Free Market Environmentalism

Real Estate Issues, Fall 2001 by McCoy, Bowen H

DEFINITIONS

With the selection by President George W. Bush of Christine Todd Whitman as Environmental Protection Agency Administrator and Gale A. Norton as Secretary of the Interior, there was considerable interest in their libertarian, market-based policies, sometimes referred to as free market environmentalism. Free market environmentalism has been described as a philosophy that is grounded in property rights, voluntary exchange, common law liability protection, and the rule of law-all of which seek to integrate environmental resources into the market system.

Free market environmentalism conflicts with traditional environmentalism in its visions regarding human nature, knowledge, and processes. With respect to human nature, man is viewed a selfinterested. This self-interest may be enlightened to the extent that people are capable of setting aside their own well being; but good intentions will not produce good results. Instead of intentions, good resource stewardship depends on how well social institutions harness self-interest through individual incentives.

Knowledge and information cannot be general and global, but must be time- and place-specific. These visions of knowledge and human nature make free market environmentalism a study of process rather than a prescription for solutions. If we can rise above self-interest and if knowledge can be concentrated and specific, then the possibility for solutions through political control is feasible.

Many environmental problems are caused by the "tragedy of the commons." If access to a valuable resource is unrestricted, people entering the commons to capture its value will ultimately destroy it. Even if each individual recognizes that open access leads to resource destruction, there is no incentive for him/her to refrain from overgrazing the common pasture or over-harvesting the fish. If he/she does not take it, someone else will, and therein lies the tragedy. There is no community in which to regulate individual self-interest. The individual, who is unconstrained and wastes a community resource, through over-grazing, pollution, or the like, is called a free rider. He/she does not pay for the value or cost of what he/she takes away from the community.

Transaction costs become important. It is costly to restrict entry. The costs of organizing and bargaining can be high. Information costs are the costs or values attributed to what is taken from the community. What is the cost of my backyard barbecue polluting your air? How much of such pollution should be allowable? What are the costs and benefits of drilling for petro-chemicals in the Arctic National Wildlife Refuge? Such costs are difficult and expensive to obtain in the absence of established markets for wildlife habitat, or hiking, or snowmobiling. In order to solve environmental problems, we must find ways of discovering and articulating this type of information. Once such values and costs are determined, rational choices can be made and rights can be marketed or traded.

Free market environmentalism identifies systematic differences in the way information about subjective values is communicated in markets and politics. In the marketplace, prices convert subjective values into objective measures. In the political process, voting is a signal that communicates the subjective values, especially of special interest groups. Special interest groups lower the cost of information to its members, allowing legislation to pass which costs each taxpayer a few pennies, but provides significant benefits to the special group.

COMMUNITY MANAGEMENT SYSTEMS

Community management systems have evolved over hundreds of years to manage issues such as the tragedy of the commons. They seem to contain six basic factors:

1. Boundaries must be clearly defined so that individuals know what they can use and others know when they are trespassing.

2. Rules are required to determine how the value of the resource is parceled out.

3. Rules must be specific as to time- and placespecific resource constraints, or there will be pressure to change them.

4. There must be effective monitoring of the rules, and a system of rewards and sanctions imposed.

5.Dispute resolution mechanisms at the local level are necessary.

6. The rules must not be subject to change by higher levels of government.

An example may be given of the destruction of the Nepalese forests. The national government chose to ignore previously successful community arrangements, and all the forests were placed under central control of the government. The act led to a chain of destruction that resulted in the removal of almost half of the trees in Nepal's forests. Nepalese villagers began free riding, systematically overexploiting their forest resources on a large scale. They had lost control of their forests.

Examples of free market environmentalism occur in areas such as grazing rights, hunting, multiple use of government lands, recreational land uses, water rights, pollution, fisheries, and the like. The argument is made that entrepreneurial pragmatists in the environmental movement have come up with incentive systems, such as trading unused rights to pollution or rewarding ranchers for protecting endangered species, which have led to more positive outcomes than either the government command and control systems or the legal process.