Opinions and Evidence - When natural resources - range land, mineral deposits, timber stands, or fisheries, for example - are not owned privately, the value of the resource dissipates, unless access can be limited. While government would seem the natural and appropriate vehicle for limiting access, it has met with varying degrees of success in protecting our natural resources from exploitation.
Outline
- U.S. government owns 900 million acres in the - more than 1/3 of land area
- Most of the minerals, timber, and oil come from these lands. In addition much is leased for grazing.
- Property Rights - Determine Use and Abuse
- Specification
of Property Rights
- Right to use assets as long as it does not interfere with someone else's right.
- Right to derive income from the use of an asset.
- Right to sell the asset.
- Right to bequeath asset.
- Right to exclude others from the use of an asset.
- Enforcement
of Property Rights
- Government - Through police and courts
- Social Norms - ostracism
- Private - Defensive Measure, e.g., locks and burglar alarms.
- Why do Private
Property Rights Matter?
- Incentive to retain value of assets - security of present return from asset rental car versus your "own"
- Ability
to sell promotes trade and efficient allocation of resources
- Trade establishes prices - signal to producers and consumers about resource allocation for the present and future. If prices are expected to be "high" in the future the owners of resources today have an incentive to save for the future.
- Consumers respond to "high" prices by conserving resources - use less and use substitutes - when oil prices rise we buy cars with greater gas mileage and use more insulation in our houses.
- Producers respond to "high" prices by search for new technologies to create substitutes and reduce costs. When the price of sugar goes up there is an incentive to create corn sweeteners.
- Incentive to invest - security of future returns from asset
- Ability to invest - collateral allows you to access formal capital markets. Banks need some guarantee that you will repay them.
- Private Property
Rights versus the Commons
- The Shrimp Bowl at a party - social norms minimize dissipation
- The California
Gold Rush - 500 separate mining camps, which established
"laws"
- description of the boundaries
- exclusivity to claims
- must
mark claim
"All and everybody, this is my claim, fifty feet on the gulch, cordin to Clear Creek District Law, backed up by shotgun amendments. Any person found trespassing on this claim will be persecuted to the full extent of the law. This is no monkey tale butt I will assert by rites at the pint of the sicks shirter if legally necessary so taik heed and good warnin."
- must work claim
- common defense
- Result was little violence and considerable production
- The Comstock
Lode
- By 1861, production worth $2.5 million; 20,000 miners working 3149 claims in an area 1 by 5 miles.
- Problems: Who enforced claims? Who arbitrated disputes? Who had rights to underground veins? Need for security of property rights before more investment would be forthcoming
- Representative from Virginia City: "We are called upon to make laws of a peculiar character, to protect and perpetuate interests that differ essentially from those of most of the other territories.the principal resources of this territory exist in its marvelously rich mines, which for their proper development and advancement require judicious thought and enactment's by which titles to them can be secured and permanency given to that class of property by which means we may invite foreign (Californian) capital to seek investment among us." (Journal of the Council of the First Legislative Assembly of the Territory of Nevada, 1862)
- Between 1861-1866 Nevada passed 47 mineral rights laws.
- Grazing on
the public domain in the late 19th century
- Government set minimum price of $1.25 acre. At that price it was not profitable to buy land. Result was the open range.
- Problem - tragedy of the commons, i.e., overgrazing
- Overgrazing was limited by effective Cattlemen's Associations that established range rights, which restricted entry to the range and set limits on stocking
- Range rights were generally determined by prior use and by the purchase or homesteading of water rights
- Enforcement of range rights was through participation in the common roundup.
- Evidence
of success:
- losses from hard winters were less on ranges with cattlemen's' associations than those without cattlemen's' associations. Disastrous winter of 1886-1887 ranges with associations suffered losses 6%-25%; those without suffered losses of 75%.
- People were willing to pay for range rights over and above the price of land.
- People made site-specific investments.
- Oil Production
in the Continental U.S.
- Problem - rights to oil are assigned upon extraction and frequently there are numerous surface ownership claims to a given pool of oil.
- Results:
- redundant wells (the U.S. has more oil wells than the rest of the world
- extensive surface storage - wasteful
- reduced oil recovery due to dissipation of pressure
- Solutions
-
- Consolidation through purchase
- Unitization - a single firm develops the field and all others share in the returns.
- Prorationing - quotas are established according to a formula.
- Private agreements were not common. By the time they occurred, most of the common pool losses had been sustained. Why? Disputes over the estimation of lease values.
- State
enforcement of unitization
- Texas - requires unanimous agreement of all parties before a field can be unitized.
- Oklahoma - 63% majority for unitization
- Wyoming - majority rule
- 1975 production from unitized fields: WY (82%); OK (38%); and TX (20%).
- Continuing
problems with timber and fisheries.
- Enduring feature of the West has been our failure to properly define and enforce property rights to resources.
- The rest of the world faces resource problems as well.
- Failure to specify property rights and frequently corruption is the problem.