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Coase pointed out that this issue cannot be resolved until property rights    are clearly defined—that is, the legal rights of ownership on which others are not allowed to infringe without paying compensation. Does the farmer have a property right not to have a field burned? Does the railroad have a property right to run its own trains on its own tracks? If neither party has a property right, then the two sides may squabble endlessly, nothing will be done, and sparks will continue to set the field aflame. However, if either the farmer or the railroad has a well-defined legal responsibility, then that party will seek out and pay for the least costly method of reducing the risk that sparks will hit the field. The property right determines whether the farmer or the railroad pays the bills.

The property rights approach is highly relevant in cases involving endangered species. The U.S. government’s endangered species list includes about 1,000 plants and animals, and about 90% of these species live on privately owned land. The protection of these endangered species requires careful thinking about incentives and property rights. The discovery of an endangered species on private land has often triggered an automatic reaction from the government to prohibit the landowner from using that land for any purpose that might disturb the imperiled creatures. Consider the incentives of that policy: If you admit to the government that you have an endangered species, the government effectively prohibits you from using your land. As a result, rumors abounded of landowners who followed a policy of “shoot, shovel, and shut up” when they found an endangered animal on their land. Other landowners have deliberately cut trees or managed land in a way that they knew would discourage endangered animals from locating there.

How effective are market-oriented environmental policy tools?

Environmentalists sometimes fear that market-oriented environmental tools are an excuse to weaken or eliminate strict limits on pollution emissions and instead to allow more pollution. It is true that if pollution charges are set very low or if marketable permits do not reduce pollution by very much then market-oriented tools will not work well. But command-and-control environmental laws can also be full of loopholes or have exemptions that do not reduce pollution by much, either. The advantage of market-oriented environmental tools is not that they reduce pollution by more or less, but because of their incentives and flexibility, they can achieve any desired reduction in pollution at a lower cost to society.

A more productive policy would consider how to provide private landowners with an incentive to protect the endangered species that they find and to provide a habitat for additional endangered species. For example, the government might pay landowners who provide and maintain suitable habitats for endangered species or who restrict the use of their land to protect an endangered species. Again, an environmental law built on incentives and flexibility offers greater promise than a command-and-control approach, which tries to oversee millions of acres of privately owned land.

Applying market-oriented environmental tools

Market-oriented environmental policies are a tool kit. Specific policy tools will work better in some situations than in others. For example, marketable permits work best when a few dozen or a few hundred parties are highly interested in trading, as in the cases of oil refineries that trade lead permits or electrical utilities that trade sulfur dioxide permits. However, for cases in which millions of users emit small amounts of pollution—such as emissions from car engines or unrecycled soda cans—and have no strong interest in trading, pollution charges will typically offer a better choice. Market-oriented environmental tools can also be combined. Marketable permits can be viewed as a form of improved property rights. Or the government could combine marketable permits with a pollution tax on any emissions not covered by a permit.

Key concepts and summary

Examples of market-oriented environmental policies, also referred to as cap and trade programs, include pollution charges, marketable permits, and better-defined property rights. Market-oriented environmental policies include taxes, markets, and property rights so that those who impose negative externalities must face the social cost.


Environmental Protection Agency. “2006 Pay-As-You-Throw Programs.” Accessed December 20, 2013. http://www.epa.gov/epawaste/conserve/tools/payt/states/06comm.htm.

Questions & Answers

a mixed economic system
Ngong Reply
What are the types of price elasticity of demand
Juliana Reply
what are massures to promote geographical mobility of labor?
Is to make sure that a labourer to know more about his salary to earn before going to the direction
what is trade
Trade is a basic economic concept involving the buying and selling of goods and services, with compensation paid by a buyer to a seller, or the exchange of goods or services between parties. Trade can take place within an economy between producers and consumers.
what is fisical policy?
ha Reply
fisical policy or fiscal policy?
what are.the characteristics of economic goods
what are the importance of labour market?
how discrib the rural development and their four stages
Sheikh Reply
ye economics se related ha
1..traditional stage..no science and technology is applied hence poor productionuu.2..the take off stage..some development strategies are initiated eg transport system is improved but the traditional cultural belief still remain .3..the prematurely stage..technological methods of production are appl
applied leading to higher GDP..4..stage of mass consumption..
What is Easiest Formula For National Income?
Tenzin Reply
national income/ agrrigate net value
what do you mean by the supply of goods
sachin Reply
supply of good refer to the total unit of production which is ready to sell at a given price
what is implicit cost
fuseini Reply
any cost that has already occurred but not necessarily shown or reported as a separate expense.
The links don't seem to be working
Scorch Reply
what is taxonomy
wise Reply
how to interprets elasticity
Joseph Reply
what is demand curve
It is the graphical representation of quantity demand of a commodity?
it is the graphical representation of price and quantity demanded of a commodity
what is the difference between positive economics and normative economics.
pauline Reply
It said that positive economics studies the facts, but normative one focus on ought to be.
in another words normative economics focuses on what the fair situation is.
positive economics: wages are 10$ per hour. normative economics: wages should be 25$ per hour.
what is choice
Hamis Reply
what is indifference curve
Misba Reply
It is an alternative combination of consumption of two goods which gives equal level of satisfaction.
good morning guys.. I am Lawrence from Nigeria.. trust am welcome here..
Lawrence Reply
are you ecnomist?
I am a researcher
you all are ecnomost
ohh nice
re search on economy

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