where markets meet the environment perc reports · political economy research center. issn...

Where Markets Meet the Environment

PERC REPORTS502 South 19th Avenue, Suite 211, Bozeman, Montana 59718

POLITICS—GREENBUT DIRTY

Beating the competitionthrough environmentalregulation.

byJonathan H. Adler

LOOKING BEFOREWE LEAP

Individuals are savvierabout risk than expertsthink.

byDaniel K. Benjamin

HOW MARKETSSAVE SALMON

An “enviro-capitalist”buys and retires nettingrights.

byOrri Vigfússon

Volume 16 Number 3 September 1998

6 108

WHAT WE DID

IN VIRGINIA

3by

Becky Norton Dunlop

© James Lindquist

Copyright © 1998 by thePolitical Economy Research Center.

ISSN 1095-3779

502 S. 19th Avenue, Suite 211Bozeman, MT 59718 (406) 587-9591

Fax: (406) 586-7555E-mail: [email protected]

www.perc.org

PERC Reports 2 September 1998

PERCEDITORJane S. Shaw

ASSOCIATE EDITORLinda E. Platts

PRODUCTION MANAGERDianna L. Rienhart

ARTISTJames LindquistBozeman, Montana

PERC REPORTS

PERC Reports is more than anews-letter about the PoliticalEconomy Research Center. It is aforum for ideas.

PERC’s views differ from thoseof many environmental organiza-tions. In particular, we do not seegovernment as an automatic“way out” of problems such aspollution and species extinction.While regulation is sometimesnecessary, we believe thatvoluntary activities—includingmarkets—often achieve environ-mental objectives more effec-tively.

The source of our views is,primarily, economics. Economicprinciples, we have found, canexplain the causes of manyenvironmental problems and offerguidelines for their solution.While most economists endorsethe same principles as we do, fewhave applied them rigorously toenvironmental issues.

With PERC Reports, our goal isto offer discussion of currentissues. We include our ownviews, but also introduce others.We believe that if a variety ofviewpoints are aired, the bestideas will prevail, and all willlearn from the discussion.

We welcome your comments.

EXECUTIVE DIRECTORTerry L. Anderson

SENIOR ASSOCIATESDaniel K. BenjaminP. J. HillDonald R. LealRoger E. MeinersJane S. ShawRandy T. SimmonsRichard L. StroupBruce Yandle

ADMINISTRATIVE DIRECTORAND TREASURERMonica Lane Guenther

DEVELOPMENT DIRECTOREric C. Noyes

ENVIRONMENTALEDUCATION DIRECTORDonald R. Wentworth

EDITORIAL ASSOCIATELinda E. Platts

RESEARCH ASSOCIATESHolly L. FretwellDavid E. GerardBishop GrewellClay J. Landry

CONFERENCE COORDINATORColleen Lane

COMPUTER OPERATIONSAmy E. BurkMichelle L. L. JohnsonDianna L. Rienhart

BOARD OF DIRECTORSKimberly O. Dennis,ChairmanPhilanthropic Advisor

Ryan AmacherUniversity of Texas at Arlington

Thomas J. BrayDetroit News

Dave CameronDana Ranch Co., Inc.

William DunnDunn Capital Management, Inc.

Eugene Graf IIILand Developer

Joseph N. IgnatJ. N. Ignat & Associates

Byron S. LammState Policy Network

Dwight E. LeeBarker, Lee & Company

Adam MeyersonHeritage Foundation

E. Wayne NordbergLord, Abbett & Co.

Jerry PerkinsKarst Stage, Inc.

Leigh PerkinsThe Orvis Company

Marc PierceBig Sky Carvers

Charles S. Potter, Jr.Great Outdoors, L.L.C.

Scott W. RasmussenMaricopa Research

Hardy ReddCharles Redd Foundation

John TomlinThe Vista Group

Illustrations © copyright 1998by James Lindquist.


FEARSOME MASTER VS. HELPFUL SERVANT

WHAT WE DIDIN VIRGINIA

By Becky Norton Dunlop

From January 1994 to January1998, I was Secretary of

Natural Resources for the Com-monwealth of Virginia in theRepublican administration ofGovernor George Allen. Mygoal was to change the paradigmthat has governed environmen-tal programs from the “fearsomemaster” approach to the “helpfulservant” approach. I intended todo this by decentralizing theagencies that I oversaw andchanging the rules under whichthey operated.

Making this change arousedcontroversy. Part of the contro-versy was simply politics. TheVirginia legislature was domi-nated by the Democratic party,which was hostile to our admin-istration. On the national level,many Democrats wanted to stifleGovernor Allen’s political futureand saw that they might succeedif they could paint him asanti-environmental.

But the controversy alsoreflected the resistance tochange that we encountered as we attempted to moveaway from “command and control.” My leadershipbrought me into conflict with the federal government’sEnvironmental Protection Agency, which ardently ad-vocates central government control, a diminution of in-dividual liberty and private property rights, and extolsthe view that the end justifies the means.

My actions also brought me into conflict with en-vironmental extremists who are not interested in the

empirical evidence demonstrat-ing, by virtually every measure,that we have an improving envi-ronment. Instead of celebratingthe successes, our collectivistcritics have chosen to take therather unseemly role of trying tofrighten our citizenry by promot-ing fear about the future of ourenvironment and engaging in adhominem attacks. Their goal isto ensure that the message aboutthis new method for maximizingliberty while improving the en-vironment will never reach thehearts and minds of the citizens.

lthough the full list of ouraccomplishments is long,

here are some highlights of ourefforts to improve environmen-tal stewardship while liftingregulatory burdens.

1. We streamlined governmentby decentralizing the Depart-ment of Environmental Quality,removing layers of bureaucracy,and putting more authority in

the regional offices. Under the federally delegatedair, water, and waste laws, we insisted on exercisingdiscretion as a state government, not a “branchoffice” of Washington, D.C. In the case ofSuperfund, we declined delegation. We becameadvocates for our communities in cleaning up haz-ardous waste sites. Our state programs were faster,more successful, and far more cost-effective thanSuperfund, and we successfully resisted the listing

My goal was to change the

paradigm that has governed

environmental programs from

the “fearsome master” approach to

the “helpful servant” approach.

A


WHAT WE DID IN VIRGINIA

of all non-military sites as Superfund sites.

2. We sought compliance, not penalties, in dealingwith Virginia businesses. That meant that weapproached companies and other polluters with apolicy akin to the “three strikes and you’re out”concept. Department of Environmental Qualityprofessionals exercised their flexibility under thelaw to work with any regulated entity seeking toget into compliance. However, if people insisted onviolating laws (“bad actors”), we referred them forenforcement action. Theresults are visible. Whilewe reduced the number ofcases sent to the VirginiaAttorney General, we, atthe same time, improvedcompliance and improvedair and water quality inVirginia.

3. Air quality is much better.In 1993, Virginia had fivenon-attainment areas underthe Clean Air Act’snational ambient air qualitystandards. Today, only thenorthern Virginia regionremains in non-attainmentfor ozone, and even there the number of hoursduring which the ozone standard is exceeded hasdropped. Working with citizens, local governments,and businesses, we cut back on traffic on the summerdays when atmospheric ozone rose near levels thatthe EPA considers dangerous. Weather also playeda part, by the way—both in creating thenon-attainment areas and in bringing them intoattainment. Because they met the federal airquality standard for ozone for three years,Richmond and the Hampton Roads areas wereformally redesignated by the EPA as being inattainment in 1997. (This change in status shouldmake these areas more attractive to industry dueto reduced regulatory requirements.)

4. Virginia increased water quality monitoring sites toover 1,100 on its streams and rivers. Ninety-fivepercent of the sites meet federal standards forfishable and swimmable waters. We put these dataon the Internet so that citizens and local officialsall over Virginia can review the data and find out

if there is a water quality problem in their localwaters. If so, citizens can work in theircommunities on a site- and situation-specific basisto determine how to most efficiently andeffectively restore or enhance the quality of theirwater resources.

5. The Virginia Marine Resources Commissionsuccessfully implemented an Individual Trans-ferable Quota program for commercial stripedbass. ITQs are a right to a specified portion of anannual fish catch. Watermen who hold theserights can transfer, trade, sell or lease their share.

These ITQs ended wastefulfishing practices since watermencould now be assured of notlosing the opportunity to catchtheir entire quota. It also endedthe cumbersome and oftenarbitrary procedures that thecommission had been forced touse in order to decide who got tofish each year, and it helpedmake the watermen, as “share-holders,” into advocates forsound fishery management.Many people are talking aboutITQs, but few governments haveimplemented them.

6. We leased the GeorgeWashington Grist Mill Historic Park to the MountVernon Ladies Association of the Union, theprivate organization that owns and managesMount Vernon, with provision made forpermanent transfer. This organization is one of thefew in the country that have the expertise torestore mill machinery to working conditions. Farmore visitors will learn about colonial Americaand our first president as a result, and taxpayers willno longer pay the bills.

7. We helped move our state parks toward self-sufficiency and in doing so helped them to be moreresponsive to park visitors. We took actions in avariety of areas.

We introduced market-based pricing for en-trance fees and camping fees. We closed restaurantsand services that were not economical and ex-panded the popular programs that were. We insti-tuted seasonal pricing. At five parks we introducedper-person admission fees, rather than per-autofees. Credit cards are now accepted at all parks.

■

Our ideas were revolutionary when

we undertook them in 1994.

Today they are commonplace, and they

are sweeping the country in state

capital after state capital and even

in the federal bureaucracy.

■


The Reservation Center has been upgraded to bet-ter serve customers by marketing park amenitieswhen customers make their reservations. At thesame time, the length of the average phone call tothe center went down from six minutes to four.

While doing this, we tried to manage the parksin ways that avoided competing unfairly with pri-vate campgrounds and other service providers. Wereduced subsidies for park services that had privatecompetition. We strove to avoid intense develop-ment—golf courses, high-amenity campsites,etc.—that could better be provided privately. Andwe moved camping and cabin fees toward marketlevels, while offering a 10% discount to in-statecabin users so that Virginia voters could morereadily accept the changes.

Total revenues have climbed. And, in spite of thefee increases, visitor satisfaction is high. For ex-ample, 97.4% of those who responded to a surveysaid they would recommend the park they visited toa friend. And volunteer participation in park activi-ties has increased significantly as we encouragedVirginians to take “ownership” of their parks.

8. One of the Allen administration’s greatest accom-plishments was to spur the growth of Virginia’s

economy, which provided individuals, businesses,localities, and the state government with more re-sources for improving the environment. Aftermany years of promises from many politicians to“save” the Chesapeake Bay, Governor Allen forthe first time set up a water quality improvementfund with $15 million for fiscal year 1998, and an-other $63 million to be used in 1999 and 2000.This money will be used to meet Virginia’s com-mitment to reduce nutrient flows to the bay by40% (based on 1985 levels) by the year 2000. Thecosts are matched by private and municipal part-ners—on a voluntary basis, unlike the programs ofneighboring states and the one pushed by the EPA.

Our ideas were revolutionary when we undertookthem in 1994. Today, they are considered commonplaceand they are sweeping the country in state capital afterstate capital and even in the federal bureaucracy inWashington, D.C. I am pleased to have been a part ofthis movement toward regulatory reform, which simul-taneously increases environmental benefits.

Becky Norton Dunlop, former Secretary of Natural Resources forthe Commonwealth of Virginia, is now Vice President for ExternalRelations at the Heritage Foundation.

Enforcement referralswent down . . .

. . .but so didair pollution.

Changes in Virginia

Source: The New York Times, January 19, 1997, and Virginia Department of Environmental Quality.

29

52

0 10 20 30 40 50 60

Number of Days that Ambient OzoneExceeded Federal Standard

Governor Allen'sAdministration

(1994-1997)

Previous Administration(1990-1993)

33

8

0 10 20 30 40

Number of Cases Referred toAttorney General

Governor Allen's Administration

(1994-1997)

Previous Administration(1990-1993)


usinesses routinely lobby to avoid heavy burdensfrom government regulations. But some businesses

lobby in favor of regulations that give them a marketedge. Environmental regulations are riddled with provi-sions that are less about saving the planet than abouthelping a particular industry or special interest.

The latest example comes from a business groupthat supports restrictions on energy use in the aftermathof the Kyoto Treaty. The Business Council for Sustain-able Energy is calling for ratification of the UN treaty,and it supports deep cuts in greenhouse gas emissions. In1996, it joined with the Natural Resources DefenseCouncil and other environmental groups to prod theClinton administration into ac-tion.

The council is a coalitionof wind, solar, natural gas, andgeothermal power producersand related firms—companiessuch as Enron and Solar Tur-bines and associations like theSolar Energy Industries Associa-tion. These companies have aclear economic stake in globalwarming policy. They wouldbenefit from restrictions on fos-sil fuels, whether through a taxon carbon-based energy, con-trols on the supply of these fuels,or other regulations. The loss to coal and oil companiescould well be the council members’ gain.

Then there is ethanol.Under the 1990 Clean Air Act, the Environmen-

tal Protection Agency was told to develop a formula fora new gasoline to be sold in the nation’s smoggiest cit-ies. Producers of ethanol, a fuel derived from corn,wished to ensure that their product would be added tothe mix, even if this meant higher gas prices for consum-ers and reduced air quality.

They lobbied, and in 1993 the Clinton administra-

tion issued a regulation explicitly guaranteeing thatethanol and ethanol derivatives would receive a 30 per-cent share of the market for oxygenate additives used inthe reformulated gasoline. The Environmental Protec-tion Agency issued the rule even though lower-cost ad-ditives existed that were just as clean, if not cleaner. Therule was designed to boost farm income and help corngrowers, not help the environment. The cost to con-sumers was estimated at between $48 and $350 million.By the EPA’s own admission, the rule might have in-creased air pollution. As one outraged environmentalistcommented, “It’s not the role of the Clean Air Act tomake mandatory markets for ethanol.” Fortunately, a fed-

eral court agreed, and the ethanolrule was thrown out.

Another example of specialinterest intervention tostrengthen regulation can befound with fluorescent bulbs.The federal government pro-motes the use of fluorescentbulbs to reduce energy consump-tion (through projects such asthe EPA’s Green Lights pro-gram). In many cases, switchingto fluorescents saves companiesmoney, but for some companies,the savings are more than offsetby environmental regulations.

Unlike incandescent bulbs, fluorescents must betreated as hazardous waste when large companies disposeof them, following detailed and expensive regulationsunder the Resource Conservation and Recovery Act(RCRA). This greatly increases the cost of lighting dis-posal and could even expose firms to broad Superfund li-ability.

Recognizing this problem, the EPA is consideringreclassifying fluorescent bulbs so that more companieswill use them. But hazardous waste treatment companiesare alarmed because they may lose business. The Envi-

B

■

Environmental regulations

are riddled with provisions that

are less about saving the planet than

about helping a particular

industry or special interest.

■

BEATING THE COMPETITION THROUGH ENVIRONMENTAL REGULATION

POLITICS—GREEN BUT DIRTY

By Jonathan H. Adler


■

Business and labor used the

1977 Clean Air Act

to achieve special advantage.

■

ronmental Technology Council, which represents suchfirms as Laidlaw Environmental Services and Evergreen,says that its members will suffer “economic and competi-tive harm” if fluorescent bulbs do not have to be dis-posed of like toxic chemicals. The ETC fears the loss ofa government-created market.

Hazardous waste incinerators, another groupwithin the toxic waste treatment business, have theirown market protection program. The Alliance for Re-sponsible Thermal Treatment (ARTT), which repre-sents private hazardous waste incinerators, has soughtgreater regulation of cement kilns, which can burntoxic waste as fuel in the ce-ment-making process. Burningtoxic waste in cement kilns typi-cally costs less than using haz-ardous waste incinerators. So,ARTT has given money to theAmerican Lung Association’scampaign against the use of ce-ment kilns for the burning ofhazardous waste. In 1994 and1995 ARTT gave the Lung Asso-ciation $260,000 to fund “educational campaigns”against cement kilns in several states. One ARTTmember company, Rollins Environmental Services,went so far as to give a local activist group $250,000 tofund a lawsuit against a competing cement kiln.

Companies can also increase profits to restrict im-ports of competing goods from overseas. Thus, in 1989the European Community banned the importation ofU.S. beef produced with bovine growth hormones. TheEC defended the restriction as a health measure, de-spite the lack of any credible scientific evidence link-ing hormones in U.S. beef to any health threat. Therestriction did, however, protect European ranchersfrom U.S. competition.

Although European interests have been the worstoffenders in the use of environmental regulations tokeep out trade, American companies have tried to useregulations that way, as well. For example, the CorporateAverage Fuel Economy standards (CAFE) that havebeen in effect since the 1970s were crafted to penalizehigh-end foreign manufacturers such as Volvo andMercedes Benz, which don’t make many small, fuel-ef-ficient cars. (The standards also protect U.S. jobs be-cause they don’t allow domestic companies to meet thestandards simply by importing small foreign cars.)

Perhaps the most famous example of business (andlabor) using environmental laws to achieve special ad-vantage was the passage of the 1977 Clean Air Act.†

This act protected eastern coal companies and theirunions from competition from cleaner western coal,

while appearing to satisfy environmentalists, whowanted tougher rules restricting sulfur dioxide emissionsfrom power plants.

The act required that power plants add costly sulfurdioxide “scrubbers,” even though switching to low-sulfurcoal would have enabled many companies to reduce theiremissions by as much as—or more than—the scrubberswould. The new scrubber requirement destroyed the com-parative advantage of western low-sulfur coal.

Unsatisfied with this measure alone, eastern coalproducers and the eastern-based United Mine Workers,with the support of the Sierra Club and the National

Clean Air Coalition, pushed foradditional provisions to protectcoal-miners’ jobs in the East.Congress passed a provision al-lowing state and federal officialsto order power plants to use re-gionally available coal, if the useof coal from elsewhere in theUnited States might put localmine workers out of work.

Ironically, one effect of the1977 amendments was to increase sulfur dioxide emis-sions in some regions of the country. Since all new coal-fired plants had to have scrubbers, companies extendedthe life of older coal-fired plants, delaying the environ-mental gains that would be achieved by a switch to moremodern facilities. In addition, the amount of scrubbersludge requiring disposal increased substantially.

Of course, not all environmental rules are the re-sult of special interest pleading. Some are the result ofgenuine environmental concern; others start out thatway, only to be manipulated behind closed doors dur-ing the legislative or rule-making process. In somecases, industries have been virtually created by envi-ronmental regulations, and their continued existencedepends on tough regulations, whether they help theenvironment or not. In any case, the proliferation ofexceedingly complex environmental rules and statutesis an open invitation for companies seeking an advan-tage over their competitors. This is an invitation thatfew profit-seeking companies will pass up.

† See Bruce Ackerman and William T. Hassler.1981. Clean Coal, Dirty Air. New Haven, CT: Yale Uni-versity Press.

Jonathan H. Adler, a PERC research fellow in the summer of 1998,is Director of Environmental Studies at the Competitive EnterpriseInstitute. His article on global warming was the cover story of theAugust 17, 1998, National Review.

Note


AN “ENVIRO-CAPITALIST” BUYS AND RETIRES NETTING RIGHTS

HOW MARKETSSAVE SALMON

By Orri Vigfússon

am a native of Iceland, where theentire economy is based on fish-

ing. I have enjoyed fishing forsalmon with a fly rod all my life. Asa child, I can remember the rivers ofIceland teeming with fish.

Today, we still have some of thebest sport salmon fishing in theworld, but our streams are not asproductive as they used to be, andfishermen are not enjoying the suc-cess of the past. Some ten years ago,I began to think seriously about thisproblem.

I looked at it this way: Here wehave fishermen who come to Icelandand spend $1,000 on average for ev-ery fish they catch. At the same time,out at sea commercial fishermen arenetting these fish and selling them for$10 per fish if they are lucky. In addi-tion, salmon farming has grown tothe point where it basically suppliesall the salmon the market requiresand reduces the price commercialnetters can obtain for wild salmon.This seemed to me to be a very waste-ful and economically foolish situa-tion. It was like selling a productworth $1,000 for 1% of its true value.

Because Iceland has fishingquotas, I saw an opportunity fortrade.

Twenty or so years ago, Iceland found itself withtoo many commercial boats chasing an ever decreasingnumber of fish. The government decided to introduce asystem of fishing quotas which, over time, became indi-vidual transferable quotas, or ITQs. These quotas gavefishers property rights in a portion of the catch. Thequotas can be bought and sold, and an active market de-

veloped. The fishing industry reor-ganized. Weaker, inefficient fishingcompanies went out of business.The remaining companies becamemuch more efficient; technologythrived; control of the fishing re-sources became much easier; andmore and better jobs were created tosupport this industry. Fishing quotasin Iceland became attractive invest-ments for insurance companies andpension funds. In short, Iceland haddeveloped an effective process tomanage its valuable fish resources.

It occurred to me that thecommercial salmon quotas in theNorth Atlantic were an underval-ued environmental and economicresource. They could be much morevaluable to the economies of Ice-land, the British Isles, Scandinavia,and Canada than they were to thefishermen who owned them. Sincecommercial fishermen primarilywant to make a living, they wouldfish for other species just asreadily as for salmon. Or, if thejobs were there, they would in mostcases gladly do other things to earna living for themselves and theirfamilies.

So, I formed the North Atlan-tic Salmon Fund, and in 1989 we

began to negotiate and purchase these quotas and takethem out of production. The North Atlantic SalmonFund has made deals with the people who own the fish-ing quotas in the Faroe Islands and Greenland. Thesame concept has been used to some extent in Labradorand Newfoundland.

Since we started purchasing salmon quotas, we

I

On April 24, 1998,

Orri Vigfússon received PERC’s

1998 Enviro-Capitalist Award

at a meeting of the

Philadelphia Society for

his work in saving salmon

using the tools of the market.


have acquired more than 4,000 metric tons of quotasfrom the high seas. This represents about 95% of allsalmon quotas issued on the high seas during this periodand approximately 1.4 million individual salmon. Theseare native, wild salmon—not stocked or farmed fish. Wehave spent approximately $6 million or about $4.20 perfish. The $6 million we have spent has resulted in apotential benefit to the economies of the various coun-tries in the North Atlantic region of over $1 billion.

The acquisition of these quotas had an unexpectedside benefit: It virtually elimi-nated illegal netting. Once thelegal netting rights were retired,pirates were the only people leftfishing, so their illegal activitieswere pretty easy to spot!

ur efforts get quite a “bangfor the buck.” The prob-

lem, of course, is getting thebucks! We have had to fight forevery dollar, pound, and krona.Most of the funds we have raisedhave come from individuals,river owners, fishermen, andconservationists. (By the way,we have recently been approvedas a tax-exempt 501(c)(3) orga-nization in the United States.Your contribution is now tax-free.)

We have received somehelp from governments. TheIcelandic government gave usmatching funds to acquire the remaining nets in Icelan-dic waters. From the United States, the National Fishand Wildlife Foundation and the State Departmenthave helped us find alternative jobs for netsmen whovoluntarily cease their netting activities.

The North Atlantic Salmon Fund is also activelyengaged in salmon conservation generally, not just thepurchase of salmon quotas. We spend quite a bit of timelobbying (actually “fighting” would be a better word)European governments who, in my view, generally hatesimple solutions to problems.

Furthermore, the option of retiring commercialnetting rights is not available everywhere, because inmany places there are no private netting rights. The riv-ers of New England were full of wild salmon 200 yearsago. But there are no longer any meaningful populationsof salmon there. I have just read (in Ed Baum’s excellentnew book: Maine Atlantic Salmon) that efforts to restorewild salmon to New England have been going on for 140

years. Indeed, 96 million salmon, as fries, parr, andsmolts, have been released into New England rivers. Yetno North Atlantic salmon population has been restoredin any river in the United States. It would seem, there-fore, that you in the U.S. also should have an interest inwhat we do—saving the salmon on the high seas.

I have another idea for the North Atlantic. When Ilook at this huge, crystal-clear, cold, and pristine environ-ment, I see a great economic opportunity. This environ-ment consists of plankton, small fish like the capelin sar-

dine, cod, salmon, seals, andwhales. The products of theNorth Atlantic should, it seems tome, be as highly regarded by con-sumers as is wine from the NapaValley, potatoes from Idaho, orScotch from Scotland.

I am in the process of de-veloping a concept I call NorthAtlantic Quality or NAQ. Theidea would take the form of aquality control label, like the“appellation contrôlée” for thewines of France. Suppliers in theNorth Atlantic region whomeet certain high standards forquality control and environ-mentally sensitive practicescould use a distinctive label ofthe North Atlantic region. Webelieve this marketing approachwould attract international in-vestment to our fishing industryand encourage consumers to

prefer North Atlantic seafood, thereby securing thelong-term growth of fish stocks. As you might haveguessed, I would prefer that the salmon we market inthis way be farmed salmon, not our few remaining wildfish!

Orri Vigfússon is a businessman in Reykjavík, Iceland, andchairman of the North Atlantic Salmon Fund. Vigfússon is featuredin Enviro-Capitalists. (See below.)

■

It occurred to me that

the commercial salmon quotas in the

North Atlantic were an untapped

environmental and economic resource

that could be more valuable to the

economies of Iceland, the British Isles,

Scandinavia, and Canada

than they were to the

fishermen who owned them.

■

O

Read about Orri Vigfússon and other environmentalentrepreneurs in Enviro-Capitalists: Doing GoodWhile Doing Well, by Terry L. Anderson andDonald R. Leal (Rowman & Littlefield, 1997). It isavailable in hardback through Laissez-Faire Books(800-326-0996) at a special price of $14.95 plusshipping and handling.


WHERE RESEARCH ANDPOLICY MEET

TA N G E N T S By Daniel K. Benjamin

economist, n. a scoundrel whose faulty vision sees things as they are, not as they ought to be.

—after Ambrose Bierce

t is widely argued that individuals cannot accuratelyassess the environmental and workplace risks they

face.1 One typical claim is that people poorly assess thehazards of dying: They wildly overestimate the likelihoodthat they will die of lightning strikes or food poisoning,while grossly underestimating the chances of dying due tostroke or heart attack. This asserted failing has helpedestablish and expand various environmental, health, andsafety regulatory bodies. Mandatory motorcycle helmetrules, automobile air bags, and Superfund site cleanuprules stem directly from the view thatpeople do not have accurateknowledge of the risks they face.

This pervasive claim, the “bi-ased perception hypothesis,” is itselfflawed, however.2 My colleague Will-iam Dougan and I have reexaminedthe existing body of evidence in thisarea and found that it misses the issuemost relevant to individual decisionmakers—namely, relevance itself.

Beginning with surveys firstconducted by psychologists 25 yearsago, researchers have sought to determine if people canestimate population-wide death rates from various causes.On balance, individuals appear to be rather poor atmaking such estimates. With this finding we have noquarrel. Yet researchers and policy makers have interpretedthis finding as implying that people are therefore poor atestimating the chances that they, as individuals, are likelyto die of these causes. This interpretation leads to thenotion that people must be protected from theirmisperceptions—presumably by better informed expertsin government agencies.

To see the nature of the problem, consider two

potential causes of death, accidental falls and deliberatehomicides. People of all ages fall down, yet falling is rarelylethal except among the elderly. The chance of dying dueto a fall begins to rise sharply at around age 65, and theaverage age of death due to falls is approximately 74 years.Toward the other end of the spectrum, deaths due tohomicide are relatively infrequent except among theyoung. The overwhelming majority of murder victims areunder the age of 35.

In a world in which information—like all othergoods—is scarce, one would expectpeople to economize on its acquisi-tion. In the present context, thismeans people should specialize in ac-quiring information about hazardsrelevant to them, rather than aboutthe hazards faced by some hypotheti-cal or population-wide group. Thus,older people should be acutely awareof the risks of falling down, whileyounger people should be relativelyknowledgeable about the risks of ho-micide. Moreover, when younger

people are asked to estimate the hazards of falling down,for example, we should expect them to understate thesehazards for the population, because the risks to them asindividuals are so low.

To test these predictions, Dougan and I revisit thedata that have served as the foundation for the biasedperception hypothesis. We apply the rationalexpectations approach developed by economists such asNobel laureate Robert Lucas. This approach isspecifically meant to analyze behavior when people mustact in the face of incomplete information.

We find that people are, in fact, knowledgeable

I

■

People are knowledgeable

about the hazards

faced by individuals in

their age group.

■


about the hazards faced by individuals in their age group.In addition, they use these data in useful and systematicways when predicting fatality rates among thepopulation as a whole. Overall, it appears that peopleare remarkably unbiased in judging the hazards ofactivities that are most relevant to them.

This does not mean that people are perfect injudging hazards. The data imply that people do makemistakes—hardly surprising in a world of costlyinformation. The point is that people do not makesystematic mistakes, that is, mistakes that might be easilycorrected by information readily available togovernment bureaucrats.

None of this means there is no role for governmentregulation of environmental, health, or safety risks. Butsuch regulation cannot be justified by claiming thatpeople are systematically erring in their judgments.

Frank Knight, one of the great economists of the20th century, once observed, “We are so built that whatseems reasonable to us is likely to be confirmed by

experience or we could not live in the world at all.” Theevidence Dougan and I have found is consistent withKnight’s view. More importantly, the evidence impliesthat some argument other than biased risk perceptionswill have to be invoked by those who would usurpindividual responsibility for judging hazards.

1. See W. Kip Viscusi, “The Value of Risks to Lifeand Health,” Journal of Economic Literature, 31(December 1993), pp. 1912–46 for an exhaustive reviewof the literature in this area.

2. Daniel K. Benjamin and William R. Dougan,“Individuals’ Estimates of the Risks of Death: Part I—AReassessment of the Previous Evidence,” Journal of Riskand Uncertainty, vol. 15, November, 1997, pp. 115–33.

Daniel K. Benjamin is a PERC Senior Associate and Professor ofEconomics at Clemson University. “Tangents” investigates policyimplications of recent academic research.

Notes

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September 1998

Dear Reader:

As PERC wraps up its busiest summer ever, we are again soliciting your financialsupport. With the growth we have experienced in the past few years, our impacton policy continues to increase. For example, water marketing, which was simplya theory in the 1980s, now provides a practical solution for water quantity andquality problems. User fees on public lands, also proposed by PERC in the early1980s, have been implemented through the federal fee demonstration program.Senior Associate Richard Stroup’s idea for managing lands through a trustarrangement serves as a model for the Presidio Trust in San Francisco.

If you have been a supporter of PERC, you deserve credit for our successes; if youhave not been, now is the best time to get on board. Because we do not seek oraccept government funds, private contributions are PERC’s lifeblood. A newdonor has pledged matching funds for contributions up to $15,000. This couldallow you to leverage your contribution, so now is the perfect time to grow withPERC. I look forward to receiving your contribution. If you have any questionsabout PERC’s activities, do not hesitate to call.

Sincerely,

Terry L. AndersonExecutive Director


GREENERPASTURES

PRIVATE INITIATIVES

By Linda E. Platts

FOREST OF TOYOTA

group of researchers at Japan’s largest car manufac-turer are concentrating on designer trees rather

than fuel efficiency. This odd turn for Toyota is an effortto develop a new tree with a ravenous appetite for thenoxious gases produced by gasoline-powered automobileengines.

Since 1991, the company has been working on bi-ology-based methods of cleaning up the environment.As part of that effort it launched the Forest of Toyotaproject which not only plants trees, but seeks to developsmog-eating plants.

Toyota researchers estimate that it takes 20 “regu-lar” trees to absorb the gases produced by just one carduring a year. So far, they have improved that perfor-mance by 30 percent. Scientists discovered that dou-bling the number of chromosomes in experimental treesresulted in wider air inlets on the leaves and stems, thusallowing them to absorb more nitrous oxide and sulfurdioxide. Altered eucalyptus and London plane treeshave performed well under laboratory conditions.

The company has also planted an $800,000 modelforest and equipped it with $80,000 worth of emissionsmeasuring devices. Toyota plans to study how variousforestry techniques reduce carbon monoxide levels.

—Business Week

BATS IN THE STADIUM

ast spring, thousands of Brazilian free-tail bats founda home at the New York Mets training facility in

Port St. Lucie, Fla. About the size of a man’s thumb witha wingspread of four inches, these little fellows areharmless, but certainly not tidy.

In the evening, they would pour out of the crevicesin the stadium in search of their nightly repast. However,

during the day they deposited prodigious quantities ofguano on the bleachers while hanging sleepily from thestadium canopy. Maintenance crews had to pressure-clean the stadium twice a day to make it habitable—orsittable—for the fans.

Although the bats were a nuisance in somerespects, they were also a valuable resource because theyconsumed tons of pesky mosquitos. Without bats (themammal variety), the Mets would be spending more oninsect control and less on guano control.

A solution was found by building a new, woodenbat house in a swampy area behind right field. It is nowhome to some 15,000 bats. Meanwhile, the bleachersare guano-free and nature’s mosquito control program isworking efficiently and economically.

—The Washington Post

TREETOP WALKWAY

igh above West Africa’s Upper Guinean rain for-est, tourists on gently swaying walkways stroll cau-

tiously through the forest canopy. It is a nature experi-ence still rare even in the realms of eco-tourism.

Kakum National Park, the 140-square-mile preservewhere the walkway is located, is home to several endan-gered species including the forest elephant. It is one of thefew intact areas left of what was once a vast rain forest.Already more than 80 percent of the Guinean forestshave been lost, and the remaining forests are under threatof destruction from logging, settlement, and agriculture.

The canopy walkway and accompanying visitorcenter were the brainchild of Conservation Interna-tional (CI) and built with the support of the GhanaWildlife Department and the United States Agency forInternational Development. Ecotourism projects such asthis are one of the tools being used by CI to conserve bio-logical diversity and support sustainable development.

When the park was first created in 1992, the num-

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ber of visitors ranged from none to few. With the addi-tion of the walkway in 1995 and the visitor center in1997, the park now hosts 40,000 visitors a year. Lastyear, it took in revenues of $75,000 and employed morethan 2,000 Ghanians in park-related jobs.

Oliver Hillel, ecotourism program director for CI,says, “For many communities, ecotourism is an effectiveeconomic alternative to destroying the rain forest forquick monetary gain.”

Kakum National Park is also a standout with thetravel industry. In 1998, it won the annual Condé NastTraveler Magazine Ecotourism Award.

—Tacoma Tribune News

GREEN VENTURE CAPITAL

he EcoEnterprises Fund offers a new twist onventure capital by targeting environmentally

responsible and conservation-minded businesses. Thefund will invest an average of $100,000 to $200,000 insmall start-up ventures in Latin America and theCaribbean.

The fund, also known as Fondo EcoEmpresas, is ajoint effort of the Inter-American Development Bankand the Nature Conservancy. It will identify potentialinvestments, provide start-up funds, on-going technicaltraining, and management services. The fund wascreated to support small- and medium-sized businesses inthe regions, and at the same time to encourageconservation and protection of the environment. “Byinvesting in market-driven enterprises with strongbenefits to conservation, we are putting our moneywhere our mouth is...,” says Alexander Watson of theNature Conservancy.

One stipulation for funding is that the businessesmust be sponsored by a non-profit organization based inLatin America or the Caribbean and have at least onepartner in the private sector. The fund is currentlyworking with 24 prospects. For more information,contact Patricia Leon at the Nature Conservancy:(703)841-4252.

—Environmental News Network

LOOKS LIKE WOOD

he picnic table, the park bench and the boardwalklook like wood, but they are actually made from

plastic. Impervious to water, salt, oil, chemicals, and in-sects, the building material comes from chipped and

melted milk jugs and detergent bottles. This new use forhigh-density polyethylene is making profits for outdoorfurniture manufacturers and checking the flow of plas-tics into our landfills.

The handsome, sturdy outdoor furniture will notrot, crack, splinter or require painting. Consumers findthe recycled aspect of the furniture appealing. At arecent garden show, one plastic Adirondack chair wasthe star attraction because it carried a sign announcingthat it had been made from 240 discarded milk jugs.

A growing number of companies are manufacturingan array of products from recycled high-density plastic.Conversion Products Inc. in Portland, Maine, sells a parkbench for $395, an Adirondack chair for $255, and aflower box for $55. St. Louis-based ERI Recycling Inc. ismaking plastic shipping pallets that last up to 10 timeslonger than the wooden variety. ERI President Art Moreysays that in addition to making a profit one of hiscompany’s major objectives is to “take plastic out of thewaste stream and do something useful with it.”

—Boston Globe

RAGWEED TO RICHES

s many midwestern farm families struggle to makea living off the land, the Jones family of Afton,

Iowa, has found a new source of revenue growing intheir pastures. For two summers, the family has beenpicking the flowers off the ragweed plants that flourishin their fields and corrals.

The flowers are ground up, sifted, and eventuallyreduced to pure pollen before being sold to pharmaceu-tical companies as far away as Sweden. The pollen isused in allergy testing products and in shots used to treatallergy sufferers.

By late summer, the ragweed plants in southernIowa are often 6 feet tall and heavy with pollen. Usingordinary yard clippers, the family makes quick work offilling their five-gallon buckets. Last year, the Jonesfamily made $2,600 to supplement their annual income.

Pollen collectors are at work in at least a dozenstates, harvesting pollen from a variety of trees, grasses,and weeds. The Jones family and others in the area be-came involved in this unusual enterprise after an officialfrom the local Resource, Conservation and Develop-ment District asked the Allegron pharmaceutical com-pany to give a workshop on pollen collection. “We’realways looking for alternative means of keeping peopleon the farm,” says Paul Kelley, president of the AftonRCDD.

—The Associated Press

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what’s new

PERC UPDATE

Bruce Yandle, Alumni Professor of Economics andLegal Studies at Clemson University and a PERC SeniorAssociate, is spending the fall at PERC’s offices inBozeman. Among other tasks, he is supervising a long-term project on land-use preservation and theenvironmental effects of agricultural policy.

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Saving Our Streams throughWater Markets is a new handbookby PERC Research Associate ClayJ. Landry. A unique source of infor-mation, it will be a valuable tool forenvironmentalists, agency officials,ranchers, farmers, and others who wantto use water markets to protect fish andother wildlife.

Throughout the West, coho salmon,bull trout and other fish are in danger becausethe streams and rivers in which they live do nothave enough water for them to thrive and breed.Water marketing offers a way of keeping instreamflows high through voluntary trades. Saving OurStreams provides a comprehensive survey of watermarket activity, including a list of active market par-ticipants. It provides advice on how to find willing sellers,stretch small budgets, and negotiate fair market prices. Thehandbook is available from PERC for $5.

Landry’s background includes serving as a naturalresource economist for the Oregon Water Resources De-partment, an adviser to the Oregon Water Trust, and alegislative analyst for Montana Trout Unlimited. Landryholds a master’s degree in agriculture and resource eco-nomics from Oregon State University and a bachelor’sdegree in economics from the University of Wyoming.

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Matthew Brown, a statistics graduate student inthe department of mathematical sciences at Montana

State University at Bozeman, was PERC’s journalism in-tern this summer, providing editing, writing, and researchassistance. A native of Florida, he recently completed amaster’s degree in economics at the American Universityin Washington, D.C., after receiving a bachelor’s degreein 1996 from Florida State University. His research inter-

ests include industrial organization, regulation,Social Security privatization, and free market en-vironmentalism.

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Roger Bate will be a PERC Fellow thisfall. He directs the environment unit of theInstitute of Economic Affairs in Londonand writes a regular column for EconomicAffairs. Bate is completing his Ph.D. inland economy at Cambridge Univer-sity. While at PERC he will work on abook about the ways that anglersprotect the quality of water in En-gland and Wales. Don Leal will su-

pervise his research.Also this fall, Stacie Thomas, who has

just received a master’s degree in economics at ClemsonUniversity, will be a PERC Fellow. She will work with vis-iting scholar Bruce Yandle studying how local communi-ties can take responsibility for regulation of water quality.

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Increasingly, policy makers are looking to PERCscholars for information about natural resource issues.PERC Senior Associate Don Leal recently updatedmembers of the Wildlife Division of the Montana De-partment of Fish, Wildlife and Parks on market incen-tives that other states are using to encourage landown-ers to provide wildlife habitat. In an earlier speech at theUniversity of Colorado’s law school, Leal spoke aboutthe move in various states toward creating financiallyself-sustaining parks through user fees.

JOURNALNOTES FROM THE EDITORS

By Jane S. Shaw & Linda E. Platts


ontana’s long summer days help make up for thebrevity of the season. Our many guests enrich the

summer, too. These days, PERC’s offices burst at theseams as visiting scholars, fellows, and numerous othersgather. As each passing year reminds us, Montana is oneof the best places to mix work with fishing, swimming,hiking and lounging.

Wally Thurman, who studied at Montana StateUniversity and worked at PERC years ago, returnedwith his family to vacation here and in Utah. While intown, he gave a seminar on his research at NorthCarolina State. Jeffrey Michael, also in theeconomics department at North CarolinaState, presented a paper at PERC on theEndangered Species Act, written withDean Lueck, a former PERC Fellow now atMontana State. Andrew Morriss, a law andeconomics professor at Case Western Re-serve, spent a month at a confer-ence in Big Sky, and visited PERCa few times.

For the second year in a row,David Haddock, professor of law andeconomics at Northwestern Universitytook a mini-sabbatical (very mini—a weekor so) in Montana before his family joined himfor a vacation. He worked at PERC during theday and stayed at Terry and Janet Anderson’s rusticvacation cabin in the Bridger Mountains. (They were inAix-en-Provence, where Terry spoke at a conference onwater management). Built at a friendly cabin-raisingnearly 30 years ago, the Andersons’ simple cabin standsin marked contrast to the many palatial residences goingup today around the Gallatin Valley. Electricity hasn’ttainted it yet.

PERC’s conferences kept us busy, starting with aconference for business executives in May, followed bya journalism conference in mid-June, a student seminarin late June, and, in July, the summer teachers’ institute,now in its second year. Two young professors, Erik Craftand John McArthur, helped guide the student group, as

M did PERC Fellow Jon Adler. Kameran Bailey of theClaude Lambe Foundation, sponsor of the June jour-nalism conference, also visited us. So did Stanford lawprofessor Barton Thompson and his family.

This year, our visiting teachers got an in-depthview of Yellowstone National Park as well as MoonlightBasin Ranch (an environmentally sensitive venture thatwas featured in the book Enviro-Capitalists by TerryAnderson and Don Leal). They even heard a lecture onAmerican Indian practices presented by Terry in theshadow of the buffalo jump by the Madison River. DonWentworth, our Director of Environmental Education,

was there (during most of the year he teaches eco-nomics and education at Pacific Lutheran Uni-

versity in Tacoma), as were returning professorsJ. R. Clark and Mark Schug. JohnMorton and his wife Kathy visited

for the first time. (Mark, John and Donare the coauthors of PERC’s distinctive cur-

riculum, Economics and the Environment:EcoDetectives.)

As always, our visiting senior associ-ates and board members make the summer

special. This year they included Dan Ben-jamin and his wife Robbie from South Caro-

lina; P. J. Hill with Lois from Illinois; RogerMeiners, with Cary and their children from Texas;and Bruce Yandle with Dottie, from South Carolina.PERC’s board chairman, Kim Dennis, spent the sum-mer in the area with husband Bill (a Liberty Fundprogram officer who took part in the Big Sky confer-ence), and children Will and Jesse. Kim and PERCboard member Bill Dunn proved that life in Montanacan be rough; she broke her arm rock climbing andhe broke several ribs horseback riding.

We also had international visitors: Chung-kai Sin,a legislative councilor from Hong Kong; former MSUprofessor Norman Dudley from the University of NewEngland in Australia; and Michael Volný from LiberalniInstitut, Czech Republic.

Now, whatever happened to those long, long days?

letters to theeditor

R E A C T I O N S502 S. 19th Avenue, Suite 211

Bozeman, Montana 59718


Two Cheers for Easterbrook

Gregg Easterbrook’s proposal for getting aroundthe “takings” problem (a $1,000 development fee peracre) may not be free market, but ithas some advantages (June 1998).

I am facing a hard-coreCorps of Engineers and a Fish andGame Department just as tough asnails. They want me to create oneacre of wetlands to “mitigate” theone acre of wetlands that I haveon my seven acres. They want thiseven though I am bordered by afreeway to the east, manufacturingto the north and south, and aprofessional park to the west. Thecost to me will be $200,000.Under Mr. Easterbrook’s plan, thecost would be $7,000. You can see how I feel about it!

John H. Woolsey, Jr., D.V.M.Santa Rosa, California

Government in the Driver’s Seat

Mr. Easterbrook’s proposal would truly put gov-ernment in the driver’s seat. The federal governmentalready owns nearly a third of the land in the UnitedStates. Should we be giving government more land,even for the noblest of purposes? How much more landcan citizens cede to the federal government withoutlosing political liberty?

Under Mr. Easterbrook’s proposal for developmentfees for each acre developed, the government would beable to acquire an additional 1.5 million acres a year.Over time, the government would, in theory at least, beable to acquire the entire land mass of the U.S. No onecould seriously consider a people free when government

owns all or even a majority of the property within thenation.

So, the most telling criticism of Mr. Easterbrook’sproposal is not that it’s extortion, and not just that it

would be ineffective in solving theendangered species problem (al-though these are true), but that itgives more control to the federalgovernment over people’s lives.

It should be noted that thissame problem arises with proposedrevisions of the endangered speciesact that free-marketeers generallysupport. For instance, we often sup-port, at a minimum, compensationfor takings. But just requiring gov-ernment to pay compensationwhen it takes control of someone’sproperty doesn’t get around the

problem of government coming to control more prop-erty and thus extending its power over individuals’lives. Another proposal is that the federal governmentonly have jurisdiction over endangered species whosenatural habitat straddles state lines and then that itcompensate property owners for limiting the uses towhich they can put their properties. This would slowthe growth of the federal estate. However, it would notultimately solve the problem of the threat that govern-ment ownership and control of land pose to individualand political liberty.

Compensation for takings is only a second or thirdbest option for species protection. Perhaps what we needis a constitutional amendment that would require thegovernment to give up some property for every piece ofproperty it gains, capping government ownership ofproperty at some fixed percentage.

H. Sterling BurnettEnvironmental Policy Analyst

National Center for Policy Analysis, Dallas


Coercive Wealth Distribution

What else can one call the forced confiscation ofmoney from developers except a form of takings? This iswhat I call “stealth free market environmentalism”—taxation disguised as a market solution. It’s old stuff, thetypical form of American socialism: coercive wealthredistribution. Instead of confiscating and running themeans of production directly, it imposes control throughtaxation and regulation—usually a combination of both,because each tends to engender more of the other. Whatyou (the developer) buy back today, the seller canimpose again on you tomorrow andthen demand an even higher buy-backprice.

Yes, one effect of Mr. Easterbrook’sproposal would be to permit landownersto “win control” of the land they own—temporarily. But how is this a departurefrom government extortion? Want to beable to exercise your property “rights”?Then pay us a fee to stop harassing you!It’s no different in principle from theMafia telling a small businessman, “Forkit over, bud, or we can’t protect youfrom our thugs!”

I’m sure that Mr. Easterbrook’sintentions are as pure as fresh CascadeMountain snow. Nevertheless, moreeco-thuggery would be the effect of his proposal. Themore avenues of power we create, the more abuse we’llget.

Let me underscore the moral issue, too. The greatvirtue of free market environmentalism is that itidentifies and rejects coercive means. To those of us whobelieve in human freedom, the means always matter.Instead of trading one form of coercion for another, thethrust of solutions to the takings problem should be toeliminate coercion, gradually substituting creativevoluntarism. If we lose that concept, we lose the war.

E.G. RossEditor, The Positive Economist Bulletin

Eugene, OR

What About Market Failure?

The response by Jane Shaw and Richard Stroup toGregg Easterbrook’s latest proposal, as well as FredSmith’s letter (June 1998), show the failure of PERCadvocates to grapple with two fundamental issues.

First, these writers fail to acknowledge that free-market mechanisms pose very real obstacles to the

accurate expression of individual preferences in theenvironmental arena. According to most poll results,tens of millions of Americans place a high value on theprotection of endangered wildlife. But theseconservation advocates, while numerous, haverelatively small individual stakes in the issue andtherefore are difficult, time-consuming, and expensiveto organize. The barriers to organizing them (ascompared, say, to the forest products industry) meansthat their interests will be relatively under-served in afree-market system.

Equally significant is the free rider problem. Giventhe large size and disparate character ofthe constituency for wildlife protec-tion, classical economics suggests thatmany individuals will be tempted toavoid direct individual effort or expen-diture in the hope that their prefer-ences will be achieved through the ef-forts and expenditures of others. (Whybother to join the Sierra Club, whenthe organization is already so large andeffective and nobody will miss my $25anyway?) Firms and individuals pursu-ing narrow financial goals through col-lective action do not labor under thesame free rider problem, at least not tothe same extent.

Modern environmental laws aredesigned to address these market failures, howeverimperfectly. PERC advocates simply wish them away, orpretend that they represent a few special cases.

The second fundamental issue is that PERCadvocates seek not merely to unleash the free market,but also insist on making a fundamental reassignmentof property entitlements before the market is allowedto operate. Consider endangered species conservation.Under the current legal regime, private real propertyrights are accorded a very real measure of support. Atthe same time, the Endangered Species Act expresseslegally enforceable public use rights (or perhaps moreaccurately, nonuse rights) in lands and other resourcessubject to this law. One can certainly quibble aboutwhere the law draws the line between public andprivate rights, but it seems indisputable that there isnow a recognition of both public and private rights.

As a first step, PERC would abandon the publicrights in wildlife and reassign them to private industry.The market would then be allowed to operate.Individuals and groups supporting wildlife conservationwould, in effect, be allowed to buy back that which wasso recently surrendered on their behalf. The PERCapproach puts wildlife conservation interests in the

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This is what I call

“stealth free market

environmentalism”

—taxation disguised as a

market solution.

—E. G. Ross

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LETTERS

position of having to expend significant time andresources to make up for lost ground.

This reassignment of rights is not necessary to sup-port constitutional property rights. Extensive recentscholarship confirms that the Takings Clause of the FifthAmendment as drafted by the founding fathers was neverintended to extend to regulations. The Supreme Courthas recognized that some regulations can effect takings.However, the overwhelming majority of regulatory ac-tions, including requirements enforced under the Endan-gered Species Act, do not result in takings. Thus, PERC’sproposed reallocation of rights in wild-life from the public to private industrycannot be justified on constitutionalgrounds.

PERC advocates weaken theforce of their intellectual efforts by in-sisting on an initial reallocation ofrights rather than attempting to insti-tute market approaches consistentwith the current assignment ofrights—or, dare I suggest it, a reas-signment of rights in favor of the pub-lic. For example, suppose that citi-zens’ elected representatives decidedhow much habitat destruction shouldbe permitted over a particular periodof time. Developers, resource indus-tries, and others who wish to tap intothis bank of public rights (to destroyhabitat) could then bid against eachother for the right to do so. Hopefully,the result would be that the opportu-nity to engage in wildlife-destroying activity is efficientlyallocated to those firms willing to pay the most to en-gage in such activity. While there are some obviousproblems with this hypothetical proposal, it illustratesthe point that adherence to a market approach does notrequire a sacrifice of public rights at the outset.

The PERC agenda is consistently stimulating andprovocative. It would be more persuasive if its advocatesgrappled seriously with the limitations of the free-market approach, and if they avoided irrelevant detoursadvocating unsupportable conceptions of privateproperty rights.

John D. EcheverriaDirector, Environmental Policy Project

Georgetown University Law Center

Mr. Echeverria was formerly chief legal counsel for the NationalAudubon Society.

Jane S. Shaw and Richard L. Stroup respond:

1. Yes, the “free rider” problem makes it difficult toorganize people and raise funds. This free rider problemis even more severe among voters, however. Since vot-ers cannot control federal policies such as those to pro-tect endangered species, voters have little incentive tolearn whether they succeed or not—or to act upon thatknowledge if they have it. A dissatisfied taxpayer cannothold back taxes and support voluntary conservation ef-forts instead. The free rider problem among voters givesus wasteful government spending and destructive regu-lation, just as in theory it reduces the funding of volun-

tary efforts.Unlike individual voters, how-

ever, supporters of Ducks Unlimited,the Delta Waterfowl Foundation, andother conservation groups have an in-centive to monitor and control theprograms they support. They canswitch their dollars to the programthey think is best.

2. PERC has never proposed“reallocation of rights in wildlife fromthe public to private industry,” as Mr.Echeverria claims. Our proposals forendangered species protection wouldleave ownership of wildlife with thepublic, as it always has been in theUnited States. But owning an animaldoes not mean it can forage from theland of the owner’s neighbors (i.e.,private landowners). Nor does theowner have a right to quarter the ani-mal on a neighbor’s land without

compensating the neighbor. (Indeed, the U.S. Consti-tution prohibits the government from demanding thatsoldiers be quartered.) Compensation is appropriate. Italso would minimize the habitat destruction going on aslandowners seek to avoid future uncompensated de-mands by the federal government.

3. H. Sterling Burnett is correct to point out thateven full compensation reduces liberty and increases thegovernment’s reach. But compensated takings have twoadvantages. They are constitutional, unlike currentpolicy in our view, and they are subject to the disciplineof the budget process. Because the Fish and WildlifeService currently can take what it thinks it needs with-out compensating owners, it does not do what mostAmericans do routinely: balance a checkbook. It haslittle incentive to use resources wisely (its resources arepotentially the entire U.S. land mass), or to cooperatewith landowners (its power trumps theirs), or to be in-

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The PERC agenda is

consistently stimulating and

provocative. It would be more

persuasive if its advocates

grappled seriously with the

limitations of the

free-market approach.

—John Echeverria

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novative (it can simply tell landowners what to do). Incontrast, private conservationists, who don’t have thatpower, have been highly creative.

Private Stewardship Inadequate

Fred Smith (June 1998) asserts that where privateownership is relied upon, as in gardening, “there are noendangered tulips.”

If he had thought carefully, he would have realizedthat this is poppycock. Of the tulip varieties that existedat the time of the great tulip mania in the 18th century,I dare say very few still exist. I have an American or-chard manual from 1854, which lists 186 varieties ofAmerican apples, 77 varieties of cherries, and 233 vari-eties of pears. Almost all are extinct or so rare that if wehad a list of endangered fruits, they would appear.

Since these varieties of fruit were of human devel-opment, their loss does not raise the same ethical ques-tions that wiping out the cheetah does. But the patterndemonstrates that private markets will reliably preserveonly varieties and species that serve relatively immedi-ate commercial or other human needs. If there is no mar-ket for the Stroat apple formerly found in Kingston, NewYork, it will, and evidently has, passed away, even if itmight have tickled the fancy of my grandchildren in away that the Granny Smiths, Golden and Red Delicious,and Newtown Pippins I will bequeath them never will.

Similarly, private stewardship is utterly inadequateto protect most of the bird species (one third of allknown taxa) currently threatened or endangered. Break-ing a single link in a chain of migratory habitat willdoom most of them, even if the owners of the remaininglinks are passionately dedicated to them. (Of course ifBill Gates is passionately committed to a particular spe-cies its chances become much better.)

Smith doesn’t appear to see a major difference be-tween allowing apple varieties bred by us to vanish andallowing the simplification through extinction of the restof nature—which we have not created and which, ourreligious traditions teach us, we are stewards, not own-ers, of. Libertarians would be well served by addressinghow to make the unfettered private ownership they seekconsistent with the need for the virtues taught by tradi-tionalist conservative thought: piety and respect for thelarger creation.

I don’t say these needs cannot be reconciled, onlythat glib analogies to Persian cats and tulips suggest thatsuch a reconciliation is not high on the priority list. Aslong as that is true, environmentalists like myself willcontinue to suspect that for libertarians, as for WallStreet, mankind is the measure of all things, mammon

the chief deity, and material consumption the principalgoal of the freedom so eloquently espoused.

Carl PopeExecutive Director

The Sierra Club

Fred L. Smith, Jr., replies:

Private conservation is doing more to preservebiodiversity than Pope realizes. True, only a handful ofapple species dominate the commercial markets, but theSeed Savers Exchange in Iowa estimates that over 600varieties remain available in the United States.Applesource (www.applesource.com) offers over 99 va-rieties for sale.

Like many environmentalists, Pope is skeptical ofprivate property. He fears that people acting voluntar-ily might do the wrong thing, allowing species to go ex-tinct. But, then, people often do the wrong thing in thepolitical sphere also. Political institutions work crudely;millions of citizens must be mobilized before laws orregulations can be enacted and enforced. In contrast,even a handful of people can protect a species theyvalue. And they have done so.

Pope places his hopes in politicians and laws; Iplace mine in people and property rights. Yes, it is truethat if no one cares about a species, that species willdisappear. But that will be true in either a private orpolitical arrangement. Where should we place our faith?Someone once told Milton Friedman, “You seem tohave a lot of faith in the market!” “No,” he responded,“I have a lot of evidence.”

However, while I do believe that private propertyis essential, I agree with Pope that the market is insuf-ficient in and of itself. In my view, private property iscritical precisely because it allows a resource to surviveeven after it loses its commercial rationale.

Still, Pope’s criticisms do focus attention on a topicthat free marketeers have neglected— the limitations ofprofit-based conservation. Our challenge is to clarify tothe environmental community how private property(and the voluntary exchanges they permit) better allowsAmericans to protect cherished noneconomic values—our homes, our families, our religions, and, yes, even ourapple trees. We have some work to do.

The editors of PERC Reports welcome letters,especially those that further the dialogue

about free market environmentalism. Publishedletters will be edited for length and clarity.Please send your messages to Jane Shaw atPERC (e-mail: [email protected]).

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n her new study, Public Lands: The Price We Pay,PERC Research Associate Holly Lippke Fretwell

exposes the wasteful land-management practices of theU.S. government. The federal government currentlyowns over 450 million acres of land, much of it underthe control of the U.S. Forest Service and the Bureau ofLand Management (BLM). Instead of a rich source ofrevenue to benefit the public, these lands are a financialburden for taxpayers and another example of the federalgovernment’s lack of fiscal accountability.

Fretwell shows that from 1994 to 1996 the ForestService and BLM lost an average of $290 million dollarsper year on timber sales, $66 million per year on grazingrights, and $355 million per year on recreation. Fretwellcompares these losses by federal agencies to the profitsearned by state land managers. During the same period,similar lands in 10 western states made money. For everydollar they spent, the states averaged $5.56 in revenue.In contrast, the BLM earned just 94 cents per dollarspent, and the Forest Service earned only 30 cents.

The states differ from federal agencies in that theymust, in most cases, fund their operations out of receiptsand are required to earn income from their lands tobenefit public schools. As a result of these incentives,state agencies earn money from mining, logging, grazing,and recreation fees and operate at much lower costs.

Federal agencies have no such incentives to earnmoney. They rely on the taxpayers to cover any red ink.They lack accountability with public funds. Fretwellnotes that the General Accounting Office found thatthe Forest Service could not account for $215 million ofits $3.4 billion dollar budget. If federal land agencieswere required to fund their spending out of revenues,Fretwell argues, government-owned lands could becomea resource for taxpayers, not a financial burden.

This report can be found on PERC’s Web site(www.perc.org) or can be purchased from PERC for $5.

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