More on the environment and property rights

by Sam Selikoff August 30, 2010

Here’s another email I wrote in response to concerns about a firm in the free market dumping waste:

There will never be utopia on this side of Eden. The question is, which system minimizes waste, damage, etc. while protecting human rights.

In a free market, plots of the ocean could be owned, just as plots of the earth’s surface are. The way somebody comes to own land is to ‘homestead’ it, by ‘mixing their labor’ with it. Since government has made this illegal with respect to certain lakes, oceans, etc. there has been little entrepreneurial creativity in this area (check out, and it is hard to know exactly how people would section off parts of the ocean they have homesteaded (buoys?). But let’s just assume they have.

Well, now that people can own parts of the ocean, they have an economic incentive to preserve it, since they can realize future gains from the resource. In econ lingo, this is called ‘maintaining the capital value’ [of the asset]. It’s the same thing with you and your house. It’s certainly possible that you could drive your car through your house, destroy the grass and trees, pour oil in the yard and litter the place with plastic, but this would have serious adverse effects on the property value. That is, you face a large opportunity cost (implicit, but nonetheless real) for environmentally destructive behavior. This is a big reason why we (largely) see people behaving in ways that preserve rather than destroy their property. We would expect them to do this; it is in their economic interest.

It is an equivalent story with respect to oceans. It is true that people or businesses could dump waste into part of the ocean, but the fact that it can now be owned means there is an opportunity cost of doing so. This opportunity cost is whatever future gains someone could realize by owning that part of the ocean (running a port, fishing, recreation, etc.). Ownership thus creates an economic incentive to behave in an environmentally friendly way. Note that other incentives people have for behaving environmentally (your love of gardening) are still wholly present in a world of private ownership.

It is interesting to point out that examples abound of governments destroying the environment. Problems of over-fishing, over-logging, and over-mining are symptoms of this exact problem we’ve been discussing. The government owns, say, a forest, and leases it out to loggers. If you are a logger, and have bought a license from the government to log for a month, what incentives do you face? You have access to the limited resource for a short period of time, and there are also other loggers who will be buying similar permits. All arrows point to logging as many trees as you can as quickly as possible.

If you owned the forest [the capital asset], however, you now care about the future. This is because you can realize future (monetary and non-monetary) gains from your asset. So, while it’s still possible that you could log all the trees as fast as you could, doing so would destroy the forest and the capital value of the forest along with it. Instead, you now face a material incentive to log at a rate which allows new trees to grow and the forest to be maintained, thereby giving you cash flows going on into the future. This is another great example of the Invisible Hand and how it promotes cooperation among all of mankind without central planning.

Contrast this with politicians who are in office for four years and have every incentive to spend as much money as possible on whatever they can! Whenever you hear people talking about businessmen being short-sighted and government having our long-term interests in mind, run for your life.


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