Where Should the LA Fire Debris Go?

A Vickrey Auction for Allocating a Toxic Bad

The LA Fires created tons of burnt debris. Where should this toxic material go? The material will not be dumped in the ocean. The debris will be buried, but where? In Eastern Los Angeles or somewhere in Nevada? In this Substack, I want to discuss classic issues related to urban economics, property rights, the Coase Theorem, and a Vickrey Auction’s role in allocating this undesired resource.

First, some Los Angeles Times headlines.

This first article highlights that the EPA is in charge of making the site selection decision. Is this the right decision-maker? I will return to this point below. Second, note that the EPA initially chose a relatively rural part of the LA Region on unincorporated land in the San Gabriel Valley. I will return to this point below.

Here is another recent LA Times headline. Unsurprisingly, residents close to possible debris burial destinations oppose being selected to receive the waste.

The LA Times asks the key question in this piece:

Here is a fascinating quote from this piece:

“Everyone wants debris gone from their property immediately, or even better, yesterday. And no one wants to take it. Residents in the San Gabriel Valley near Lario Park, where the hazardous waste from Eaton Canyon will be temporarily stored, are outraged that it’s being trucked toward them. (Hazardous debris from the Palisades fire will go to a location near Topanga Canyon Boulevard and Pacific Coast Highway.)”

Urban and Environmental economics logic offers several insights here.

First, we need to understand who owns the property rights here. Does each possible destination for the debris have the right to reject taking it? The debris is located in the Palisades and Altadena. For each possible destination burial area for the debris, what is the shipping cost of $ per ton to move the debris from the origin to the destination? If transport cost minimization were the only criterion in choosing where to send the debris, then this would be an easy calculation.

Interesting politics arise here because destination communities differ with respect to their political muscle. Note that nobody is mentioning Beverly Hills as a place to bury the waste! Elected officials will seek to follow the “path of least resistance” subject to keeping the transport costs low. A destination in rural Nevada might feature few residents, but the shipping costs would be much higher. U.S. truckers would earn high pay as they would travel long distances with thousands of loads of debris.

The EPA is likely to confront an environmental justice issue. If it selects a less populated, low-real estate-priced location for burying the waste, this is more likely to be an area featuring poorer people and more minorities. If the EPA spends months wrestling with this ethical issue, this will delay the clean-up and recovery of the afflicted areas.

Introducing the Vickrey Auction

This semester, I am teaching urban economics at USC. For my second homework assignment, I asked my students to evaluate whether a Vickrey Auction could be used to allocate the debris. William Vickrey, who won the Nobel Prize, was my colleague at Columbia University.

In a Vickrey Auction, bidders place a $ bid for an item. The highest bidder wins the item, but she only pays the second highest bidder’s bid.

For example, suppose I am auctioning off a signed copy of my 2010 Climatopolis book.

Here are the bids;

My mother bids $12

My wife bids $4

My father bids $17

In this case, my father wins the auction but he pays $12 (the 2nd highest bid).

This same mechanism could be used to auction off the debris. Each community would submit a bid for what is the least amount of $ it would have to be paid to take the debris. The lowest bid would win this auction and the community would receive the 2nd lowest bid. Why does this auction have this unusual feature: the winner only pays the 2nd highest bid? The answer is that this approach encourages the bidder to reveal her accurate valuation of the good (or, in this case, the lousy debris). There is no incentive to lie. If you don’t believe me, read this.

While I agree that this auction proposal is somewhat exotic, note that my proposal does not represent a takings. I respect that each community has the right to reject taking the debris. I am assigning property rights such that each community can sell its property rights, but it can always say “no”. The EPA’s current approach represents a type of taking. They are injuring the destination community they select without offering compensation.

Now, a difficult question relates to how much damage the debris burial will cause the community at the destination. If waste disposal causes anxiety among residents, how much should the EPA care for them? How many $ precautions will the EPA take to dispose of the debris in the selected area properly? Each community has a better understanding of the suffering and anxiety caused by taking the debris, and its “bid” in the Vickrey Auction would reflect these considerations.

My proposed market mechanism efficiently allocates the debris and rewards the community that takes it. It also accelerates the process relative to what will unfold now, given the lobbying that is now taking place.