Private Rights in Public Resources

Equity and Property Allocation in Market-Based Environmental Policy

Professor Leigh Raymond

• Publisher: Routledge
• Year: 2014
• eBook ISBN: 9781136526268
• Topic: Biological Sciences
• Subtopic: Ecology
• Index: Biological Sciences

Privatizing public resources by creating stronger property rights, including so-called rights to pollute, is an increasingly popular environmental policy option. While advocates of this type of market-based environmental policy tend to focus on its efficiency and ecological implications, such policies also raise important considerations of equity and distributive justice. Private Rights in Public Resources confronts these ethical implications directly, balancing political theory and philosophy with detailed analysis of the politics surrounding three important policy instruments--the Kyoto Protocol, the 1990 Clean Air Act Amendments, and the 1934 Taylor Grazing Act. Author Leigh Raymond reviews legislative records and administrative documents and interviews key policymakers. Confirming that much of the debate in the selected policies centers on the equity or fairness of the initial allocation of property rights, he applies the theories of John Locke, Morris Cohen, and others to build a framework for identifying the competing norms of equity in play. Raymond's study reveals that, despite the different historical and ecological settings, the political actors struggled to reconcile similar arguments-and were often able to achieve a similar synthesis of conflicting ownership ideas. Rather than offering a familiar argument for or against these policies on ethical grounds, the book explains how ideas about equity help determine a policy's political fate. Shedding light on the complex equity principles used to shape and evaluate these controversial initiatives, this empirical analysis will be of interest to those on all sides of the debate over market-based policies, as well as those interested in the role of normative principles in politics more generally.

CHAPTER 1

THE POLITICS OF LICENSED PROPERTY

When we talk about fairness …my observation in the Congress is that fairness is one more vote, and that them that has, gets; and that it helps to have the gavel to do the getting.

—Representative Joe Barton, Texas

Equity is not an especially popular topic in modern, empirical research on public policy and the political process. Indeed, many politicians and scholars of public governance seem to agree with Representative Barton’s “gavel theory” of fairness in politics, presented in the epigraph above. Equity, from this perspective, is simply a smokescreen for the naked exercise of political power in pursuit of self-interested ends. Pork-barrel politics—the careful tending to the economic needs of one’s constituents—is the name of the game.

Few would deny that there is an important element of truth to that description of the legislative process. Yet the literature on political action seems unsatisfied with explanations of political behavior based exclusively on this model. Indeed, theories of public choice are now increasingly inclined to acknowledge the role of norms, including norms of fairness, in shaping political behavior. This chapter considers the current treatment of equity and norms in literatures on public choice and market-based policies. It offers some possible explanations for equity’s limited (although currently expanding) role in these works at present, as well as a further justification for why that limited role is an important oversight. In this manner, the chapter explains how the present study fills a gap in the empirical research on market-based policies while building on promising leads in the more theoretical literature of public choice.

The chapter proceeds in five sections. First it presents more detailed definitions of important terms, such as market-based policy and licensed property. Next the chapter delves briefly into property theory to defend licensed property rights as a legitimate form of private ownership. Third is a discussion of case selection that demonstrates the study’s broader policy implications by locating the Taylor Grazing Act, Clean Air Act Amendments, and climate change cases within a larger group of policies involving licensed property. Fourth, the chapter considers attention (or inattention) to equity in existing work on rational choice theory, market-based policies, and these specific cases to highlight the important theoretical ideas and empirical gaps that inspire this book. Finally, the chapter considers and rejects a pair of common objections to studying the role of equity in public policy.

MARKET-BASED POLICIES AND “LICENSED PROPERTY”

Uncontrolled use of a natural resource is a common environmental problem. Initially, many resource users—be they livestock owners, fishermen, or polluting industries—operate during a period of effective resource abundance, in which regulation is unnecessary. When increased usage leads to significant environmental degradation, however, the need for some form of control becomes apparent. Under certain conditions, such control arises from nongovernmental mechanisms relying on norms of behavior and mutual monitoring and enforcement (Ellickson 1993). Contrary to the dire predictions of Garret Hardin’s (1968) “tragedy of the commons” paradigm, these nonlegal forms of control flourish in various settings worldwide (Agrawal 2002; Ostrom 1990; McCay and Acheson 1987). Such “common property” regimes remain an important part of domestic and international resource management policy.

Despite the extensive success of common property management, in the absence of certain factors effective private control over resource use can fail to materialize. In such circumstances, government regulations become an important policy choice. Government can control use of a natural resource in several ways. Most frequently, government imposes specific and inflexible legal restrictions on time or degree of use, relying on executive branch action for enforcement. Command-and-control regulations of this type may, for example, impose limits on season of use, restrictions on the type of use permitted, or limits on the amount of resource consumption per user. Familiar examples of the command-and-control approach include rules that limit fishing and hunting to specific seasons, prohibit doe hunting, prohibit grazing by a specific type of livestock, or require installation of a specific technology to limit air pollution.

An alternative form of government regulation relies more on market principles. Rather than controlling every user through a system of rules regarding place, time, and degree of utilization of the resource, these market-based policies provide new economic incentives and disincentives to the user. In this study, a market-based policy is accordingly defined as any policy that relies primarily on new economic incentives or disincentives created by governments to control resource use. Such policies aim to be more flexible and economically efficient than their command-and-control brethren. Command-and-control tells the user exactly how to solve the problem: the fisherman can catch flounder only two weeks a year and the power plant must install a flue scrubber that captures 90% of the fly ash generated. A market-based approach provides a revised economic framework within which users calculate the best way of meeting the environmental goal: the fisherman can harvest his share of the flounder catch each year whenever and however he wants, and the power plant operator is free to reduce emissions below the required level and then sell her surplus emissions rights to a utility with dirtier equipment. In this manner, market-based approaches are intended to lower the total social costs of a given level of environmental improvement.

Specific market-based policies include pollution charges or taxes, deposit refund systems (such as state “bottle bills”), and tradable permits. An emissions tax creates an economic disincentive that raises a factory owner’s cost of polluting the air to a more socially optimal level. A deposit refund system discourages undesired resource use (such as burying recyclable materials in a landfill) by providing an incentive (the returnable deposit) that encourages alternative actions. A permit for a fixed portion of the total fish catch (or of the total forage on the federal range) tries to encourage more responsible resource use as well, by strengthening the user’s private rights over the resource. Users with stronger private rights stand to reap the benefits of their ecologically responsible behavior in future years, rather than lose out to other competitors. In each case, the policy aims to internalize for the user the additional costs of resource degradation.¹ In this manner, such policies aim to encourage the appropriate degree of environmentally sensitive behavior.

Tradable permits differ from other market-based approaches in that they create individual legal rights to a resource, thereby restricting access by others. The previously mentioned flounder fisherman, for example, effectively owns his share of the total allowable catch. These permits are akin to private property, frequently including many of the traditional rights of ownership, with one crucial exception. In nearly every case, they are subject to future cancellation or modification by the government without compensation to the owner. This ongoing vulnerability makes it misleading to simply call such rights private property, which in the United States would be protected against public seizure under the takings clause of the Fifth Amendment to the U.S. Constitution. Yet the rights in question are otherwise very much like private property. Much more than a bare license—a weak legal right lacking any property-like qualities—they are a unique form of ownership that exists at the discretion of public officials. They are property, in other words, that has only been licensed to private owners rather than given or sold to them as a fully vested legal right. They are, in short, “licensed property.”

More formally, this work will use the term licensed property to mean a private legal right that provides a significant degree of security and exclusivity to resource users but remains unprotected from future government adjustment or cancellation without compensation. Of course, licensed property is not a term found in any legal text on property law, nor is it being proposed as such. Instead, it is suggested here as a concept for political analysis, where the idea of a licensed form of private property would be quite useful. The term recognizes that the private rights created by certain market-based policies are intended to function as a form of private ownership. By calling such rights a form of property, the ideas of property theory can be brought to bear on the subject, as will be done in this work. Yet the adjective licensed takes the question of government compensation off the table.

Thus, the notion of licensed property permits one to identify these rights in political discourse as a form of private ownership without implying that compensation is required, or that every possible power of property is included in the term. This work will show how those debating licensed property policies frequently have asked the question, “Ts this a property right?” Given the variety of possible powers of ownership, a better question would be, “What kind of property right is this?” The explicit flexibility of the phrase licensed property would help steer policy discussions in this more fruitful direction.

Policies creating licensed property rights are clearly market based; they rely on the new incentives created by private ownership to attain environmental improvements. The specific incentives for the licensed property owner vary, however, with the type of right created. Licensed property rights may or may not include other traditional powers of ownership, including transfer, bequest, and destruction. Tradability, for example, adds one important incentive for users to make use reductions where they are least costly and to move permits where they are valued most highly. Of course, trading is only one way to provide incentives to owners of these rights. Indeed, not all licensed property policies encourage trading to the same degree. In fact, some limit trading so severely, either intentionally or unintentionally, that they prevent any exchanges from occurring (Hahn 1989). Even in the leading case of the U.S. SO₂ program, trading has had a relatively limited impact: many utilities are complying with the law without trading allowances at all (Burtraw 1998; Burtraw and Swift 1996).

Regardless of their degree of liquidity, however, licensed property policies provide certain other advantages of private ownership to their holders. All licensed property policies rely on security and exclusion, for example, in their attempts to achieve environmental improvement and gain regulatory efficiency. Consider instruments like individual transferable quotas for fisheries or Bureau of Land Management grazing permits for federal range users. Quotas, as in the flounder example above, discourage the inefficient and ecologically harmful “race for the fish”² by creating a secure licensed property right for each user to a percentage of the total allowable catch. Similarly, grazing permits encourage more efficient and responsible resource use by granting security to the range user, preventing an ecologically destructive “race for the grass.” The power of transfer is irrelevant to these particular incentives, a point that is sometimes overlooked.³

IS LICENSED PROPERTY REALLY PROPERTY?

Can one really describe items like grazing permits and emissions allowances as forms of private ownership? The Clean Air Act Amendments of 1990 include an explicit statement that allowances are not a form of private property, and the courts have ruled conclusively that federal grazing permits are not “vested rights” of private ownership (Raymond 1997). Many of these licensed property rights lack the full complement of the traditional capitalist powers of ownership, including unrestricted transfer or perpetuity of tenure. How, then, in light of these legal pronouncements and facts, can one reasonably discuss them as a form of property?

Legally, there is no question that licensed property rights are not private property—at least not in the sense defined by the Bill of Rights. The takings clause in the U.S. Constitution protects vested rights of ownership from government confiscation without compensation. Licensed property is often explicitly disqualified from compensation under this clause; the government reserves the power to revoke these rights without payment at any time.⁴ In the international context, there is even less support for the idea that a licensed property right created by an international treaty would somehow be the legal equivalent of private property, as is discussed in Chapter 5. Nevertheless, despite the threat of revocation, licensed property rights often exhibit remarkable staying power. The de facto permanence of many of these rights is an important counterpoint to their insecure de jure position.

The Western jurisprudence of property law provides further argument against a taxonomy of ownership that includes licensed property. The American definition of private property is rooted in a legal tradition dating back to English common law. Drawing on the ideas of Blackstone and others, this Anglo-American idea of ownership stresses the nearly unbounded rights of the owner against all others (Dwyer and Menell 1998, 273). Several aspects of ownership are regarded as central: property must be fully exclusive, transferable, and secure against confiscation by both government and other private individuals. Rights of private ownership with these three qualities are the ideal type for most economists seeking greater social efficiency (e.g., Tietenberg 1988, 39).

Despite this tradition, the realities of modern property law are a far cry from the Blackstonian ideal. Property is a highly divisible right. Since the late nineteenth century, jurists and scholars have frequently portrayed property as a bundle of rights, or “sticks,” many of which are legally separable from one another. Important sticks within the bundle include the powers of (a) use (including control over revenue generated), (b) exclusion, (c) security (including protection against forced transfer), (d) alienation, (e) bequest, and (f) destruction. A “full” property right would include all six sticks, with few qualifications. Licensed property rights include a weakened form of at least one stick, security against government withdrawal, and sometimes lack other sticks altogether.

Some sticks are more controversial than others, both historically and in the theoretical literature. The powers of bequest and destruction, for example, are frequently attacked in theory (e.g., Mill 1978) and weakened in practice. Testamentary disposition of land was highly restricted under feudal rules of primogeniture and entail (which specified the succession of heirs) in Europe and the United States until the nineteenth and even the twentieth century in some cases. Alienation is frequently restricted in practice as well, although less so than the related power of bequest. Of the six rights listed above, exclusion and use are the two powers most frequently considered central to ownership.⁵ Although these two have also been modified and weakened at times, together they form the core of virtually any recognizable property right.

The bundle of sticks metaphor is not purely academic. In practice, fragmented powers of ownership have become quite common. For instance, legal ownership without the power of transfer in the form of life estates and other arrangements is a standard part of Western jurisprudence today (Dwyer and Menell 1998, 141). Ownership without day-to-day control has become common in the business world since the rise of the modern corporation, in which salaried employees operate the business while shareholders retain the revenue from the enterprise. The Blackstonian vision is an extreme that is rarely seen, even in the Anglo-American legal system.

Other conceptions of property have prevailed in different cultures and at different times in history. It has already been noted that common property regimes, in which many sticks are lacking from what could be called the full Blackstonian bundle, are commonplace worldwide. State or public property is another prevalent form of ownership that encompasses different powers than private property itself. (Both environmentalists and natural resource industries, for example, frequently remind us that a third of U.S. land remains in federal ownership with significantly different qualities than private property.) Moving across time rather than space, one finds that private property encompassed much stronger rights against government regulation in the United States of the late nineteenth century than it does today (Horwitz 1992). Centuries earlier, feudal property systems distributed private rights of use and transfer in very different (and more restricted) ways than the current forms of private ownership (Rose 1994, 58–61).

Added to this multiplicity of property forms are the contributions of modern scholars seeking to redefine property rights still further. Thus, the literature on property has included a host of alternative bundles. Writers have attempted to expand the notion of property to include rights both to government largesse (Charles Reich, New Property, 1964) and to basic human freedoms (Macpherson 1977). Another influential argument has called for a contrast between “personal” and “fungible property,” describing different legal treatment under current law for each category (Radin 1982). Still another has argued that any case for private ownership must include a “property right” to basic human needs to be morally persuasive (Waldron 1993). The definition of property is contested ground, resulting in a lively debate with little agreement on what a property right may be, at least at the margins.

Given...

Table of contents

• Cover
• Title Page
• Copyright Page
• Table of Contents
• Dedication
• Preface
• Introduction
• 1 The Politics of Licensed Property
• 2 A Property Theory Framework
• 3 Allocating SO2 Emissions Allowances, 1989–1990
• 4 Allocating Public Lands Forage, 1934–1938
• 5 Allocating Greenhouse Gas Emissions, 1992–1997
• 6 The Importance of Equity
• Notes
• Bibliography
• Index
• About the Author