The New Political Economy of Natural Resources: Discussion

Neither speaker focused on the New Political Economy of Natural Resources, the topic of this session. Natural resource policy under the Reagan administration is a departure (at least in rhetoric) from conventional wisdom and represents an important issue of our time, perhaps for generations to come. In order to assess the merit of this new political economy, its economic underpinnings must be dissected. While neither paper performs this service, the two dominant schools of welfare economics are represented. Accordingly, the juxtaposition of the two papers lends some insight into the proper role of privatization in natural resource economics. To the extent that Willey discussed the regulatory reform proposed by Reagan, he is to be commended. But the principal thrust of his paper is a political/philosophical exposition of why economics has failed to promulgate effective environmental regulation. His discussion emanates from the Pigouvian premise that "common property characteristics require government action in some fashion to ensure efficient allocation of resources," though he clearly acknowledges government failure. Unfortunately, he does not suggest how to breach the five obstacles to successful adoption of economic recommendations. Anderson's paper, in contrast, advocates free market or neo-institutionalist remedies a la Buchanan, Demsetz, and others. His analysis is dominated by the notion that private property rights are necessary and sufficient conditions for efficient resource allocation. As long as property rights are "well defined, enforced, and transferable," opportunity costs will be internalized and the market will dictate efficient allocation of resources. He compares this private property rights approach, which he labels New Resource Economics (NRE), with his perception of Old (presumably Pigouvian) Resource Economics (ORE) consisting of scientific managers armed with marginal analysis. Unfortunately, his portrayal and criticism of ORE is both inaccurate and misleading. For example: Anderson considers Behan's perspective of the U.S. Forest Service FORPLAN model as characteristic of old resource economists. According to Behan, "We have adopted an idealized planning process and blessed it with all the force and power and rigor of statutes that a law-based society can muster" (p. 802). Few within the profession impart such trust in modeling. One wonders if Anderson is an advocate in need of a straw man. Th choice between market and governmental solutions may be reconciled only by exami ing a number of issues endemic to natural resources. Abstracting from purely redistributional motives of government, the choice centers about the existence of market failure. ORE tells us that whenever decisions are not subject to the utilitarian calculus, e.g., nonmarket goods, nonseparable joint products, and public goods, market failure occurs. These characteristics, either singularly or collectively, are perceived to be the essence of natural and environmental resources. But to the NRE, the question of externalities and market failure never arises. The logic of their paradigm defines away externalities once government establishes and enforces the institutional framework of private property. If the cost structure, including transaction costs, is so great as to prohibit internalization, an externality is by definition Pareto irrelevant. The problem still exists, but it is efficient to ignore it. In view of the NRE logic, it seems odd that Anderson would ask the question "How pervasive is market failure in the natural resource area?" Perhaps it is because this question is moot to the NRE that he never answers it. Or perhaps he too is unconvinced that all externalities and market failure are irrelevant. Scott C. Matulich is an associate professor, Department of Agricultural Economics, Washington State University. This is Scientific Paper No. SP6299 of the Agricultural Research Center, College of Agriculture, Washington State University.