Putting money where it can do the most good

By Finn E. Kydland  |   2008-7-4  |     NEWSPAPER EDITION

Illustration by Zhou Tao More in cartoon gallery

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POLICY MAKERS can concoct many excuses not to invest in global aid and development projects.

Some weeks ago, I joined a group of five Nobel laureates and three distinguished economists to undermine one of those excuses, by providing information about where money can achieve the most good.

For each issue examined, we focused on benefits relative to costs. To guide our thinking, we asked ourselves: If we had, say, an extra US$75 billion to spend, where could we achieve the most good?

We put each challenge on an equal footing. Massive media hype about some problems was irrelevant.

At the bottom of our list were the least cost-effective investments the world could make, with the best places to spend money at the top.

The lowest place was given to dealing with climate change through cuts in CO2 emissions. This finding was based in part on research by a lead author for the Intergovernmental Panel on Climate Change - the group that shared last year's Nobel Peace Prize - who noted that spending US$800 billion over 100 years solely on mitigating emissions would reduce inevitable temperature rises by just 0.2 degrees Celsius by the end of this century.

That does not mean that the planet should ignore climate change. A better response would be to increase dramatically research and development into low-carbon energy - an option that gained a respectable mid-placed ranking on our list.

It makes little sense for the world to impoverish itself by embracing a poor solution to one problem when there are more pressing challenges that can be resolved at smaller expense.

Similarly, we gave a low ranking to solutions to the challenge of outdoor air pollution. Many measures used in the developed world to reduce vehicle-caused smog - including particulate filters and "inspection and maintenance'' schemes - are prohibitively expensive in the developing world.

We could get slightly higher benefits by focusing on indoor air pollution.