Wednesday, February 28, 2007

Cost of change

In software development we talk a lot about the cost of change. Cost of change is also a hot topic at the moment - how expensive will it be to reduce our carbon emissions? What will the impact on the economy be? So I was interested to read this in The Undercover Economist:

"Ask the polluters and they will tell you that reducing their pollution is like stopping breathing - it would be very expensive to stop, so somebody else should make the changes. But it's not really hard to find out the truth. Regulators can find out how much it costs to reduce pollution by telling people to either change their ways or pay a charge. Watch which decision they make. Judge them by their actions.

The EPA tried this in the case of sulfur emissions. They set up an auction for the right to emit sulfur dioxide, which causes acid rain. Polluters were given a quota of emission permits and could either buy more permits in the auction or reduce their emission by shutting down, installing sulfur scrubbers, or buying cleaner coal. When the EPA simply tried to tell them to install sulfur scrubbers, the power generators argued that it would be very expensive to do so, and they lobbied hard to stop the mandatory regulation. Even the EPA estimated that the cost of reducing sulfur dioxide emissions by one ton would probably be in the range $250 to $750 and might be as high as $1,500. But when the EPA conducted the auction in 1993, very few polluters made high bids. The companies had been exaggerating their costs. By 1996 permit prices had fallen to $70 a ton, and even at that price many polluters were buying cleaner coal or installing scrubbers rather than buying permits to continue polluting.

The regulators discovered that getting rid of sulfur dioxide was so cheap that few people were willing to pay for the right to keep producing it. ... The clever thing about the auction was not that the sulfur emissions were reduced - that could have been required by law - but that legislators all over the world found out how much sulfur scrubbers really cost. It created a basis for further legislation: not making rules in the dark, but in full knowledge of the (modest) cost."

So how would this work in software? Instead of telling people to reduce their cyclomatic complexity, I'll sell my teams some CC permits and see who bids for them and how much they pay. Same thing for test coverage. How about LOC as well? Ok, at some point we need to conscious of the Law of Unintended Consequence, but I like this idea a lot.

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