Student,
I would agree environmental economics does seem a lacuna for libertarians. That being said, have you looked at Walter Block and Murray Rothbard's work on this in the early 90s, and if so what were your impressions? I personally think disincentives provided by the right to sue for environmental violations of property, would provide far more organic disincentives for pollution, while not removing consumer choice. As in the case of recycling or private landfill management, these costs would be imputed "backward" to onsumers, as opposed to the tragedy of commons situation that occurs with municipal waste management.
That being said I'm not sure how the above approach would tackle broader issues such as ozone depletion or global warming(assuming we don't dispute it).
"When the King is far the people are happy." Chinese proverb
For Alexander Zinoviev and the free market there is a shared delight:
"Where there are problems there is life."
abskebabs,
I agree that in a world of positive transaction costs prevent markets from allocating resources to their most valuable uses, liability rules might prove to be an efficient alternative (especially for local pollution issues). In that sense, I am largely in agreement with Coase in his seminal paper on Social Cost and summarized concisely diuring his Nobel Lecture:
If we move from a regime of zero transaction costs to one of positive transaction costs, what becomes immediately clear is the crucial importance of the legal system in this new world. I explained in The Problem of Social Cost that what are traded on the market are not, as is often supposed by economists, physical entities but the rights to perform certain actions and the rights which individuals possess are established by the legal system. While we can imagine in the hypothetical world of zero transaction costs that the parties to an exchange would negotiate to change any provision of the law which prevents them from taking whatever steps are required to increase the value of production, in the real world of positive transaction costs such a procedure would be extremely costly, and would make unprofitable, even where it was allowed, a great deal of such contracting around the law. Because of this, the rights which individuals possess, with their duties and privileges, will be, to a large extent what the law determines. As a result the legal system will have a profound effect on the working of the economic system and may in certain respects be said to control it. It is obviously desirable that these rights should be assigned to those who can use them most productively and with incentives that lead them to do so and that, to discover and maintain such a distribution of rights, the costs of their transference should be low, through clarity in the law and by making the legal requirements for such transfers less onerous. http://nobelprize.org/nobel_prizes/economics/laureates/1991/coase-lecture.html
If we move from a regime of zero transaction costs to one of positive transaction costs, what becomes immediately clear is the crucial importance of the legal system in this new world. I explained in The Problem of Social Cost that what are traded on the market are not, as is often supposed by economists, physical entities but the rights to perform certain actions and the rights which individuals possess are established by the legal system.
While we can imagine in the hypothetical world of zero transaction costs that the parties to an exchange would negotiate to change any provision of the law which prevents them from taking whatever steps are required to increase the value of production, in the real world of positive transaction costs such a procedure would be extremely costly, and would make unprofitable, even where it was allowed, a great deal of such contracting around the law. Because of this, the rights which individuals possess, with their duties and privileges, will be, to a large extent what the law determines.
As a result the legal system will have a profound effect on the working of the economic system and may in certain respects be said to control it. It is obviously desirable that these rights should be assigned to those who can use them most productively and with incentives that lead them to do so and that, to discover and maintain such a distribution of rights, the costs of their transference should be low, through clarity in the law and by making the legal requirements for such transfers less onerous. http://nobelprize.org/nobel_prizes/economics/laureates/1991/coase-lecture.html
Of course, the fact that many environmental problems are not solved in this fashion makes me wonder if there are costs I am not accounting for that make this approach less efficient than it first appears.
But I also agree that the approach may not be lead to efficient solutions for other types of problems like nutrient pollution or global warming. I think the problem in these cases is that it would be impossible to determine who was liable or really what the damages of any individual's "negligence" would be. In those situations, caps and trading systems might provide greater efficiency. Of course, such alternatives would not have the benefit of a feedback mechanism like common law would.
As far as Rothbard et al go, I kind of remember reading an article by him on Air Pollution. i don't remember any specifics, just the general feeling of not being impressed. What do you think about them? Was I missing something?
Ambition is a dream with a V8 engine - Elvis Presley
Hmm... I'm not as familiar with Coase's work as other Austrians but I don't think it's necessarily appropriate to conceive of liabillity rules as res extra commercium outside of the market, but rather as part of a well functioning market system based on the enforcement of private property rights. The case of soil erosion I think is possibly a bit more clear cut than global warming, even in the case of wide expanses of land. For instance, farmers could form loose, voluntary collective organisations akin to housing associations(I forget the precise term), to ensure that members who are sold and assigned certain property make use of it in such a way that doesn't damage the value(in this case in terms of soil fertility) of surrounding properties.
Also, the other thing I think that is relevant to take into consideration is that through the operation of the market, when finally given a free hand, solutions often are produced that could not even be conceived or conceptualised by economists beforehand. Indeed I often think the market system has done far more to influence the growth of knowledge in economics than anything to the opposite effect. I think this is worth keeping in mind with respect to the criticisms from others in this thread you referred to in your above post.
Hmm... I'm not as familiar with Coase's work as other Austrians but I don't think it's necessarily appropriate to conceive of liabillity rules as res extra commercium outside of the market, but rather as part of a well functioning market system based on the enforcement of private property rights.
Well, lets not get too loose with the term "market" or "market system". A market is one type of institution where individuals meet to exchange goods and services (or as coase says above, it is more accurate to say they exchange rights to use those goods). And we can ussually expect this institution to allocate resources to their highest value uses when transaction costs are low and propety rights can be well defined. Indeed, if this were always the case, we would NEVER need civil courts. Don't like the waste a paper factory is dumping into that river? Buy the rights from them!!
This is actually one of the insights of Coase's paper on the Problem of Social Cost. The other lesson to draw from that paper is that we don't actually live in that world of zero transactions costs. So we cannot expect markets to allocate rights efficienctly in every instance. So we need another institution to help this process. Coase and others would say that this is exactly why we have common law.
These are two seperate institutions and historically the latter institution has been housed in the state judicial system. So there is really nothing inherently "market" about it.
If you would like to read more about Coase (and liability v. property rules in general) in a reader friendly format, I recommend Chapter 1, 2, 5, and 19 of David Friedman's "Law's Order". http://www.daviddfriedman.com/Laws_Order_draft/laws_order_ToC.htm
Also, the other thing I think that is relevant to take into consideration is that through the operation of the market, when finally given a free hand, solutions often are produced that could not even be conceived or conceptualised by economists beforehand.
That is true, but it shouldn't be a blanket response to any and all questions raised regarding efficient resource allocation. And it should not be a satisfactory answer to a social scientist seeking to understand the insitituions around him. I know I personally want to understand exactly the market mechanisms that will lead "the" market to some outcomes and not others.
Of course, the fact that many environmental problems are not solved in this fashion makes me wonder if there are costs I am not accounting for that make this approach less efficient than it first appears. But I also agree that the approach may not be lead to efficient solutions for other types of problems like nutrient pollution or global warming. I think the problem in these cases is that it would be impossible to determine who was liable or really what the damages of any individual's "negligence" would be.
But I also agree that the approach may not be lead to efficient solutions for other types of problems like nutrient pollution or global warming. I think the problem in these cases is that it would be impossible to determine who was liable or really what the damages of any individual's "negligence" would be.
Environmental problems are not currently solved in this fashion due to the immunity of municipal water systems and a lack of ownership of the polluted property. First of all, several different water providers and disposal systems would likely exist in any large area. These private companies would be responsible for the quality of the water they're dumping (presumably upon another person's property--part of the Gulf of Mexico, say). If those disposal companies want to dispose of polluted water, they will have to meet the qualifications of whoever owns that part of the Gulf. The ease with which these pollutants can affect another person's property in the same Gulf ensures that once a "deadzone" spreads, the initial person who allowed the pollution would be liable.
The liability of the Gulf owner is a negative incentive for that owner to allow excessive pollutants into the water. That is a push on the water disposal company to clarify in their contracts with individuals that excessive pollutants will not be tolerated. As I am nowhere near familiar with water systems, I'm not certain how the private company could verify which individual is polluting--possibly some kind of monitoring system that determines that percentage of certain pollutants in disposed water.
^ this was discussed on the previous page. The bottom line is....
I'm not certain how the private company could verify which individual is polluting--possibly some kind of monitoring system that determines that percentage of certain pollutants in disposed water.
when you are able to solve that question for nutrient pollution you should let the world know. you'll make a fortune.
Student:when you are able to solve that question for nutrient pollution you should let the world know. you'll make a fortune.
Which is an argument for markets.
I'm pretty sure devices to test for water pollution have already been created, one would simply have to link it to a small computer/communication device that links up to the company's main system. The SmartMeter device for electricity already exists. The installation of the device, along with pipes, would be built into each individual's contract, just like a cable/TiVo box. If an excessively high concentration of a certain toxic substance is detected, it would alert the company who would then add a fee to the individual's bill for the additional cost of having to dispose of it in a different manner than draining into the Gulf. Too many violations (possibly by richer people who can afford to keep paying fees) and the company might just drop them as a customer. Or, if fee collection generates enough profits to justify keeping them as customers, that is yet more R&D money to, hell, find a way to dispose of toxic substances more cheaply and effectively.
The liability issue is a huge incentive for the company to plow back profits into R&D to make this detection system more efficient and effective. Am I missing something here? Is water pollutant detection prohibitively expensive?