On Earth Day the op-ed pages remind me of “Groundhog Day.” Environmentalists argue we need stricter environmental regulation. Business interests argue such regulations reduce economic growth and cost the economy jobs. Each also invokes “sound science” as an adjudicator of the conflict. Environmentalists invoke “science” in the case of CO2 emissions and effects while business interests invoke “science” in the case of traditional pollution emissions. Each year we wake up and the same movie plays out.
The scientific validity of people’s preferences plays no role in the market’s delivery of private goods. Markets can and do supply organic lettuce regardless of whether it is really “better” for your health. The scientific validity of people’s preferences is irrelevant.
Air- and water-quality environmental disputes are more challenging to analyze than the supply of organic lettuce for two reasons. First, while property rights exist for lettuce, they often do not exist for air and water. Thus, environmental politics involves continuous struggle over implicit property rights and the wealth effects that flow from such rights. Second, both conventional air and water quality are “local” public goods (club goods) rather than private goods, thus individual differences in consumption, the primary method of reducing conflict associated with private goods, are not possible. Instead, everyone’s varied preferences for environmental goods can only result in one jointly consumed outcome.
One possible impediment to the implementation of market-like solutions to air and water quality is that the initial ownership of property rights to air or water emissions not only has wealth but also efficiency effects. That is those particular property rights (the right to a pristine environment) are so valuable relative to other assets that their initial allocation alters the willingness of people to pay for them and thus affects how much pollution exists. In such cases the initial distribution is the whole ballgame because it determines the resulting air- and water- quality levels.