Donald R. Wentworth, Mark C. Schug and John S. Morton
The objective of environmental policy is to achieve a better environment. And, since our resources are scarce, we would like to achieve this goal at a cost that we can afford to pay. Markets and private property rights are crucial in this respect because they can create incentives for improving environmental quality while reducing the cost of achieving it.
Consider the following situations:
What do the three situations have in common? Each involves a wild plant or animal, not owned by anyone. The resources are valuable in the sense that people are rewarded only for harvesting these plants or animals, but not for working to prevent their harvest. The intuitively attractive solution is to prevent commercial activity involving this animal or plant. The rationale is that marketplace opportunities will cause human beings to "exploit" these resources until they are extinct. This position is strongly opposed and resented by loggers, ivory traders, and fishing interests.
Compare that coercive solution with the methods used in the these solutions:
What do these situations have in common? First, they are marked by a shift from species depletion to relative abundance. Second, chickens, buffalo, and trees are all actively harvested and sold in commercial markets. Third, these resources are owned as private property. The rights to use these resources are enforced legally (enforceability), transferred to others (transferability), and divided into large or small parts for use (divisibility). Finally, few serious social conflicts exist between people who want to preserve these species and people who want to use the species to make a living.
The bigleaf mahogany tree in Brazil, the elephant in southeastern Africa, and the salmon in the Pacific Northwest are in danger. Midwestern forests, the buffalo, and chickens are not in danger. Why? An economic perspective can help explain this outcome. Relatively abundant resources tend to be those that are privately owned and sold in markets. Resources being depleted tend not to be privately owned and often may not be legally sold in markets. If we are serious about preserving threatened resources and depleted stocks of plants and animals, we would be wise to consider market policies. Markets and private ownership can be powerful allies in the campaign to preserve the environment.
The Incentive to Preserve
One issue that has caused a bitter debate is the preservation of mahogany forests. The following two statements are representative of positions in the debate:
The battle we have fought and are still fighting for the forests is part of the eternal conflict between right and wrong, and we cannot expect to see the end of it.
(John Muir, writing in favor of banning forest logging)
A boycott is a bad idea. We should be buying tropical forest timber so that it remains valuable. If there's no market for wood, the forests will be mowed down and the land turned to agriculture.
(Dr. Nick Brokaw, a tropical forest ecologist at the Manomet Observatory for Conservation Sciences, quoted in the June 4, 1996 issue of The New York Times, "Advocates of Sustainable Mahogany Harvests Counter Boycott.")
Notice the difference in tone in the two statements-which, by the way, are not contradictory. The statement by Muir makes the environment a moral issue of right and wrong. We are invited to feel good, even righteous, if we are on John Muir's side, and by implication we ought to feel immoral if we disagree with him. No one likes to be portrayed as the villain. But neither reaction changes the evidence that forests are being depleted no matter who is right or wrong. There is more to the issue than morality. Accusations of greed, worship of Mother Earth, and asking people to "care" are not sufficient to achieve the environmental goal of reducing resource depletion.
What is different in the statement by Brokaw? Brokaw recognizes the problem of scarcity. Resources have more than one valuable use. How people choose to use precious resources and what incentives influence those choices are useful questions to answer as people propose environmental policies. It is this problem of choice and incentives that more individuals, policy makers, and educational leaders are now attuned to as they address environmental policies and educational curriculum.
Why is the transition to thinking about choices and incentives so difficult? First, it requires that people give up a romantic dream-that if no one owns the environment and everyone gets to use it equally, then the environment will be in harmony. This view might be described as a romantic attachment to the idea of the "commons." In fact, parks, wilderness areas, fishing holes, lakes and pastures that are open to use by everybody tend to be over-used and abused. The incentives favor only people who use and harvest the commons. They do not reward the people who conserve the commons or limit its use. No fisher is rewarded for letting a salmon pass without netting it. No rancher is rewarded for not grazing on common lands. This problem has nothing to do with the morality of the individuals involved. They may be greedy or generous individuals, but the commons will be overused regardless of that when such a set of incentives is operating. The "commons" ideology fails because it does not address the problem of scarcity.
Second, people must expand their understanding of the concept of private property. Private property does far more than provide venues for commercial activity, for the benefit of people with money. Private property also promotes conservation and can be a valuable asset for environmental protection.
Consider the following. A group is formed to save the salmon. It discovers that an estimated 1 million salmon currently exist in fishable waters. An estimated 100,000 salmon are harvested each year. People in the group ask how long it will take for the salmon population to be depleted. The answer seems to be, "in ten years or less." The same group, while doing its research, also learns that an estimated 500 million chickens currently exist in the United States. An estimated 400 million chickens are harvested every year. Why does the question, "How long will it take for chickens to become extinct?" seem like a stupid question, while the salmon question does not?
The answer is that chickens are privately owned, and no chicken farmer would allow the flock to be overharvested unless that person no longer wanted to be a chicken farmer. The reproduction rate will equal or exceed the harvest rate of that flock. Chicken farmers, be they greedy or generous, have every incentive to preserve this species.
In contrast to the chickens, wild salmon are not privately owned. People acquire ownership rights only if they catch the salmon and kill them. They receive no return if they use their scarce resources to help produce more salmon. They only receive a return for harvesting the salmon. Therefore, it is no surprise that salmon fishers invest in boats, radar devices, and better nets, and that they do not invest in better salmon spawning areas, free-flowing rivers, and river clean-up equipment.
But could property rights be assigned for ownership of wild things? Creative policies are being developed world-wide to accomplish this task. Some fisheries are assigning catch limits and auctioning these limits to fishers. With such an arrangement, if you purchase the right to catch 200,000 pounds of fish, you could do so at any time during the year, or you could sell this right or part of it to other fishers. By contrast, in most fisheries today, the length of the fishing season is limited, but the number of allowable fish caught is not. Fishers invest heavily in their boats, harvest equipment, and sonar finding equipment so they can catch as many fish as possible. Each year the harvest tends to exceed the Fish and Wild Life estimates. Depletion of the salmon population results. Setting a catch limit would change all the incentives and allow the salmon population to recover.
Conservation groups could use ownership rules and bid on valuable land, trees, and other species. If they gained ownership through bids at auctions, they could choose not to harvest their resources. The Audubon Society has already done this in the Louisiana bayous. The Nature Conservatory is pursuing similar plans. In England much of the land most highly prized by hikers, bird watchers, and other outdoor enthusiasts is privately owned by the National Trust.
What is the important point here? First, creating more "common" areas of land or water where no one has ownership rights will not help us conserve depleted resources and threatened species no matter how earnestly we want the solution to work. Second, markets and property ownership can make precious resources and species more valuable and encourage individuals to preserve them. Markets and private property will not solve every environmental problem, but they are valuable aids in the cause of environmental conservation and should be embraced as allies, not adversaries in the struggle to preserve the environment.
The teaching ideas that follow illustrate how property rights and private markets can create incentives that encourage the wise use of resources and improvement of the environment. The activities sound simple, and they are. Nonetheless, they illustrate a powerful idea regarding our environmental future. The fair allocation of property rights can promote voluntary actions that allocate scarce resources positively and in a way that promotes social harmony.
How can the new perspective on environmental protection be taught in a classroom? One technique is to have students display their own behavior in the classroom, analyze it, and compare it to their environmental studies content. (These activities are adapted from Economics and the Environment: Eco Detectives, published in 1997 by the National Council on Economic Education.)
ONE: Order a pizza for the class. Make no ownership rules. Let the students pass it around and take their share as it reaches them. Usually the pizza will be consumed before everyone has a piece. Ask students how this could be avoided. Discuss what would happen if everyone had his or her pieces identified before the pizza was passed around. Explain further that the students may eat their pieces, trade their pieces, or sell their pieces. Both situations involve scarcity, but in the second situation the pizza will be used in such a way that everyone will either get a piece or get compensation. Scarcity exists, but the pizza is better used and less social conflict occurs.
TWO: Put eight paper clips on a large piece of cardboard on a table in front of the classroom. Ask for eight volunteers. Ask them to stand around the table. They have the opportunity to gain income by collecting paper clips in two different rounds. In Round 1, they will get 5 cents for picking up a paper clip. If they leave the paper clips for Round 2, they will get 10 cents for every paper clip they pick up. Give them 30 seconds in each round to do their work. Usually, one person will quickly grab all eight paper clips in the first round.
Then turn over the cardboard piece. On the other side you have drawn eight squares. Place a paper clip in each square. Assign ownership to each square. One person gets one square. Then give the volunteers the same opportunity as before: 5 cents if they pick up the paper clip in Round 1, 10 cents if they pick up the paper clip in Round 2. Most students will wait for the second round to pick up their paper clips. If anyone picks up a paper clip not on his property (either in Round 1 or 2), make him return it and fine him 5 cents for her action. This exercise demonstrates how ownership encourages people to consider both current returns and future returns. When that is the case the resource is not used as quickly as it otherwise would be.
Mark C. Schug, John S. Morton and Donald R. Wentworth, Economics and the Environment: Eco Detectives. New York: National Council on Economic Education, 1997.
Donald R. Wentworth is Professor of Economics at Pacific Lutheran University, Tacoma, Washington. Mark C. Schug is Professor of Curriculum and Instruction at the University of Wisconsin-Milwaukee. John S. Morton is President of the Arizona Council on Economic Education.