Knocking on Heaven's Door - Lisa Randall [96]
As an institution that is truly international, CERN’s success hinges on the shared common goals of many nations. One nation can try to minimize its own contribution, but aside from that, no individual interests are at stake. All involved nations work together since the science they value is the same. The host countries, France and Switzerland, might receive slightly greater economic advantages in labor and infrastructure, but on the whole, it’s not a zero-sum game. No one nation benefits at the expense of another.
Another notable feature of the LHC is that CERN and the member states are responsible should any technical or practical problems occur. The 2008 helium explosion had to be repaired through CERN’s budget. No one, especially those working at the LHC, benefits from mechanical failure or scientific disasters. Cost-benefit analyses, when applied to situations where costs and benefits aren’t fully aligned and the benefactors don’t have full responsibility for the risk they take on, are less useful. It is very different from applying this type of reasoning to the types of closed systems that science tries to address.
In any situation, we want to avoid moral hazards, where people’s interest and risk are not aligned so they may have an incentive to take on greater risk than they would if no one else effectively contributed insurance. We need to have the right incentive structures.
Consider hedge funds, for example. The general partners get a percentage of profits from their fund each year when they make money, but they don’t forfeit a comparable percentage if their fund faces losses or if they go bankrupt. Individuals keep their gains, while their employers—or taxpayers—share the losses. With these parameters, the most profitable strategy for the employees would encourage large fluctuations and instabilities. An efficient system and effective cost-benefit analysis should take into account such allocation of risks, rewards, and responsibilities. They have to factor in the different categories or scales of the people involved.
Banking, too, has obvious moral hazards where risks and benefits aren’t necessarily aligned. A “too big to fail” policy combined with weak leveraging limits yields a situation in which the people who are accountable for losses (taxpayers) are not the same as those who stand to benefit the most (bankers or insurers). One can debate whether bailouts were essential in 2008, but preventing the situation in the first place by aligning risk with responsibility seems like a good idea.
Furthermore, at the LHC, all data about the experiments and risks are readily available. The safety report is on the web. Anyone can read it. Certainly any institution that would expect a bailout were it to fail, or even one that simply speculates in a potentially unstable fashion, should provide enough data to regulatory institutions so that the relative weight of benefits against risks can potentially be evaluated. Ready access to reliable data should help mortgage experts or regulators or others anticipate financial or other potential disasters in the future.
Though not in itself a solution, another factor that could at least improve or clarify the analyses would again be to take “scale”—in terms of categories of those subject to benefits and risks, as well as time ranges—into account. The question of scale translates into the issue of who is involved in a calculation: is it an individual, an organization, a government, or the world, and are we interested in a month, a year, or a decade? A policy that is good for Goldman Sachs might not ultimately benefit the economy as a whole—or the individual whose mortgage is currently under water. That means that even if there were perfectly accurate calculations, they would guarantee the right result only if they were applied to the correct carefully thought through question.
When we make policy or evaluate costs versus benefits, we tend to neglect the possible benefits of global stability and helping others—not just in a moral sense, but