PERC - The Property and Environment Research Center
How Free Markets Protect the Environment
By Richard L. Stroup, Ph.D. and Jane S. Shaw
Conventional economic wisdom, in a theory first propounded by Nobel laureate Paul Samuelson, holds that the unregulated market
cannot be expected to protect the environment. In this theory, clean air and water are "public goods" whose value is not well reflected
by market processes.
Potential polluters do not consider the social costs of their action, but only the costs to themselves. In addition, since efforts to
maintain a clean environment benefit even those who do not help fund them, each individual faces a strong temptation to avoid
footing the bill.
This analysis has become so accepted that many people now see no alternative to the system of government environmental
regulation and control that has been pieced together over the past two decades.
This system, however, is beset with difficulties. When environmental goals and controls are politically determined, they are subject to
a process that is often driven by groundless accusations, supported by public fear, and legislated with special interest in mind.
Populist sentiment and pork-barrel politics, rather than actual environmental dangers, currently determine priorities.
We should therefore be prepared to reconsider the free-market solution to environmental pollution, which has worked in the past and
could be made to work better now. Over the long run, private ownership is the most effective protector of the environment--provided
ownership is transferable and backed by courts that make people liable when their pollutants invade the person or property of others.
This system of private ownership would protect the environment for the same reason that it protects other kind of property: because it
encourages good stewardship.
Property rights and accountability
When backed by effective liability laws, private property rights tend to work well. Because well-tended property increases its value,
private owners generally take care not to despoil their land.
This safeguard works even when owners care only for themselves, not for their heirs. For at the very first signs of poor
stewardship--the first indications of land erosion, for instance--appraisers and potential buyers can project the results into the future,
and the value of the property declines immediately.
With an effective liability system, these pressures can also keep corporations from despoiling land or property that they do not own.
Although disputes occur, the obligations of those who harm others' property are so widely accepted that many people do not even
have to go to court when their cars are damaged: insurance companies generally handle such cases routinely.
Unfortunately, environmental damage is often not as recognizable as a dented fender. Common law requires plaintiffs to prove