“Public Goods”- Are Excludable and Rivalrous

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Public goods are commodities that are nonrivalrous and nonexcludable. Nonrivalrous meaning that the use of the commodity by one person does not prevent another consumer from utilizing the resources. Non-excludability entails that nonpayers cannot be restricted from using the commodity. Either due to the cost of preventing free-riders from enjoying the goods being extraordinarily high or a physical impossibility. However, does the conventional notion of public goods formulated by Paul Samuelson retain its veracity. Sure some goods are nonrivalrous. Most nontangible subscription services would count as being nonrivalrous resources. Having more subscribers will not deplete the amount services provided to new customers or club members. Television services and the more modern example of streaming services would be examples of nonrivalrous goods. Similar services such as internet services operate in a grey area because there are rivalrous and nonrivalrous aspects of providing internet access. On one hand, the internet is seemingly infinite. The on-ramp to a vast see of information, communication, and entertainment. On the other hand, “… the computer networks on which it depends (its “physical layer”) accommodate a finite amount of traffic..”. Meaning that from the standpoint of the capacity of the physical hardware that facilitates internet access the consumption of one user could restrict the use of another.

Many of the clear-cut examples of non-rivalrous goods utilize subscription fees or club dues to exclude free-riders. The chink-in-the-armor of the standard public goods definition is the very notion of non-excludability. Why? There are two main reasons for the concept of non-excludability being a blind spot. The ability to restrict free riders from using a good or service is only constrained by “human ingenuity” (p.4). Technological advances can lend themselves to reducing the costs of making a good excludable. A prime example of this being the invention of barbed wire making it cost-effective to fence off a private property in the American great plains (p.4). In effect, such advances in technology make public goods categorically fluid (p.4). Potentially making any commodity a prospective private or club club. Access to navigable waterways, roads, courts, and defense are all examples of goods that we unquestionably perceive to be public goods. However, this status is tentative and subject to change once people implement effective barriers to accessing such goods.

The second flaw in the non-excludability argument is that government provision does not impede consumption by free-riders. Even though “… the specific nature of the goods it is institutional context…” (p.280) defense services are considered a public good. Due to the high cost/ impossibility of excluding a single household, it would be a public good in the traditional sense. The private provision of defense services would provide positive spillover effects for free-rider neighbors who refuse to subscribe to these services. These freeloaders would benefit from the protection their neighbor paid for potentially shielding their household from harm. The scale of excludability maybe the problem. It may be impossible to single out a household from defense services, however, it could be done in a slightly larger unit. For example, homeowner’s association’s having contracts with specific defense companies. Per the HOA agreement drafted for every potential homeowner entering the community, the parameters of the subdivision’s defense plan are detailed. Including the fact that the HOA dues cover defense services. Under signing the agreement, the single homeowner consents to the arrangement. If they do not, they can purchase a home in a subdivision with different rules. Similar to the typical amenities currently provided by HOA in North America, prevalent examples being community pools, parks, basketball courts. Shifting the mechanism for excludability from a centralized government to a smaller-scale voluntary club arrangement.

Through the institutional re-arrangement of the scale of collective units purchasing defense services, excludability could theoretically be achieved in the private market. However, the federal government fails to provide any degree of excludability for the public goods of defense. It’s not just the nature of the good being provided, but rather the scale at which it is distributed. In the current system, the provision of defense is distributed in a generalized top-down fashion. With no real variance in the quality of defense services. Whereas more upscale HOAs may have different defense packages than the run-of-the-mill subdivisions. Analogous to the difference in amenities at higher-end hotels. The top-down approach still allots services to free riders, those who do not pay taxes. Individual citizens who evade taxes or are otherwise not contributing to the tax pool still receive defense services. 

Even if excludability could not be achieved in the private sector, why does is this criterion a crucial indicator that the state must produce or manage the resource? If state intervention fails to properly produce private goods, how can we expect such measures to adequately manage common-pool resources and club goods that are incorrectly labeled as public goods. Often many “public goods” are rivalrous or excludable. 

In The Enterprise of Law (1990), Bruce L. Benson describes the commons problem impacting state provision of legal services (courts, corrections, law enforcement, etc.). The provision of law is generally viewed as being a public good, hence why is distributed by the government. The assumption is that the establishment of law would be nonrivalrous. However, due to various factors frequently it becomes that the provision of law is a depletable service. The courts and the deployment of law enforcement officers are done on a “first-come, first-served” basis (p.97) implies that these services are rivalrous. There are only so many police officers available to address the home break-in you just reported. This indicates limitations on the manpower at the disposal of the local police department. Meaning that other consumers (tax-paying citizens) are preventing you from using these services. This problem is only compounded by the fact that it is estimated that 80 percent of what officers are tasked with is not outside of their job description (p.98). Also, that there over 99 percent response rate to false alarms with security systems (which 95 percent of all alarm triggering are false alarms) (p.99). Unless fines are implemented to address the occurrence of false alarms, the residences and businesses’ guilt of this offense do not bear the negative costs. Much like using police officers as social workers, these examples of misallocating resources prevent police officers from being utilized to their full capacity. Making this analogous to the scenario of overgrazing detailed by Garrett Hardin in his seminal 1968 paper. This commons problem does not happen in isolation. Frequently many of the frivolous laws that divert the attention of the police from violent crimes are passed by legislators or lawmakers. For example, laws that criminalize victimless crimes such as prostitution (p.98). Operating only to exacerbate the existing commons problem with the allocation of policing resources.

Public Trust Doctrine: Part I

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The Public Trust Doctrine is a legal concept that has its basis in ancient Roman law and English Common Law. Being a legal construct, it has been subject to interpretation causing it to evolve over the centuries. Arguably some of the most radical shifts in its judicial application have occurred in the nineteenth and twentieth-century American courts. Shapeshifting from a doctrine used to prevent monopolization of public waterways to a blunt instrument wielded by the interests of the environmentalism movement. Subordinating water usage rights and other forms of private property to loosen conditions that public trust law has been applied. Some scholars such as Joseph Sax perceiving a contextual application of the concept as being too narrow. Believing that having more malleability with the application of the doctrine will help sustains its core function (p.4). This function being putting common resources to the best use for society. Rather than allow these resources to be sold off and alienated by private interests.

At first glance, Sax’s assessment of the doctrine may seem fair to those who are concerned about economic equality. The keen insights of legal scholar Richard Epstein provide an interesting perspective on the Public Trust Doctrine. He essentially likens the concept to be an inverted version of Eminent Domain law (p.8). Meaning that the Public Trust Doctrine mitigates private individuals from commandeering public lands without just compensation. Implying that an individual for example buying public land should not be doing so below the market price. Mirroring how just compensation is an implied right in any takings case as depicted under the Fifth Amendment of the Constitution.  In a society where taxes have been collected this premise makes sense. As taxpayers being the primary contributors to public funds, they own all public assets. In instances, where the costs of selling a public good to a private party outweigh the benefits it can be disputed whether the asset(s) should be sold.

Epstein successfully demonstrates the reciprocal nature of both Eminent Domain and the Public Trust Doctrine. The reason why both legal concepts parallel each other is the fact they are at their core interpretations of property rights. Both provide a framework for the conditions under which property can be transferred from one party to another. One describing the contingencies under which private property can be transferred for public use. The other presenting the conditions under which public property can be alienated for the use of a private party. If we are to hold property rights in high esteem both are subject to the conditions of the Takings Clause.  Unfortunately, both concepts wavered in front of protecting property rights. Proponents of a liberated form of the Public Trust Doctrine have no problem utilizing its amorphous nature to circle property rights to achieve environmental objectives. Theorists such as Sax show little concern for this erosion of property rights. Anything even remotely of a Classical Liberal disposition can be nothing but horrified by the diminished regard for private property in the American legal system.  In terms of the property being misappropriated to satisfy environmental objectives, it is easy to point to Sax being the linchpin for this decades-long trend.

It is not fair or intellectually honest to point all of the blame on Sax, technically the unfettered application of the doctrine began back in the nineteenth century.  Formulating from the seminal case Illinois Central R. Co. v. Illinois, 146 U.S. 387 (1892) considered by many to layout the rubric for the modern American interpretation of the doctrine. However, legal scholars such as Richard J. Lazarus point out that there was a precipitous change in the interpretation of the legal doctrine in the years following the 1970s (p.3). Displaying that there was a radical shift in the jurisprudence surrounding the doctrine that happened to coincide not only with the insights of Sax but also with the nascent period of the Environmental movement. Surmising that the environmental movement hastened the development of the doctrine isn’t at all outlandish. Especially considering it has traditionally been utilized as a legal construct to manage public waterways. Shedding some light on why property rights and environmentalism have historically been at odds. Truly prudent environmentalism manifests itself in sound resource usage and allocation. This can only take place in a world where property rights are enforced. Not nullified through arbitrary and tilted interpretations of legal traditions. Particularly ones that have never even been fully fleshed out in statutory law that take on capricious attributes. Merely shift due to a change on the whim of social trends.

If good resource management aligns itself with good economic policy, why couldn’t more market-friendly approaches to environmental problems be proposed as a compromise? At the very least devise compromises that respect the ownership of private property. One such compromise could entail a theoretical statutory codification of the Public Trust Doctrine. This would mandate compensation regardless of conditions under which land is transferred by the state. While the author is not completely comfortable with the idea of formal written law, this would be a pragmatic solution for two reasons. First off, it would operate as a formal constraint against loose interpretations of the Public Trust Doctrine. Second, it would demand compensation to those who were experience damages by the transfer of a property. Through a formal revision, not only can the doctrine be constrained to its original purpose it also will serve as a safeguard against unjust takings.

The Lockean Theory of Property- Part II

 

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In Locke’s book the 2nd Treatise of Government, he provides an answer to a perplexing problem concerning property rights. What authority grants us the right to own and acquire property? Is it the whim of a benevolent monarch that provides us a right to property? Are we granted a right to property through cultural norms?  Is the right to acquire and own property the by-product of legislative fiat? Locke would suggest that none of these factors wholly justifies our right to ownership. He asserts that it is a natural right endowed upon us by our creator. Veering away from the premise that ownership is privileged granted by a ruler or government. Rather, it is the birthright of every free individual. Opposing the convention that the king has dominion over everything within the boundaries of his kingdom.

 

It could be argued that to some capacity that theorist before Locke had an understanding of property rights Even the famously illiberal  Niccolo Machiavelli stated in The Prince:

 

What makes him hated above all, as  I said, is to be a rapacious usurper of the property and women of his subjects. From there, he must abstain, and whenever one does not take away either property or honor from the generality of men….  (Machiavelli, 1532, Transl. Mansfield, 1985).

 

Machiavelli did recognize property rights based on natural law. He saw respecting the property of a ruler’s subjects as a matter of pragmatism. A ruler cannot get ward off insertions and usurpation plots if he is hated by his people. Demonstrating how the indignation of the people can potentially operate as an informal check on power. Even in illiberal principalities. However, provincial self-interest falls short of a comprehensive ethical argument for the preservation of property rights. This is why this philosophical breakthrough is attributed to Locke. Versus previous thinkers.

 

The bigger mystery at hand is how did humans end up acquiring private property? In the nascent period of human history, nomadic people did not own land. Moved from location to location searching for various resources. Upon the dawn of the Neolithic period, hunter-gather societies were on the decline. Humans started to form sedimentary communities. Before permanent settlements, all lands and resources were part of a commons.  What is known as today as a common-pool of resources. Where the availability of resources is not limited by private ownership. Once humans started to acquire land, they were effectively taking it out of the “commons”. No longer could your neighbor harvest lumber from the thicket of woodlands you now presently own without permission.

 

How land transitions from the “commons” to private ownership is where Locke’s theory comes into play. We are born free and therefore we own ourselves. Consequently, we own the fruits of our labor. Through our private effects, we effectively take the resource out of the commons by harvesting it.

 

The labour of his body, and the work of his hands, we may say, are his property. Whatsoever then he removes out of the state of nature hath, provided, and left it in, he hath mixed his labour, and joined to it something that is his own, and thereby makes it property. It being by him removed from the common state nature hath placed it in…

(Locke, 1690, P.19. Ed. Macpherson, 1980)

 

Effectively, if now one else owns the resource and you effectively harvest it or process it for use it is yours. Unfortunately, this method of claiming tangible property is much more complex in the modern era. Most land and resources are under either private or state ownership. There are exceptions. The ocean is one of the few pure tangible commons left. Where fishing rights tend to be delineated by licensing or argument. However, this same principle of ownership can be applied to intangible goods in the form of intellectual property. This explains a plethora of societal sanctions for copyright infringement, plagiarism, and a myriad of other varieties of intellectual theft.

 

Locke, in his argument, does not condone resource consumption without limits. We can continue to procure resources providing two conditions 1.) we are not letting anything spoil and 2.) we are leaving resources for others (Locke, 1690, P.21). Inferring that God didn’t bless with bountiful resources to squander them nor to be gluttonously hoarded. This demonstrates the fact that there natural limits on consumption. Providing that we stay within these limitations our consumption doesn’t transgress against the rights of our neighbor.

 

Locke also provides some interesting commentary concerning the introduction of money. Many resources that are harvested are perishable meaning we can only take as much as we intend to personally use. Limiting us to a Robinson Crusoe Economy, laboring for mere subsistence. Any further harvesting would lead to waste. What Ludwig Von Mises referred to as Autistic Exchange. Unlike harvested goods, money does not decompose.  This characteristic of money is so salient that it is one of the seven defining features of money. By the introduction of a medium of exchange vastly expands our ability to consume resources by remedying the issue of waste and depletion(Locke, 1690, P.23). Substituting currency for barter we can develop a division of labor. Instead of attempting to produce everything we need, industries emerge that are devoted to food production.  Meaning other segments of society can create other goods and services. Using the market as an allocation mechanism we can remedy the waste/ depletion conflict. Producers will tailor production to market demand, limiting the potential for waste. This also provides consumers with the opportunity to freely acquire these resources.

 

There are two caveats here. One we still see plenty of instances of hoarding in free-market economies. No system is perfect. Hoarding can still transpire with a common-resource pool in a state of nature. A market-based system helps diminish the coordination issues associated with obtaining resources. Also, keep in mind, this treatise was written before the technology that allowed for mass resource extraction. This issue could be mitigated through private harvesting collectives and contractually agreed upon extraction quotas.

 

The second being is that money helps minimize the number of resources being spoiled. However, it is not a full-proof safeguard against it. Then again, there is never a full-proof method of preventing bad consequences.

 

 

 

How Antitrust Laws Impede Conservation Efforts

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Introduction:

Quite often capitalism and environmentalism are viewed as being at odds. The very word “industry” conjures up images of factories releasing caustic smog into the air. Filling our waterways with toxic sludge. This perpetuated image is somewhat anachronistic. Stringent environmental regulations strongly discourage such wanton disposal of production byproducts. It should also be noted that the majority of industrial production has shifted overseas.

Despite the persistence of such misconceptions, business interests, and conservation efforts are not antithetical. The proliferation of the “Green” Business movement solidifies this point exquisitely. Environmental consciousness is absolutely imperative for anyone in the business of harvesting natural resources. That includes fishermen, loggers, and even recreational hunters. All groups that have it within their own interest to conserve finite resources. Limited resources in which access is not constrained by definitive property rights.

Due to resources being scant and access unfettered we soon are faced with the Tragedy of the Commons. This concept was first postulated by William Foster Lloyd back in 1833. Then was revived in the modern era and applied to population ethics by Garrett Hardin. Hardin elaborates upon Lloyd’s grazing rights example by stating:

“… the rational herdsman concludes that the only sensible course for him to pursue is to add another animal to his herd. And another; and another…. But this is the conclusion reached by each and every rational herdsman sharing a commons. Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit-in a world that is limited. Ruin is the destination..” (Hardin, 1968, P.2) [1].

It only stands to reason that consumption limits need to be placed upon commonly shared resources. Typically, such restrictions take the form of government regulations. Couldn’t private fishing firms merely mutually agree upon daily catch quotas? Per researcher Bruce Yandle “… Ronald H. Coase has taught us, every firm is a transaction-cost minimizer..” (Yandle 1998, P.7) [2]. Another way of putting it is that private firms could more efficiently and effectively coordinate such measures. Private enterprises face one large obstacle and that is antitrust laws. Frequently antitrust laws hamper conservation efforts made by private businesses (Yandel, 1998, P.4)[3]. In this essay, we will examine how mutually agreed upon conservation efforts qualify as antitrust violations.

Per the Law Conservation Collectives = Collusion

Coordinated efforts among private enterprises to conserve a commonly shared resource may be a novel solution. Unfortunately, under current antitrust statues could be defined as a collective effort to constrain competition.  Collusive behavior among competitors is explicitly prohibited under the Sherman Act (1890). Section 1 of the Sherman Act states:

“… every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce…” (Shenfield & Stelzer, 1998, P. 15) [4].

The emphasis on cooperative efforts is considered a major legislative flaw in the Sherman Act (Shenfield & Stelzer, 1998, P. 16) [5].  However, it is broad enough to encompass privately formed conservation collectives. Restricting supply can be construed as an indirect form of pricing fixing. One of the more salient behaviors associated with cartel arrangments (Shenfield & Stelzer, 1998, P. 43)[6]. It seems like such an effort would qualify as an antitrust violation.

The Conspiracy or Cooperation?

The broad interpretation provides some malleability to the application of the law. Which can be a double-edged sword. Above all the intent of Antitrust laws is to act as a form of consumer protection. Insulating patrons from inflated prices and artificially reduced supply (Alder, 2004, P.20) [7].  A laudable goal that could, unfortunately, conflict with other genuine interests such as environmental conservation. For this reason, the courts need to carefully access any potential benefit of the anticompetitive behavior (Adler, 2004, P.21) [8].

Unless protected by statutory exemptions most agreements that seem anti-competitive can be prosecuted under the Sherman Act (Alder, P.10) [9]. The problem becomes that in most cases intentions of the participating businesses are not taken into consideration.  In the case of Manaka v. Monterey Sardine Industries (1941)reflects such a misstep.  Frank Manaka was prohibited from fishing in Monterey Bay by the Monterey Sardine Industries. To make matters worse the local canneries wouldn’t purchase fish from  Manaka. The efforts of the collective were clearly “.. to conserve fish stocks..” (Adler, 2004, P.4) [10].  The court wasn’t on the same page:

“Such an association as that of the boat owners is not freed from the restrictive provisions of the anti-trust act, because they profess in the interest of conservation of important food fish to regulate the price and the manner of taking such fish “unauthorized by legislation and uncontrolled by proper authority.” (Adler, 2004, P.31) [11].

Unless there is clear documentation intentions are subject to speculation. Even there is still the threat of a Per se antitrust violation. Defined as “… the rule permits the court to make a categorical judgment as to the permissibility of a given business practice..” (Adler, 2004, P.22) [12]. Leaving individuals at the mercy of a judge’s digression.  Incredulity towards the claims of colluding businesses seems reasonable. The waters muddied by the faults of human nature.  Cases such as Hawaiian Tuna Packers Ltd. v. Int’l Longshoremen’s & Warehousemen’s Union (1947) the motives were much murkier. The plans to manipulate prices of fish sold to the Hawaiian Tuna Packers cannery by members of Local 150 were not overtly environmentally minded (Alder, P.13) [13].

Have Conservation Regulations Failed?

Informal restrictions in a resource “commons” are far from a new concept. Gentlemen’s agreements managed rights to hunting grounds in medieval Europe. Native tribes indigenous to Pacific Northwest established customary rules for managing salmon fishing (Yandle,1998, P. 9) [14]. It wasn’t until nascent years of the Progressive era that such arrangements became problematic.

In theory, antitrust laws are aimed to protect the customer. However, aren’t “… high-priced fish are preferable to no fish at all?” (Adler, P.11) [15]. This question may sound exaggerated but does hold some merit. Circling back to the case against the Monterrey Sardine Industries, overfishing decimated the fish population in the area (Yandle, 1998 P.14) [16]. Despite the implementation of regulations restricting fishing quotas, 65% of all fisheries are either “.. fully exploited or overexploited…” (Adler, 2004, P.6) [17]. Regulations have made a meager recovery to nearly depleted fish stocks globally. Overall, government initiatives to replenish fish stocks globally have failed (Adler, 2004, P.7) [18].

It is only natural to questions why such efforts end up falling short. It is expected that in the absence of property rights formal restrictions would aid resource conservation. As Bruce Yandle would put it governments often adopt a “one-size-fits-all” solution. When the Canadian government implemented a system of fishing permits, even individuals not actively fishing purchased them. Reducing the fisheries once again to a state of common access (Yandle, 1998, P. 10) [19]. While this is only one example of regulatory failure it demonstrates a common pattern. The porous nature of many regulatory solutions leaves them open to loopholes. Gaps that can be easily exploited.