Cattle and Methane

Our discussion on externalities and Robert Coase’s analysis of the interaction between a cattle-producer and a farmer reminded me of a similar issue regarding global warming that I studied in high school. For meat-lovers, including myself, a nice 12-oz New York Strip steak is a delicacy. However, the production of livestock, like cattle, to feed the large community of meat-lovers results in a strong example of a negative production externality. Cows produce methane, a powerful greenhouse gas that contributes to the rise of global temperatures. Clearly, then, the social marginal cost (SMC) of raising cattle for human consumption equals the private marginal cost (PMC) that the producer of the cattle is responsible for when raising livestock plus the additional marginal damage (MD) that the release of methane places on the environment and our wellbeing. If no action is taken, there will be an overproduction of cattle and even greater amount of the greenhouse gas being released (Q_{AE <} Q*). To fix this problem, what should be done?

If we lived in a world where everyone loved a good New York Strip, then the social marginal benefit of producing cows for consumption would certainly outweigh the social marginal cost of the methane being released into the atmosphere. Unfortunately, for all meat-lovers, this is not the case. A bargaining solution would not be feasible in this situation because it would lead to both a free-rider and a holdout problem- there are just way too many people that are either liable or not liable to find any clear consensus. Hence, there needs to be government intervention beyond assigning property rights, in the form of taxes, regulations, and subsides. The article Meat Is Horrible articulates government intervention in the form of a “meat tax”. Another solution could be regulations aimed at capping the number of cows a farm can grow in order to control the levels of methane being released. Finally, subsidies could be used to incentivize farmers to use a certain type of feed that will reduce the amount of methane released by the cattle.

Meat is not horrible, but a solution needs to be found to alleviate the effects of the negative production externality caused by the growing of cattle for consumption.