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Abstract Natural resources and environmental concerns have been prevalent not only in India, but in other countries of the world as well, but in most cases, India has been the major country that has experienced the depletion of natural resources and environmental degradation.In this research manuscript, main focus has been laid upon India; India is the most populous country in the world and with the impact of population explosion, there is exhaustion of natural resources and environmental degradation.
The main areas that have been highlighted are rural poverty and environmental degradation, effects of disasters and natural hazards, assessing risks, impacts and opportunities from natural resources and the environment, precise insinuations for environment, sustainability and green development, greening rural development and economic growth and environmental sustainability In his 1910 book The Fight for Conservation, for example, the American conservationist Gifford Pinchot emphasized: the right of the present generation to use what it needs and all it needs of the natural resources now available [recognizing] equally our obligation so to use what we need that our descendents shall not be .The main areas that have been highlighted are rural poverty and environmental degradation, effects of disasters and natural hazards, assessing risks, impacts and opportunities from natural resources and the environment, precise insinuations for environment, sustainability and green development, greening rural development and economic growth and environmental sustainability.
The issues have been taken into account and the measures also have been underscored that are essential in order to lead to preservation and sustenance of natural resources and the environment.Keywords Introduction natural resources preservation is vital to the economic growth of any country or a region in many ways but also susceptible to the extent that their utilization, management and sustainability can be affected by performance and deeds of various actions within the society.Natural resources and environmental issues matters and apprehensions are cross-sectorial but also renders input in every sector in terms of reducing poverty and destitute conditions of people and therefore need to be accorded highest precedence within the overall framework of the Poverty Eradication Action Plan ( PEAP) which intends at reducing the fraction of people living in unconditional poverty to a level below 10% by 2017 Best websites to get a college essay natural resources online Custom writing single spaced American Academic.Natural resources and environmental issues matters and apprehensions are cross-sectorial but also renders input in every sector in terms of reducing poverty and destitute conditions of people and therefore need to be accorded highest precedence within the overall framework of the Poverty Eradication Action Plan ( PEAP) which intends at reducing the fraction of people living in unconditional poverty to a level below 10% by 2017.In view of the cross-cutting nature of environment and normal assets issues, actions to address them require involvement of all relevant sectors homework.
In view of the cross-cutting nature of environment and normal assets issues, actions to address them require involvement of all relevant sectors.
It is from this background that during the PEAP revision in the year 2003, the environment and natural resources PEAP revision sub-committee under the auspices of the then Ministry of Water, Lands and Environment prepared principles for conventional environment and natural resources issues in the PEAP, and other government sectors and programs abaleatherdoctor.com/homework.php.It is from this background that during the PEAP revision in the year 2003, the environment and natural resources PEAP revision sub-committee under the auspices of the then Ministry of Water, Lands and Environment prepared principles for conventional environment and natural resources issues in the PEAP, and other government sectors and programs.The overall objective of these principles was to provide direction and leadership to different sectors on how they can integrate cross cutting environment and natural resources issues in their sectorial preparations and series.The purpose of this research therefore, was to assess the extent to which environment and natural resources issues have been integrated, and propose actions that can accelerate the mainstreaming of environment and natural resources issues in government sectors and programs 1 .There have been identification of different issues that cause harm to the earth and regular assets; they have been named rustic neediness, populace blast, deforestation, industrialization, uncalled for waste administration, catastrophes and characteristic dangers.
Rural Poverty and Environmental Degradation The thin layer of soil that covers the surface of the earth is the key to the well-being and survival of individuals, without proper environmental conditions there would be absence of crops, food, plants, animals, forests and even human beings; about 40% of the surface of the earth and more than one billion people are affected by land degradation; degraded lands are homes to the most poverty stricken sections of the rural people.
In India, in rural areas, most of the individuals are living in the conditions of poverty; climatic factors, demographic factors, personal causes, economic causes and social causes are the main factors that lead to the conditions of poverty.Rural poverty-alleviation programs are located in ecologically frail and marginal environments.In these areas, the poor are often fastened into patterns of natural resource degradation by their lack of access to productive resources, institutional services, acknowledgment and technology.Without these resources, they are compelled to overload already eroding lands in order to survive.The increased pressure on the land, through deforestation, overgrazing and over cultivation causes a decline in soil fertility and production, and thus aggravates poverty.
This circular, cause-and-effect relationship between rural poverty and environmental degradation is apparent, unless degradation is addressed directly, the sustainability of rural development schemes will be destabilized and endeavors to lessen rural poverty will be endangered 2 .Effects of Disasters and Natural Hazards The effects of natural hazards are destructive which lead to dire consequences.Four main kinds of effects have been identified 3 .Environmental effects – The environmental effects can be destruction of lands, homes, buildings, and surroundings; there are huge losses caused in water supplies, food availability, as there is destruction of crops, immense loss of life is caused by natural calamities and there is presence of human bodies and animal carcasses which remain unburied.The environmental effects vary from disaster to disaster such as earthquakes may destroy buildings but not crops, on the other hand, a cyclone may cause destruction in both.
Effects on health – Sudden natural disasters may cause not only widespread death but also massive social disruption such as famines, epidemic diseases; injuries are also caused by the natural disasters; when people get affected by disasters they tend to move to another place and this movement may lead to transmission of diseases, and there is prevalence of malnutrition, as the food and water supplies get destructed, there is scarcity of food and water quality and quantity.Economic, social and political effects – Disasters lead to destruction of economies, individuals have to leave their jobs and get involved in disaster related activities or they become jobless if their place of work gets affected by the disasters.There is loss of machinery and equipment as well; farmers, shopkeepers and fishermen are the individuals who are affected by the disasters in most cases.Huge monetary and financial losses are caused by disasters and economic, political and social conditions of the region get severely affected.Administrative and managerial effects – Administrative problems become more complicated and tedious due to emergence of disasters.
Assessment of risks, impacts and opportunities from natural resources and the environment In order to find solutions to the problems and issues concerning the environment and the natural resources, there have been the following questions that need to be answered 4 : 1.How did natural resources and the environment throw in to the conflicting situations and how could they participate in conflict degeneration? 2.How were natural resources and the environment impacted by the incongruity and what are the suggestions for the welfare of human health, livelihoods, employment, education and security? 3.What opportunities are present for natural resources and the environment to concretely contribute to peace building? Precise insinuations for environment, sustainability and green development When all the issues have been analyzed that affect the natural resources and the environment, then there have been precise insinuations for environment, sustainability and greenery development.
Then the following domains of challenges need to be taken into account 5 .Climate and energy considerations – The climatic factors and the energy sources need to be taken under consideration, for example, the climatic factors are variable and the sources of energy, water, electricity have to be adequately preserved in order to lead to efficient environmental conditions, poverty alleviation and Natural cycles and their connected social processes – Natural cycles including water, is meant for a number of purposes, there have been many social processes connected with water, as water is considered to be the main aspect for survival, it is used in agriculture for irrigation purposes, generating power, survival, in industries and factories and other purposes.These have to be taken care of in order to restrain the natural resources and the environmental issues.The urban-rural nexus – The rural individuals are migrating to urban areas in search for a better livelihood, job opportunities, education and well-being, this is causing a depletion in natural resources; such as urban areas are becoming more and more congested, there has been increase in deforestation in order to construct dwellings and houses for the people, roadways are getting diminished due to increase in vehicles and there has been a major increase in pollution of all kinds, air, water, sound and degradation of land and other surroundings.Urban infrastructure and transport systems – With the impact of globalization, increase in industrialization, infrastructure, technology, vehicles and innovation methods; the urban areas are getting overcrowded and jam-packed.
The rural individuals are migrating to the urban areas in search for better job opportunities in industries and other sectors, this has led to water pollution to a major extent and other depletion of natural resources; with the increase in the transportation, there has been an increase in air pollution and that is in turn causing many health problems to the urban dwellers.Under the point of urban infrastructure and transport systems, it has been understood that there has been a major increase in air pollution that has caused many health problems as there is lesser greenery due to increase in urban population and dwellings.The green development in future and its economic impacts – Plantations, trees and other greenery is very essential in order to preserve natural resources and for the better livelihood of the individuals, animals, industries, agriculture, crops and forests.The economic impacts for green development are always positive, for instance, encouragement of greenery leads to a decrease in air pollution, the other factors such as water security, coastal communities, energy security, other infrastructural facilities, health related aspects, tourism, agriculture and forestry, food security, natural ecosystems, and above all sustainable development for all living things is implemented in an adequate and an effective manner.Greening Rural Development Greening provincial advancement alludes to the assortment of exercises that redevelop and ration the regular asset base, enhance and utilize cleaning materials, advances and procedures to make environment well-disposed items, employments, undertakings and occupations.
There have been five extensive results of greening rural development 6 .Improved resource conservation - Rural development schemes especially MGNREGS and IWDP focus on restoration of natural resources.Conserving and regenerating land and water resources enhances their productivity, leading to increased agricultural outputs and improved livelihoods derived from agriculture, forests and pastures.These schemes can assist in reducing run-off and soil losses, recharge groundwater, increase vegetative cover and improve biodiversity, and thereby, expand the productivity of natural resources and ecosystems.Improved resource efficiency – Rural development schemes aims to improve the efficiency of natural resources in rural livelihoods and essential services.
Under IWDP, there is an opportunity to support farmers and agricultural workers to adopt practices to support irrigation water.This can be implemented by adopting appropriate crops, farming techniques, irrigation systems and improved field irrigation methods.Reduced negative environmental impacts – Greening rural development schemes can potentially reduce the negative environmental impacts of economic development such as pollution, waste generation etc.Solid and liquid waste management under the Nirmal Bharat Abhiyan scheme improves local sanitation and hygiene and in this manner the well-being and health of local residents.Strengthened climatic resilience of communities – The resilience of local population can be enhanced by reducing the risk of climatic variations such as droughts, cyclones and floods.
Afforestation, plantations, fodder management and vegetation belts in the coastal areas lead to livelihood resilience and enable the communities to cope with the Economic Growth and Environmental Sustainability India has been committed to economic growth and environmental sustainability.The first five year plan (1951-1956) aimed at economic stabilization and investment in the agrarian sector.The plan supported community development taking into consideration the social and economic welfare of the rural sector.The second five year plan aimed at structural transformation with an emphasis on heavy industrialization.The first two plans laid the foundation for development planning in India.
The development strategy of the country has mainly emphasized upon economic development.With the increase of velocity of economic growth, the works and the pressures to bring about changes and improvements began to strengthen and therefore the need to pay greater attention to the management of water, forests and land began to enlarge.These are largely associated with the development of the rural sectors not only in India but in other countries of the world as well 6 .Environmental degradation has been expressed as loss of fertile soils, desertification, unsustainable forest management, reduction of freshwater availability and an extreme biodiversity loss rate.
There has been a high correlation between economic growth, rural development and environmental sustainability.
Sustainable use of environmental resources can contribute to augmentation and steadiness.It is essential to contribute to the environmental resources to increasing the productivity of investment in agriculture, infrastructure and natural capital.Success in achieving the conservation of the environment will contribute effectively towards rural development, water supply, land management and agricultural activities will be fulfilled effectively.The Schemes of the Ministry of Rural Development are well organized to deliver green endings i., to restoring and enhancing the ecosystem services and natural capital 6 .Natural capital is often esteemed and understood most excellent at the local level, and local knowledge is essential for useful solutions.Communities and societies need to be active supporters of the conversion to sustainable development, alleging their rights and also fulfilling their responsibilities in terms of sustainable management of natural resources.Rural development schemes provide a strong opportunity to cumulative small inventiveness in several locations to improve natural capital on a comprehensive scale.These self-governing institutions and their capacities will be answers to greater effectiveness of regulatory and market instruments in ecosystem rejuvenation and perfection of natural capital 6 .
Discussion and Summary The depletion of natural resources and environmental degradation are common and are prevalent worldwide, in India, there have been many reasons that lead to the depletion of natural resources and environmental degradation, these are effects of natural calamities and disasters, population explosion, deforestation, increase in transportation, eviction of fumes and poisonous gases from the industries as well as vehicles cause air pollution, throwing of waste into the rivers and lakes cause water pollution and conditions of poverty; with the impact of urbanization and migration of rural individuals into the urban areas in search for better livelihood has led to an increase in all kinds of pollution and deforestation, in urban cities especially in the national capital of Delhi, trees and plantations have been cut down in order to construct residential areas for the urban dwellers and this has been the major source of environmental degradation.Delhi has been considered to be the most populous as well as the most polluted city in the world.Other dire consequences have been that as a result of environmental degradation and depletion of natural resources there has been an increase in the levels of paucity, individuals are getting more prone to living in destitute conditions in rural as well as urban areas.Deforestation has resulted in calamitous consequences, the rural people who are mostly dependent upon forests for their livelihood, when the forests and trees get chopped down their agricultural occupation suffers, they depend upon forests for their food and to obtain wood, hence undergo tough conditions as a result of deforestation.Natural calamities and disasters are natural as well as man-made; when they occur unexpectedly, they cause threatening consequences upon the lives of the individuals as well as plants and animals, the effects can be environmental, health, economic, social, political, administrative and managerial.
In order to investigate the measures that would led to preservation and safeguarding of the environment and the natural resources, it is necessary to access the risks, impacts and the opportunities that are available from these two main aspects, how the life of the individuals would suffer threats, perils and be at jeopardy, what would be the impacts and what are the opportunities available have to be analyzed.For the environment, sustainability and green development, the specific suggestions have been concerning the climate and energy considerations, natural cycles and their connected social processes, the urban-rural nexus, urban infrastructure and the transport systems, and the green development in future and its economic impacts.The spread of greenery has been considered to be a crucial factor in order to curb weakening of natural resources and environmental degradation, there have been number of activities that are as a result of greening of rural development, improved resource conservation, improved resource efficiency, reduction in the negativities of environmental impacts, strengthening of the climatic resilience of communities and contribution to climate change mitigation.India is a developing nation, with the increase in industrialization and development of technology, innovation and other advancement, it is essential that measures and procedures should be implemented in order to curb all kinds of pollution, plant more trees, in other words, encourage greenery and follow particular waste management procedures; in order to preserve and safeguard natural resources, it is mandatory to follow appropriate measures and steps, as it is up to the human beings to curb man-made disasters such as industrial explosions to safeguard their lives.References Online Library of Liberty A project of Liberty Fund, Inc.
Full site Related Links: Source: This essay first appeared in the journal Literature of Liberty: A Review of Contemporary Liberal Thought , vol.4, October/December 1979 published by the Cato Institute (1978-1979) and the Institute for Humane Studies (1980-1982) under the editorial direction of Leonard P.It is republished with thanks to the original copyright holders.
Richard Stroup is a professor at Montana State University and is active in the Political Economy Research Center (PERC) with a speical interest in environmental economics.Baden is founder and chairman of the Foundation for Research on Economics and the Environment (FREE) based in Bozeman, Montana.Property Rights and Natural Resource Management: A Bibliographical Essay by Richard Stroup and John Baden Table of Contents Introduction: The Property Rights Paradigm How much development should be allowed on the Yellowstone River? Is oil being used too quickly? Is the strip mining of coal properly controlled? The world's limited patrimony of natural resources has stirred up a lively debate: how can we optimally manage our resources? It is no simple task for analysts to determine how best to manage or to allocate resources.Which uses are most "important"? How may the resources be best exploited? And what is the time path for budgeting the use of exhaustible resources? All these are important and complex questions, loaded with emotion.
Howe, Natural Resource Economics (1979), however, gives one recent and detailed study of how standard economics may be applied for problems in natural resource management.In analyzing such natural resource issues, it is critically important for us to consider the form and ownership of property rights in resources.Whether the perspective is historical, predictive, or prescriptive, it is important to recognize who controls these property rights, and under what conditions.Only from this framework of property rights can we understand decision processes.
Individuals, not large groups or societies, make the decisions.They do so, however, in an institutional framework.The property rights paradigm provides important analytical leverage in comprehending how individuals interact within institutions.The property rights concept, then, not only helps us understand history; it also helps us predict the consequences of today's institutions or to compare the likely outcomes of alternative arrangements.Given the increased pressure from larger populations, and from more powerful technologies which increase our ability to access and process more natural resources, an increased comprehension of our system and our alternatives is most welcome.
For an assessment of United States renewable resources, and the increasing pressures on them, see the U.Department of Agriculture's The Nation's Renewable Resources–An Assessment, 1975.
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In the case of exhaustible resources, see Hans Landberg, et al.In this bibliographical essay we will: (1) trace the outlines of the property rights paradigm as it relates to resource management, (2) sketch the workings of resource markets when property rights are private and readily transferable, (3) explain market failure and the potential gains in efficiency from governmental intervention in resource markets, (4) show why collective control of resources can also be expected to have problems, (5) illustrate by case studies how the theoretical analysis works in practice, and (6) draw some policy conclusions.Property Rights and Resource Management The most interesting challenge to the economic historian is to account for changes in the structure and enforcement of property rights over time The interstate highway system and the airline industry have greatly reduced the need for and profitability of railroads in the United States, although railroads are —Cynthia Clark Northrup References Manthy, Robert S. Natural Resource Commodities—A Century of Statistics: Prices, Output, Consumption, Foreign Trade, .Property Rights and Resource Management The most interesting challenge to the economic historian is to account for changes in the structure and enforcement of property rights over time.
Douglass North Property rights theorists, unlike most other economists, do not necessarily begin with the assumption that decision makers seek to maximize profits, income, or even wealth.
Instead, these theorists stress the importance of specifying goals (utility function) in each case WASHINGTON, D.C. 1152 15th Street NW Suite 300. Washington, D.C. 20005 202.289.6868. MIDWEST 20 North Wacker Drive Suite 1600. Chicago, IL 60606 312.663.9900. NORTHERN ROCKIES 317 East Mendenhall Street, Suites D & E Bozeman, MT 59715 406.556.9300. SAN FRANCISCO 111 Sutter Street 21st floor.
Instead, these theorists stress the importance of specifying goals (utility function) in each case.
The decision maker is then assumed to maximize his own utility (not that of an organization or state) in whatever situation he finds himself WASHINGTON, D.C. 1152 15th Street NW Suite 300. Washington, D.C. 20005 202.289.6868. MIDWEST 20 North Wacker Drive Suite 1600. Chicago, IL 60606 312.663.9900. NORTHERN ROCKIES 317 East Mendenhall Street, Suites D & E Bozeman, MT 59715 406.556.9300. SAN FRANCISCO 111 Sutter Street 21st floor.The decision maker is then assumed to maximize his own utility (not that of an organization or state) in whatever situation he finds himself.For an excellent review of this perspective, see Eirik Furobotn and Svetozar Pejovich, "Property Rights and Economic Theory: A Survey of the Recent Literature," Journal of Economic Literature (1972).Property rights in a tract of land, a coal mine, or a spring creek consist of control over that resource.An important feature of a property right is the ability to exclude others from using the resource.The right to use, but not to exclude others from use, is a highly imperfect (or ill-defined) property right.
Failure to recognize this leads to a weak, or even useless model and to wasted resources.For an example of such a failure, see Robert Dorfman, "The Technical Basis for Decision Making" in Haefele, The Governance of Common Property Resources (1974).Such a right to control property is most valuable to an individual when its ownership is outright, and it is easily transferable in exchange for other goods and services.However, even a limited discretionary command over access to a resource confers status and power to the holder.Governments typically exercise at least some discretionary command in this regard.
The theory of property rights to control over resources can in fact become a theory of the state.As Douglass North says, "In effect, one cannot develop a useful analysis of the state divorced from property rights." As individuals seek their own advantage, they generally do so within the prevailing institutional arrangement.In addition, however, they may seek gains by attempting to change the "rules of the game," or existing institutions which define property rights.For example, when privately held property rights to land are attenuated by zoning, land owners may gain by changing the zoning rules, or by influencing their administration.
Since other individuals may seek the same advantages for themselves, the resulting competition may involve negative sum games: those who "win" may gain less than what is lost (invested) by the competitors as a group.There is a growing literature on the topic of resource use ("rent dissipation") in the manipulation of rules ("rent seeking") by individuals in the quest for individual gain.See, for example, Anne Krueger, "The Political Economy of a Rent Seeking Society" and Gordon Tullock, "The Welfare Costs of Tariffs, Monopolies, and Theft." If the rules allow government officials discretion in determining who has access to a resource, competing claimants can be expected to invest in means to seek favorable administrative outcomes.Informational lobbying, the shift of political support, lawsuits (actual or threatened) and simple bribery can all be brought to bear, though not without cost, by those wishing favorable treatment from decision makers who do not "own," but nevertheless control the rights (access) to resources.
Some property rights theorists, writing on the evolution of institutions, have pointed out that economic growth and efficiency are greatly affected by the way in which prevailing institutions allow property rights to be traded and allocated.When rights are privately held and easily transferable, for example, private decision makers have both the information and incentive to move resources to more highly valued uses.By contrast, if those who would lose from such change can prevent it through governmental means, without bearing the loss to society of such stagnation, then the potentially higher valued uses for resources may be foregone.We turn now to a discussion of privately held property rights, and the impact of freely tradable rights (the market) on resource management.Private, Transferable Rights in a Market Setting When resources are owned privately and the property rights are freely transferable, decisions on resource uses are decentralized.Rationing of the scarce resource and coordination of individual plans are accomplished through the market.The owner of a copper mine receives market information on the value of alternative uses, as well as the incentive to supply the highest valued use, through bids for copper ore (or offers to buy the mine).A more complete treatment of markets in a resource setting, as compared with collective management can be found in Richard Stroup and John Baden, "Externality, Property Rights, and the Management of Our National Forest," The Journal of Law and Economics (1973).In this market setting, the owner is able to minimize the social cost of exploiting his resource simply by minimizing the total cost to himself.
Bid and asked prices in the market convey both condensed information (shorn of all questions of "sincerity" or genuineness" of the "needs" of the parties competing to be recognized in the decision process) and the incentive to use this information.Owners thus have the information needed for efficient resource allocation, and the encouragement or incentive to serve others by operating efficiently.Consumers, who must pay for what they use, are also informed by prices as to the value others place on what many desire.Included in the advantages of this management system (based on private property rights) are diversity, individual freedom, adaptiveness, the production of information, and a certain equity.Diversity is fostered under private property rights because there is no single, centralized decision maker but many asset owners and entrepreneurs, each of whom can exercise his own vision.
Those who correctly anticipate people's desires are most rewarded.Individual freedom is preserved under the market: those who wish to participate in and support such activities are free and able to do so since market prices provide immediate information and incentive for action as soon as changes are seen.If only a few see scarcities or opportunities ahead, they can buy, sell, —or just provide expertise as a small group of consultants—and thus direct resource use without convincing 51 percent of the voters (or their bureaucracy) of the advantages of their preferences.In this case profits will reward foresight and quick action, while losses discipline those who divert resources foolishly.Information, another advantage of property rights, is produced as a byproduct of bids offered and prices asked in the market, and is vital to the coordination of plans made in the economy by individuals.
not marketed are proving very difficult to manage rationally for there is little or no concrete evidence on how people really evaluated nonmarketed activities relative to other resource-using activities.We know, for example, how much people are willing to sacrifice for a thousand board feet of lumber of a given species and grade, but how much would they pay for a day's access to a wilderness area? In the latter case of a nonmarket good we have only rough estimates.Even the best manager cannot make good resource management decisions without knowledge of the input and output values.As a final advantage of management of resources through private property rights, there is a measure of equity in having those people who use a resource (or wish to reserve it for use) pay for it by sacrificing some of their wealth.The proceeds from the sale of public assets could be distributed, or invested and perpetually distributed to the poor or others.
For example, those using the forests would be required to pay a fee, whether it be for recreation, timber harvest, or even research in a unique area.The market, as we describe it here, is a marvelous mechanism.Its workings, however, crucially require that property rights to each resource (especially the right to exclude) be privately held and easily transferable.Only if these conditions are met can we be assured that a decision maker (the owner) with an appropriate stake in the resulting decisions (his estimate of what the resource is worth in his use or on the market) will have reason to devote the appropriate amount of attention (but not too much) to how the resource can be used in its highest value (including the potential value to others in their use).
If property rights to the resource are not fully defined and enforceable, those who put a relatively low value on its use may nevertheless use the resource without the need to compensate (or outbid) anyone else.
Or, should rights be controlled by a public (or a nonprofit) decision maker who cannot personally gain from more efficient utilization of the resource, waste could occur.The decision maker maximizes his advantage from limited property rights by minimizing his hassles (which he would face from hard decisions in reallocation) or by insuring his future job promotion (by giving in to the desires of politically powerful groups).If rights are privately owned but not easily transferable (as in the case of agricultural water rights desired for industrial use nearby) another problem emerges.In this case, the farmer is forbidden by law to sell water to the industrial user (because unmeasured return flows might decline, injuring downstream holders of water rights).This prohibition may lead the farmer to irrigate wastefully and thus lose much water to evaporation, even though he would be quite willing to sell the water he consumes to the industrialists at a price both would find compatible.
In brief, when private rights are securely held by private individuals, but easily transferable, the resulting pattern of resource utilization would be difficult to improve upon.This follows directly from the fact that resources are easily mobile, markets provide clear and condensed information on relative values, and each person has the incentive to seek out and fill (and profit from) better uses for each resource.4 The next two sections will point out in some detail the problems which result in both the market and nonmarket sectors when property rights are undefined, unenforced, not owned by private parties, or when transfer is impeded.Market Failure and Potential Gains from Government As we mentioned above, market failure occurs when property rights are not properly specified, or are not held by those who can benefit personally by putting the resources to the use most highly valued by participants in the market.
These market failures have long been recognized, but are frequently not traced to their origins in imperfect property rights.5 In this section we discuss the consequences of not specifying clear property rights.Monopoly A common reason to distrust market outcomes is the possibility of monopoly.If one individual or firm controls the entire supply of a resource (natural diamonds, for example), that individual has an incentive to limit output not only to reduce production costs, but also to increase price.If there are no good substitutes available to users of the resource, a price well above the cost of added production may benefit the resource owner most.
This would be inefficient, in the sense that some units remain unproduced even though they would be valued by users more than others value the inputs required for their production.In this situation the owner of resource rights is presumed to be unable to sell to individuals at any lower price without simultaneously lowering his price on all units.Externality Another frequently cited cause of market failure is the existence of externality.An externality exists when some results (positive or negative) of a decision are not visited upon the decision maker.The classic case of negative externality is air pollution.
Since John Evelyn wrote "Fumifugium" about the foul air of London in 1661, there has been public concern about the harm caused some people by smoke produced by others.When the copper producer chooses to send sulfur dioxide into the air, instead of bearing the costs of filtration, he saves money and thus benefits; yet the farmer downwind, whose alfalfa turns brown, pays the penalty and bears the cost.The results of such negative externalities are usually perceived to be inequitable.If the cost of reducing the pollution is less than the damage a reduction would avoid, the pollution also is inefficient.In general, negative externalities are overproduced.
The standard economic approach to pollution, and to potential solutions, is set out skillfully, in a nontechnical fashion by Larry Ruff in "The Economic Common Sense of Pollution," The Public Interest (1970).An early property rights approach is in J.Dales, Prices, Property Rights, and Pollution (1968).Positive externalities exist if a decision maker's actions yield benefits to others, without compensation.If my neighbor continues to grow wheat on his land, rather than stripmine the coal below, I enjoy the view without having to pay him.He therefore does not consider my values when negotiating with coal buyers and deciding how to use his land.In general, external benefits are underproduced.We can fruitfully consider both negative and positive externalities as property rights problems.
In the example above, both the copper producer and the farmer use the air resource.The copper smelter uses the air as a garbage removal service, to carry away its waste, while the farmer's alfalfa plants "breathe" it.Farmers actually own the air in the sense that, if they are damaged by pollution, they can sue to recover damages.7 This right to clear (non-damaging) air is imperfect, however, since the farmer here would have to prove in court: (a) the total value of damages, (b) the fact that pollution caused the damages, and (c) that the smelter was indeed responsible for the foul air when damages occurred.This burden of proof is difficult (expensive), and so the property right seldom forces the air user to compensate the owner.
Air pollution is similar to a hypothetical case where a copper producer could take labor or capital or copper ore for its own use without paying for it.Any such free resource is likely to be overused: We can approach the problem of negative externality in a slightly different manner by considering it a failure of law regarding liability.For example, the owner of an automobile does not have the right to use it to injure others (or their property), and is held liable for damages arising from the use of his auto.Similarly, we might also hold the owner of a copper smelter responsible (liable) for damages from the operation of his smelter.In a different setting, the implications of alternative liability laws are examined by Roland McKean, in "Products Liability: Implications of Some Changing Property Rights," Quarterly Journal of Economics (1970).
The second case given above of the "free" view enjoyed without compensation again reflects a failure of the rights to control (and to exclude others from the enjoyment of) all output from the land resource.The scenic view is a byproduct for which no credit is received—or foregone when production stops.
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A classic article showing the property rights aspects of action where a decision maker does not pay the costs or gain the benefits from those actions is Ronald Coase, "The Problem of Social Cost," The Journal of Law and Economics (1960).Coase shows that in the absence of transactions costs (the costs of reaching a final bargain among parties) it does not matter who owns a given resource, except that wealth will change.
That is, resource allocation is unchanged to the extent that individual preferences are invariant to the change in wealth caused by different assignments of property rights Political behaviour and the decision-making process in the allocation of water resources between recreational and municipal uses. Natural In McBoyle, G.R. and Sommervillc, E., editors, Canada 's Natural Environment: Essays in Applied Geography, Toronto: Methuen. 217-40. Chicago: University of Chicago Press..
That is, resource allocation is unchanged to the extent that individual preferences are invariant to the change in wealth caused by different assignments of property rights.
Public Goods and Common Pools Another class of market problems resembles a variant of externality.It includes the "public good" problem and the "common pool" problem.In each case, the actions of an individual decision maker have external effects on others.A public good is one which, once produced, is available for all to utilize.Paul Samuelson's original definition of a public good was such that one individual's consumption of it led to no reduction in others' consumption of that good.
See Samuelson, "The Pure Theory of Public Expenditures," Review of Economics and Statistics (1964).Anyone can be a "free rider," so that no one has an incentive to provide the good unless the benefits to him alone exceed the cost to all society.Public goods, such as national defense, tend to be underprovided by market behavior.They are an extreme case of positive externality.More germane to natural resource issues is the common pool problem.
As in the case of oil, a common pool resembles one soda being consumed by several small boys, each with a straw.The "rule of capture" is in effect: ownership of the liquid is not established until it is in one's possession.If several oil wells, each with a different owner, tap into the same underground reservoir of oil, each owner has an incentive to extract the oil very quickly.Doing so, however, can reduce the total volume eventually taken from the well, due to geologic factors.9 Another famous example of the problem was the English "Commons" or pastures on which all in the community could graze animals without penalty.
Grazing extra animals on the commons could greatly reduce the yield of the pasture in the future.However, since the cost was borne by all, while the individual herdsman gained all the benefit from his extra animals, the incentive was to overgraze.In the common pool, each user inflicts external costs on other users.A thorough treatment of this topic is Garret Hardin and John Baden, editors, Managing the Commons (1977), especially Hardin's study, "The Tragedy of the Commons." In the case of both public goods and the common pool, the lack of property rights is critical.
If whoever provided national defense privately could exclude from protection all who failed to pay, the public good aspect would disappear.If anyone pumping oil from a common pool had to compensate an owner for the lost opportunities tomorrow (less oil tomorrow) for each barrel of oil pumped today, he would not pump out the oil too rapidly.Transactions Costs All instances where markets fail to achieve ideal efficiency standards can be classified under the rubric "transactions costs." For further discussions on transactions costs (the cost of reaching a final bargain among parties), see Furnbotn and Pejovich, "Property Rights and Economic Theory: A Survey of the Recent Theory," in Journal of Economic Literature (1972), and Steven Cheung, "The Structure of a Contract and the Theory of a Non-Exclusive Resource," Journal of Law and Economics (1970).The monopolist artificially increases scarcity only when he finds it too costly to separate those potential customers who will pay the higher monopoly price.
If only the cost of locating and bargaining separately with buyers submarginal to the monopoly price were sufficiently low, then both the monopolist and the buyers could profit from added exchange.Again, transactions costs are pertinent in the case of externality.Here, any action imposing an external cost that is greater than the benefit to the decision maker would not be carried out if the persons damaged could bargain costlessly with the (current) decision maker.All parties affected would become part of the decision process in a world of zero transactions costs.In such a world the public good and common pool problems would also be extinct.
No potential bargain (nor any exchange offering greater benefits than costs) could remain unconsummated if the costs of defining and enforcing property rights together with the costs of identifying and making mutually beneficial exchanges were zero.Together, these costs are defined as transaction costs.They are the only impediments to ideal efficiency in the market.Unfortunately they always exist in resource markets, so that it always makes sense, in theory, to consider alternatives to market organization.Equity Another reason that some want to consider nonmarket alternatives for allocating natural resources is the matter of equity.
If we think of efficiency as producing the largest "pie" (in value terms) from our given patrimony of natural resources, equity would then determine how to divide that pie among the population.Equity is not the same as equality, though some might believe that a more equal distribution of income is more "equitable." In terms of our pie analogy, the property rights approach emphasizes that decision makers tend to seek control over the largest possible piece, rather than to seek only efficiency.Thus, a major concern is how the pie (equity) is sliced.The growing importance of equity is indicated in Fred Hirsch, Social Limits to Growth (1967), Robert Nisbet, Twilight of Authority (1975), and Daniel Bell, Cultural Contradictions of Capitalism (1976).
The desire to influence the distribution of costs and benefits is another reason that some want to turn away from market control of natural resources.This has been most vividly illustrated in recent years by growing governmental interference in energy markets.Worry over "windfall profits" from crude oil is just one symptom of a much broader concern about the equity of market outcomes.In the hope of achieving both efficiency and equity, we might wish to turn to government institutions.As we examine government, however, a number of problems appear.
Government Failure, Property Rights, and Resource Allocation If markets are imperfect in allocating resources, so are the governmental mechanisms set up to improve markets.Whether we look at regulated firms or direct governmental control, displacing the market will not insure efficiency.Economists are still struggling with the theory of regulations, but not fruitlessly.
See, for example, George Stigler, "The Theory of Economic Regulation" (1979), and Sam Peltzman, "Toward a More General Theory of Regulation" (1976), two technical articles on the topic.
The problems of governmental (bureaucratic) control of resources are analyzed in William Niskanen, Jr., Bureaucracy and Representative Government (1971) and Thomas Borcherding, editor, Budgets and Bureaucrats (1977).These problems are illustrated in the context of natural resources in John Baden and Richard Stroup, "The Environmental Costs of Government Action," Policy Review 4 (1978).Considerable progress has been made in analyzing collective action in a democracy.Now, even those analysts least enchanted with market solutions are aware that turning resources over to the public sector will not guarantee desirable results.
The pioneering contributions of Anthony Downs, An Economic Theory of Democracy (1957); Buchanan and Tullock, The Calculus of Consent (1962); and Mancur Olson, The Logic of Collective Action (1965); have clarified our knowledge of representative government and show some promise of approaching, in rigor and predictive capacity, the economic theory of the firm.What conclusion results from using the property rights approach, in which each decision maker (political or private) acts to advance his own interests as he sees them? We can see the same fundamental flaw in collective or political institutions that exists when imperfect property rights and transaction costs hinder private markets: decision makers are not held fully accountable for their actions.When control is political, rather than by private owners, those in charge (politicians and bureaucrats) cannot be expected to sacrifice their own personal career and other goals by resisting political pressures from special interests.Nor can we expect them to be diligent when the rewards for doing so are non-existent.Why are public officials not held more accountable for managing natural resources efficiently, diligently, and in the best interests of all the voters? We can identify five components of the problem.
The Rational Ignorance Effect Citizens allocate their decision time and efforts, as they do all other scarce resources, toward those uses which yield personal benefits.Gathering and analyzing knowledge will be undertaken on those matters which are important to the concerned individuals and are significantly influenced by them.The average citizen will fail to study national water policy, not because it is unimportant, but because he will have virtually no personal impact on the policy.It is rational to be ignorant about complex matters which are beyond one's control.
Although weather is the most important single determinant of a farmer's income in a given year, the farmer is rational to study fertilizer options and tax strategies instead of meteorology.The weather is simply beyond his control.Similarly, the same farmer will be rationally ignorant about most governmental policies.The exception is likely to be the tiny portion of government policy which influences the market for his own crop.In this case, he has a special interest.
The Special Interest Effect Whereas most citizens are rationally ignorant about most governmental policies, on any particular issue there may be small groups with strong enough interest on that narrow issue to have an impact.Local cattlemen, for example, may have a strong interest in how grazing rights are administered on federal lands.When the issue is sufficiently narrow (grazing rights, not federal lands policy generally) and when the personal interests of a small group are sufficiently large (a large portion of some ranchers' assets are leased federal grazing rights), then a narrowly focused but highly motivated special interest group is likely to wield enormous political clout.The group may support or oppose a politician (or a bureau, in the legislative process) over this one small issue.
The interests, however large in total, of the rest of the citizenry may have little bearing on resulting policy in this particular narrow policy area.11 Of course, governmental policy in general is the sum of such narrow concerns.Another problem for a representative democracy is the fact that each citizen can normally vote, not on each issue separately, but for one representative (or executive) to represent him on all issues.The Bundle Purchase Effect Even if every citizen could somehow study every issue, and even if special interests could not buy influence through campaign contributions or other forms of political support, each citizen would still face another serious problem in expressing his informed opinion on the thousands of issues arising each year.
The voter votes not on individual issues (which stripmine controls? which groundwater policy option?) but on one representative to speak for him on every issue (the Democrat or the Republican?).The lack of precision in achieving one's input into the system is obvious.On this point, see Gordon Tullock, Private Wants and Public Means (1970), pp.Again, the payoff to a citizen for being fully informed on most issues is reduced because the bundles of policy choice from which he must choose, in the end, is severely limited even if by some small miracle he were the decisive voter.
The Short-sightedness Effect If most people are ignorant about most policies—and many polls indicate that the average registered voter cannot name his current U.Congressman—then those policies whose major costs or major benefits fall in the futre will be even less well understood.Successful politicians and bureaucrats, to receive sufficient support, must show their supporters current net benefits.
Future generations cannot vote in current elections.Thus efforts on our resource base which occur years down the road will have relatively little impact now, unless individuals are willing to sacrifice now for the future benefit of others.Such decisions sometimes occur, but they seem less likely to conserve resources than private speculation (discussed below) which allows the speculator a chance to benefit himself while protecting resources for future (sale and) use.Just as the Indiana woodlot owner can gain by selling wood to Texans, current private owners can gain by conserving or "hoarding" a resource which is becoming more scarce, and selling it later to other "hoarders" (speculators).By contrast, a current government decision maker can seldom gain political support by locking resources away from current voters to benefit the unborn.
We can expect government policy to be shortsighted, especially in the long time horizons necessary for conservation and for many natural resource policies.Little Incentive for Internal Efficiency In the private sector, a firm that uses resources more valuable (as measured by cost) than the value of what it produces (as measured by revenue) loses money and goes out of business (unless rescued by government or supported voluntarily as a charity).No such "reality check" exists for government bureaus.
A sufficient base of political support is required instead.
Seldom can the public sector decision maker benefit personally from greater efficiency in governmental units.The political incentive is to expand rather than to economize.The public choice literature, taking aproperty rights approach, is developing an increasingly sophisticated set of models to explain bureaucratic behavior.
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See, for example, Mique and Belanger, "Toward General Theory of Managerial Discretion" (1979), William Niskanen, "Bureaucracy and Representative Government" (1971), Gordon Tullock, The Politics of Bureaucracy (1965), and Oliver Williamson, The Economics of Discretionary Behavior: Managerial Objectives in a Theory of the Firm (1964).Realism of the Analysis Is our analysis of government's inability to manage resources effectively too cynical? We think not.
The scholars whose models we summarize here, have demonstrated (usually in areas of application other than natural resources) that their analyses have explanatory power as well as theoretical attractiveness Business and the Environment A Resource Guide.The scholars whose models we summarize here, have demonstrated (usually in areas of application other than natural resources) that their analyses have explanatory power as well as theoretical attractiveness.
This way of thinking simply recognizes that individuals, not organizations or societies, make decisions and that in general, individuals act in their own best interest as they perceive it.To be useful and beneficial to society as a whole, an institution must succeed in connecting authority (command over resources) to responsibility (the capture of costs and benefits flowing from one's actions).The market relies upon private property rights to hold each person responsible for his actions The Industrial Revolution in the United States nbsp Library of Congress.The market relies upon private property rights to hold each person responsible for his actions.When rights are imperfectly defined, enforced, or transferable, we can understand why markets fail.
Representative democracy counts on informed voters and their elected representatives to hold government decision makers responsible for their acts.We can predict how and why this institution, too, will be imperfect.Property Rights and Natural Resources: Applications Property Rights to Resources and Intergenerational Equity If humanity is expected to survive for at least several generations, the question of equity clearly has temporal as well as current spatial application.If policy analysts are to become increasingly concerned with issues of equity, there is no obvious reason to restrict this concern to a generation's timespan.
Thus, we should consider transgenerational equity.Assume, for a moment, that no one knows into which generation he or anyone else would be born.Once behind the "veil of ignorance," our key question becomes: Which assignment of property rights will produce the greater degree of intergenerational transfer: an assignment of private rights or one with collective rights assigned to a democratic government? Many hold it as an article of faith that we are running out of resources despite the compelling evidence of static or declining real prices for many natural resources.Certainly a perception of resource depletion is real, regardless of the facts, and it is perceptions which influence policy.Hence, if we are interested in policy we must consider the perceptions which underlie policy.
Given a belief that we are running out of natural resources, we can expect future generations to be seriously disadvantaged.Those unlucky enough to be born later will suffer from the consumption decisions taken by their predecessors, decisions that violate intergenerational equity.If transgenerational equity is to be a goal, then, it becomes necessary to distribute the value of resources across generations.Obviously, it would be inequitable to distribute the volume or mass equally, for utilization efficiency will surely change.As a simple example, an equal volume of timber produces, due to higher productivity efficiency, a higher volume and value of products now than it did 40 or even ten years ago.
Thus, were we to be allocated the same biomass of timber as was allocated to the previous generation we would, in terms of a simplistic notion of equity, be unfairly advantaged.Due to increased capital accumulation, including information and human capital, we expect improvements in utilization of all resources.Under incentives that reward efficiency this outcome should occur partly due to the fact that resources become increasingly scarce.In this as in other areas, however, we expect to encounter diminishing marginal returns.The gain from moving utilization of standing timber reserves from 30 percent to 60 percent is likely to be easier to attain than a move from 60 percent to 90 percent utilization.
The great wealth of capital stock available today was generated by the savings and accumulation of past generations.Whether we call it altruism or poorly planned self-interest, the result is the same: each generation has been endowed with a continually growing stock of productive capital with which to satisfy its desires to consume as it sees fit.The natural resource equity argument holds that this enhancement of consumption options is purchased at too high a price in terms of raw materials and natural amenities.Indeed, it seems reasonable to consider a possible shift in the relative opportunities offered by capital accumulation and raw materials.It is at least possible that future generations would prefer present generations to bequeath them less additional capital and more natural resources.
As the authors of the Federalist Papers understood so well, no person can be assumed the best judge of another's preferences.Hence, those in the future might want the option of developing the capital that they find most useful.Clearly, however, each generation's use of resources influences the welfare of those which follow.It is a blunt fact that the present generation operating in a historical context establishes the rules regarding property rights with respect to resources.While there may be no logical way to apply a discount rate for the comparison of satisfactions among different generations, each generation implicitly does so.
With clear property rights the market mechanism will allocate resources efficiently provided that all parties can enter the market and that negotiations have negligible costs.But because future generations cannot bargain directly with the present, this approach is questionable.Both the issues and the conditions should now be clear.Many consider equity to be increasingly important.Transgenerational equity (discounted by the probability of there being future generations) is one important form of equity.
Property rights to resources are a component in an equity formulation.And finally, future generations cannot speak for themselves.The transgenerational equity questions may be stated quite simply.If one did not know into which generation he would be born, how would he structure property rights to resources? We will undertake below a preliminary analysis that turns out to yield counterintuitive results.
Property Rights and Transgenerational Equity: The Case of Exhaustible Resources We would all expect that a market system involving privately held rights would yield very different results than would a system whose rights were held by society and whose decisions regarding resource use were made collectively.
And it is widely believed that a market setting causes future generations to be robbed of natural resources.Krutilla and Page, for example, recently put it this way: ".Generally, markets are considered fair only if all those affected by the outcomes are present in the market (without externalities) and the distribution of market power is considered fair.
In the case of deciding which new (energy) supplies to develop, the distribution of market power is indeed uneven: the present generation controls the total stock of resources, leaving future generations with no voice in today's decision.Hamada in their essay, "Efficiency and Equity in Intergenerational Distribution," in Sustainable Society (1977), have argued that: "In the extreme case, future generations cannot compensate the present for foregoing the mildest satisfactions, even when the very survival of mankind is at stake.
" The major implication of this and similar material is that a market mechanism, as compared with collective control, deprives future generations of resources.But this antimarket claim does not withstand examination.Our analysis results from both the different incentives faced by market as opposed to government decision makers, and from the different ways decision makers are chosen in the two settings.In what follows, we employ simple models of market and collective democratic actions.For concreteness, we will refer to the resources stock in question as a copper mine.
This example is chosen to capture the elements of inter-temporal resource allocation and intergenerational transfer of resources, while presumably minimizing the intrusion of side issues (such as environmental externalities and violation of the exclusion principle).A binary (yes or no) decision must be made periodically on whether to exploit the one ore body in the current period or not.Following the initial analysis, we will make the models less na ve by relaxing certain assumptions, and we will note the results.To decide whether or not an existing resource should be exploited in the current time period the decision maker simply compares its value (net of development costs) in current exploitation with its expected value in highest future use (net of development costs, and discounted to the present).If current exploitation yields more net benefits than does any future use (as judged by the decision makers), then the decision maker chooses current exploitation rather than preservation of the stock resource.
The major difficulty, of course, lies in how to estimate the value in future use.The value of a body of copper ore to be mined in any given future period depends on several factors, all of which are subject to uncertainty.Availability of other copper ore, the price of copper substitutes, the state of tastes and technology determining copper's usefulness—all those factors are important in determining a decision maker's estimate of the mine's present value in future exploitation.For a given mine, different people are likely to have differing opinions on when the mine should be developed, or more specifically for present purposes, whether or not current exploitation is best.The views of the populace on the present discounted value of future use might be summarized in a diagram such as the one below.
The abscissa (or horizontal axis) indicates E(PV), the estimated present value of preservation, which is a single value in dollar terms, expressing the sum of all the influences we listed above.The ordinate (or vertical axis) indicates the frequency of each estimate.No particular shape is required of the distribution for simple models.If we then locate on the abscissa a value, M, equal to the value (net of operating costs) of the ore body if mined now, 13 all E(PV) greater than the value indicates that preservation is preferred.Similarly, those whose E(PV) falls short of M(the current development value) presumably must conclude that current development is the better choice.
Consider now the most straightforward kind of democratic political decision making regarding the copper mine.Each voter expresses his opinion of whether the mine should or should not be developed currently, and the majority rules.For a maximum bias against our outcome, assume that each individual is not simply self-interested, but that he votes for what he believes will benefit society most.To predict the outcome of such a vote, we simply must ask whether the majority of the estimates fall to the right, or to the left, of the value of the mine in current use.If the majority is to the left, current exploitation will be mandated; if to the right, preservation is supported.
Put another way, if the median voter 14 has E(PV) greater than M (the current development value) preservation will result, while current development wins if he feels the other way.In a very real sense, the median voter's judgement prevails.By contrast, consider a simple market situation involving the same people with the same tastes, expectations, and discount rates, where the copper mine is controlled by the highest bidder.One type of bid is M, for current development, made on behalf of ore processors.The highest such bid represents the mine's worth in current exploitation.
The other type of bid is from those who want to preserve the mine for the future.We can assume either altruistic or selfish motives for these bidders.In either case, each bid reflects the bidder's belief as to the mine's value.Obviously, if anyone (with sufficient funds, or credit, or the ability to convince fellow risk takers) believes the mine will be sufficiently more valuable in future use than now, so as to justify postponing its use, the resource will be conserved or preserved.Unlike political decision making the median opinion does not control decisions in the market.
The tendency instead is for those with the strongest bias to preserve resources to control.Those conservers are usually called speculators.We have long been puzzled regarding the general condemnation of speculators by environmentalists and preservationists."Speculator" is, quite widely, a derisive term.
But, with the singular exception of the monopoly case, such criticism seems to be at variance with the announced preferences of the critics.
The critics claim to favor deferred consumption which is merely saving for the future.Only by paying a higher price than those who prefer to consume now can he conserve the resource for his profit (and for the future).While current consumers have good reason to object to speculators for driving up the price and hence reducing current consumption, those in the future should shower them with praise and rewards—if the speculator guessed correctly.The central point, of course, is that successful speculators benefit consumers in the future at the expense of those in the present.
Their action in markets over time is analogous to distributors of goods over space.The distributor of oranges buys in Florida on behalf of New Yorkers.Orange prices would be lower for Florida consumers if interstate trade were for-bidden; but this would not benefit New Yorkers who desire Florida oranges.
Property rights and natural resource management a bibliographical nbsp
It is not important whether the speculators have a long view encompassing the future period when the resource will be developed, or a more short-sighted view, for their own personal financial plans.So long as they can transfer (sell) the property rights they hold of the mine's future value, the mine remains a saleable asset and a good investment.
As time passes and the higher-valued time of use approaches, the present discounted value rises Environmental Advocacy On Chicago s SE Side by Henry L Henderson.As time passes and the higher-valued time of use approaches, the present discounted value rises.
Of course if the purchasing speculator is wrong, and potential bidders begin to learn so, he suffers the loss as the mine's value rises less rapidly (or falls) compared to other assets he could have held.He and the deprived earlier generation bear society's loss if his decision to preserve the mine is incorrect.Since this type of speculative activity can be expected whenever resource property rights are private and transferable, resource prices in such markets will reflect bidding for future use, and current exploitation will occur only when all future speculative bids are overcome Natural resource economics Wikipedia.
Since this type of speculative activity can be expected whenever resource property rights are private and transferable, resource prices in such markets will reflect bidding for future use, and current exploitation will occur only when all future speculative bids are overcome.
Contrary to the statements by Krutilla and Page, the equilibrium market price clearly includes pressure from future potential bidders, including those bidders yet unborn, since speculative bids are based on what future users, as bidders, are expected to be willing to pay.Hence, in a market system with transferable property rights over stock resources, those who are most optimistic regarding the future value of any storable good are the ones who control the resource atomic energy.Hence, in a market system with transferable property rights over stock resources, those who are most optimistic regarding the future value of any storable good are the ones who control the resource.Given that they believe that the future value will be high, they expect to capture rewards by keeping resources out of consumption.It is difficult to imagine how a mechanism other than market speculation could be devised to give current political voters an analogous incentive to consider future citizens.Future voters must depend on the good will of present voters to sacrifice current consumption of governmentally controlled resources.
Our analysis of collective control has thus far assumed that such good will is present; that present voters view future generations' consumption as they do their own.The only discount factor assumed to apply to consumption in the distant future was that which people apply to their own consumption during their lifetimes.This form of altruism was not required of the private bidders.Now if we allow more self-interested voters to enter our collective control model, the market's bias for preserving resources stands out in even sharper relief.If voters are less interested in future generations' welfare than in their own, current exploitation becomes more valuable relative to the benefits of preservation in the eyes of current voters.
The value in current use, M, remains constant while their effective E(PV) falls because future usefulness, enjoyed by others, is in effect hore heavily discounted than if current voters themselves could enjoy the benefits.It should be clear that as we allow for self-interested behavior the most realistic presumption is not that voters feel towards future generations as they do toward their heirs.It can be argued (particularly well in sociobiological terms) that such a presumption collapses back to the na ve altrustic view.People in general may value their descendant's consumption as they do their own.However, the voters deciding on the stock of natural resources to bequeath to the next generation are not considering their descendants' welfare alone, but the welfare of all those alive in the future.
Such a diffused interest will surely result in a lower present value than that which leads people individually to leave bequests to their heirs.On the other hand, since costs are also diffuse, the net effect is not obvious.Another assumption to be relaxed in our model is that of market structure in the private control model.Initially we posited a competitive bidding process for the resource.In fact, a competitive market is not necessary to our results.
In a monopolized or cartelized market, the tendency towards preservation is increased.As Harold Hotelling demonstrated in his 1931 article, "The Economics of Exhaustible Resources," a constant-cost monopoly will restrict the exploitation rate due to its output-restricting behavior.Bureaucratic Preservation of Resources To summarize the situation with exhaustible resources, privately held, exchangeable property rights tend to encourage preservation, relative to a simple democratically controlled collective management system.This is because the gains from preservation are appropriate in a market system, but not with collective ownership, and because those with expectations of high future value for the resource tend systematically to control it through outbidding others.
The preservation bias differential is even increased if people are viewed as self-interested, or if the private producing industry is a monopoly or a cartel.An implication of this model is counterintuitive or at variance with commonly accepted wisdom.One respected source of that accepted wisdom is Robert Solow who in his 1973 Richard T.We know in general that even well-functioning competitive markets may fail to allocate resources properly over time.The reason, I have suggested, is because, in the nature of the case, the future brings no endowment of its own to whatever markets actually exist.We have argued that, at least relative to collective control, the future does have a "representative" in present markets: the speculator.
The endowment the future brings to the market is what the speculator expects the future to be willing to pay.
Later in his lecture Solow suggested a partial corrective to the perceived lack of representation of the future.16 Futures markets are claimed to save resources for future generations.To institute a "futures" market is to allow speculators to be supplied, not only with actual claims on resources but speculative claims as well.Without futures contracts, the only role for the speculator is to bet on the rises in resource values.
Futures contracts allow speculators to sell short those resources they expect to decline in value, thereby depressing current prices and encouraging greater current consumption of these resources.In short, the futures market gives influence in the resource market to those expecting a lower rise in resource price or having a higher discount rate.In private markets with well-defined property rights, the incentives serve to maximize the value of output from flow resources, or to minimize the value of inputs for a given output flow.Public managers are no different from private managers in that they tend to respond to incentives.
McKenzie and Tullock in The New World of Economics: Explorations into the Human Experience (1978), give perhaps the classic statement: "Bureaucrats are not markedly different from other people.are to some extent interested in helping their fellow man and in doing things in the public interest.
, on the other hand, tend to devote much more time and attention to their own personal interests." Why does more stocking and more production investments take place in collectively owned and bureaucratically managed forests? One explanation for this is the incentive structure faced by the bureaucratic managers.
For people in general, but for highly motivated individuals in particular, self-interest leads to the desire for an increase in discretionary control over resources.For the "selfish" individual, this provides the power and deference which accompany discretionary control.For the professionally oriented or "socially concerned" individual, this provides, in addition, the ability to make "good" things happen.More timber growth is presumably a "good" thing to a forester, for example.When resources are owned collectively as in a bureaucracy such as the U.
Forest Service, a prime strategy of the bureaucrat for increased discretion is to promote the growth of his bureau.There are reasons to believe that in most cases waste is generated from the bureau being above optimum size.Most will agree that powerful forces lead in this direction.For the bureau head, civil services rank, prestige, and pay—all are strongly related to the size of his bureau.
Further, symbols of success such as office amenities are also related to the number of persons under his charge.(For example, in one university, for years only deans and higher level administrators could have IBM typewriters).In addition, expansion generates more possibilities for promotion.This enhances the bureau head's ability to control those under his charge, since under Civil Service rules firings are nearly impossible to execute successfully.Thus to gain control over his inferiors, the bureaucrat may promise promotions as inducements.
And promotions are more common in a growing office.Or perhaps equal importance for the ambitious bureaucrat is the fact that a large proportion of his budget is "locked in" from previous years.This, of course, reduces the range of discretionary expenditures.In contrast, new funds offer far more opportunities for flexibility and for innovation.Among other results, this tendency toward bureaucratic growth can be expected to encourage decisions that favor a more intensive management of this resource.
Likewise, there is a reluctance to surrender territorial authority (unless the cut in manpower is small, or exercise of the authority leaves no discretionary resource claims), as well as a reluctance to merge with any larger entity or to transfer resources to activities outside the agency's scope.Such incentives are consistent with maximum preservation of the resource or large (relative to private) inventories.This strong desire for growth does not depend on the presence of evil administrators or megalomaniacs.We must remember that the bureaucrat, because he lacks market information on the relative value of his produce and those of other public agencies, suffers from the absence of an obvious and immediate "reality check" on what he wishes to believe.Thus, it is easy for him to harbor the illusion that his agency mission is above average merit and thus argue that his office deserves above average budget increases.
He of course has the help of clientele groups at budget time.Collective ownership and the lack of a pricing mechanism result in both anti-efficient incentives and distorted information—or a lack of the latter—which deal to even a well-meaning, intelligent bureaucrat blows from which recovery is difficult and rare.In sum, the bias is toward expanded bureaucratic growth and activity.When dealing with resources that require active management (usually renewable resources) this means high flows and high inventories since there is no interest charged to the inventories.
To predict whether private markets or governmental control will save more of a resource for the future, one must consider the bias which a private market has (in the absence of well-functioning futures markets in natural resources) relative to a simple democratic voting system.
Also, however, the bias of bureaucracies toward high levels of activity and bureau growth will complicate prediction in the more realistic world of bureaucratic (not simple democratic) governance.Where stocks must be actively managed, bureaucratic pathologies may lead to even greater inventory carryovers than the private market.Alternative Energy As we indicated above, the market system shifts resources among owners under the rule of willing consent.Trades are voluntary and are expected to leave both parties better off.Prices provide condensed information regarding the relative value of resources and they provide incentives to move those resources to more highly valued uses.
When property rights are clear and easily enforced, the market mechanism will (with initial endowments taken as given) efficiently allocate resources, including natural resources.Energy production provides an excellent example of: (1) the efficient and responsive operation of the market system, and (2) the problems generated by the coercive intervention of the government.An examination of the production of what is now called "alternative" or "soft path" energy is especially enlightening.In this section we will: (1) introduce the "problem" of alternative energy production in the U.; (2) provide a historical sketch of alternative energy production; (3) review governmental programs that precipitated the decline in alternative energy research production; and (4) make some generalizations regarding the functions of governmental subsidies.The Problem of Alternative Energy Production in the U.Of the many complaints regarding American energy systems one seems especially interesting.Often stated as a question, that complaint becomes, "Why have U.
companies failed to invest in 'alternative' or 'renewable' sources of energy, particularly 'soft path' and solar?" This is an interesting question because the answer is not intuitively obvious and it is substantially important.Further, the usual reaction to this question is to press for governmental subsidies for alternative energy research and development (R and D).Let us quickly review existing and proposed energy subsidies.In the years from 1918 through 1977 the Federal Government expended $217.
4 billion for incentives designed to stimulate energy production.See for example, Battelle Memorial Institute, An Analysis of Federal Incentives Used to Stimulate Energy Production (1978).Since the 1970s, the "energy crisis" has been a prime political issue.
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President Carter addressed our energy problems when announcing the "first principle" of his energy program: "We can have an effective and comprehensive energy policy only if the Federal Government takes responsibility for it ." 17 In the fiscal year 1977 alone, the Energy Research and Development Administration called for appropriations of $6.0 billion, an increase of more than 70 percent from the 1975 level of $3 In the case of exhaustible resources, see Hans Landberg, et al., Resources in America's Future (1963). In this bibliographical essay we will: (1) trace the outlines of the property rights paradigm as it relates to resource management, (2) sketch the workings of resource markets when property rights are private and readily .0 billion, an increase of more than 70 percent from the 1975 level of $3.
Harnish, Government Credit Subsidies for Energy Development (1976).Thus, the proposed direction of public policy is quite clear Business and the Environment: A Resource Guide He received his A.B., M.B.A., and Ph.D. degrees from Harvard University (Business Economics dissertation: Forest Products Firms and their Timber Suppliers: Essays in Economic Organization and Behavior). Research: Corporate strategy in natural resource industries; .Thus, the proposed direction of public policy is quite clear.Further, the idea of fostering energy development through government subsidies is not a new one Business and the Environment: A Resource Guide He received his A.B., M.B.A., and Ph.D. degrees from Harvard University (Business Economics dissertation: Forest Products Firms and their Timber Suppliers: Essays in Economic Organization and Behavior). Research: Corporate strategy in natural resource industries; .Further, the idea of fostering energy development through government subsidies is not a new one.The years since 1977 have produced a substantially increased set of proposals for subsidizing these "alternative" or renewable energy sources.Many of these proposals would dwarf earlier actions even when measured in constant dollars space technology.
Many of these proposals would dwarf earlier actions even when measured in constant dollars.
Alternative Energy and Alleged Market Failure The fundamental question we pose is quite simple: can these and other proposed subsidies, meant to encourage the expansion of energy supply in the private sector of the American economy, be justified in terms of social welfare or economic efficiency? Perhaps we should begin with the issue raised earlier and deal with the fundamental question of why the domestic energy industry is reputed to "need" federal financial assistance.That is: Why would profit-seeking capitalists fail to invest in the development of alternative energy systems? Of course, there is one obvious answer.Such investments seem unlikely to generate normal profits.Pushing the question a bit further, we ask: Why would entrepreneurs not expect alternative energy systems to produce normal profits? To respond to this question we must consider historical evidence.First, consider the fact that until October of 1973, the real price of conventional fossil fuels was declining at an accelerating rate.
It was not only becoming less expensive but the percent of decrease increased annually.(This was due in part to imperfect property rights to oil pools and hence was a transistory condition) Obviously, such a market does not foster the development of substitute products.Given that the recent shortage was caused by political rather than by physical factors, it could not be predicted using standard models of resource consumption.Thus, investors, entrepreneurs, and speculators could not be expected to effectively buffer the consumer from the impacts of shortages.As an example, let us look at synthetic-fuel production, a current governmental "band-wagon" item.
Why the reluctance of private industry to jump into the development and subsequent production of synthetic-fuel substitutes? Government energy policies of the last twenty years, including quotas and price controls on oil and gas, have interfered with the smooth market adjustment to substitute fuels.Through the price control programs, government policy is bringing about, at least temporarily, the very shortages it is seeking to prevent through the proposed synthetic-fuel programs.Other factors are at work to delay the development of synthetic fuels.In five years the estimated price of crude oil from shale increased 310 percent.
18 A similar picture is painted for price estimates of gas derived from coal.
33 per thousand cubic feet was reported; by 1975 the President's task force on synthetic fuel reported a cost of approximately $2.19 Thus, in four years these rough cost estimates have soared 710 percent.The potential investor justifiably pauses at such a path for projected costs.
Other price uncertainties are caused by the possibility of continued controls on crude-oil and natural-gas prices.From the above estimates, it is projected that by 1985, prices for conventional hydrocarbons are still likely to be lower than the cost of synthetic fuels.Again, we find understandable reasons for private industries' reluctance to invest in synthetic fuel R and D.In spite of history, economic theory, and the high risks seen by private industry, many influential people feel that the government should subsidize synthetic fuel and alternative energy programs.Barry Commoner, in an October, 1979 interview in Challenge magazine, judges President Carter's synthetic fuel subsidy program as a "cynical attempt to use public money to bail out the oil companies from their impending difficulties.
" He does not view shale oil and other synthetic fuels as "alternatives" but rather as a "simple way of bolstering up the conventional system." Commoner feels that the passage of the Synthetic Fuels Program will parallel or repeat economic costs and so override any possible advantages: "You know the Atomic Energy Commission obligated itself to develop nuclear power without taking into consideration environmental questions and consequent economic questions.See where it's gotten us—into an essential bankrupt industry which has failed .It will be tragic if we have another failure like nuclear power before we can get onto the proper course." When the government allocates resources, market signals are distorted: the resources now flow to the most politically powerful rather than to consumer directed uses.With synthetic fuels, there are inherent resource and environmental difficulties, the risk of cancer, the disruption of land, as well as water pollution and drainage difficulties.
But, why should a private company invest in other alternative sources of energy, such as wind or solar power, when the government is paying his competitors' costs in synthetic-fuel production? Investments in the private sector are made only when the projected benefits are greater than the costs.Through government subsidization of synthetic fuels or alternative sources of energy, energy costs are borne by society at large through taxation.This bypasses direct cash payment by the individual consumer of energy.As Joskow and Pindyck write in a paper summarized in The Wall Street Journal, July 2, 1979: "But Americans would in fact be much worse off with high taxes than with higher energy prices.Individuals can choose to avoid paying higher energy prices by limiting their consumption, but they have no choice regarding the taxes they must pay.
" Proposed subsidies designed to encourage energy production by the private sector of the American economy seem unjustifiable in terms of social welfare or economic efficiency.As we indicated above, when resources are allocated by the market, they tend to be used more efficiently, flowing towards those uses where they can be put to the best advantage.Without government intervention through subsidization, market-stimulated research and development is allowed to follow its own course of satisfying the demands of consumers.In contrast, when subsidies are involved, then political power (rather than consumer decisions made on the margins) allocates resources.It is yet to be demonstrated that such decisions optimize social welfare.
Perhaps we can best illustrate some of the destructive qualities of subsidies by briefly examining some of the historical consequences of government intervention through subsidizing energy.Let us now consider historical developments in "soft path" alternatives to conventional energy production.A Historical Sketch of Alternative Energy Developments With the advent of the "energy crisis" of the 1970s, many people became informed of "soft path" alternatives to conventional energy forms.These include solar collectors, wind power, hydroelectric and tidal power, and organic fuels such as methane and alcohol.Contrary to popular belief, these solar energy forms are not recent developments, nor are they presently a great deal more technologically advanced than they were 45 years ago.
The Industrial Arts Index from 1913 to the 1940s shows a significant amount of research and practice occurring in all of the solar energy forms mentioned above: Number of Articles Concerning Solar Energy Forms in The Industrial Arts Index 1913–1940 For further evidence that U.individuals and firms did indeed respond to opportunities to develop alternatives to the conventional large scale power systems see Baden "Subsidizing the Destruction of Alternative Energy Production," (1979) for a more detailed example of historical developments in wind power, solar energy, and hydroelectric and tidal power.Governmental Programs and the Decline in Research and Development of Alternative Energy Sources There are three sets of basic factors that may account for the observed atrophy of R and D in alternative energy systems.One is technological and two are political.
(1) Substantial economies of scale have developed in the production of energy.If these economies are sufficienctly large, they could be sufficient to override the substantial delivery costs associated with remote locations.If energy was "too cheap to monitor," then the only relevant cost was the cost of delivery.Given that some power generating facilities came on line at 2¢/kw (two cents per kilowatt hour), delivery costs would have to be huge indeed for small scale local generators to be economically preferable.Further, new generator technology made it much more economical to transmit power over long distances.
These technological considerations, however, constitute neither the complete nor the interesting explanations for the failure of alternative energy systems.(2) Another component of an explanation involves the structuring of utility rates.For a market to encourage the movement of resources to more highly valued uses, individuals must face the consequences of their economic decisions.Thus, a person who demands power that is expensive to produce and deliver must face prices which include that relatively high expense.
If this does not occur, then he need not take account of the real opportunity cost of his action.
Thus, he has little incentive to use resources efficiently or to conserve.When individuals do not confront real marginal costs, we cannot expect them to act as though they do.The politically determined rate structure was set to preclude an accounting that would foster efficient resource utilization.People using expensive-to-deliver power are subsidized in their consumption by those who consume less expensive power.After an initial installation charge, all using the same amount pay the same rate regardless of the cost of delivery.
Now let us consider the healthier effects of market pricing of energy without subsidies.Assume that people faced rates that reflected true marginal costs.Were this the case, then those living in remote and, consequently, expensive locations would have strong incentives to become potential consumers of small scale alternative energy production units.The continued existence of this market would have fostered the continuence of R and D efforts by those firms and their potential competitors active in the 1920s, 30s, and 40s.
(3) Perhaps the most important factor fostering the decline of our indigenous alternative energy industry was an unintended consequence of a desire to "do good." The Rural Electrification Administration (REA) was established during the 1930s to subsidize power delivery to people in rural areas.The federal government guaranteed two percent loans and eliminated income taxes to rural power co-ops.Thus, the general citizen picks up a portion of the cost of delivering expensive power and hence reduces the market incentive to develop alternative systems.Although REA legislation was enacted in the 1930s, the demise of the windmills and wind generators was postponed for another two decades, the time required for electric wires to be strung throughout the Central and Western states.
Marcellus Jacobs, founder of the once successful "Jacobs Wind Electric Company," stated that without question, the spread of REA subsidized power facilities signaled the end of his business.21 The solar water heating industry, resurging after World War II, was also stunted by cheap electric rates.Like wind power and solar water heaters, the ultimate demise of eighteenth and nineteenth century tidal power can also be attributed to the subsidized introduction of cheap electricity.The Costs of Government Subsidy and a Lesson It is clear that there were worthy goals underlying REA.The ideal of bringing power to all of the people is, perhaps, inherently attractive.
Unfortunately, however, not all good things go together.There were unanticipated costs associated with the decision to subsidize power delivery.The first cost, that of inefficiently employing power poles, labor, and copper wire, seems relatively trivial when compared with the second.The crucial cost is the loss of forty years of research and development in the area of alternative energy development.By providing subsidies for rival energy forms a market in alternative energy was severely restricted.
The absence of a competitive market allows little incentive to develop and produce a product.As a result, REA eliminated a once thriving wind power industry and contributed to a decline in R and D efforts in alternative energy sources.Our current retarded position, caused largely by subsidies, has led to arguments that we should now subsidize the development of alternative energy systems.But clearly there is a problem with subsidies.Specifically, a subsidy inhibits developments in areas not subsidized.
Since the future is uncertain we can never know what the cost of our bias will be.We can only know that there will be a cost.Had we perfect vision in the 1930s and predicted the energy crisis of October, 1973 we could have accomplished the objective of distributing power while fostering R and D efforts.
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It now seems clear that had we given each recipient of subsidized power his subsidy in cash and provided him the option of systems, he would have the benefits of power and we would have the fruits of forty additional years of research.Given that: (1) bureaucracies find it difficult to be time and place specific, and hence to encourage variation, and (2) that the future cannot be predicted, we want to exercise extreme caution before making a commitment to additional subsidies.
We cannot at this time anticipate the future costs of present subsidies Where to get a essay natural resources Premium MLA Academic Writing from scratch.We cannot at this time anticipate the future costs of present subsidies.
The American Indian An increasing proportion of people understand the linkage between property rights and efficient and equitable resource management.Although this perspective is recognized as "new," it actually is "neo." The process of social evolution led to the development and implementation of this understanding among various ethnographic units, including some of the American Indian tribes.The first deals with a fugitive resource whose characteristics are such that control costs (and hence management difficulties) are very high.As we would suspect, property rights were not established in this case.The second case involved a relatively sedentary or "locatable" resource where property rights were more easily defined and enforced.Property Rights and Plains Indian Culture The Indians of the American Plains are among the most well known and eulogized of all tribal peoples.The culture for which they are famous was of only short duration and was based on the horse and the buffalo.
Prior to the introduction of the horse, the hunting of bison was uncertain, and relatively unproductive.In the pre-horse period the capture of a buffalo was comparatively rare.The buffalo was highly valued and hence fully utilized.In effect, the introduction of the horse, steel tools, and later firearms lowered the "price" of the animal.
As the price fell due to technological adaptation, patterns of utilization changed dramatically.
During this period many buffalo were killed by Indians merely for the tongue and the two strips of back strap.By 1840 the Indian had driven the buffalo from portions of the original habitat and there is evidence of concern about this occurrence.Murphy states that " O nly the simplicity of weaponry and the small number of these nomadic peoples kept the buffalo from meeting its fate two centuries earlier." See Haines, The Buffalo (1970),pages 156-159 for a general description, and Earl F.
Murphy, Governing Nature (1967), page 99.Compounding this shift in technology was the Indian's new market of hides sought by the white man.Thus, there was both a supply shift from lower costs of production and a new use of buffalo (sales) which led to an increase in demand.Thus, in observing the Plains Indians we witness efficient behavioral adjustment to changing prices by inefficient management of a common property resource.Given multiple tribes, a fugitive resource, and high transaction costs, the Indians were incapable of establishing property rights and managing the buffalo as a renewable resource.
Regardless of the ideology of the resource users, it is obvious that wise use is difficult to achieve when property rights are undefined and unenforced.where private property rights are not established) tend to foster ecologically damaging behavior.In this case the benefits from harvesting additional buffalo accrued to the individual hunter and his group while the costs of depletion of the herd were distributed among all potential hunters.
In such a common property context, since the full costs of hunting are not borne by the hunter, over-use is predictable.Property Rights and Institutional Adaptations: The Coastal Fur Trade One of the first systematic accounts of the development of property rights is Harold Demsetz's treatment of the North American fur trade in "Toward a Theory of Property Rights," American Economic Review (1967).The institution of private hunting territories among the Labrador Peninsula (Montagnais) Indians was described by the anthropologist, Frank Speck, in "A Report on Tribal Boundaries and Hunting Areas of the Malecite Indians of New Brunswick," American Anthropologist (1946).These Indians were primarily hunters subsisting on large game such as caribou and small fur-bearers such as beaver.Prior to the development of trade with Europeans there was little pressure upon these resources.
Demand was below carrying capacity and the tribes hunted communally, sharing the harvest.With the establishment of the French fur trade routes in the early 1600s came the incentive for over-exploitation of the resource.Localized extinction of the beaver could be predicted with the increasing value, scarcity, and depletion of the beaver under the existing system of property rights.But unlike the buffalo, which was virtually condemned to extinction as common property, the beaver were protected by evolving awareness of private property rights among hunters.By the early to middle eighteenth century, the transition to private hunting grounds was almost complete and the Montagnais were managing the beaver on a sustained yield basis.
Eleanor Leacock notes that trappers readily adopted conservation practices when they were able to personally collect the benefits.She notes in "The Montagnais 'Hunting Territory' and the Fur Trade," American Anthropologist (1954), that " t he Western Montagnais farms his territory by marking his houses, ascertaining the number of beavers in them, and always leaving at least a pair." The system of private ownership developed parallel to the fur trade.Leacock 22 observed "an unmistakable correlation between early center of trade and the oldest and most complete development of the hunting territory.The difference in behavior between the beaver and the buffalo hunters may be traced to the different institutional structures.The inherent characteristics of the resources are fundamentally different, i., while the buffalo is a fugitive resource, beaver are sedentary and thus are amenable to private appropriations.Further, the transaction costs for a relatively homogeneous group of tribes such as the Montagnais are lower than among the warring Plains tribes.
Thus, institutional accommodation should be easier to achieve.With the significant intrusion of the white trapper in the nineteenth century, the Indian's property rights were violated.Because The Indian could not exclude the white trapper from the benefits of conservation, both joined in trapping out the beaver.A similar shift to the mining of beaver by the Algonquin relatives of the Montagnais, the Malecite, is described by Speck."The occasion for this change in Indian sentiment regarding conservation was made plain by the informant's declarations that the native hunters, seeing that the whites were bent on wholesale destruction of the game animals and fur-bearers, deliberately decided to take their share and profits from the forests before it became too late, and did so.
And thus the epoch of conservative, regulated hunting by the Malecite ." Government Management of Range Resources As we have indicated, when there are not clear property rights, where there are substantial public or easily nonpackageable goods associated with a resource, or where there are pervasive monopoly problems, there are pervasive monopoly problems, there is a valid argument for governmental intervention.
Unfortunately, the governmental solution to this failure is quite often more costly than the original failure.24 For an elaboration of the logic presented here see the following studies by Baden and Stroup."Externality, Property Rights and the Management of Our National Forests," The Journal of Law and Economics 16 (October 1973): 303-312; "Private Rights, Public Choices, and the Management of National Forests," Western Wildlands 2, No.4 (Autumn 1975):5-13; "Property Rights, Environmental Quality, and the Management of National Forests," Ch.
See also by Baden and Stroup "The Environmental Costs of Government Action," Policy Review (Spring 1978): 23-38; "Response to Krutilla and Haigh," Environmental Law, Vol.8, pages 417-421; "The Development of a Predatory Bureaucracy," Policy Review (Winter 1979).Some of the best examples (and worst cases) of governmental failure are found in the lands managed by the federal government.In this section we will: (1) review one case of governmental mis-management and (2) describe a mechanism for correcting this problem.The case is the Bureau of Land Management lands in the West.
BLM and the Problems of Public Sector Management For many years the Bureau of Land Management (BLM), quite unlike the Forest Service, was large immune from public controversy and conflict.The BLM, which developed from the Grazing Service established by the Taylor Grazing Act of 1934, has two primary client groups.The second has involved those who used BLM lands for mineral and other resrouce-extracting purposes.Recreation has been a relatively minor component of BLM management plans.
BLM holdings have been known as "the land no one wanted.For good or ill, this situation has changed dramatically.Beginning with the environmental movement, the Classification and Multiple Use Act of 1964, and especially with Earth Day in April 1970, BLM lands were "discovered." With added understanding by the growing environmental movement, BLM lands became identified and recognized.
Their managers became exposed to criticism and litigation.The inherent conflict of BLM management goals was further codified with the BLM's organic act of 1976, especially with section 202.The BLM is mandated to provide multiple use on the lands it manages.No longer need they satisfy only the stockmen and the miners.Under the current wilderness review, a substantial portion of BLM land has become the focus of significant conflict over use and management.
In this issue as in most others there are no perfect solutions and none that are cost free.There simply is no way BLM managers can satisfy all the competing factions.Public controversy will continue and public relations will become more important than range management.Fortunately, however, there is a solution.While it is not cost free, and while there will be winners and losers, the solution is likely to be preferable to the existing circumstances.
Government Divestiture of BLM Grazing Rights Ideal management of the BLM lands would provide a diversity of uses, would have management that is adaptive to changing national needs and priorities, and would distribute the benefits nationally.We suggest that these goals can be approached most nearly by the divestiture of BLM lands.Only in this way can all of the people of the nation capture the benefits into perpetuity produced by the 170 million acres of land in the West now managed by the BLM.A divestirue plan which conveys selected rights to BLM land into the private sector would avoid many problems, while retaining for the general public the value of future productivity from those rights.What we are suggesting is the sale of BLM lands with protective covenants.
If rights to a tract of land are thought of as a bundle of sticks, most of those sticks would be sold, but not all.In an area providing important recreational access, for example, the land might be sold without the right to exclude properly behaving hikers.The right to kill certain ecologically important predators might also be with held from sale.Would those people currently enjoying BLM leases be disadvantaged? We think not, if the sale terms are properly established.In general, current lease holders would be offered permanent property rights to do what they are now doing plus all other land rights not specifically retained by the federal government.
Making these property rights permanent would increase the value of land use to the user, since the benefits of long term management practices, such as range improvement, would clearly be captured by the user into the future.Users with a short time horizon might well choose to sell their new asset, but they would still have the incentive to avoid overgrazing, erosion, or any other practice which would reduce the value of their land.By the same token, such expensive (and sometimes very destructive) practices as chaining and rest-rotation grazing would be carried out only when the long-term plus short-term benefits outweighed the long-term plus short-term costs.This would be true because the land owner would both pay the costs and receive all the benefits.The terms of sale under our divestiture plan would make available to current users the land they now utilize in return for payment equal to the present value of all future lease payments, discounted at the rate of interest on long-term agricultural loans being made in their area.
Parcels of land not bought on those terms by current lease holders would be offered at auction with a starting bid equal to the price offered to the current lease holder.Diversity of land use on lands thus conveyed into the private sector would be guaranteed, for the same reason that diversity exists in an urban area: any entrepreneur with a vision of appropriate land use can bid for the right to implement his vision.Adaptiveness to changing conditions is fostered for the same reason.
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Those wishing to try new ideas can do so without having to convince either a giant bureaucracy or a majority of elected representatives.Ideas that turn out to be crackpot schemes are quickly exposed and stopped automatically due to the drain on the wealth of entrepreneurs and financiers.
In a private setting we need not count on the good will or morality of decision makers; their greed will suffice Academic and policy interest has now moved beyond simply the optimal commercial exploitation of the standard trio of resources to encompass management for other objectives. For example, natural resources more broadly defined have recreational, as well as commercial values. They may also contribute to overall social .In a private setting we need not count on the good will or morality of decision makers; their greed will suffice.
Decision makers who move the resources into higher valued uses will prosper, whereas those who devote resources to uses others do not value highly will be systematically separated from wealth and thus from their ability to make socially important decisions in the future.A crucial feature of our divestiture plan is the equity of its outcome The American Economy Essays and primary source documents.A crucial feature of our divestiture plan is the equity of its outcome.Current users will be advantaged by having available the opportunity to gain by better long-term management of the land they are using The American Economy Essays and primary source documents.
Current users will be advantaged by having available the opportunity to gain by better long-term management of the land they are using.
Citizens will gain not only by increased productivity, but by being able to capture the value of their productive resource into perpetuity, to at least the same degree they are doing now abaleatherdoctor.com/powerpoint-presentation/american-literature.php.
Citizens will gain not only by increased productivity, but by being able to capture the value of their productive resource into perpetuity, to at least the same degree they are doing now.
In addition, taxpayers will not have to pay the high management costs they now bear through funding the BLM.In summary, we believe that a plan to privatize the lands currently managed by the BLM can be arranged to the benefit of everyone with the possible exception of the bureaucracy itself.The continuing and expensive hassle of intensive lobbying by environmentalists, producer groups, and others can be avoided.The ongoing debate over environmental law as it applied to private lands will continue, of course, but the perpetual struggle over lease rates and the appropriate land use pattern will be ended, as will the occasional scandals which inevitably arise when public figures and bureaucrats continually control billions of dollars and assets without any means of being held personally accountable for their use.Conclusion: Policy Implications of the Property Rights Approach to Natural Resource Management Since individuals rather than groups or societies, make decisions on natural resource management, the property rights approach is highly relevant to the analysis of those decisions.Each decision maker can be expected to be concerned with appropriate management from his own point of view rather than from an "efficiency" or a societal point of view.Because individuals differ, it is important to know who controls a resource (has the right to allocate its use).With privately owned property rights, a resource is generally controlled by those with the most optimistic view of how they might be used, as constrained by ability to finance resource use or ownership.(Banks and financiers act as a filter on crackpots.
) New ideas and new opportunities bring shifts in resource control, as the identities (and plans) of high bidders for a given resource change.Positive transactions costs, however, hinder the flow of resource rights to higher valued uses.In the extreme case property rights are effectively undefined and obvious resource waste (e.Market failure results when property rights fail to cause decision makers with authority over resource use to be faced with the full responsibility for their decisions.Since governmental control almost never makes fully effective the linking of authority to responsibility, public sector control clearly will fail also to reach ideal efficiency goals.Any realistic approach to the formation of good (or improved) natural resource management will take these important facts into account.As Demsetz has indicated, one should not commit the "grass is always greener" fallacy and assume that if one institutional arrangement is imperfect the desire for improvement should lead to an ideal alternative.25 We must compare realistic alternatives with the imperfect status quo, instead of an ideal (but unattainable) alternative with the imperfect status quo.
When the market is known to fail, for example, we should not leap in to replace it with collective control assuming that well-intended and omniscient bureaucrats, oblivious to career goals and political pressures, will solve our problems.Similarly, if we move toward a market solution, the existence of transaction costs must not be forgotten as if they did not exist.In a sense, the property rights and related public choice approaches to natural resource management are worthy of the "dismal science" title which Thomas Malthus gave to economics.We are reminded that a responsible analyst must segregate hopes and ideals from expectations.Yet the new approach is quite constructive in useful ways.
It counsels us mainly to recognize incentives to individuals, and to shape them when necessary.It tells us that institutions are crucial in decision making.Indeed, one can maintain with Alan Randall, in "Property Rights and Social Microeconomics," Natural Resource Journal 15 (1975):746, that this new approach is a rebirth, with the infusion of neoclassical microtheory, of the tradition of institutional economics long associated with J.Policy Principles suggested by the works we have summarized include the following: (1) Privatization of property rights, taking them from the public sector, may improve management from society's viewpoint.As indicated in the section above on grazing rights; in Alred Cuz n on water rights, "A Critique of Collectivist Water Resrouces Planning," Western Political Quarterly (1979); and by Bruce Yandle on air pollution, "The Emerging Market for Air Pollution Rights," Regulation (1978); a plausible case can be made that market constraints are superior to collective controls in resource management.Always, however, the problem of transactions costs must be carefully examined before final judgement can be made.The ideal market with perfect competition does not (and will never) exist.(2) In a world of change, it is crucial to minimize transactions costs so that resources can flow to higher valued uses.
Price controls, regulation of all kinds, and curbs on profits to those controlling the resources moved to higher valued uses are all virulent forms of what is frequently called "The British disease." The net gains to society from increased efficiency should, we think, be sought by the reduction of such measures.Increased efficiency is, after all, a positive sum game.(3) When collective control is deemed necessary despite its drawbacks, it is frequently possible (and usually desirable) to mimic the market.This normally amounts to privatizing a collectively determined set of rights, as in marketable pollution rights and transferable development rights, or using taxes and subsidies in place of direct controls.
Bureaucrats and politicians will normally prefer direct controls, since that path enlarges their discretion and their budgets.As even such governmentally oriented economists as Charles Schultze and James Schlessinger have cogently argued, 26 however, shaping incentives is generally a more effective solution.No matter how elegant the operations research solution might be, it will seldom be implemented properly without the flow of information and the set of incentives only a market can provide.In brief, the property rights approach indicates that privately held rights, far from being the root of ecological problems and natural resource misuse, may be a key element in their solution.Markets will never be perfect, but government failures are both obvious and intractable.Resources held as part of a decision maker's wealth will seldom be squandered.Endnotes Full citations for works listed in the Footnotes may be found in the following Bibliography.
* This footnote was part of the original publication of the essay .
Richard Stroup is Associate Professor of Economics and Co-director of the Center for Political Economy and Natural Resources; John Baden is Director of the Center, at Montana State University.They wish to thank their colleagues, Terry Anderson and P.Hill for helpful suggestions, while retaining responsibility for any flaws.Douglass North, "A Framework for Analyzing the State of Economic History," Explorations in Economic History 16 (1979):249–259.This article discusses the factors influencing the way in which rulers of a state advance their own control over resources by selecting from among alternative sets of property rights rules.Economic growth and efficiency can be means to the ruler's ends, but only if the ruler can capture enough of the consequent benefits relative to more easily monitored, controlled, and taxed systems.
Economists of the Austrian school emphasize the role of the entrepreneur who, in his search for profit, finds higher valued uses for resources previously used in a less valuable fashion.See, for example, Ludwig von Mises, Human Action, and Israel Kirzner, Competition and Entrepreneurship.The workings of the market are explained nonmathematically, with a minimum of jargon, from a property rights approach, in four books on economic principles: Armen Alchian and William Allen, University Economics; James Gwartney and Richard Stroup, Economics: Private and Public Choice; Paul Heyne, The Economic Way of Thinking; and Svetozar Pejovich, Fundamentals of Economics.
A systematic treatment of the "accepted wisdom" on market failure is Francis Bator, "Anatomy of Market Failure," The Quarterly Journal of Economics (August 1958):351–379.Nearly all introductory economics texts cover this general problem of monopoly, including the four cited in the previous note.This common law approach is being supplemented by statutory laws which proclaim the mere existence of a pollution source a nuisance, apart from demonstrated damage.Such laws are currently being challenged in the courts.Note that if property rights in clean air were easily enforced, pollution would still be produced, but only in efficient amount: polluters would compensate those damaged, and would reduce pollution until further reductions were more costly than fully compensating all those harmed.If many well-owners pump more rapidly from many pools, ignoring the "user cost," or reduced availability from each pool later, then oil market prices can be depressed.That happened in the United States in the 1930s, leading to government control of oil well production.A relatively nontechnical presentation of the economics of government failure, paralleled by this section but with emphasis on different applications, is Gwartney and Stroup, Economics: Private and Public Choice (1980), 2nd edition, chapter 32.See also McKenzie and Tullock, Modern Political Economy—An Introduction to Political Economy (1978), chapters 5 and 6; Charles Wolf, " A Theory of Non-market Failures;" and William Mitchell, The Anatomy of Government Failures (1979).
For more rigor and detail on this and related aspects of the political process see Gordon Tullock, Toward a Mathematics of Politics (1967).John Krutilla and Talbot Page, "Paying Tomorrow for Energy Today," Resources, No.In reality, the value of the mine in "current" development is subject to some uncertainty, particularly since development is not really confined to one short time period.But the degree of uncertainty is small relative to development farther into the future.One could work with a similar, though much-compressed, distribution of estimates of value in current use, but that would seem to add complexity with no change in the basic outcome in comparing private and collective management systems.Median voter is the individual whose E(P) splits the distribution, in the sense that half the other people lie above him, and half below.Robert Solow, "The Economics of Resources or the Resources of Economics," American Economic Review 64 (May 1974):10.Solow, "The Economics of Resources or the Resources of Economics," 13.
Harnish, Government Credit Subsidies for Energy Development (1976).John Baden, "Subsidized Destruction of Alternative Energy," mimeo, Center for Political Economy and Natural Resources (October 1979).Eleanor Leacock, "The Montagnais 'Hunting Territory' and the Fur Trade," American Anthropologist (1954), page 12.Frank Speck, "A Report on Tribal Boundaries and Hunting Areas of the Malecit Indians of New Brunswick," American Anthropologist (1946).Policy Review (Spring 1978):23–38; "Response to Krutilla and Haigh," Environmental Law, Vol.See Harold Demsetz, "Toward a Theory of Property Rights.See Charles Schultze, Bibliography University Economics (3rd Edition)."The Environmental Costs of Government Action," Policy Review 4 (1978): 23–26."Subsidized Destruction of Alternative Energy," mimeo, Center for Political Economy and Natural Resources (October 1979)." The Quarterly Journal of Economics (August 1958): 351–379.An Analysis of Federal Incentives Used to Stimulate Energy Production.Department of Energy, Contract EY-76-C-06-1830 (December 1978)."The Coase Theorem and the Theory of the State.Ann Arbor: University of Michigan Press, 1962." The CoEvolution Quarterly (1977): 189–193."The Structure of a Contract and the Theory of a Non-Exclusive Resource," Journal of Law and Economics 3 (1970): 49–70." The Journal of Law and Economics 4 (October 1960): 1–44."Performance of Two Successful Windmill Generating Plants." Electrical World 69 (February 1917): 367–369."A Critique of Collectivist Water Resources Planning.
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"Fumifugium: or The Inconvenience of the Aer and Smoake of London Dissipated" (written 1661).
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Baltimore, Maryland: The Johns Hopkins Press, 1960."Feasibility of Utilizing Power from the Sun." Scientific American 110 (February, 1914): 179."The Economics of Resources or the Resources of Economics," American Economic Review 64 (May 1974): 10." Journal of Political Economy 83 (August 1975): 727–756."A Report on Tribal Boundaries and Hunting Areas of the Malecite Indians of New Brunswick.Twenty-Second International Congress of Americanists 2."The Theory of Economic Regulation" Bell Journal of Economics and Management Science Z (1971): 3–21.
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" Regulation (July/August 1978): 21–29.Last modified April 13, 2016 Sign Up Introduction The relationship between economic growth, human well-being, and the achievement of a sustainable future has a long and complex intellectual history.In his 1910 book The Fight for Conservation, for example, the American conservationist Gifford Pinchot emphasized: the right of the present generation to use what it needs and all it needs of the natural resources now available recognizing equally our obligation so to use what we need that our descendents shall not be deprived of what they need.1 This language strikingly anticipates the seminal work of the World Commission on Environment and Development (WCED), which defined “sustainable development” as a process that “meets present needs without compromising the ability of future generations to meet their own needs.” 2 This approach is strongly bottom-up—it suggests that a sustainable future will come into being if the biophysical and social conditions needed to support economic activity and human flourishing are maintained from each generation to the next.
In addition, it emphasizes meeting needs rather than promoting growth or satisfying consumer preferences as the defining characteristic of “development.” Importantly, the WCED attaches a strong emphasis to issues of equity, especially the goal of alleviating poverty in settings and societies where people’s objective needs remain unmet.3 A contrasting perspective on the challenge of reconciling economic activity, social welfare, and the needs of future generations was put forward by Donella H.Behrens, III, in their 1972 book, The Limits to Growth.4 Based on a dynamic simulation model in which businesses and households make myopic decisions without regard for the long-run implications of short-run production and consumption, Meadows et al.predicted that natural resource depletion and environmental degradation would lead to an irreversible collapse of the global economy by the early twenty-first century.In this analysis, avoiding catastrophe would be possible if and only if: Human fertility was limited to the replacement rate to stabilize population.
Natural resource use and pollution per unit of industrial output was cut by at least 75 percent.
Industrial production was stabilized at the level prevailing in the late twentieth century.Goods and services were redistributed from the rich to the poor to provide a high quality of life for all members of the global community.This vision is fascinating in multiple respects.It is simultaneously dystopian and utopian, presenting a narrative that combines an apocalyptic warning with the possibility of a type of secular renewal achieved through a process of personal and (especially) collective transformation.Like Pinchot and the WCED, this vision emphasizes the need to conserve natural resources and ecosystems as the foundation of a sustainable future, combined with the need to redistribute wealth to achieve equity in an ecologically limited world.
Unlike the WCED, however, Meadows et al.present the seemingly straightforward argument that, because economic growth is the perceived driver behind resource depletion and environmental degradation, the cessation of economic growth should be embraced an operational objective in the attainment of sustainability.Although its influence on current research on the economics of sustainability is mainly historical, 5 the legacy of The Limits to Growth study continues to have very considerable implications for environmental policy, in part because of the powerful appeal of the study’s “apocalypse-or-renewal” rhetorical framing in the context of the contemporary sustainability movement.In debates over climate change, for example, environmentalists sometimes argue that, because the production and consumption of market goods and services is the proximate cause of greenhouse gas emissions, stabilizing climate will require some curtailment or even the reversal of economic growth.6 In response, critics argue that, because economic growth is fundamental to the improvement of human welfare, policies that negatively affect economic growth are unworkable and undesirable.
7 This contextualization of the issue has led to policy gridlock grounded in an underlying ideological disagreement.The present paper will address these issues by advancing two separate yet interrelated arguments, focusing especially on the example of climate change.First, I will argue that the perception that there is a hard tradeoff between the goals of economic growth and environmental sustainability rests on a contestable empirical premise.While it is of course true that the transition from a high-carbon to a low-carbon energy economy would carry positive economic costs, a large body of literature in the fields of engineering and economics establishes that those costs would be too small to substantially affect the overall rate of economic growth.A good case can be made that failing to stabilize climate poses a major risk to the livelihoods of future generations.
But capping growth may not in itself be necessary to alleviate the risks posed by today’s production and consumption patterns.Second, I will argue that the premise that economic growth necessarily leads to an enhanced quality of life and improved human flourishing in high-income societies is also problematic from a social science perspective.As Herman Daly argued in his landmark book Steady-State Economics, 8 economic growth provides a mix of benefits and costs in terms of its contribution to human well-being.In poor societies, growth can provide material goods that can satisfy urgent needs given just institutions that allocate goods and services to the impoverished.In affluent societies, however, growth generates a complex set of social and environmental costs, explaining why surveys of life satisfaction have remained largely unchanged in industrial societies despite the large increase in production and consumption that has occurred since World War II.
9 Taken together, these arguments suggest that the contestation over what Daly 10 termed “growthmania” presents a rather delicate set of issues.On the one hand, a narrow emphasis on growth can and sometimes does lead to a failure to implement policies even in cases where the long-run benefits exceed the short-run costs as measured using conventional economic tools.11 On the other hand, presenting growth as the core problem and the cessation of growth as the solution may actually serve to reinforce the political influence of the pro-growth narrative, since it forces decision-makers to frame things in terms of an either/or choice.Instead, environmentalists may be better served by the WCED approach to sustainable development, which de-centers growth to focus more directly on the achievement of social justice and the conservation and protection of ecosystem services.This hardly implies that unlimited growth is possible or desirable, though it provides a framework for balancing the costs and benefits of growth and for directing goods and services to ends that best reflect society’s values.
Climate Stabilization and “Degrowth” The notion that stabilizing climate might require reductions in the levels of material production and consumption is one facet of the rapidly evolving “degrowth” movement.
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12 This perspective notes (rightly) that greenhouse gas emissions tend to increase with the level of economic activity because higher income and consumption levels translate into increased demand for carbon-intensive goods.An analogous argument, however, is offered by analysts who favor free-market energy policies over the interventionist policies needed to put the economy on course towards the achievement of a sustainable energy system.The argument is that the production of goods and services requires energy and that cutting energy use—or shifting toward higher-cost forms of energy—necessarily threatens to reduce the level and growth of economic output Perspectives in resource management in developing countries.The argument is that the production of goods and services requires energy and that cutting energy use—or shifting toward higher-cost forms of energy—necessarily threatens to reduce the level and growth of economic output.
13 As one example of this line of reasoning, the U.
Energy Information Administration (USEIA) predicted that implementing the Kyoto Protocol would reduce U .Energy Information Administration (USEIA) predicted that implementing the Kyoto Protocol would reduce U.14 That estimate played powerfully into the anti-Kyoto rhetoric that was already prevalent inWashington political circles .14 That estimate played powerfully into the anti-Kyoto rhetoric that was already prevalent inWashington political circles.In 2002 speech, for example, President George W homework.In 2002 speech, for example, President George W.Bush argued that: The approach taken under the Kyoto Protocol would have required the United States to make deep and immediate cuts in our economy to meet an arbitrary target.It would have cost our economy up to $400 billion and we would have lost 4.15 Because claims of this sort have major policy implications, it is fair to ask whether they hold up under scrutiny.On this point, the research literature depicts a more complex and subtle set of relationships.16 For one thing, the USEIA study found that well-designed policies could achieve the goals of theKyoto agreement at a substantially lower cost.3 percent output loss occurred in a single year based on the assumption that emissions cuts were implemented precipitously in a way that failed to limit costs through measures designed to achieve a smooth and efficient transition.
A more representative assessment is provided by the Stern Review on climate change, 17 which found that stabilizing atmospheric carbon dioxide concentrations at 500–550 parts per million—a level sufficient to limit the future increase in mean global temperature to roughly 2 degrees Celsius—would impose costs equivalent to a permanent 1 percent reduction in the level of present and future economic output.This is a number that needs to be viewed in perspective.One key point is that achieving Stern’s stabilization target would require a gradual but also nearly complete transition away from today’s high-carbon energy economy to a mainly post-carbon energy system over the course of the next four decades.This is in line with the goal of reducing U.
greenhouse gas emissions by 80 percent by the year 2050, which Barack Obama embraced during the 2008 presidential campaign.It also consistent with Daly’s concept of “scale,” which calls for limiting material throughput (i., the use of natural resources and the discharge of waste) to levels that are ecologically sustainable given the dynamics of biophysical systems.18 A second point is that a 1 percent reduction in economic output would involve an annual cost of roughly $150 billion per year in the context of the current U.
That is a substantial impact that should not be borne without good reason.On the other hand, Stern’s analysis implies that climate change policies would have almost no impact on the rateof economic growth.Because climate change policies would be phased in gradually over time, an economy that might have grown at a rate of 3.
00 percent per year would instead grow at the lower rate of 2.95 percent per year if one assumed that climate policies had costs in the middle of the range described by the Intergovernmental Panel on Climate Change in its systematic literature review.19 This effect is so small that it would be difficult to distinguish from the year-to-year variability in growth that is driven by fluctuating trends in technology, human behavior, and other fundamental drivers.As the Nobel Prize winning economist Thomas Schelling once framed this point: If someone could wave a wand and phase in, over a few years, a climate mitigation program that depressed U.GNP by two percent in perpetuity, no one would notice the difference.20 Why are the impacts of climate policies on the rate of economic growth predicted to be small? One reason is that engineering studies have shown that a wide variety of low-cost emissions abatement technologies are currently available or projected to become available given appropriate investments in research, development, and technology diffusion.A recent study by McKinsey and Company, for example, identified a set of specific technologies sufficient to reduce U.greenhouse gas emissions in the year 2030 by up to 46 percent at a maximum cost of $50 per tonne of CO 2 equivalent, or 44 cents per gallon of gasoline.
21 This cost is greater than zero but far too small to have major impacts on the overall level of economic activity.A carbon dioxide tax of $50 per tonne would favor lower-emission technologies and a shift towards low-carbon goods and services.The problem, then, is not a lack of technical potential but a lack of policies and price signals that promote the transition to a green energy system.Second, energy economists have long stressed that the relationship between energy use and economic output is flexible and elastic, especially in the long run.22 It is certainly true that the production of all goods and services involves physical transformations that require inputs of energy as stipulated by the laws of thermodynamics.
23 It is also true, however, that the current economy is far from its thermodynamic limits and that large reductions in carbon dioxide emissions could be achieved through changes in technology, the structure of the economy, and the mix of final products that consumers demand.We demand high-carbon goods because fossil fuels remain cheap and because current market prices do not reflect the costs that climate change will impose on ecosystems’ future generations.It does not, however, follow that transition to a low-carbon economy would require major changes in the standard of living, noting that gross domestic product (GDP), is a measure of subjective value and that the level of value per unit of energy or material throughput can be increased substantially within the limits set by human psychology and the laws of thermodynamics.A related and important point is that climate stabilization may be viewed as an investment in ecological capital that will provide a stream of long-run economic benefits.While the Stern Review projects that stabilizing climate would reduce short-run economic output by roughly 1 percent, it also concludes that failing to stabilize climate would impose long-run economic damages equivalent to a permanent 5–20 percent reduction in consumption and income, now and forever.
24 This conclusion is controversial because it relies on the moral judgment that equal weight should be attached to the welfare of present and future generations.25 That said, Stern’s conclusion that climate stabilization would boost long-run prosperity is a common finding in the literature, even in models that do not account for the role that climate stabilization can play in reducing low-probability, catastrophic risks to future lives and livelihoods.26 Growth and Well-Being I have argued that climate stabilization could be achieved without large impacts on the rate of short-run economic growth and that, in the long run, the result would be a world of enhanced life opportunities for members of future generations.But suppose, for the sake of argument, that we rejected this claim in favor of the proposition that achieving ecological sustainability would require substantial reductions in future economic growth.What could we then say about the likely impacts on human well-being? From the perspective of mainstream economics, the answer seems clear-cut: The consumption of material goods and services satisfies people’s preferences and contributes to their happiness, and higher levels of consumption should—all else equal—contribute positively to social welfare.
The “all else equal” caveat is quite important here.While non-economists sometimes assume that mainstream economics is concerned narrowly with the monetary value of market goods and services, in fact, economics textbooks very much stress the contributions that public goods and environmental quality make to human well-being.The question is, then, how the benefits of improved environmental quality compare with the costs of reduced private consumption.On this front, authors such as Daly and John Cobb 27 have produced a very striking conclusion.Building on the earlier work of William Nordhaus and James Tobin, 28 Daly and Cobb’s Index of Sustainable Economic Welfare (ISEW) presents a monetary measure of social welfare that accounts for: the consumption of private goods and services bought and sold on markets; the social costs of inequality; the value of non-market production (household work, family care, and volunteer work); environmental degradation; net capital investment; and natural resource depletion.
data, Daly and Cobb found that trends in the ISEW closely paralleled changes in GDP per capita in the 1950s and 1960s.In later years, however, the relationship between income and welfare became de-coupled.While GDP per capita grew at a rate of 2.
2 percent per year between 1970 and 2000, an updated version of the ISEW remained virtually unchanged.Rohde, Global Warming Art ProjectThe numerical aspects of the ISEW and related measures are not without controversy.Eric Neumayer, for example, argues that trends in the ISEW are driven disproportionately by rising inequality and greenhouse gas emissions and that Daly and Cobb’s approach to measuring these effects is ad hoc.
30 In counterpoint, other authors have sought to ground the ISEW on a more refined theoretical and empirical foundation.
31 The literature on this topic points to a widening gap between the ISEW and GDP growth in a broad range of nations.32 Further insights arise from studies of subjective well-being—i., people’s self-reported life satisfaction as measured by comprehensive social surveys.In a landmark paper, Richard Easterlin considered data from a diverse set of industrialized and developing nations, finding that: (a) in any given country at any point in time, individuals with higher incomes report higher life satisfaction than those with lower incomes; but (b) there was no correlation between average income in a country and average life satisfaction.
33 Subsequent research has shown that point (b) is only partly correct.34 In low-income societies, economic growth translates into large gains in life satisfaction if the resources generated by growth are used to satisfy people’s basic needs.But in high-income societies, economic growth generates diminishing marginal returns, so that large increases in production and consumption have almost no effect on average well-being in society.Still, a concern for relative economic status can lead people to pursue higher income and consumption levels even when, from a social perspective, these activities generate negative costs of the kind measured by the ISEW.35 Since these costs are excluded from the standard measure of economic output, it is not surprising that the economic growth that has occurred in the United States since 1970 has not been matched by a corresponding increase in ISEW or subjective well-being.
In standard economic theory, individuals’ preferences are assumed to be fixed and independent of social context.In his book Social Limits to Growth, in contrast, Fred Hirsch argued that private consumption generates social externalities that are analogous to the costs imposed by pollution.36 If individuals’ well-being depends on their relative consumption, then an increase in one person’s consumption serves to reduce (if by just a little) the welfare of all other members of society.Stated somewhat differently, all individuals face pressures to maintain high income and consumption levels to avoid falling behind in relative terms.The paradox is that nobody thereby gets ahead, while all of us would be better off if scarce social resources were reallocated to increased leisure, environmental quality, and the benefits of community life.
After reviewing the empirical support for this hypothesis based on data on subjective well-being, economic experiments, and observed behavior in labor markets, Robert Frank 37 argues that the social costs of “conspicuous consumption” 38 should be internalized through a graduated consumption tax with a top tax rate of 90 percent (meaning a tax of 90 cents for each dollar of private consumption).This tax is precisely analogous to the concept of a Pigovian pollution tax.It would provide an incentive signaling the full social cost of private decisions that would serve to align individual self-interest and community well-being.What are the implications of Frank’s approach for balancing the economy, human welfare, and environmental quality over the long term? In answering this question in our book, Status, Growth, and the Environment: Goods as Symbols in Applied Welfare Economics, Kjell Arne Brekke and I analyze a numerical model in which a concern for relative economic status leads people to engage in excess private consumption at the expense of reduced leisure (a surrogate for time allocated to family life and other non-market activities) and the environment (measured in terms of long-run climate change).39 In this model, greenhouse gas emissions would more than double over the course of the twenty-first century in the absence of climate change mitigation measures.
If one ignored the social costs of consumption externalities, then standard cost-benefit analysis would justify emissions reductions of no more than 9 to 15 percent relative to baseline levels, with no appreciable impact on economic growth or the amount of time allocated to paid labor.Given plausible assumptions about the importance of social status in motivating behavior, however, Brekke and I found that substantially larger emission reductions were economically justified.More tellingly, the introduction of an optimal tax to balance the private benefits and social costs of consumption would support a 19 to 25 percent reduction in consumption levels and a 25 percent increase in the enjoyment of leisure.These quantitative finds should be interpreted with care—following Nordhaus, 40 the model is based on the contestable assumptions that climate damages are relatively modest and that society attaches a relatively low degree of weight to the welfare of future generations.41 Still, these results anchor an important, qualitative conclusion: There is good reason to believe that efficiently designed policies that reduced private consumption in order to increase both leisure and environmental quality would serve to increase human well-being, at least in affluent societies where material goods are abundant and where social goods and environmental quality are scarce.
Conclusions In this paper, I have argued that accepting substantial reductions in the future rate of economic growth may be unnecessary to safeguard and sustain the biophysical systems that provide the basis and underpinnings for human livelihoods and well-being.In the long run, the growth of material production and consumption is limited by natural resource constraints, and achieving a sustainable future will require policies and institutions that maintain the economy within the bounds set by nature.But significant growth of GDP—a measure of the subjective value of goods and services—can nonetheless be achieved in the interim through a move to technologies and consumption patterns sufficient to sharply reduce the economy’s “ecological footprint.” 42 This finding is in one sense good news for environmentalists.In a growth-oriented society, it provides an answer to critics who warn that the costs of achieving ecological sustainability would put the economy at risk.
On the contrary, authors such as Stern conclude that the benefits of stabilizing the earth’s climate will exceed the costs by a factor of five to twenty, even when the focus is on narrow economic benefits.43 I have also argued that continued growth—while ecologically feasible up to a point set by ultimate thermodynamic and technological limits—may generate social costs that exceed the private benefits in affluent societies where the resources exist to meet people’s basic needs unless specific policies are implemented to address these impacts.This point is supported by data on trends in the Index of Sustainable Economic Welfare, subjective well-being, and a wide variety of social and environmental indicators.In the pursuit of growth, our society has told itself that our social and environmental values are too expensive to afford.The result is a systematic imbalance that, as John Kenneth Galbraith once argued, 44 has brought into being a world of “private opulence and public squalor” through an overemphasis on growth, markets, and our identities as consumers that has crowded out our human roles as citizens, community members, caretakers, and friends.
The way forward is perhaps not so very hard to envision.A sustainable future will emerge if we build institutions that, on a practical level, sustain the natural environment and the social and technological conditions that will empower future generations to define and pursue their own conception of the good life.As the Nobel Prize winning economist Amartya Sen wrote in his book Development as Freedom, 45 the path to enhanced human flourishing will be built by expanding the scope of choices and opportunities.While policies that promote sustainability may well lead to (some, but not unlimited) economic growth, the converse is certainly not assured.As the WCED framed this point, achieving sustainability will require an approach that de-emphasizes growth and that explicitly embraces environmental and social goals as a core and self-standing dimensions of “development.