Friday, July 31, 2009

(Economic) Policy for dealing with acts of Terrorism

Only certain conclusions and brief arguments supporting the conclusions are presented. Details reasoning will be added later.

Conclusions.

1. Terrorists in their objective function are hypothesized to maximize media exposure which in turn is maximized by maximizing damage from combined damage to ostentatious buildings and human casualties. This leads to inference that terrorist activities may be more concentrated to certain times and day of the year, to certain locations (see 2 below).

2. Terrorists like any rational agents would like to minimize costs of operations or losses/risks subject to objectives defined. In Indian context it can inferred that terrorist activities would be mostly confined to border states lying closest to origin of terrorist networks. This is because longer the distance traveled greater the risk of exposure before the events though this is not the only reasons why border area will be most vulnerable.

3.Point 2 also leads to inference that deployment of counter terrorist resources must be skewed towards these areas – not just in capital .

4. Maximizing Media exposure as stated in point 1 is the main intermediate objective. This suggests the need for Indian media for strong self regulation. Strng states with high control over media (China, Russian in previous incarnation as USSR) probably had fewest acts of terrorism though this theory needs to be tested over other countries.( were there fewer terrorist acts before sudden burst of electronic media in last few decades?)

5. Developed countries ( as proxy for better ant terrorist resources) will see fewer but more devastating acts of terrorism which will have great deal of randomness/unpredictability associated with their approach(9/11 could be superseded by bolder/newer/more inventive acts in developed countries or countries target of terrorist networks). This is because only way terrorist organizations can maintain their tempo against ever sophisticated and stricter vigilance is by more detailed planning, more training, more mobilization – requiring many years of planning. Lower population density and need to max “profits” from such acts in these countries adds to the argument.

6. A strong innovative and highly rewarding whistle blowing policy must be combined with stringent punishment. Latter will involve treating all involved in the outer fringes of terrorist planning on par with actual perpetrators and planners. The “Outer fringe people “have lower commitment to the cause and lower capacity to endure (capital) punishment and possibly more susceptible to monetary awards. This will help to increase the costs of planning terrorist activities and substantially increase risk of failure.

7. In dealing with acts of terrorism, too little emphasis is place on technical substitutions between armed response and other possibilities. ( According to one commando( “ He (“terrorist”) did not deserve to be saved”- post Mumbai 26/11). Imagine the kind of information that could be extracted if there were more than one surviving terrorists post 26/11’. By extracting such information more and more planning networks are destroyed,(edited) forcing them to plan afresh from beginning, apart from furnishing many other proofs). A second aspect of technical substtiution is information that can be gathered without risking lives and more productive action that canbe taken. E.g Flying robotic insects capable of transmitting photos and sound, weapons that can think their way through buildings and immobilize people instantly , tags that can tracks people and trawlers/boats are already available or well within realm of possibility since some of these technology are used in space missions and recent wars.

8. It follows from 5 but also applicable to other countries that terrorist acts requiring greater resources will be bunched together. i.e one act is an indication of anothsimilar terrorist act in pipeline or happening elsewhere in proximity. (edited: This follows from economies of scale argument since there may be large fixed costs assocaited with carrying out most/large terrorist acts) There is some evidence from histroical data but needs closer scrutiny.
To be continued………

Thursday, July 30, 2009

Some further remarks on Making “unprofitable roads” profitable



  • Yesterday Economic Times(July 29,2009 ) article on Private Investment in highways by Dr Ram Singh argues that bundling unprofitable roads along with profitable roads for bidding as suggested in some section, may not work as this will bring down rate of return combined projects. However if period of concession itself becomes a bidding point as suggested in preceding posting (scroll down below to read) then combined projects is possible but apparently not necessary. But still combing them may help to spread risks. Secondly if number of kms of roads completed under BOT scheme in rural-semi urban areas is added as enhancing the technical qualification and commitment of bidders , it may help to win prestigious projects. Timely completion of rural /semi urban schemes will signal many positive qualities about the bidder

  • Rights to develop adjacent low value properties and large potential jump its value in fast growing economy is critical to making unprofitable rural semi urban roads profitable. The profitability can be further boosted if government authorities allow developers to siphon off part of taxes/dutes/cess( one time or recurring) on properties that come up in predetermined zones( as in radius of X km all hospitals hotels, educational institutes, commercial concerns that come up independently). The argument is similar to baseline argument put forward in CDM projects for climate change. Many such commercial establishments would not have come up in absence of rural roads hence they should pay developers even if they are located outside “right to develop property” zones awarded to developers. However instead of levying new taxes which can dampen development of rural economy, governments should share or let go certain taxes/duties etc on such new properties for certain number of years.

  • However it is easier said than done. This can work best if there are no competing developers in the same zone( which road network facilitated investor interest in commercial property development?). It is not irresolvable issue. (feeder roads may closer to one section than others). What is more difficult is will of government authorities to make necessary legal changes allowing sharing of revenues from commercial property deemed to be outcome of newly developed roads

Making “unprofitable road “profitable for private sector (or PPP models)

  • Making “unprofitable road “profitable for private sector (or PPP models)

    Normally Indian experience with privatization of road /highway construction under various forms of BOT approach is that only roads that lie close to /or in active economic zones are successfully taken up by private sector. “Roads” which lie in obscure or economically depressed areas are seen as high risk.( there are other reasons- high positive correlation between state govt attitude and economic viability of the proposed “road corridor”).
    However we know from experience that what was absolutely barren areas decade or two ago are now flourishing areas of economic activity. This trend is likely to be intensified in coming decades.
    This suggests an alternative bidding approach to make roads in semi urban-rural areas not covered by ongoing and proposed government programmes. Private sector should allowed to bid for “non tollable” roads on two parameters- cost per unit of technically defined roads( fixed technology) and period of concession. Concession period is normally used on tolled sections. However where development rights on adjacent land is given, concession period acquires a new avenue of profitability. Longer the concession given ( bid for) higher the chances of making huge gains from appreciation of land values and for such unsaturated areas, the lottery element of gains is higher.

  • The bidding could work on two parameters which may be weighted or valued iteratively. That is, first short list on costs and then in second round of bidding private sector could demand “concession period” or vice versa( which may include toll-ability plus land value appreciation). There are a number of variations which may be considered. For one, there may be a clause to increase “concession period” for a fixed penalty per year of extension for “X” maximum number of years if winner fails to recover costs in agreed concession period. This will reduce risk for winner but at a cost. Bidding process should turn out to be efficient. Another alternative is final winner could be superseded if losing bidder offers an agreed 10%( or x%) cost and time advantage. However given the high value of future “roads” for the economy it is better not to unnecessarily fine tune and squeeze the bidders ending up with the “winners’ curse” like situation where winner ends with a losing proposition due to overobsession with competition

  • However under this scheme investors with deep pockets and small future discount rates and less risk averse outlook may win to gain repeatedly. But no scheme is without some negatives

Sunday, July 26, 2009

Option to banning plastic bags

Options to banning plastic bags

Plastic bags have been banned by government on grounds that they are environmentally unsafe. They pose a hazard to animals and also clog drains. It is not clear if the production of plastic bags involves any climate related adverse effect. Apparently it does not- otherwise the plastic industry originating from the same basic chemical compounds would need to be banned.

Hence the real issue is in disposal, not so much production and use of plastic bags. Hence we need to look for solutions that severely reduce use and disposal of these bags. One and not unique solution is suggested. Observed behaviour indicates that people tend to hold on and reuse high quality plastic bags- even when they are free. Hence government should create incentives and disincentives for increasing use of high quality plastic bags. If ordinary plastic bags can be banned, it should be much easier to introduce high quality durable bags. Obvious advantage is reduction is waste turnover. Further it may be easier to separate such bags( when discarded) from rest of trash reducing hazard to animals and reduce clogging of drains. The high price of such bags, its attractiveness and durability would all ensure repeated use. These could also serve as effective advertisement medium –something ordinary plastic bags cannot do. Thus plastic bag producers could get a double relief- some relief from banned plastic plus additional revenue from advertments. There probably would be huge market for picking, treatment and recycling such discarded bags- both its price and ease of identification/retrieval should enable that.

Other options: Often it is suggested paper bags or cloth bags could replace plastic. Former would involve heavy and unsustainable environmental costs in tree losses. Paper bags are rarely of high durability and certainly not for all seasons. Latter would require land use changes when the source is jute raw material and are of course difficult carry easily (when not in use). Recycled material may be best but will be unable to meet India’s large and growing demand. Taxing use of ordinary plastic bags( in the normal sense) probably has superior alternatives as indicated
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