Property-Rights Approach to the Environmental Problem

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The public-goods approach to the environmental problem discussed in chapter 5 represents the basic argument for government intervention. The propertyrights idea can be considered as a counterposition. The property-rights approach suggests that if exclusive property rights are adequately defined, the public-good environmental quality can be transformed into a private good, and optimal environmental allocation will be reached. Government intervention, if necessary, is needed only in assigning environmental property titles. Property rights may also evolve in an evolutionary way in order to reduce transaction costs. With property rights adequately defined, the market will find the correct allocation. Both approaches agree that actually property rights are not adequately defined for the environment as a receptacle of waste. To change the environment as a common-property resource in its role as a receptacle of waste into a private good by assigning property rights for emissions is consistent with both approaches. Whereas the public-goods approach suggests that, because of the nature of public goods, property rights cannot be specified, the property-rights approach is more optimistic in this respect.