Environmental Property Rights

1
Environmental Property Rights

• Andrew Davis, Sarah Germann, Matthew Johnston,
  Jelling Lai, Matt Trout

2
Outline

• Coase
• Limitations
• Examples
• Legal Issues
• Beyond Coase
• The Future

3
Coase
4
Use of Property Rights

• Property rights rights to use resources
• Convey the right to benefit or harm oneself or
  others
• Specify how persons may be benefited and harmed
• Function as guiding incentives to achieve a
  greater internalization of beneficial and harmful
  effects
• Communal vs. private ownership

5
Coase Theorem (1960)

• In the absence of transaction costs, A and B will
  agree to achieve the efficient solution
  irrespective of whether A has the right to
  pollute or B has the right to amenity initially
• In the presence of significant transaction costs
  that may prevent the reaching of the efficient
  solution through agreement, the assignment of
  property rights matters
• The problem is to avoid the more serious harm gt
  a change of approach is necessary

6
Coases Assumptions

• A world in which some producers or consumers are
  subject to externalities generated by other
  producers or consumers
• Perfect information
• Consumers and producers are price-takers
• Costless court system for enforcing agreements
• No income or wealth effects
• No transaction costs
• The initial assignment of property rights
  regarding the externalities does not matter for
  efficiency
• If any of these conditions does not hold, the
  initial assignment of rights does matter

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Coase also recognized

• The assumption of no transaction costs involved
  in carrying out market transactions is very
  unrealistic
• Arrangement of rights needs to be established by
  the legal system

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Limitations of Coase
9
Criticisms of Coase

• Bargaining may not occur
• Imperfect information
• Implementation problems
• The role of transaction costs
• Is the final allocation independent of the
  initial assignment of property rights?

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Criticism (5) Is the final allocation
independent of the initial assignment of
property rights?

• (a) The allocation of the initial entitlement
  does not matter when
• (b) the initial delimitation of rights is known,
  when
• (c) transaction costs are zero
• and when
• (d) preferences are exogenous to the initial
  setting of legal entitlements.

11
Willingness to Pay (WTP) andWillingness to
Accept (WTA)

• WTP is the maximum amount of money an individual
  would voluntarily exchange to obtain an
  improvement (or avoid a decrement) in the
  environmental effects of concern
• WTA is the least amount of money an individual
  would accept to forego an improvement (or endure
  a decrement) in the environmental effects of
  concern

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• Assumption (d) preferences are exogenous to the
  initial setting of legal entitlements
• Income effects are zero or negligible
• If the legal entitlement is granted over
  basic-goods, the good should have a lower value
  than the total income of each party to the
  transaction
• The legal entitlement is granted over a good that
  has ready substitutes
• The legal entitlement is granted over a good that
  has no or very low existence value
• Instant endowment effects are zero or negligible.

13
The Endowment Effect

• Explains difference between WTP and WTA
• WTA usually higher than WTP
• Reference position matters in trade (bias)
• Ownership has value
• Reduces set of mutually acceptable trades
• Could be important in
• deciding to whom to assign environmental property
  rights, especially transferrable pollution
  permits
• choosing optimal tax/subsidy based on WTP or WTA

14
Examples
15
Fisheries

• Open Access lt Limited Entry lt Quotas lt TURFs
• Failures
• New England groundfish (cod, haddock, etc.)
• EEZ established in 1978, but stocks continued to
  decline
• Limited Access limited days at sea, not
  absolute catch
• Many unused licenses due to depleted stocks
• Incentive to continue overfishing to prevent
  entry
• Others (U.S. Abalone, Argentinian Hake)
• Successes
• Long Island Sound oyster industry (partial)
• Others (ITQ successes)

16
Exclusive Economic Zones (EEZs) of the World

• Wikipedia

17
UNCLOS III

• Wikipedia

18
ITQs and Prevention of Fishery Collapse

• Percent of fisheries collapsed with (dotted line)
  and without (solid line) ITQ management using a
  collapse threshold of 10 of historical maximum.
  The number of ITQ fisheries increases through
  time (right y axis and dashed line), and the rate
  of implementation has been accelerating (Costello
  et al. 2008).

19
Forests

• Haiti and The Dominican Republic

20
Distribution of ownership of the worlds forests

• Agrawal et al. 2008

21
Legal Issues Property Rights
22
Private vs. Public Property according to the
United States Supreme Court
23
The Takings Clause

• Found in the Fifth Amendment
• nor shall private property be taken for public
  use without just compensation
• - How has the Supreme Court defined this?

24
Lucas v. South Carolina

• Lucas purchased residential lots on the isle of
  palms
• South Carolina law barred Lucas from development
• Does the ban deprive Lucas of all economically
  viable use?
• Supreme Court ruled Lucass property was rendered
  valueless

25
Dolan v. City of Tigard

• Dolan wants to expand store and parking lot.
• City of Tigard places conditions upon the
  expansion.
• Did the citys conditions violate the takings
  clause?
• Supreme Court ruled there must be an essential
  nexus to justify requirements.

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Palazzolo v. Rhode Island

• Palazzolo wished to develop a waterfront salt
  marsh.
• Rhode Island already had a regulation protecting
  coastal wetlands.
• May a property owner make a takings claim if he
  or she acquired the land after regulation?
• Supreme Court ruled that takings claims could be
  made by future owners.

27
Tahoe v. Tahoe

• Tahoe Regional Planning Agency prohibits
  development while considering land-use plan.
• Sierra Preservation Council et al. claim the ban
  constitutes a taking.
• Does a temporary development ban violate the
  takings clause of the Fifth Amendment?
• Supreme Court ruled that a temporary ban did not
  violate takings clause.

28
Lingle v. Chevron

• Hawaii enacted a limit on oil service station
  rent.
• Chevron claimed the rent limit was a taking
  because it did not advance state interests.
• Is a regulation a taking if it does not
  substantially advance legitimate state interests?
• The Court ruled it was not a taking. They also
  developed a new test for what constitutes a
  taking.

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New Takings Test

• Previous test substantially advances formula
• New Test
• Weigh the severity of the burden imposed upon
  property rights, not the effectiveness of the
  regulation in furthering governmental interests.
  

30
Beyond Coase
31
Terry L. Andersons Principles of Efficient
Allocation

• Rent dissipation can occur in the process of
  establishing private rights to a common property
  resource as well as in the use of a common
  property resource.
• The rent dissipation from the process of
  establishing rights to a resource can be every
  bit as large as the rent dissipation from
  exploitation of the resource under common
  property rules.
• When the process of establishing rights is
  determined by residual claimants (potential
  owners of the rents) there is a greater incentive
  to conserve on the resources used in that process
  than when the procedure is determined by
  non-claimants.

32
Property Rights on the Frontier

• Expansion into the American West gives us an
  empirical example of what can happen when
  property rights are negotiated between interested
  parties.
• Two distinct stages of property rights
  development with a notable difference in outcomes.

33
The History of Expansion

• Initially, frontier lands are largely controlled
  or within the range of various Native American
  tribes. The US government forced evacuation of
  much of these lands by force or treaty. The
  Land Ordinance of 1785 established a system for
  property rights, but was largely unenforced on
  the expanding frontier.
• American settlers move westward, creating
  organizations to establish property rights in the
  absence of federal enforcement.
• After this period of expansion, the Homestead Act
  of 1862 established a new regime of allocation
  and enforcement of frontier property rights.

34
Intermediate Organizations

• Settlers knew that eventually the federal
  government would enforce either the Land
  Ordinance or some new property rights regime.
• In this environment, various types of claims
  associations sprang up to fill the void. Rules
  varied, but common threads were low
  administrative costs, simple registrations, and
  varying degrees and types of coercive power.
• In comparison with the later Homestead Act, the
  requirements for land improvement were low.

35
Homestead Act of 1862

• The Homestead Act allowed settlers to claim up to
  160 acres after 5 years of residence, or 6 months
  of residence 1.25/acre.
• The Act required extensive land improvements and
  specified the investments in terms of cabin size,
  irrigation ditches, and planted trees.
• Both the size of the plots and mandatory
  investment types were ill-suited for the large
  variety of claims on the frontier, and resulted
  in rent dissipation.

36
Public Lands

• Andersons later work includes a suggestion that
  we privatize lands held by the Federal
  Government, including National Parks and Forest
  Service lands.
• He contends that federal land management is
  inefficient, but also fails in its mission to
  protect and preserve valuable resources. He
  places most of this blame on poor incentives by
  the federal land management organizations for
  improving their policies.
• Solution reallocation of federal lands to owners
  who have economic incentives to care for them.

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Options for Divestiture

• The Homestead Act
• The Resource Acts/Squatters Acts
• Federal Leasing Program/Leasing Pullback
• Land Transfers to the States
• Public-Private Land Trusts
• Direct Land Sales

38
Auctioned Rights

• The Scale and Scope of Divestiture
• Land Partitions
• Deed Rights
• Transferability
• Acknowledgement of Existing Rights
• Block Sales
• Public Land Share Certificates
• Combinatorial Auctions

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What about the Grand Canyon?

• Do we give special dispensation to the Crown
  Jewels of the National Parks system?
• Can we divide up rights within the parks, so that
  the recreational rights are separated from the
  mineral rights, for example?
• Is there a reason to give special treatment to
  any property right over another?

40
Migratory Resources

• What about common pool resources, or resources
  that move? How do we allocate rights to fish?
• Anderson proposes rights based on stock levels
  and precise definitions of how much each
  rights-owner can claim.
• How well does this work in the absence of perfect
  information? Does information cost outweigh the
  efficiency benefits?

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The Future
42
Technology The Future of Environmental Property
Rights

• Delineation of rights
• Scope, infringement, value
• Filling Information gaps
• Data collection
• Satellites, remote sensing, pollution tracking,
  internet
• Analysis
• Computing power, data mining, statistics, GIS
• Dissemination
• Internet, communication, search costs

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The Future of Environmental Property Rights
(cont.)

• Decision Making
• Harm detection and quantification
• Modeling and prediction
• Determination of rightsholders
• Compliance and Enforcement
• Satellites, remote sensing, monitoring equipment
• Improved technology will make property rights and
  Coasean bargaining applicable to a wider array of
  environmental circumstances

44
Conclusions

• Coase works (sometimes)
• Deviations from Coasean assumptions can offset
  efficiency gains
• Initial assignment of rights matters in the real
  world
• Scale matters
• Match rights unit to resource unit
• Governments control the assignment and
  enforcement of property rights
• Science is essential (environmental and social)
• Economically efficient outcome might not be
  socially optimal outcome
• Technology will expand scope of environmental
  property rights