Nonmarket analysis requires a limited but particular set of information about each issue. The issue is specified uni-dimensionally (more on this below). The analysis identifies the stakeholders who have preferences that vary among the potential outcomes. The stakeholders are characterized according to attributes that determine their (potential) influence on the issue outcome.
In this course, we will use the words issue, stakeholders, and effectiveness as defined below. These concepts, however, are often expressed in other ways, depending on the author and context. For example, Baron in Business and the Environment (the source of earlier assigned readings), refers to our "stakeholders" as "interests."
An issue is the basic unit of consideration for nonmarket analysis. Issues arise when stakeholders have preferences that vary over alternative methods for achieving a business or policy objective. Through these issues, stakeholders affect the likelihood of achieving their organizational objectives. For purposes of analysis, an issue is defined as a specific policy question with a uni-dimensional set of possible policy alternatives (outcomes).
Issue: a specific policy question with a uni-dimensional set of possible policy alternatives (outcomes)
Examples of issues include: What should be allowable concentrations for particulate emissions? At what legal age should we be able to vote? At what levels shall we set climate change agreement emissions targets? How often should we report on progress in meeting climate change emissions targets?
Bueno de Mesquita provides a useful definition:
An issue is any specific policy question for which different individuals, organized groups, or informal, interested parties i.e., stakeholders, have preferences regarding [an] outcome. The range of preferred outcomes on an issue must be capable of being represented along a single line or continuum. Be sure to define carefully the precise policy question you want to analyze. The … ends of [a] policy continuum should specify the most extreme outcomes actually supported by any [particular stakeholder]. Of course, these extreme outcomes need not refer to a resolution that anybody believes will be achieved, but refer only to the fact that there is at least one stakeholder that currently seems to support such an outcome.
de Mesquita, B. (n.d.) The Predictioneer's Game. Retrieved March 17, 2010 from Predictioners Game
Consider the case of hybrid cars. Better for the environment and pocketbook (in many cases), what's not to love? Of all things, they may be too quiet. In fact, in the eyes (well, ears) of many, these cars are so quiet they are unsafe--a danger to pedestrians. Nearly 10 years after the first release of production hybrids in the USA, a study showed that hybrid-electric vehicles were 50% more likely than cars with noisy combustion engines to be involved in an accident during certain low-speed maneuvers. We have an issue, folks: Should manufacturers be required to add noise to these otherwise quiet vehicles? (For source of this info and more background see The Deadly Silence of the Electric Car.)
By the way, this is still an issue! Though very few people are aware of it (I counted myself among them until I researched it), the NHTSA propagated a rule that electric and hybrid vehicles were required to add artificial noise if they are traveling up to 18.6 mph or reverse starting in September of 2020 (source: The Verge, 2019). In September 2020, the NHTSA, responding to lobbying from automakers, delayed the implementation of this so-called "Quiet Car Rule" by 6 months (source: GMA Authority, September 2020). I could not figure out whether or not this rule was implemented in March of 2021. Perhaps someone who is more plugged in (no pun intended) to this issue could update the class in the Coffee Shop.
A Note on Uni-Dimensionality
You probably have a general idea what uni-dimensionality means, but just to clarify in case it is needed: "Uni-dimensional" is what Mesquita referred to when he notes that issues "must be capable of being represented along a single line or continuum" (emphasis added). In other words, the choice(s) presented in an issue must be a matter of degrees. The easiest example is a simple "yes or no" question, e.g.: "If a presidential election were held today, would you vote for Donald Trump to be President or not?" The two extremes of this choice are "yes" and "no". A related continuum-based question would be: "If the election were today, how likely would you be to vote for Donald Trump on a scale of 1-10, with 1 meaning 'extremely unlikely' and 10 meaning 'extremely likely?'" This time, the extremes of the choice are 1 and 10. Each of these questions can be visually represented on a single line (a continuum), and the latter question presents choices that are varying degrees of the same option. A multi-dimensional question cannot be represented on a single line. For example: "If the election were held today, would you most likely vote for Joe Biden, Donald Trump, Kanye West, or none of the above?" No matter how many candidates are listed, even though there are a discrete number of choices, they are not a varying degree of a single choice, and thus do not represent a single issue as we define it.
The issue above has a simple "yes/no" continuum, but once different types of noises are being proposed (e.g. a "whir" or a some other noise, as the article describes), then it becomes multidimensional and thus not an "issue" as we define it.
Stakeholders are the individuals or groups that act to influence the ultimate resolution of a particular issue.
Bueno de Mesquita again provides a useful definition:
A stakeholder … is any individual or group with an interest in trying to influence the outcome on the issue being analyzed. … [T]he list of [stakeholders should not be limited] to those who will ultimately make the decision. ... [Stakeholders also include those who will] weigh in, trying to influence the decision makers. All who try to influence the outcome should be represented in the stakeholder list.
de Mesquita, B. (n.d.) The Predictioneer's Game. Retrieved March 17, 2010 from Predictioners Game.
In the case of the too-quiet electric vehicles (EVs), numerous stakeholders emerge: EV manufacturers (e.g., Toyota, Tesla, Nissan, GM, Ford), Alliance of Automobile Manufacturers, and the National Federation of the Blind, among others. Please note that the terms "stakeholders," "stakeholder groups," and "interest groups" are often used interchangeably.
When performing non-market analysis, be careful to distinguish between those that try to influence the decision and those who simply make the decision based on objectively analyzing the issue. The NHTSA, a federal administration under the Department of Transportation, is tasked with rule making based on the Pedestrian Safety Enhancement Act of 2010 (PSEA, full text available here). Essentially, they were tasked with determining how to interpret and enforce the PSEA, which like many laws, is sufficiently vague to the point that it can be interpreted in a variety of ways. Here is one of the key aspects of the Act: The NHTSA must "determine the minimum level of sound emitted from a motor vehicle that is necessary to provide blind and other pedestrians with the information needed to reasonably detect a nearby electric or hybrid vehicle operating at or below the cross-over speed, if any..." (Source: US. Government Printing Office) (So yeah, not so specific.) After the issue completed the legislative stage, the NHTSA issued a proposed rule that detailed how to adhere to the Act based on their nominally objective interpretation of it. They then allowed public comment, as required by law, then issued a final ruling after considering the comments. They then allowed some time for formal petitions. In this process, they did not seek to influence the outcome, and thus would not be considered a stakeholder. They made a decision based on the letter of the law and comments from stakeholders. Stakeholders were involved in all stages of the issue formation, from interest group formation to legislation to administration. If you are interested in seeing the final ruling and the petitions filed, you can view it here in the Federal Register.
Initial Policy Position
Each stakeholder can be associated with an initial policy position. An initial policy position refers to the policy preference that a stakeholder is willing to proclaim at the outset of bargaining with other stakeholders. This preference must fall somewhere along the issue continuum.
The initial policy position is the "position the stakeholder favors or advocates within the context of the situation. When a [stakeholder's] position has not been articulated, it is best thought of as the answer to the following mind experiment: If the stakeholder were asked to write down his or her position, without [necessarily] knowing the values being written down by other stakeholders, what would he or she write down as the position he or she prefers on the issue continuum?”
de Mesquita, B. (n.d.) The Predictioneer's Game. Retrieved March 17, 2010 from Predictioners Game
In our example, EV manufacturers, at least initially, were described as a "nascent industry divided over whether safety sounds should be added to the quiet cars and, if so, what those noises should be." Whereas some manufacturers began to experiment with adding sound, and testing for customer preference, others were less enthusiastic. Officials at Tesla are quoted as saying they had "no intention of implementing 'fake noises.'" Other stakeholders, such as the National Federation of the Blind were clearly in favor of a mandate. The NHTSA was ready to act, given sufficient data. Each stakeholder had an initial position on a policy that would require adding "noise."
Determining Stakeholder Groups
It can be difficult to determine the boundaries of a stakeholder when it is a group of people or organizations. For example, "EV manufacturers" could possibly be considered a single stakeholder, but only if they are likely to take unified action. What if Tesla and GM have different perspectives on the issue of artificial noise and thus would not act in a unified manner? You would have to treat them as separate stakeholders. Even if they did have the same perspective and/or initial policy position, they are not likely to take action together, thus should be treated as separate stakeholders regardless.
A group can be considered a stakeholder if they are seen as likely to take unified nonmarket action. For example, there may be some individuals that belong to the National Federation for the Blind (NFB) that would prefer to not have artificial noise, but the NFB will act as a single, unified group, so the NFB is considered a single stakeholder. The approximate percentage of individuals within a group that support a position or course of action can affect the strength of a position and likelihood of a stakeholder taking action. This will become clearer when we go over supply of and demand for nonmarket action later in this lesson, but this should make intuitive sense. For example, the likelihood of the NFB taking action is higher if nearly all of its members are in favor of artificial noise than if barely a majority are. Of course there are a near infinite number of degrees in-between these positions.
When performing nonmarket analysis, you must take into consideration the (dis)unity of stakeholders within a group. Be warned that this often involves well-informed, but imperfect calculations and considerations. Reality can be a messy place, especially when human behavior is involved!