There is a lot of confusion over the meaning of free markets and property rights, for a variety of reasons. The following are some additional clarifications for all interested environmentalists (please see earlier posts for some background):

1. When economists speak of property rights, they are essentially speaking of ownership rights. Areas of the world where there are no clearly defined ownership rights are typically referred to as “open access” resources — anyone can use them. The majority of the world’s fisheries, the atmosphere, much of the world’s largest forests, and much of the world’s water resources are open access. The “tragedy of the commons” is almost without fail the result of open-access regimes. In the absence of ownership rights, there is virtually no way to limit exploitation of resources; once some entity owns a resource, they can restrict use of that resource.

For this reason economists advocate creating ownership/property rights for the resources that are currently used as open access. ITQs in fisheries are a perfect example of creating a property/ownership right over an open-access resource; a maximum quantity of fish catch is established (hopefully ecologically optimum or near it), and this quota is divided among fishermen. Only those who own the right to a portion of the quota are allowed to fish. If properly enforced, fish levels will be sustainable.

2. Economists on the whole advocate private ownership of productive resources because private entities, driven by competition and the profit motive, are almost always more efficient than state-run enterprises. In addition, governments are easily “captured” by special interests (e.g., the national forests by logging and mining companies). However, there are areas where A. state-run enterprises have proven effective (e.g. the Veteran’s Administration), B. market-failure dictates that the government should play a stronger role (e.g., health care for the poor), and C. in the case of natural monopolies (e.g. telecom, sewage, water), a hybrid of government regulation and private enterprise is often optimal.

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Most economists acknowledge that the government may also have a role in holding land in trust for society; our national parks and national forests are examples of state-owned property rights. In the case of the national parks, I think the consensus is that the government does a pretty good job of management (better than a private company, maybe, maybe not). The national forests are a different story, as these are plagued by subsidies and corruption.

Since most species of animals and plants in the U.S. exist on private land, there is no doubt that mechanisms that involve private property rights, such as conservation easements, outright purchases of land by conservation organizations (e.g. the Nature Conservancy), and government incentives for private owners must be a large part of our conservation efforts.

3. Property rights must rest on a strong central government that has the power to enforce these rights. Economists are some of the strongest advocates of government power in the realm of contracts and the legal bureaucracy to back up the system of ownership rights. One cannot trade or restrict access to what one does not hold the rights to in a free market system.

Environmentalists need to remember that NGOs are private entities, and most of the work of international conservation organizations rests on their ability to obtain the rights for natural habitats in order to protect them. In addition, any climate change regime will undoubtedly rest on some absolute limits of CO2 emissions and tradable ownership rights over portions of the absolute quota. In fact, most policies aimed at conservation rely on the transfer of some form of property rights over the resources in question, which is why economists put so much emphasis on the establishment of transparent property rights in the first place.

Reasonable people can disagree over the extent to which private entities should hold the rights to the world’s environmental resources, but the discussion should always be based on a serious analysis of the different outcomes, incentives, and opportunity costs, not on purely ideological grounds. Whereas many environmentalists accuse of economists of recommending a one-size-fits-all free-market approach, economic theory is actually quite subtle on the specifics of resource conservation, while many environmentalists seem to respond in a knee-jerk fashion to anything that happens to include the words “ownership,” “property rights,” or “free market."

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