учебный год 2023 / (Encyclopedia of Law and Economics 5) Boudewijn Bouckaert-Property Law and Economics -Edward Elgar Publishing (2010)

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information combined with incomplete, inconsistent, or unenforced property rights.’ See Hanna, Folke and Mäler (1996, p. 3).

Two general solutions typically are offered for resolving environmental problems: (1) specify property rights in environmental goods by ‘privatizing’ them, or (2) control access to and use of environmental goods through government regulation. See Hardin (1968, p. 1245). This entry concerns the role of property rights in both solutions. More specifically, it concerns the utility of property rights for resolving environmental problems in tandem with, or in place of, regulation.

In recent years regulators have begun replacing command-and-control environmental regulations with ‘market-mechanisms,’ including property ‘rights’-based programs, such as tradeable pollution ‘rights,’ in order to improve regulatory efficiency. This shift in regulatory approach, which amounts to a limited reallocation of environmental goods from public to private control, has been completely uncontroversial among law and economics scholars, such as Dales (1968), who have advocated the use of ‘rights’-based approaches for decades. More controversial is the suggestion, issuing from certain quarters of the law and economics literature, including Anderson and Leal (1991) and Block (1990), that governmental environmental regulation should be completely replaced (with the exception of the common law and its courts) by a regime of well-defined, private (meaning individual, corporate or communal) property rights in environmental goods. This recommendation is premised on the belief that some form of non-public ownership of environmental goods is both necessary and sufficient for optimal environmental protection. Property rights are necessary, according to this theory, because state regulation cannot provide adequate environmental protection; and they are sufficient because they obviate the need for any state regulation beyond traditional common law protections. These assertions and the policy recommendations of self-described ‘free market environmentalists’ are highly controversial. This chapter does not purport to resolve the issue, but merely reports its treatment in the law and economics literature. For a broader critique of ‘free market environmentalism,’ see Cole (2002).

Before examining how property rights apply to environmental goods, we need to clarify some concepts. The next two sections attempt, respectively, to unpack the notion of ‘environmental goods’ and explain the conventional typology of property regimes that apply to environmental goods.

2.What is an ‘environmental good’?

The term ‘good’ is used here in its basic economic sense to mean some thing or amenity to which individuals assign a positive value, whether

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out of simple desire or because it is necessary to life. But what is an ‘environmental good,’ as distinguished from other goods? While the phrase is not commonly used in the economic literature, we ordinarily think of environmental goods in basic elemental terms such as air, land, and water. Economists often use the word ‘land’ as a proxy representing all natural resources used in production (along with capital and labor). But environmental goods are in reality incredibly diverse, and their diversity is reflected in their treatment as property.

Environmental goods are not one kind of thing, but many kinds of various things that come in all shapes and sizes, from the minute probiotic bacteria that aid our digestion of food (but not the ‘bad’ bacteria that would kill us) to the warming (but not too warm) light of the sun. A single blade of grass is an environmental good; so too is the world’s largest rainforest. Differences in the physical scale of environmental goods matters for property regime choice.

Environmental goods are also differentiated according to their relative subtractibility, congestibility, and substitutability. A good is subtractible if one person’s use necessarily leaves less available for someone else to use. A good is congestible if subtractibility is a non-problem up to a certain level of demand, but becomes a problem once that level is passed. Substitutability refers to alternative environmental or human-made goods that might be substituted for an environmental good, without causing any loss in utility or social welfare.

An example of a nonsubtractible environmental good is sunlight, which cannot be depleted by human use no matter how high the level of demand. Occasionally one person’s use of sunlight may block the use of another. See, e.g., Fountainbleu Hotel Corp. v. Forty-five Twenty-five, Inc., 114 So.2d 357 (Fla.App. 1959). And property-related legal rules may regulate the obstruction of sunlight. See, e.g., Prah v. Maretti, 321 N.W.2d 182 (Wis. 1982). As a general rule, however, no one’s use of sunlight leaves less sunlight available for anyone else to use. Very few environmental goods are of this type, however. Most environmental goods are subtractible or congestible. For instance, a small pristine park may provide undiminished utility for up to 20 users, who may never discover one another’s presence there. But if another 20, 30, or more users should begin to use the park – as the park grows more congested – the utility for each individual user may be diminished, and the park itself could at some point become degraded.

Perceptions of environmental goods may change over time as circumstances change. What was once thought to be a nonsubtractible public good may be understood now as a subtractible good. So, for example, the atmosphere was once thought to be a pure (nonsubtractible) public good. But that was before air pollution became a significant problem, and before

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civil aviation congested the skies. Today, the atmosphere – or, more precisely, clean air – is understood to be subtractible.

As perceptions of a particular environmental good’s subtractibility and congestibility change over time, those perceptions may precipitate changes in the good’s legal treatment as property. Thus, where roman law and common law once presumed land boundaries to extend upwards to the heavens, ownership of the atmosphere is limited to the practically useable area immediately above the surface of the land. See United States

v.Causby, 328 US 256 (1946).

Likewise, the excludability of environmental goods can change over

time as a result of technological innovations. Thousands upon thousands of acres of rangelands in the Western United States were converted from public to private ownership after the invention of barbed wire in the 1870s dramatically reduced exclusion costs. See Anderson and Hill (1975).

Technological innovations can also alter the perceived substitutability of some (though not all) environmental goods. Oxygen and water are two environmental goods that are absolutely necessary for human existence; they are simply not substitutable. Most other environmental goods have substantial non-economic values, which raise substitution costs. Thus, for most people (with inevitable exceptions, such as Krieger (1973)), plastic trees would be no substitute for the real things. But what if scientists perfected artificial trees to a point where people couldn’t tell any difference from ‘natural’ trees? Some environmental goods, such as fossil fuels, have few, if any non-economic values – no one values crude oil for its ‘existence value’ or for aesthetic reasons. Today, fossil fuels have great economic value, and the property regime governing them is important. But what if scientists perfected a less-costly, less-polluting, safer, and more reliable, alternative energy source? What would happen to the economic value of fossil fuels? And what would become of the elaborate property system governing fossil fuel extraction and ownership? One thing is certain, no one would worry much about it.

Non-physical attributes of environmental goods can also affect property regime choice. A river is an environmental good, as are the fish that swim in it. Less obviously, the recreational opportunities the river affords humans are environmental goods. In fact, the phrase ‘recreational opportunities’ may describe various, possibly competing, environmental goods. Consider, for example, a fast, free-flowing river that provides habitat for certain fish species, recreational opportunities for fishers and white water rafters (but not water-skiers), and satisfaction for preservationists. That river could be dammed up and used to provide hydroelectric power, habitat for different fish, and recreational opportunities for the same or different fishers and water-skiers (but not white water rafters). Either way,

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the river provides a basket of environmental goods, but at the opportunity cost of some other environmental goods. Similarly, a high mountain can be preserved as habitat to protect an endangered species of mountain goat or developed as a ski resort, but not both. Used for either purpose, it provides environmental goods. The mountain’s use or non-use for a certain purpose will reflect social choices that may, but will not necessarily, maximize social welfare; and those choices will likewise be reflected in the choice of property regime that governs the mountain.

3.Typology of property regimes

According to the conventional typology, there are four property regimes: private, common, state and nonproperty (or open access). In the law and economics literature, ‘private property’ (res privatae) typically denotes property owned by individuals holding rights to use (in socially acceptable, i.e., non-nuisance-causing, ways), dispose of, and exclude others from resources. ‘Common property’ (res communes) refers to collective ownership situations, in which the owners cannot exclude each other, but can exclude outsiders. ‘Public’ or ‘state’ property (res publicae) is a special form of common property supposedly owned by all the citizens, but typically controlled by elected officials or bureaucrats, who are free to determine the parameters for use and exclusion. Finally, ‘nonproperty’ or ‘open access’ (res nullius) denotes a situation in which a resource has no owner; all are at liberty to use it; no one has the right to exclude anyone else. See, e.g., Bromley (1991, p. 31). Some scholars have elaborated more extensive typologies of property rights regimes. See, e.g., Hanna, Folke, and Mäler (1996) and McCay (1997).

These conventional property categories are idealizations. In the real world, property regimes inevitably combine features from various ownership categories. See, e.g., Feeny, Hanna and McEvoy (1996). Moreover, de facto property regimes sometimes trump de jure property rights. See, e.g., Ellickson (1991). The academic typology also differs significantly from the ways in which most people distinguish property regimes. For example, in common parlance ‘private’ property is not counterpoised to ‘common’ property as it is in much of the academic literature. Co-owned property, including joint tenancy, partnership, and corporate property, is usually considered ‘private’, so long as it is not owned by the state or some other public entity. See, e.g., Denman (1978, p. 102). Indeed, were the term ‘private’ strictly limited to describing property owned by individuals, there would be precious little ‘private’ ownership of land in the United States or in any other country. From another point of view, however, co-ownership simply denotes multiple individual ownership, with each co-owner possessing individual rights in (or attributes of) the property.

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See Bromley (1991, pp. 25–6), and Barzel (1990). Eggertsson (1996, p. 161) suggests that the distinction between private and common (or, in his terms, ‘communal’) ownership has less to do with the number of owners than with the comparatively free transferability of private property rights.

A more problematic terminological issue in the academic literature is the conflation of ‘common’ property with ‘nonproperty’ or ‘open access.’ Hardin (1968), North and Thomas (1973) and others have been criticized for this. See, e.g., Cox (1985) and Bromley (1991, pp. 22, 137). However, the conflation of ‘common’ with ‘open access’ is somewhat understandable because, in the vernacular, nonproperty resources are often described as ‘commonses’ or ‘common pool’ resources. Indeed, they are ‘commonses’ in that they are common to all. Frank Michaelman (1982, p. 9), for example, defines a ‘commons’ as ‘a scheme of universally distributed, all-encompassing privilege’ (where ‘privilege’ is defined in its Hohfeldian sense of ‘no duty not to use,’ see Hohfeld, 1913).

What really distinguishes ‘open access’ resources from ‘common property,’ as that phrase is defined in the law and economics literature, is the unlimited size of the group capable of accessing and using the resources. See, e.g., Seabright (1993, p. 114, n. 1). In order for property to be ‘common’ (res communes) rather than ‘open access’ (res nullius) there must be at least two groups, one of which collectively controls the resource and excludes the other from access and control. See Ciriacy-Wantrup and Bishop (1975, p. 715). Daniel Bromley (1991, p. 149) claims that ‘[a] common property regime for the group becomes an open access regime for the individuals within the group.’ In reality, however, in most (if not all) common property regimes individual members of the common ownership group do not possess rights to unfettered access and use; rather, the ownership group regulates the access and use of individual members. Still, Bromley (1991, pp. 25–6) is right to note that ‘common property represents private property for the group of co-owners because all others are excluded from use and decision making.’ In sum, common property is more like ‘private’ (individual) property than like ‘open access,’ which is characterized by universal access and the utter absence of legal rights and duties with respect to the resource.

‘Common’ property is also sometimes confused or conflated with ‘state’ property. The state could be viewed, of course, as just another group of coowners, like partnerships, collectives or villages. But those, such as Elinor Ostrom (1990), who write about ‘common’ property resources distinguish ‘state’ from ‘common’ ownership based on the size of the ownership group and its location vis-à-vis the resource (see chapter 2000). When a group of self-governing villagers controls access to a fishery, for example, that is considered ‘common’ ownership. But when non-users, far removed from

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the village, control access and use, that is ‘state’ or ‘public’ ownership. Moreover, depending on the political circumstances and management practices, ‘state’ or ‘public’ property may more closely resemble individuallyor corporately-owned ‘private’ property than ‘common’ property. See, e.g., Eggertsson (1990, p. 37); Rose (1994, pp. 116–7); and Denman (1978, pp. 3–4).

One final conceptual problem concerns the general neglect of a crucial question: Just what specific rights and corresponding duties do the various property regimes entail? As Bromley (1989, p. 187) notes, those who write about ‘property’ or ‘property rights’ rarely are ‘specific about the content of those terms.’ They often assume facilely that ‘private’ property means Blackstonian absolute dominion (which has always been a myth). But as Demsetz (1988, p. 19) explains, ‘full private rights, full state rights, full communal rights are notions that are very elastic with respect to the substantive bundle of entitlements involved.’

Honoré (1961) lists 11 distinct ‘sticks’ in the complete bundle of property rights – the right to exclusively possess, the right to use, the right to manage, the right to the income, the right to the capital, the right to security, transmissibility, absence of term, the prohibition of harmful use, liability to execution, and the right to residuary character – but none of these rights is strictly necessary in the sense that one cannot be considered an owner of property without it. Even if one or more ‘sticks’ are missing from a particular bundle, someone may still meaningfully be said to ‘own’ property. It is not good enough, therefore, to recommend a certain property regime for environmental goods; one must also specify just what rights and corresponding duties that regime would entail. See Ostrom (1990, p. 22). Those rights and duties may well vary from one environmental good to another, or, with respect to any particular environmental good, from one institutional context to another.

In view of these terminological confusions, which arguably reflect ideological issues more than real distinctions between property rights regimes, Dales (1968, p. 61) sensibly abandons the conventional typology. Rather than opposing ‘private’ to ‘common’ property, he merely refers to ‘property rights, by whomever exercised.’ Depending on the circumstances, property rights may be vested in individuals, groups (collectives or firms), or the state. The implication is that distinctions between individual, group and state property tend to be more informative and less ideologically loaded than the conventional distinction between ‘private’ and ‘common’ property. See also Goetze (1987, p. 187).

Although the problems arising from the ideal typologies of property rights regimes are troublesome, especially when they are neglected, they do not go to the ultimate concern of law and economics scholars, which is

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not the ownership regime per se but the costs of transacting (or refraining from transacting) over resources. The ownership and management regime is important only in so far as it impacts on externalities and transaction costs. See, e.g., Coase (1960), Demsetz (1967), Dahlman (1979), and Terrebonne (1993).

4.The allegory of ‘the tragedy of the commons’ (which is really about open access)

The relationship between property rights and resource depletion – specifically, Aristotle’s observation that goods held in common receive the least care – has been a subject of extensive economic research throughout the twentieth century. Warming (1911), Gordon (1954), and Scott (1955) each elaborated on Aristotle’s observation in the context of unowned and overexploited fisheries. In the late 1960s Hardin (1968) and Demsetz (1967) provided the classic accounts of, respectively, the depletion of open-access resources, including many environmental goods, and the historical evolution of property institutions to avert the over-exploitation of such goods by reducing externalities and transaction costs.

Hardin’s ‘The Tragedy of the Commons’ provides a particularly useful framework for the analysis of property rights in environmental goods. Its thesis is that resource depletion and pollution problems both stem from the incentives created by ‘open access’ regimes (not common-property regimes), in which no one can exclude anyone else from using a given resource. Unless property rights are imposed, these incentives lead inexorably (assuming a significant level of demand for the resource) to what Hardin calls ‘the tragedy of the commons’ – the despoliation and ultimate destruction of environmental goods. Hardin would have avoided a great deal of confusion had he more accurately titled his article, ‘The Tragedy of Open Access,’ which is how the problem will be described from this point on. See Cole (2002, pp. 5–6).

Hardin suggests two means of averting the ‘tragedy’, which he combines under the heading, ‘mutual coercion, mutually agreed upon.’ The first is privatization: convert the open-access pasture to private (but not necessarily individual) ownership. On a privately owned pasture, the costs of any decision to add an extra animal would be internalized by the pasture owner(s). They would continue to use the pasture but not to the point of destruction because, Hardin assumes, such over-exploitation would generate net costs for the presumptively rational pasture owner(s). Hardin’s second means of averting the tragedy of open access is government regulation (loosely defined). Under this regime, economic incentives toward overexploitation might be reduced or eliminated through (self-) imposed restrictions on all herders. Assuming enforceability and sufficient

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penalties for noncompliance, entry and use restrictions would raise the (internal) cost of adding animals to the common, but no longer ‘openaccess’ pasture.

Each of Hardin’s proffered solutions to the tragedy of open access involves the conversion of the resource from nonproperty to some form of property ownership – private, common, or state. However, contrary to the claims of critics such as Cox (1985), Berkes, Feeny, McCay and Acheson (1989), Feeny, Berkes, McCay and Acheson (1990), and Feeny, Hanna, and McEvoy (1996), Hardin’s analysis provides no basis for preferring private ownership over common or state ownership (as those regimes are conventionally defined). In other words, his analysis calls for the creation of property rights where none previously existed, but does not suggest in whom (individuals, groups or the state) those property rights should be vested. In a subsequent writing, Hardin (1978) lists private and state ownership (or ‘private enterprise’ and ‘socialism’) as the only two viable solutions to the tragedy of open access, implying that ‘common’ property regimes (as defined in Section 2) would not suffice. But nothing in Hardin (1968) supports such a claim; and numerous empirical and theoretical studies dispute it. See, e.g., Ostrom (1990), Bromley (1992), Hanna and Munasinghe (1995b), and Anderson and Hill (2002).

A more legitimate criticism of Hardin concerns his assumption that rational private owners would never knowingly exploit their resources to destruction. This assumption is empirically and theoretically dubious. Empirically, individual private owners have often done exactly what Hardin assumes they would not do. Bromley (1991, p. 171) reminds us of the Dust Bowls created when supposedly ‘omniscient private entrepreneurs’ plowed up the prairies against the advice of agricultural experts (but see Hansen and Libecap 2004, arguing that the Dust Bowls were primarily the result of institutional limitations on farm size). Even as a matter of economic theory, it is sometimes economically rational for resource users to extinguish rather than conserve resources in some circumstances. See Gordon (1958, pp. 117, 119–20). Clark (1973a, pp. 950–51) has shown, for example, that ‘extermination of an entire [animal] population may appear as the most attractive policy, even to an individual resource owner,’ when ‘(a) the discount (or time preference) rate sufficiently exceeds the maximum reproductive potential of the population, and (b) an immediate profit can be made from harvesting the last remaining animals.’ The outcome may not be socially optimal, but private property owners make decisions to maximize private, not social, benefits. See also Clark (1973b); Larson and Bromley (1990); and Schlager and Ostrom (1992). We will revisit this point later in Section 12, when reviewing claims that the complete privatization of environmental goods would necessarily result in their optimal conservation.

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Despite these criticisms, Hardin’s chief insight remains nonetheless valid: ‘open access’ resources will be unsustainably exploited unless some property-rights regime is imposed for their protection. But which propertyrights regime? ‘Open access’ may be replaced by a traditionally-conceived ‘private’ property regime, in which units of the resource are allotted to individual owners. Or the resource may be kept intact as ‘common’ property, with entry and use restrictions imposed by some governing body. This governing body may be private – collective self-government by the group of resource users cum ‘owners’ – or public–state ownership or regulation.

An adequate theory of property rights on environmental goods must consider the full range of possible property-rights and regulatory solutions to ‘the tragedy of the commons,’ and recognize that no single regime is likely to work for every resource and in every institutional and ecological setting. As Noll (1989), Komesar (1994), and Eggertsson (1996, p. 166) have pointed out, each circumstance requires a comparative assessment of the costs of production, exclusion and administration. A private property regime based on individual ownership may be appropriate in cases where the costs of governance are relatively high, but exclusion costs are relatively low. Some form of (private or public) ‘common’ or state ownership may be preferable, however, in the converse situation of high exclusion costs and relatively low costs of administration. Finally, where the costs of either exclusion or governance would be extraordinarily high (reflecting, perhaps, the technological infeasibility of exclusion) or the resource itself is ‘superabundant’ (see Demsetz, 1964, p. 20), ‘open access’ may be inevitable, maximally efficient or both. See Coase (1960, p. 39) and Libecap (1989, pp. 13–14). Stated as a rule: that property regime is best (i.e., most efficient) which, in the circumstances, would achieve social goals at the lowest social cost (or greatest net social benefit).

Stating a decision rule is one thing; implementing it is quite another. As Libecap (1989, p. 5) points out, society will not always (and perhaps never) select the ‘best’ property regime for conserving environmental goods: ‘examination of the preferences of individual bargaining parties and consideration of the details of the political bargaining underlying property rights institutions are necessary for understanding why particular property rights institutions are developed and maintained, despite imaginable alternatives that would appear to be more rational.’ This has public choice implications that are explored briefly, as they relate to ‘Free Market Environmentalism’, in Sections 10 and 11.

5.Regulatory solutions to ‘the tragedy of open access’

In most countries environmental goods have been subject to multiple property rights regimes. Some environmental goods, such as land, have