Issues
Coasian bargaining
Some economists argue that, if industries internalized the costs of negative externalities, they would face an incentive to reduce them, perhaps even becoming enthusiastic about taking advantage of opportunities to improve profitability through lower costs. [2] Moreover, economists claim this would lead to the optimal balance between the marginal benefits of pursuing an activity and the marginal cost of its environmental consequences. One well-known means of internalizing a negative consequence is to establish a property right over some phenomenon formerly in the public domain.
The Coase theorem is one extreme version of this logic. If property rights are well defined and if there are no transaction costs, then market participants can negotiate to a solution that internalizes the externality. Moreover, this solution will not depend on who is allocated the property right. For example, a paper mill and a resort might be on the same lake. Suppose the benefits to the resort of a clean lake outweigh the benefits to the mill of being able to pollute. If the mill has the right to pollute, the resort will pay it not to. If the resort has the right to a pollution-free lake, it will keep that right, as the mill will be unable to compensate it for its pollution. However, critics have charged that the "theorem" attributed to Coase is of extremely limited practicability because of its assumptions, including no transaction costs, and is ill-suited to real world externalities which have high bargaining costs due to many factors. [3]
More generally, free-market environmentalists argue that transaction costs "count" as real costs. If the cost of re-allocating property rights exceeds the benefits of doing so, then it is actually optimal to stay in the status quo. This means the initial allocation of property rights is not neutral and also that it has important implications for efficiency. Nevertheless, given the existing property rights regime, costly changes to it are not necessarily efficient, even if in hindsight an alternative regime would have been better. [4] But if there are opportunities for property rights to evolve, entrepreneurs can find them to create new wealth. [5]
Geolibertarianism
Libertarian Georgists (or Geolibertarians) maintain a strong essential commitment to free markets but reject the Coasian solution in favor of land value taxation, wherein the economic rent of land is collected by the community and either equally distributed to adult residents in the form of universal basic income, called the citizen's dividend , or used to fund necessary functions of a minimal government. Under the LVT system, only landholders are taxed and on the basis of the market value of the earth in its unimproved state, that is to say, apart from the value of any structures or products of human labor. Geolibertarians regard the LVT as just compensation for a legal land title granting exclusive access to that which logically precedes and generates private capital, whose supply is inelastic, which properly belongs to all, and to which all have an equal right because it is vital to human existence and economic activity—the ground itself—and thus consider land value capture both morally imperative and a natural source of revenue.
Taxation of land values has been advocated by many classical economists and theorists of classical liberalism, but this approach was popularized as the Single Tax by political economist and public intellectual Henry George in the late 19th century. Geolibertarians generally also support Pigouvian taxes on pollution and fees as compensation for natural resource extraction, negative externalities which adversely affect land values in particular. Many argue the monopolization of land promotes idle land speculation, real estate bubbles, urban sprawl and artificially severe wealth inequality, while violating the Lockean proviso and denying others rightful access to the earth. [6]
Anarcho-capitalism
Rothbardian anarcho-capitalists also reject the proposed Coasian solution as making invalid assumptions about the purely subjective notion of costs being measurable in monetary terms, and also of making unexamined and invalid value judgments (i.e., ethical judgments). (Wayback Machine PDF) The Rothbardians' solution is to recognize individuals' Lockean property rights, of which the Rothbardians maintain that Wertfreiheit (i.e., value-free) economic analysis demonstrates that this arrangement necessarily maximizes social utility. (Toward a Reconstruction of Utility and Welfare Economics PDF)
Murray Rothbard himself believed the term "free-market environmentalism" to be oxymoronic. On his view the unimproved natural environment, undeveloped and unowned, can in no sense be considered property until it is transformed via Lockean homesteading. Unlike geolibertarians and many classical liberals, however, Rothbard emphatically rejected Locke's proviso as inconsistent with his theory of property acquisition. Against environmentalism Rothbard said: "The problem is that environmentalists are not interested in efficiency or preserving private property....The environmentalists are acolytes and prisoners of a monstrous literally anti-human philosophy. They despise and condemn the human race, which by its very nature and in contrast to other creatures, changes and transforms the environment instead of being passively subjected to it....I have come to the conclusion that a 'free-market environmentalist' is an oxymoron. Scratch one and you get...an environmentalist." [7]
Markets and ecosystems as spontaneous orders
Recent arguments in the academic literature have used Friedrich Hayek's concept of a spontaneous order to defend a broadly non-interventionist environmental policy. [8] Hayek originally used the concept of a spontaneous order to argue against government intervention in the market. [9] Like the market, ecosystems contain complex networks of information, involve an ongoing dynamic process, contain orders within orders, and the entire system operates without being directed by a conscious mind. [10] On this analysis, species takes the place of price as a visible element of the system formed by a complex set of largely unknowable elements. Human ignorance about the countless interactions between the organisms of an ecosystem limits our ability to manipulate nature. Since humans rely on the ecosystem to sustain themselves, it is argued that we have an obligation to not disrupt such systems. This analysis of ecosystems as spontaneous orders does not rely on markets qualifying as spontaneous orders. As such, one need not endorse Hayek's analysis of markets to endorse ecosystems as spontaneous orders.
Others
Proponents of free-market environmentalism use the example of the recent destruction of the once prosperous Grand Banks fishery off Newfoundland. Once one of the world's most abundant fisheries, it has been almost completely depleted of fish. Those primarily responsible were large "factory-fishing" enterprises driven by the imperative to realize profits in a competitive global market. [11] It is contended that if the fishery had been owned by a single entity, the owner would have had an interest in keeping a renewable supply of fish to maintain profits over the long term. The owner would thus have charged high fees to fish in the area, sharply reducing how many fish were caught. The owner also would have closely enforced rules on not catching young fish. Instead commercial ships from around the world raced to get the fish out of the water before competitors could, including catching fish that had not yet reproduced.
Another example is in the 19th century early gold miners in California developed a trade in rights to draw from water courses based on the doctrine of prior appropriation. This was curtailed in 1902 by the Newlands Reclamation Act which introduced subsidies for irrigation projects. This had the effect of sending a signal to farmers that water was inexpensive and abundant, leading to uneconomic use of a scarce resource. Increasing difficulties in meeting demand for water in the western United States have been blamed on the continuing establishment of governmental control and a return to tradable property rights has been proposed.
Anarcho-capitalism is an anti-statist, libertarian political philosophy and economic theory that seeks to abolish centralized states in favor of stateless societies with systems of private property enforced by private agencies, the non-aggression principle, free markets and self-ownership, which extends the concept to include control of private property as part of the self. In the absence of statute, anarcho-capitalists hold that society tends to contractually self-regulate and civilize through participation in the free market, which they describe as a voluntary society involving the voluntary exchange of goods and services. In a theoretical anarcho-capitalist society, the system of private property would still exist and be enforced by private defense agencies and/or insurance companies selected by customers, which would operate competitively in a market and fulfill the roles of courts and the police.
Environmental economics is a sub-field of economics concerned with environmental issues. It has become a widely studied subject due to growing environmental concerns in the twenty-first century. Environmental economics "undertakes theoretical or empirical studies of the economic effects of national or local environmental policies around the world. ... Particular issues include the costs and benefits of alternative environmental policies to deal with air pollution, water quality, toxic substances, solid waste, and global warming."
In the social sciences, the free-rider problem is a type of market failure that occurs when those who benefit from resources, public goods and common pool resources do not pay for them or under-pay. Examples of such goods are public roads or public libraries or services or other goods of a communal nature. Free riders are a problem for common pool resources because they may overuse it by not paying for the good. Consequently, the common pool resource may be under-produced, overused, or degraded. Additionally, it has been shown that despite evidence that people tend to be cooperative by nature, the presence of free-riders causes cooperation to deteriorate, perpetuating the free-rider problem.
In economics, an externality or external cost is an indirect cost or benefit to an uninvolved third party that arises as an effect of another party's activity. Externalities can be considered as unpriced goods involved in either consumer or producer market transactions. Air pollution from motor vehicles is one example. The cost of air pollution to society is not paid by either the producers or users of motorized transport to the rest of society. Water pollution from mills and factories is another example. All consumers are made worse off by pollution but are not compensated by the market for this damage. A positive externality is when an individual's consumption in a market increases the well-being of others, but the individual does not charge the third party for the benefit. The third party is essentially getting a free product. An example of this might be the apartment above a bakery receiving the benefit of enjoyment from smelling fresh pastries every morning. The people who live in the apartment do not compensate the bakery for this benefit.
In neoclassical economics, market failure is a situation in which the allocation of goods and services by a free market is not Pareto efficient, often leading to a net loss of economic value. Market failures can be viewed as scenarios where individuals' pursuit of pure self-interest leads to results that are not efficient – that can be improved upon from the societal point of view. The first known use of the term by economists was in 1958, but the concept has been traced back to the Victorian philosopher Henry Sidgwick. Market failures are often associated with public goods, time-inconsistent preferences, information asymmetries, non-competitive markets, principal–agent problems, or externalities.
Ecological economics, bioeconomics, ecolonomy, eco-economics, or ecol-econ is both a transdisciplinary and an interdisciplinary field of academic research addressing the interdependence and coevolution of human economies and natural ecosystems, both intertemporally and spatially. By treating the economy as a subsystem of Earth's larger ecosystem, and by emphasizing the preservation of natural capital, the field of ecological economics is differentiated from environmental economics, which is the mainstream economic analysis of the environment. One survey of German economists found that ecological and environmental economics are different schools of economic thought, with ecological economists emphasizing strong sustainability and rejecting the proposition that physical (human-made) capital can substitute for natural capital.
In law and economics, the Coase theorem describes the economic efficiency of an economic allocation or outcome in the presence of externalities. The theorem is significant because, if true, the conclusion is that it is possible for private individuals to make choices that can solve the problem of market externalities. The theorem states that if the provision of a good or service results in an externality and trade in that good or service is possible, then bargaining will lead to a Pareto efficient outcome regardless of the initial allocation of property. A key condition for this outcome is that there are sufficiently low transaction costs in the bargaining and exchange process. This 'theorem' is commonly attributed to Nobel Prize laureate Ronald Coase.
A Pigouvian tax is a tax on any market activity that generates negative externalities. The tax is normally set by the government to correct an undesirable or inefficient market outcome and does so by being set equal to the external marginal cost of the negative externalities. In the presence of negative externalities, social cost includes private cost and external cost caused by negative externalities. This means the social cost of a market activity is not covered by the private cost of the activity. In such a case, the market outcome is not efficient and may lead to over-consumption of the product. Often-cited examples of negative externalities are environmental pollution and increased public healthcare costs associated with tobacco and sugary drink consumption.
Geolibertarianism is a political and economic ideology that integrates libertarianism with Georgism. It favors a taxation system based on income derived from land and natural resources instead of on labor, coupled with a minimalist model of government, as in libertarianism. The term was coined by the late economist Fred Foldvary in 1981.
The wise use movement in the United States is a loose-knit coalition of groups promoting the expansion of private property rights and reduction of government regulation of publicly held property. This includes advocacy of expanded use by commercial and public interests, seeking increased access to public lands, and often opposition to government intervention. Wise use proponents describe human use of the environment as "stewardship of the land, the water and the air" for the benefit of human beings. The wise use movement arose from opposition to the mainstream environmental movement, claiming it to be radical.
Eco-capitalism, also known as environmental capitalism or (sometimes) green capitalism, is the view that capital exists in nature as "natural capital" on which all wealth depends. Therefore, governments should use market-based policy-instruments to resolve environmental problems.
The Foundation for Research on Economics and the Environment (FREE), based in Gallatin Gateway, Montana, is an American think tank that promotes free-market environmentalism. FREE emphasizes reliance on market mechanisms and private property rights, rather than on regulation, for protection of the environment. Its chairperson, John Baden, stresses decentralization: a shift of control from what he calls "green platonic despots" in the federal government to "local interests," including environmental groups. Citing conservation efforts such as those involving the Rocky Mountain Elk, Pheasants Forever, and Trout Unlimited, Baden asserts that the ideas FREE promotes have become "the norm among progressive, intellectually honest and successful environmentalists." FREE's mission is to attract and work with conservationists, conservatives, and classical liberals who treasure responsible liberty, sustainable ecology, and modest prosperity.
The non-aggression principle (NAP), also called the non-aggression axiom, is the fundamental principle of morality that states that any person is permitted do everything with his property except aggression, defined as the initiation of forceful action, which is in turn defined as 'the application or threat of' 'physical interference or fraud ', any of which without consent. The principle is also called the non-initiation of force. The principle incorporates universal enforcability.
Environmental mitigation, compensatory mitigation, or mitigation banking, are terms used primarily by the United States government and the related environmental industry to describe projects or programs intended to offset known impacts to an existing historic or natural resource such as a stream, wetland, endangered species, archeological site, paleontological site or historic structure. Environmental mitigation is typically a part of an environmental crediting system established by governing bodies which involves allocating debits and credits. Debits occur in situations where a natural resource has been destroyed or severely impaired and credits are given in situations where a natural resource has been deemed to be improved or preserved. Therefore, when an entity such as a business or individual has a "debit" they are required to purchase a "credit". In some cases credits are bought from "mitigation banks" which are large mitigation projects established to provide credit to multiple parties in advance of development when such compensation cannot be achieved at the development site or is not seen as beneficial to the environment. Crediting systems can allow credit to be generated in different ways. For example, in the United States, projects are valued based on what the intentions of the project are which may be to preserve, enhance, restore or create (PERC) a natural resource.
Environmental policy is the commitment of an organization or government to the laws, regulations, and other policy mechanisms concerning environmental issues. These issues generally include air and water pollution, waste management, ecosystem management, maintenance of biodiversity, the management of natural resources, wildlife and endangered species. For example, concerning environmental policy, the implementation of an eco-energy-oriented policy at a global level to address the issues of global warming and climate changes could be addressed. Policies concerning energy or regulation of toxic substances including pesticides and many types of industrial waste are part of the topic of environmental policy. This policy can be deliberately taken to influence human activities and thereby prevent undesirable effects on the biophysical environment and natural resources, as well as to make sure that changes in the environment do not have unacceptable effects on humans.
A private defense agency (PDA) is a theoretical enterprise which would provide personal protection and military defense services to individuals who would pay for its services. PDAs are advocated in anarcho-capitalism as a way of enforcing the system of private property.
Property rights are constructs in economics for determining how a resource or economic good is used and owned, which have developed over ancient and modern history, from Abrahamic law to Article 17 of the Universal Declaration of Human Rights. Resources can be owned by individuals, associations, collectives, or governments.
Libertarianism is variously defined by sources as there is no general consensus among scholars on the definition nor on how one should use the term as a historical category. Scholars generally agree that libertarianism refers to the group of political philosophies which emphasize freedom, individual liberty and voluntary association. Libertarians generally advocate a society with little or no government power.
Payments for ecosystem services (PES), also known as payments for environmental services, are incentives offered to farmers or landowners in exchange for managing their land to provide some sort of ecological service. They have been defined as "a transparent system for the additional provision of environmental services through conditional payments to voluntary providers". These programmes promote the conservation of natural resources in the marketplace.
Catch share is a fishery management system that allocates a secure privilege to harvest a specific area or percentage of a fishery's total catch to individuals, communities, or associations. Examples of catch shares are individual transferable quota (ITQs), individual fishing quota (IFQs), territorial use rights for fishing (TURFs), limited access privileges (LAPs), sectors, and dedicated access privileges (DAPs).
