Knowledge Base

QUESTIONS FROM THE CHAPTERS

What is the tragedy of the commons?

The tragedy of the commons is a problem where individuals have the incentive to consume more of a common good than is sustainable over the long-term. It often occurs when there is a lack of well-defined property rights, leading to little cost of over consuming at an individual level. 

Eliminating the tragedy of the commons requires limiting and clarifying who gets to use and derive value from scarce natural resources. It’s helpful to think about where tragedy of the commons does not occur: Namely in private markets where every property right is clearly articulated and owned. Free market environmentalism is an effort to eliminate the tragedy of the commons by making sure all costs are accounted for by establishing clear property rights.

What benefits do markets bring to environmental policy?

Markets process information much faster than regulators can. The environment is a complex system, and the lack of property rights often exposes environmental policy to the tragedy of the commons. When property rights are well defined and enforced, markets get the incentives right for improving environmental quality.

How would a revenue neutral carbon tax be distributed?

“Revenue neutrality comes from distribution of the proceeds, which could be done in many ways. On the grounds of ease of administration and visibility, we advocate having the tax collected and distributed by an existing unit of government, either the Internal Revenue Service or the Social Security Administration. In either case, we think the principle of transparency should be observed. Funds collected should go into an identified fund and the amounts flowing in and out should be clearly visible. This flow of funds should not be included in the unified budget, so as to keep the money from being spent on general government purposes, as happened to the earlier excess of inflows over outflows in the Social Security system.”

For more from George P. Shultz and Gary S. Becker, click here.

Terms You May Have Heard:

Free Market Environmentalism -Free market environmentalism connects self-interest to protecting resources by establishing private property rights of environmental resources. Property rights compel owners to account for the costs and benefits of their actions and facilitate market transactions that create efficiency-enhancing gains from trade. Property rights and markets can provide the right incentives, without relying on altruism or good intentions.

Free market environmentalism comes down to who holds environmental property rights. That could range from private individuals, to the government, to no one. If the answer is that no one owns them, environmental tragedy will result. However, when property rights are well defined and enforced, markets get the incentives right for improving environmental quality.

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The Tragedy of the Commons: The tragedy of the commons is a problem where individuals have the incentive to consume more of a common good than is sustainable over the long-term. It often occurs when there is a lack of well-defined property rights, leading to little cost of over consuming at an individual level. 

Eliminating the tragedy of the commons requires limiting and clarifying who gets to use and derive value from scarce natural resources. It’s helpful to think about where tragedy of the commons does not occur: Namely in private markets where every property right is clearly articulated and owned. Free market environmentalism is an effort to eliminate the tragedy of the commons by making sure all costs are accounted for by establishing clear property rights.

Endangered Species Act - The Endangered Species Act (ESA) was passed in 1973 and provides a program for the conservation of threatened and endangered plants and animals and the habitats in which they are found. 

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Environmental Protection Agency (EPA) - Founded in 1970, EPA is an independent of the United States federal government. Its mission is to protect human health and the environment. 

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Carbon Tax - A carbon tax is a tax imposed on releases of carbon dioxide (CO2), which is emitted largely through the combustion of fossil fuels used in electricity production, industrial, commercial, residential heating, and transportation. There are many ways to measure and collect a carbon tax. The tax might be imposed at a variety of stages in the production and distribution of energy. There is an argument for imposing it at the point most visible to the population at large, which would be the point of consumption such as gasoline stations and electricity bills. An administratively more efficient way of imposing the tax, however, would be to collect it at the level of production, which would reduce greatly the number of collection points.