Environmental Markets: A Property Rights

Approach

LEANZ, Nov 2015

By Terry L. AndersonWilliam A. Dunn Distinguished Senior Fellow, PERC, Bozeman, MT

John and Jean DeNault Senior Fellow, Hoover Institution, Stanford University

Bliss Point

Who Cares about Ω?

Wolfonomics Reintroducing wolves to

YellowstoneValue ofwolves

Number of wolves

MC

MB

Ω

Whose Costs and Whose

Benefits?“Last missing link in the ecosystem.”

“A good wolf is a dead wolf.”

What would Coase Say?

Who has the rights? Wolves to roam or cattle to graze?

Who should pay? What are the transaction

costs? Political solutions result in

zero-sum games—winners and losers.

Enter the Environmental Entrepreneur

“Ain’t nobody kilt you yet?”

Incentives matter!

“No one washes a rental car---except Hertz.”

All environmental problems are property rights problems. Well defined Enforced Tradeable—opportunity costs Malleable—not a bundle of

sticks

It’s hard to keep a good market

down. Water markets are on the

rise. Wildlife/hunting markets—

CAMPFIRE Emission trading markets

SO2 Tinkering with property

rights doesn’t help.

Don’t tinker.

SO2 Allowance Prices

Don’t tinker.

Who owns the fish?

Year Season Length (Days) Number of Active Vessels

Percent of Halibut Marketed as Fresh

1980 64 333 N.A.

1981 58 337

1982 61 301

1983 24 305

1984 22 334

1885 22 363

1986 15 417

1987 16 424

1988 14 435

1989 11 435 42%

1990 6 435

1991 214 433 94%

1992 240 431

1993 245 531

1994 245 313 N.A.

1995 245 294

1996 245 281

British Columbia

Halibut Fishery

Regulatory limits, seasons, and

capital

Hats off to New Zealand!

• Real property rights• Take or buy?• Maori Fisheries Act of 1989

• Proof is in the prices.• NZ quota are worth NZ$ 4

billion

Lease to Sales Price Ratio

Sales price 12 times higher than lease price in NZ3 times higher in US.

“When you come to a fork in the road,

take it.”

QMS has achieved sustainability.

The pie is larger so there is something to Fight over? Zero sum. Manage better? Positive sum.

“Changes are urgently needed to make the system work better. . . . Those who hold rights to fish should have more responsibility for managing them.” Pearse Report—1991

Successful fishery cooperatives “often perform the same management functions that a firm’s manager performs: they control aspects of members’ actions in order to achieve an outcome that is superior for the group.” Robert Deacon

The Fishery as a Firm

“When you come to a fork in the road,

take it.”

Progress or regress? Will industry take a bigger

role? Setting the TAC and TACC Undertaking research and

management functions Establishing rights for

recreational and customary rights

Protecting marine ecosystems

CreatingEnvironmental

Assets Government works best for the environment

when it creates clear and stable property rights.

It works worst when it erodes them and leaves them up for grabs.

Why environmental markets now? We’ve picked the low-hanging regulatory

fruit. Environmental markets work by getting the

incentives right. The next generation of environmentalists will

be enviropreneurs finding the ways that work.