, as the quoted aboye study requires closely related to cost /benefit analysis.

It is also known that rural eommunities in undeveloped countries mostly have a hierarehical structure controlled by powerful individuals. Sorne authors e.g. Oates (1999) see it as a main reason of their failure to stop deforestation of the regions in question. According to our strategy inhabitants could act posi­tiveJy if suffieiently rewarded and because certifieates that are traded can bring significant income to those involved.

The precise optimality of sueh certificates-Principal optimization problem ­depends on the exact specificatíon of the given models. It is worth to bear in mind that in modero finance applications often anticipate theories, models and theorems. Usual eost-benefits analysis compares Nash competitive equilibria with collusive ones. Well known mismateh between these two (depending heav­ily on parameters ehosen) does not have easy solution, and is linked to coalition creation and eventual renegotiation through the theory of repeated games.32

Our approach is qualitatively different. With the use of certificates of im­provements that could be fund minus a temporal mean of sorne convex function of pollutants (for example square function) we are able to create the cooperation using the coneept offusion.

Let us explain the difference between eollusive and fusiono In collusive ap­proach a eeltifieate that pays more for smaller pollution levels embraces lets say two " domains", for example countries, states, or local communities; each agent can make improvements in his or her OWN domain only. In the fusion case an agent can make improvements in its counterpart-other agent's land. In praetice it direetly generates the transfer of technologies or any other form of real coop­eration. In fact, recent eonferenees on climate change stress the transfer of tech­

31 Franckx, D'Amato (2003, p. 15). 32 (Finus and Rundshagen, 1998).

14 Teresa Kwialkowska and Wojciech Szalzschnei~_er _

nologies as one of the most significant part of the future political agenda. Yet, permits to pollute as such do not encourage transferring of technologies. They actually are similar to the existing financial structure, meaning that gains go to trader, but losses are distributed among stakeholders.

Mathematical analysis of certificates of improvement is non trivial.33 The good news is that our project can start with the issue of ANY good environ­mental certificate. Recently, we have analyzed specific models that show how fusion optimal solutions improve the actual states of things by comparing with collusive optima.34

If it would be possible to create a global fund as proposed by Jagdish Bhag­wati35 from Columbia University, people would efficiently use it by creating cooperation. Instead of diffuse promises of cutting pollution that could put poor countries (if compromised) back to dark ages, we should consider bona fide cooperation, which can be accomplished by properly using Principal -Agent methodology. As taxes are usually collected and use at community, state, and country levels, thus certificates could embrace this entities, and stimulate further cooperation. In fact, till now the worldwide eff0l1s to solve deepening environ­mental destruction ended up in acrimony, fuzzy promises and not binding deals to support reforestation or cut carbon emissions. Leszek Kolakowski (1927­2009), prominent Polish philosopher thought us never to forget that there are questions crucial to human race survival that are difficult if not impossible to answer. He wrote: (00) although we can not pierce the mystery and convert it into knowledge, our awareness that there is a mystery is in itself important, aJthough we can not tear the veil from ultimate reality, we should know that such a veil exist." 36

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16 Teresa Kwialkowska and Wojciech Szalzschneider

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ABOUT THE AUTHORS: Teresa Kwiatkowska, Ph.D. Full Professor at the Philosophy Department of Univer­

sidad Autonoma Metropolitana-Iztapalapa in Mexico City. Her primary research inter­ests are environmental ethics, bioethics, genetic engineering, plagues and climate change. Member of the editorial board of Environmental Ethics (US), and Dialogue and Universalism (Poland). Author of Controversias de la Ética Ambiental (2008), co­author of the book Naturaleza y mundo antiguo, and co-editor of various books on envi­ronmental ethics and bioethics published in Mexico and Spain. Author of severa! ar­ticles published in Mexico, Poland, US, England, France and Venezuela. Her last ar­ticle (with Alan Holland) has been published by Environment and History vo1.16, 2010: 455--482). E-mail: tkwiatkowska@yahoo.com.

Wojciech Szatzschneider, Full professor and Chairman of Graduate Studies at Actu­arial School in Universidad Anahuac México Norte. Ph.D. in mathematics by Polish Academy of Sciences. His primary interests are probability, mathematical finance, and environmental science. Author of many articles published in Mexico, Poland and USo Bis recent article Exponential martingales and CIR model was published by Banach Center PubJication, 2008, as wel1 as the one published by China- USA Business Review in 2009. His last article (with T. Kwiatkowska) Principal-Agent approach lo environ­mental improvement policies. Banach Center Publications # 90 Polish Academy of Sciences, Poland.20 10. E-mail: wojciech@anahuac.mx