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Another Take On Free Market Environmentalism

  • David Roodman

    As I understand free market environmentalism, the prescription works like this: Accept and strengthen private property rights; then allow private parties to work together to find reasonable solutions. Although there is much to be said for this two-part recipe, there are some problems.

    To begin with, although property rights can take a dizzying variety of forms, the image we all have of property is of property in land. This implicit analogy can be misleading. The picture is that you can draw thin lines across the landscape and slice it up with a super-sharp knife. That’s yours on that side of this Euclidean line. This is mine. You do what you want on your land. I do what I want on mine. We are next to each other, yet severed from one another.

    The problem is that we are not severable from each other. We are parts of communities. If you build a giant hotel on your lot, you block my view. If you start your car, you’ll damage my lungs. If you graze cattle on your land and I grow corn on mine, then your cattle will inevitably wander onto my lot, damaging my crops.

    The corn-and-cattle example I take from a classic paper by Ronald Coase (1960). Coase’s genius was to point out that in conflicts over exactly where your property rights start and mine end, the conflict is jointly generated by the parties involved. If I cease to breathe, there is no problem with your car. If you cease to drive, there is no problem with my lungs.

    When we are jointly responsible for a conflict, it is not easy to determine whose rights to productive enjoyment of property should take precedence. A community norm might give precedence to scenic views over big buildings-on Nantucket Island, for example-but do the opposite in New York City. The line between your property rights and mine is quite fuzzy and a legitimate subject for a debate-one that often boils down to irreconcilable differences in values and vision.

    Now, as an economist, Coase pointed out that as long as the norms about which rights take precedence are clearly defined, economic welfare can be maximized (assuming markets work perfectly). To paraphrase his example, suppose your cattle are straying onto my cornfield and doing $200 worth of harm to me, while earning you an extra $100 from the additional forage. From the collective point of view, this activity is economically destructive, doing more harm than good, and it should stop. But how will that happen?

    If the community norm is that cattle can wander freely, it makes sense for me to pay you $150 to reduce your herd. I’d pay $150 but avoid $200 in crop damage. You would lose $100 in cattle earnings but get $150 from me. Good deal for both of us.

    If the community norm is that you have no right to interfere with my cultivation of corn, then my wishes take precedence. Because your herd is causing $200 in damage to me, I’d insist that you pay me at least $200 for the permission. If the extra grazing would only raise your income $100, you would not do it. You would reduce your herd so that it does not encroach on my land. In either version, thanks to clear property rights, your cows would stop grazing on my land, which would be the “optimal” solution.

    If you’re like me, something feels funny about this argument. Indeed, Coase acknowledged that it is not the whole picture. The initial allocation of property rights-the community norm-does matter in that it affects the distribution of wealth. From my point of view, the $150 I had to pay in the first version of the story was simply unjust; but maybe from your point of view, my power to restrain your herding seems equally unjust.

    A lot of environmental problems can be seen as conflicts over which rights should take precedence. Do water polluters get precedence over those who would fish in clean water bodies, or vice versa?

    Since people’s values and the realities of a society change over time, how the boundaries are drawn between property rights must be allowed to evolve over time. Existing norms protect established interests. Special interests had a big hand in the current property rights regime- they were the people who abetted the holocaust of the first Americans, exploited railroad monopolies, and so on. So, to oppose modifying the property rules on the grounds that it opens the door to special interests is only half the story. The doors were opened long ago and a lot of horses are already out of the barn.

    I see two main mechanisms by which a modern community can revise the legal norms that govern conflicts between property rights. One is through the courts. As community norms evolve and circumstances change, courts take this into account as they apply the common law to specific disputes. In one generation, a court might give the scenic view precedence over the tall building. A generation later, bowing to unstoppable urban growth, the same court might favor the tall building.

    This mechanism is adaptable, not too rule-bound, and local. But it has an inherently conservative bias. Judges tend to come from the elite and tend to protect established interests more than undermine them. Judges did not free the slaves; in fact, they tightened the bondage. The Supreme Court justices who made that shameful Dred Scott ruling in 1854 had much stronger ties to the enslaving class than to the enslaved class. Chief Justice Roger B. Taney came from a wealthy, slave-owning family.

    Nor did courts strengthen the property rights we all have to our own bodies by cleaning the air and water in this country over the last thirty years. Legislatures did that- and that is the other major mechanism I see for revising the boundaries between competing property rights.

    As Winston Churchill said, democracy is the worst form of government except for all the others that have been tried. Democratic mechanisms are important because people will always disagree about whose rights dominate; the best one can hope for is a process for making the calls that are widely seen as legitimate. We’ve had major environmental successes in this country, and those have come about through the legislature, often the federal legislature.

    Last year in Washington, D.C., we had many “code red days,” which were caused by the combination of heat and air pollution. I take the problem personally since I live in the middle of Washington, D.C., along a popular morning rush-hour route, and I have two little boys, one of whom has asthma. My best hope for solving this problem lies in pressing local and federal government to act. I do not see how free market environmentalism can solve my problem. In sum, there is a place for legislation.

    Now to the second step in the recipe: allowing free actors, once property rights are allocated, to strike mutually amenable deals. My concern here: it is often impractical.

    For problems such as acid rain, smog, global warming, it is inconceivable that all parties concerned could gather together to strike a bargain about automotive technology, land use planning, payments of compensation, etc. The only practical way they could do that would be to send representatives empowered to make binding decisions. And those decisions might need to involve shortcuts like regulating tailpipe emissions. This sounds a lot like active government- and it is.

    In sum, while freemarket environmentalism has much to offer, it also has serious limitations. Questions of how to assign property rights are morally complex and politically charged; the courts alone cannot be relied upon to revise property rights appropriately as society and values evolve; and even when rights are clearly defined, environmental problems often involve so many parties-sometimes millions of people-that FME-style bargaining among them is simply impractical.

    Coase, Ronald H. The Problem of Social Cost. Journal of Law and Economics 3(1): 1-44.

    David Roodman is a research fellow with the Center for Global Development and author of The Natural Wealth of Nations: Harnessing the Market for the Environment (W. W. Norton). This is an excerpt from a longer talk he gave at PERC’s 2003 conference for journalists. It is available at

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