The Austrian school of economics
has experienced a renaissance in recent decades. Its adherents have put
their distinctive paradigm to work in nearly every field of economics.
This post is the first of two that will examine the Austrian approach to
environmental economics, with special emphasis on the problem of air
pollution.Pollution as a Coordination Problem
A distinctive feature of the Austrian approach is the idea
that environmental issues are problems of coordination. As Roy
Cordato puts it, they are “not about harming the environment, but
about human conflict over the use of physical resources.” The Austrian paradigm
differs in that regard from that of the neoclassical school, which looks at
environmental problems in terms of efficiency and maximization of social
welfare, and from that of ecological economics, which frames the issues as
conflicts between humans and nature.
Just whose actions require coordination in the Austrian
view? Consider a typical scenario, one in which emissions of SO2 and NOx from
power plants in the American Midwest mix in the atmosphere to form acid rain,
which harms people and property downwind, along the Eastern seaboard. Four
groups of actors play central roles in this scenario:
- The
power plants themselves
- The
downwind victims of the pollution they emit
- The
suppliers of fuels and technology for the plants
- Customers
who buy the electricity the plants generate
The actors in each group have their own plans, some of which are not consistent with others. Power plants want to use the atmosphere for waste disposal. Downwind residents want to breathe the air and to protect forests, lakes, buildings, and scenic vistas from the harmful effects of acid depositions. Suppliers to the power industry are competing with one another to persuade the plants to burn more coal, oil, or natural gas; to buy pollution abatement equipment; or to buy wind generators and solar panels. Customers, not all of whom live downwind from the power plants, want cheap, reliable electricity.
There are many fronts for coordination among these actors.
Polluters need to take abatement measures that recognize the interests of those
living downwind. They need to coordinate with one another so that cutbacks
occur where abatement costs are lowest. Suppliers of fuel and generating
equipment need to offer cleaner options. Customers need to contribute by
conserving on electricity. Even after all appropriate abatement measures are in
place, people living downwind may need to adapt to the remaining pollution. For
example, farmers may need to consider what crops are best to plant, engineers may
need to design buildings that resist damage from any remaining acid rain, and
so on. Actions by these four groups will have secondary ripple effects that
spread to other regions and other industries.
In short, the coordination needed to deal with a large-scale
pollution problem like acid rain is inherently complex. What kind of mechanisms
could facilitate it?
Property rights and tort law as coordinating mechanisms
Austrians identify one mechanism in particular as the key to
promoting environmental coordination. Cordato puts
it this way: “It is logical that both the origin and the solution of the
problem is to be found in a lack of clearly defined or enforced property
rights.”
Cordato and other recent Austrian writers draw heavily on a
seminal 1982 paper by Murray
Rothbard. Rothbard sees air pollution is an invasion of the rights of
downwind property owners—in legal terms, a tort of trespass or nuisance.
Pollution victims, he says, have the right to seek redress under common law.
That characterization of the problem might seem to place
Rothbard firmly on the side of pollution victims, but not so fast. As he goes
on, he enumerates a daunting list of procedural hurdles that plaintiffs would
have to overcome to prevail in court.
The first is that, in Rothbard’s view, not all emissions
violate property rights. Specifically, people have a right to emit quantities
of pollution that are small enough to do no perceptible harm, especially when
the surrounding airspace is empty or sparsely populated. Once a person or
company establishes a level of emissions, continuing that level becomes a
permanent right under the principle of “first use” or “homesteading.”
People who later move to the area have no right to object to the first user’s
emissions, since they have “come to the nuisance.” The price they pay for their
property will reflect the existing level of pollution, so they have no grounds
to claim further damages.
For example, imagine that a homesteader builds a cabin in an
isolated mountain valley and heats it with a wood stove. Later, a ski resort
brings in new residents and the valley becomes densely populated. Newcomers no
longer have the right to install wood stoves, since the pollution would become
intolerable, but they still have no legitimate grounds object to smoke from the
first cabin, which was there when they arrived. The original homesteader, in
effect, has a permanent emission easement.
The legal implication is that anyone who brings a lawsuit
for trespass or nuisance must first prove that the polluter does not have a
valid emission easement established by first use. But that is only the
beginning of the plaintiff’s difficulties.
Rothbard next introduces a set of stringent standards for
proving causation. For example, if your crops are damaged by acid rain, you
would have to show that they were harmed not just by acid rain in general, but
by pollution from source A, not source B. You would also bear the burden of
proving that the some other factor, say a fungus, did not cause or aggravate
the damage. What is more, you would have to prove causation beyond a reasonable
doubt, not just by the preponderance of evidence. Rothbard approvingly quotes a
legal authority who acknowledges that where there are many sources of pollution
and many remote victims, establishing causation “is almost always an impossible
task.”
Making it even harder to bring a successful suit, Rothbard
sets strict standards for joinder of defendants and plaintiffs. You would have
to sue each polluter separately unless you could prove that they acted in
concert. Your ability to unite with other victims in a class action would be
limited narrowly to cases where all plaintiffs suffered similar damage and
actively joined the suit.
In short, as Rothbard himself acknowledges, there is no
realistic chance that plaintiffs could prevail in a pollution suit where there
are many sources and many victims. Even so, he says, it would be wrong to seek
a solution “at the expense of throwing out proper standards of proof, and conferring
unjust special privileges on plaintiffs and special burdens on defendants.”
Instead, if pollution victims cannot surmount the legal obstacles, then victims
of pollution “must assent uncomplainingly.”
None of this means that the property rights approach to
environmental issues is never helpful. There are many cases in which it leads
to just the kind of improved coordination that Austrians look for. As I have
discussed elsewhere,
organizations like the Nature Conservancy and Ducks Unlimited, as well as
wealthy individuals like Ted Turner, use property rights to protect millions of
acres. Their tools include not only outright purchases, but also conservation
easements, mitigation banks, and more. Terry
Anderson and Donald Leal of the Political Economy Research Center show
how the property rights approach has led to better coordination of the varying
interests of ranchers, farmers, hunters, and conservationists in the American
West. In an urban context, property developers use covenants, easements,
and other devices to coordinate the conflicting interests of individual owners
in condominiums and planned developments. David Zetland has detailed
how markets and property rights can help coordinate the overlapping plans of
farmers, homeowners, and industry for use of scarce water resources.
However, there are limits. The property rights approach
works best when the number of parties involved in an environmental dispute are
few and proximate, but in many of the most important environmental issues of
our times, both sources and victims are many and remote from one another. In
addition to acid rain, examples include urban smog, airborne mercury pollution,
emissions of the chlorofluorocarbons that cause ozone depletion, acidification of
oceans, and anthropogenic climate change. In those cases, enforcement of
property rights under tort law, à la Rothbard, fails to
provide an adequate coordinating mechanism. Something is missing.
The missing piece
We do not have to look outside the Austrian school to find
the missing piece. As famously articulated in Friedrich Hayek’s 1945 essay
on the use of
knowledge in society, the price system, not tort law, is the best mechanism
for facilitating economic coordination among large numbers of widely scattered
actors. Hayek uses the market for tin as an example. Sellers expand supply when
the price is higher than their estimated costs of production. Costs are
determined by the prices at which workers and resource owners are willing to
supply inputs to tin producers. Consumers buy more when the price is below the
maximum they are willing to pay for an additional unit. Coordination occurs
without the need for face-to-face negotiation or even the knowledge of who your
customers are or why they want your product. The law and property rights are
there as a backstop, but only as a last resort in cases of fraud or breach of
contract.
In the same way, a price for the right to emit pollution—for
the right to use the atmosphere for waste disposal, if you prefer—would promote
coordination of the many interested parties. In the acid rain scenario
discussed earlier, such a price would encourage abatement by signaling
polluters that their emissions interfere with the competing plans of downwind
property owners. It would provide an incentive to concentrate abatement where
its costs were lowest. The price of pollution would be passed backward along
the supply chain in a way that gave a competitive advantage to cleaner fuels.
It would be passed forward to customers in a way that encouraged energy
conservation.
In contrast, in a system where the property rights of
pollution victims are poorly defined, or where they are well defined but there
is no practicable possibility of enforcement, no price for pollution rights
will emerge. If polluters cannot be made to pay, they will view atmospheric
waste disposal as a free good. There will be no coordination, no mutual
adjustment of conflicting plans.
In Hayekian terms, then, we can restate the problem of air
pollution as one of how to bring the price system to bear. In the second post
in this series, I will show how that can be done in a way that would be more
effective than tort law, and at the same time, fully consistent with Austrian
concepts of property rights.
(Follow this link for Part 2.)
This post is based, in part, on the F.A. Hayek Memorial Lecture that I presented at the 2014 Austrian Economics Research Conference in Auburn, Alabama, sponsored by the Ludwig von Mises Institute. The lecture was subsequently published in the Quarterly Journal of Austrian Economics (Summer 2014, along with comments by Art Carden and Walter Block.
This post is based, in part, on the F.A. Hayek Memorial Lecture that I presented at the 2014 Austrian Economics Research Conference in Auburn, Alabama, sponsored by the Ludwig von Mises Institute. The lecture was subsequently published in the Quarterly Journal of Austrian Economics (Summer 2014, along with comments by Art Carden and Walter Block.
Austrian Environmental Economics: Air Pollution as a Coordination Problem
The Austrian school of economics has experienced a renaissance in recent decades. Its adherents have put their distinctive paradigm to work in nearly every field of economics. This post is the first of two that will examine the Austrian approach to environmental economics, with special emphasis on the problem of air pollution.Pollution as a Coordination Problem
A distinctive feature of the Austrian approach is approach is the idea that environmental issues are problems of coordination. As Roy Cordato puts it, they are “not about harming the environment, but about human conflict over the use of physical resources.” The Austrian paradigm differs in that regard from that of the neoclassical school, which looks at environmental problems in terms of efficiency and maximization of social welfare, and from that of ecological economics, which frames the issues as conflicts between humans and nature.
- See more at: http://www.economonitor.com/dolanecon/?p=2730&preview=true#sthash.IDnLLSun.dpuf
Austrian Environmental Economics: Air Pollution as a Coordination Problem
The Austrian school of economics has experienced a renaissance in recent decades. Its adherents have put their distinctive paradigm to work in nearly every field of economics. This post is the first of two that will examine the Austrian approach to environmental economics, with special emphasis on the problem of air pollution.Pollution as a Coordination Problem
A distinctive feature of the Austrian approach is approach is the idea that environmental issues are problems of coordination. As Roy Cordato puts it, they are “not about harming the environment, but about human conflict over the use of physical resources.” The Austrian paradigm differs in that regard from that of the neoclassical school, which looks at environmental problems in terms of efficiency and maximization of social welfare, and from that of ecological economics, which frames the issues as conflicts between humans and nature.
- See more at: http://www.economonitor.com/dolanecon/?p=2730&preview=true#sthash.IDnLLSun.dpuf
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