Property Rights and Environmental Quality: A Cross-Country Study

Abstract

Public policy often regards pollution and other measures of poor environmental quality as public bads that result from market failure and require government intervention through regulatory policies and more stringent environmental standards. In this article, I argue that pollution and environmental quality should instead be regarded from a property rights perspective, in which institutions of clearly defined and enforced property rights create incentives that lead to reduced levels of pollution and an overall improvement in environmental quality. Using cross-country data, I examine the relationship between property rights and environmental quality.

This article shows that where property rights can be well defined and enforced, as with property rights pertaining to land and water, increases in the security of property rights lead to improvements in environmental quality. For instance, I find that as property rights become more secure, deforestation decreases and access to safe water and sanitation facilities improves. When property rights cannot be well defined, such as property rights over the air, increases in the overall security of property rights may erode environmental quality. For example, I find that more secure property rights are positively related to several indicators of air pollution.

Keywords: private property rights, free markets, market failure, common goods, air pollution, water pollution, water quality, environmental law, environmental regulations

JEL Classification: K11, P14, Q20, Q25, Q28, Q50, Q58