Dynamic Ecology and Dynamic Economics: The Foundation of Austrian Environmental Economics

Published: 
Tuesday, December 15, 2015

Analyzing nature and economies as static systems tending toward equilibrium distracts our attention from the dynamic forces in both. This paper argues that instead of focusing on equilibrium conditions in markets or nature, more emphasis needs to be put on the dynamic processes that provide a link between markets and the environment by emphasizing that 1) environmental problems result from a lack of clear property rights; 2) property rights problems are entrepreneurial opportunities; and 3) entrepreneurs respond to and create market signals in the form of prices, which reflect environmental conditions. The effectiveness of markets in providing a link between humans and their natural environment depends on how well the property rights induce owners to account for changing human values and changing states of nature.

The actor in this dynamic process is the entrepreneur who observes changing human values and changing states of nature and who see opportunities in coordinating between the two. When an entrepreneur successfully responds to disequilibrium conditions created by changing human values or by changing ecosystems, he or she is responding to resolve what Daniel Botkin calls "discordant harmonies." Just as ecological disturbances create discordance in the environment to which species respond by filling niches and evolving, economic disturbances create discordance in markets to which entrepreneurs respond. If they are successful, they tend to create harmony from dissonance.

To read the full text, click here [pdf].

Terry Anderson is a senior fellow at PERC and the former President and Executive Director of PERC as well as the John and Jean De Nault Senior Fellow at the Hoover Institution, Stanford University. He believes that market approaches can be both economically sound and environmentally sensitive. His research helped launch the idea of free market...
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