Evolutionary Ecology

A new environmental vision

Lynn Scarlett from the May 1996 issue

(Page 2 of 5)

For "ordinary" goods like jackets, we have hundreds of years of institutional evolution to make markets work, to address the problems of values and knowledge. Some of those institutions involve government policy. Many do not.

Environmental goods present special challenges because of the characteristics of these goods. But meeting those challenges has been unnecessarily difficult. For too long environmental policy has been shaped by people who demanded that environmental values trump all other considerations and who assumed that a regulatory elite possessed all necessary knowledge. Rather than figuring out how to perfect or create institutions that would allow a market for environmental goods to develop and flourish, they have been bent on opposing and destroying markets. They have seen markets not as processes for addressing values and conveying knowledge but as symbols of base commercialism and greed. This moralistic approach is finally fading. We can now begin to examine what sorts of institutions different environmental goods require--to explore a new environmental vision.

For 20 years, some of the most effective proponents of "free market environmentalism" have come out of the New Resource Economics school of thought. These economists, mostly based in the Western United States, focus on the environmental goods most easily incorporated into traditional institutions of property rights--and, perhaps not coincidentally, the oldest areas of U.S. environmental policy, dating back to the Progressive Era. Their starting premise is that individuals are predominantly self-interested. New Resource Economics then explores how different ownership settings and decision-making institutions shape incentives for stewardship.

"Actual or potential owners have incentives to use their resources efficiently," write economists Richard Stroup and John Baden, neatly summing up their thesis. Owners enjoy the fruits of efficient resource use and land stewardship through enhanced returns on their investment and maintenance of their property's value over time.

Environmental problems arise, in this model, when resources are unowned. This is the famous "tragedy of the commons," in which resources are "owned" by everyone and thus effectively by no one, because they can be used indiscriminately by everyone. Each person has an incentive to consume as much as possible, as fast as possible, rather than to preserve and protect resources for future use. According to this view, institutions, not perverse people, are the genesis of environmental problems.

"The same people who nearly destroyed the buffalo population," write Stroup and Baden, "posed no threat to the more valuable beef cattle raised on the western range. In that instance more clearly defined property rights resulted in the proliferation of beef cattle while the imperfect, if not altogether absent, property rights to the buffalo led to its near elimination."

Translated into policy, the insights of these economists encourage experiments in market creation. Environmental writer Tom Wolf describes a "Ranching for Wildlife" program in Colorado that borrows from the ideas of New Resource Economists. In the Sangre de Cristo Mountains, elk on public and private lands compete with cattle for forage. The challenge, suggests Wolf, is "to figure out how ranchers can capture value from the elk."

Hunters will pay as much as $8,000 for a license to hunt a trophy elk. But until Colorado passed its Ranching for Wildlife program, landowners were unable to take part in potential revenue from sale of hunting licenses. To cattle ranchers, then, elk were merely pests. Under Ranching for Wildlife, the state still "owns" the wildlife, but owners of large ranches can auction off, at whatever price the market will bear, a designated number of hunting licenses that guarantee trophy elk. The program, in effect, has partially privatized elk-hunting rights. Participating ranch owners now manage their lands to provide suitable habitat for elk. They also guard vigilantly against poaching of young bull elk.

One of the advantages of "privatizing" resource and land-use decisions through various property rights arrangements is that these arrangements reduce the need for consensus. Goals, such as wilderness preservation, can be pursued through private land purchases that, unlike public preservation activities, do not require majority voter approval.

Wedding their work to the pioneering work of Nobel laureate economist James Buchanan and Gordon Tullock on "public choice theory," the New Resource Economists are also able to explain some of the perversities that keep surfacing in public lands management. The U.S. Forest Service, for instance, has incentives enshrined in law that encourage it to allow large-scale timber cutting even when the logging costs more than the Forest Service takes in. Because bureaucrats have no rights to the resources they manage, Stroup and Baden argue, "Even when [they] are highly trained, competent, and well intended, the information and incentives they face do not encourage either sensitive or efficient resource management."

Most environmental issues are not, however, quite that simple. Incentives and self-interest are always present, but they are not the whole story.

Markets work for jackets and, with a little work, for elk because these goods have certain characteristics that make transactions relatively simple. It's possible to clearly specify who owns what, to identify buyers and sellers, and to convey all the necessary information for trades to take place. As a result, the market operates as a discovery process to address the knowledge and value problems--and to encourage improvements over time, such as better jacket brands or improved elk forage.

In other cases, however, things aren't so clearly defined. There are frictions: hard-to-divide goods, parties too numerous or scattered to be identified, vital information that isn't easily shared or easily known, blurry property lines. Institutions must evolve to deal with these hard cases.

One such institution is the common law. The common-law approach asks, "What happens when one person's sphere of activity conflicts with another person's?" The result is a focus on the concepts of liability, nuisance, and trespass; the role of courts in evaluating harms and benefits; and their role in resolving conflicts by clarifying the scope of different intersecting rights.

This blurry realm is not confined to a few difficult air pollution problems (and, in fact, common law may not work well for air pollution). Anywhere people congregate, conflicts emerge over sights, smells, and physical invasions that include everything from factory smoke to ugly houses to one neighbor's leaves falling on another's yard. They also include potentially big nuisances such as toxic air emissions or discharges of waste into water bodies.