The Fallacies of Free Market Environmentalism
19 Pages Posted: 24 Jan 2006
This essay reviews the book, Free Market Environmentalism, and finds it wanting on several counts. The proponents of free market environmentalism (Privateers) hold an atomistic view of of society, glorify market exchanges, discount market failures, and decry governmental intervention. They indict the democratic process for being dominated by rent-seeking interest groups and claim that public dialogue can never subsume private preferences. Yet privateers ignore the fact that most environmental resources are incapable of being accurately priced.
This essay explains how external cost, collective goods, and free rider problems ensure that the marketplace systematically overvalues polluting activities and resource consumption while undervaluing clean air and water and other environmental goods, thus creating significant inefficiencies. The essay also points out that enforcing market-based preferences requires public enforcement, which is itself costly. Reliance on common law remedies like nuisance produced spectacular inefficiences and unfairness in the past. The authors of Free Market Environmentalism offer no prescriptions of how to avoid these mistakes in the future.
Because Free Market Environmentalism fails to acknowledge that markets persistently fail to produce ecological and health information necessary to allocate environmental resources efficiently, it is a deeply flawed book. Privateers also unwisely assume the wisdom of current preferences and the fairness of existing wealth distribution. And they carve out a significant role for the judiciary, the least representative branch of government, to allocate environmental resources. While there may be a role for markets in the implementation of environmental policy, particularly in supplying incentives to comply with environmental requirements, thereby reducing both fiscal and psychic costs, the market is a poor place in which to make environmental policy. The values which shape environmental policy are better identified through the dialogue of democracy, through public hearings and legislative determination, and with the participation of both the landed and the landless.
Keywords: environmental policy, economics, markets
JEL Classification: A12, A13, D72, D81, K32, Q28, Q38
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