There is often much pressure put on the government to regulate corporations and society in general in the name of the preservation of our environment. It is somewhat taken for granted that the government knows exactly what society needs in order to conserve our resources. People assume that the government knows exactly what the correct amount of pollution is for the public. Now notice that I said the correct amount of pollution. Do we know what the correct amount of pollution is? Do you know what the correct amount of pollution is? I certainly don’t know what it is. Do you think that the correct amount of pollution is zero? That would be great, wouldn’t it? Zero pollution. We would have clean air, and clean water, and a quiet and serene world. We would also be free of cars, computers, mass-produced products, telephones, the mail system, and even candles and wood-burning stoves. Zero pollution is not the best level of pollution. So what is? How can we figure it out?
The answer lies in finding some way to measure what society wants, and what is most efficient for society. There are a few different methods that are available to measure what society wants. One of these methods is the political process. Society can vote on different candidates that have different platforms about the environment. One politician might advocate very heavy regulations, and another might advocate light regulations. One might want to focus his or her attentions on the pollution of cars, while the other wants to focus his or her attentions on the pollution produced by paper mills. Of course, the obvious downfall of this is that you cannot make everyone happy. Not everyone agrees on what the appropriate level of pollution is relative to the products and benefits we receive at the cost of that pollution. But that’s not that big of a problem. We always chose the best people to run the country, and every country always chooses the best leaders with the best policies that will regulate pollution in a way that the costs of pollution will exactly equal the benefits we derive from that pollution. The government always gets it right!! right? Right??? Well…maybe not. But if we can’t rely on the government to satisfy our desire to have just enough, but not too much pollution, then how can we ever achieve an efficient level of pollution?
Well that is the question. Another possible method of measuring what society wants is something called Free Market Environmentalism. Does that sound like an oxymoron? It does to a lot of people, but bear with me. So what is free market environmentalism? It is the idea that, when left to their own devices, actors in the free market can achieve an efficient balance between conservation, production, and pollution. It is the idea that there could be market-based solutions to the world’s problems related to excess pollution.
What this idea hinges on is something called Property Rights. Ever heard of them? You probably have. It’s the concept of “mine”. It means that I own my property, and I can do whatever I want with my property so long as what I do does not infringe upon your property. So what can I not do with my property? I can’t use my property to steal your property. I can’t use my property to hurt you. I can’t use my property to deface of destroy anything that you own. So what can I do with my property? Well, I can dig a hole in my back yard and bury it and forget about it—that way no one can take it, so long as they don’t find it! But that doesn’t really allow me to use my property. It just allows me to have it and say that it is mine. What else can I do? I can use it! I can consume it in some way that gives me satisfaction. Use it in some way that makes me happy. For example, if I own a slice of pizza, and I am hungry, I’m probably going to eat it. That would probably make the most sense. But what if my property included an entire pizza pie? Well, if I’m really hungry, I guess I could eat that too. But what if I had TWO large pizza pies with extra cheese and pepperoni and mushrooms? I might eat some of it, but I probably can’t eat all of it at once. I’m going to eat a few slices, but then I’m going to save it! I’m going to put it in the refrigerator and save it for later that day (or breakfast tomorrow). Now why would I save my pizza instead of eating it all right now? Because I believe that the pizza will retain enough of its value in the future to warrant consumption at a later time.
Alright, so why are we talking about pizza? What does this have to do with the environment, and how does it inform how we can measure society’s demand for pollution and production? Well, according to free market environmentalists, what we really need in order to ensure an efficient level of pollution is well-defined property rights to natural resources. The argument is very similar to the one we just encountered about my pizzas. If someone (let’s say a fisherman) owns some natural resource (let’s say a pond with fish in it), then that fisherman has a very strong incentive to not “over-fish” the pond. Why? For the same reason I didn’t eat all my pizza in one sitting. The fisherman is not going to over-fish the pond because he believes that the fish in the pond, if allowed to reproduce, will create a perpetual stream of income in the future. If the fisherman decides that he wants to fish every single fish out of his pond, he can certainly do that (it’s his pond after all), but it wouldn’t be a very smart move, considering that he could use the pond, and those fish, in the future if he just cuts back on his fishing a little bit. This fisherman is what we call the “residual claimant”. After all is said and done, he owns the pond, and all the fish, and all the income that it generates. After he has fished all the fish he has decided to fish, sold or consumed them, and paid all his bills, he will either gain a profit, or incur a loss. As the residual claimant, he gets all the profit, or he incurs all the loss. The residual claimant of a natural resource has a very strong incentive to make sure that that resource remains profitable into the future so that he can continue to gain from it in future years.
Now let me paint you a different picture. Let’s say that a bunch of different fisherman all share this pond in common. There is Connor the fisherman, and Ronnie the fisherman, and Billy the fisherman and everybody shares the resources in the pond. Remember—sharing is caring!—they all decide individually how much each person wants to fish. Billy might fish a little, and Ronnie might fish a lot, and each person gets to keep and profit from anything he catches. So what’s going to happen to the fish in the pond? Well, let’s try to figure out who the residual claimant is to the pond. Is it Billy? Is it Ronnie? Is it Connor? Well…it’s actually none of them. No one really owns the pond, because there are not well-defined property rights to the pond. So does anyone have the incentive to conserve the fish in the pond? Does anyone have the incentive to make sure that there is a constant stream of profit coming out of the pond in future years? No! No one has the incentive to reign in the amount they fish because they are not guaranteed the residual claim to the offspring of the fish in future years. So what is the end result? The fish population in the pond is probably going to be completely depleted in a year or two. Think about it. If Connor, being a forward-thinking and rational human being, decides to only fish enough to make a little profit so that there will be plenty of fish in the pond for next year, what is going to happen? Ronnie is going to catch all the fish that Connor didn’t! So Connor’s going to end up with a smaller profit than he otherwise could have had, and he won’t have any profit next year because Ronnie and Billy all caught the extra fish! So if Connor truly is a rational human being, and he understands all of this he’s actually going to catch every damn fish that he can as soon as he can so that Ronnie and Billy can’t get them. To put it another way, I’m going to eat both pizzas right now. Why? Because if I don’t eat both pizzas right now, as soon as I can, Ronnie and Billy are going to eat them instead. I might have a belly-ache, but at least I got to consume my resources. We call this the “Tragedy of the Commons”.
So let’s get back to the government. What if the pond if publically owned? What if it is owned by the government? Then what is going to happen? Well let’s go through the same thought process. Who is the residual claimant if the government owns a natural resource? There isn’t one! Who owns the pond? The government owns the pond. Who owns the government? We own the government. So who owns the pond? We all own the pond. So does anyone have any incentive to conserve anything if anyone in the nation can come to the same pond and fish as much as they want? No. Of course not. There is no residual claimant, so there is no guarantee of profit in future years, so there is no incentive to conserve, and more importantly, there is a very strong incentive to consume as much as possible right now, because if I don’t catch as many fish as possible right now, I probably won’t be able to catch any extra tomorrow. I don’t benefit—in fact, I am worse off—if I decide to curtail my fishing and conserve the fish. The result: The Tragedy of the Commons! And a serious tragedy it is!
So the best and most efficient way to conserve natural resources is to have well-defined, enforceable property rights over those resources. This way, goods will be produced, and fish will be caught, and pollution will be generated, only so long as it is profitable to do so. The problem with this approach is in how to define these property rights. Property rights of some natural resources are really hard to define, and even harder to enforce. Air comes to mind. How do we define property rights over the air? Well it is really hard to. Especially because air blows around, and by the time you complain about my factory polluting your air, you’re going to have a really hard time pinning that pollution down on anyone in particular. Who are you going to sue for infringing your rights to clean air? Is the hassle worth it to you? This is such a problem because it is so easy for businesses to “externalize” the cost of pollution onto the public. The trick to solving this problem is to get the businesses to “internalize” the cost of pollution, so that it will factor into their income statement. There are some solutions that have been explored. Most of them do require some government regulation, but in a much different way than the EPA passing arbitrary regulations directly on businesses. A possible solution is called “Cap-and-Trade”. With Cap-and-Trade, the government “Caps” the amount of a certain pollutant that can be released into the atmosphere, and then the government issues a certain number of pollutant vouchers to businesses which can either use them (by polluting) or sell them (Trade) to other firms. In this way, pretty efficient outcomes can be achieved because those firms that are more profitable, and are more able to bear the burden of these internalized costs of pollution will be able to produce (and pollute) more, while those that are less profitable (and probably less efficient) will either produce less or end up going out of business. The main problem now becomes figuring out just how high that “cap” should be set. There is no getting around the need for the government in this sense, but over time (a long time, perhaps) it is reasonable to believe that the government can find a relatively efficient cap on pollution.
So what have we learned today? Property Rights, Property Rights, Property Rights! If you own something, you have the incentive to take care of it and make sure it retains its value for the future. If you are the residual claimant of a resource, you are able to capture all of the profits generated from the use of that resource, and therefore have a strong incentive to conserve that resource for future use. If there is not a residual claimant to a resource, then there is no incentive for anyone to conserve anything, because resources not used today will simply be resource that are used today by someone else. The result of this is the Tragedy of the Commons. If the government owns a resource, everybody owns the resource, and then there is definitely no residual claimant. In this case, it is very likely that that resource will be fully depleted very quickly. Finally, we learned that in order to define some property rights, it may be necessary to utilize the government in a limited sense—just enough to pick a level of overall pollution, and then allow the market to sort out how much each individual is going to be allowed to pollute. Overall, it is important to realize that the government is not a panacea to all our problems. The government’s solutions are usually not the most efficient, and are usually unrepresentative of a large portion of the nation. Using the free market, and sometimes the government in a limited sense, we can most accurately measure just how much pollution we really want.
Sorry that was a bit long, but if you stuck with it, I hope you liked it!
Have a magical day!
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