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The Economics of Environmental Problems

Today most economists look at environmental problems from a property rights and externalities standpoint.  This is completely different from many environmental groups.  They see environmental problems as social abuses that must be corrected post haste.  Consequently if these problems are not corrected through government regulation their will be dire consequences.

The problem with the environment is that most of the time it is a public good.  Public goods and common goods by their very nature are usually abused.  For example open range land is often over-grazed because ranchers know that if their cattle do not eat the grass someone elses will.  The air we breathe can be considered a public good because it is consumed by everyone and owned by no one.  The philosophy that applies to open range land can be applied to the air we breathe.  A firm can pollute the air and make it less valuable for everyone else. 

Externalities are side effects of the actions of a consumer or producer on some other entity. When a firm pollutes the air it is creating a negative externality.  The United States government has done a good job of punishing negative externalities and a bad one of rewarding positive externalities (government does give a one time 2,000 dollar tax credit to those who own very fuel efficient cars).          

The key to solving problems with public goods is property rights.  If public goods were assigned to an owner who derived income from using resources without completely depleting them, these goods would be protected and the owner would bear the cost of upkeep.  A local example exists in the form of the Grand Staircase-Escalante National Monument.  When it was created in 1996 local residents in Garfield and Kane Counties strongly objected, due to the fact that they would not be able to use its vast resources for their benefit.  However because it was a public good it was almost certainly abused.  If the extraction industries had been allowed to mine and deforest the area, its value as pristine wilderness would have been lost.  Thus the government took control.  The government has an interest in making the area profitable as well as protecting the wilderness value of the land.   

The economic data shows that Utah's Garfield and Kane Counties have at the very least not been hurt by the creation of the park.  The economies of these two counties are largely based on professional and service industries rather than extraction based firms.  The boost to the professional and service industries from park visitors would most definitely outweigh the loss of benefits to the extraction industries. Extraction industry jobs have been declining for thirty years in both counties.  The citizens of Garfield and Kane counties were able to protect Grand Staircase-Escalante and derive benefits from it by properly allocating property rights.

In conclusion, the proper allocation of property rights and the proper rewarding of positive externalities is the most efficient way to protect the environment.  When property rights are not allocated correctly the interest of the public will not fall in line with the use of the property, be it the government or be it a private entity.