Camilla, meet Ronald

If there are any economists working at the Times, Camilla Cavendish hasn’t bothered talking to them. She says:

We desperately need to find a way to value landscape. Delegating that task to “the market” is like asking Pete Doherty to be a Nobel prize judge. The market has no morality. It is good at maximising the return on square footage. But it cannot judge whether generations of delinquent teenagers would benefit from the solitude and wildness of a wide open space or from somewhere to play football, more than from a multiplex cinema. It cannot put a price on a permanent loss of countryside that will affect every generation to come.

But perhaps the market can do this.  The key thing is to allocate property rights properly.
Imagine the residents of a village were given (partial) ownership of the open spaces around their villages. Anyone wanting to build on this space would then have to buy the right to do so off them. The building would then go ahead only if value of the shopping mall exceeded the value of the solitude and quiet of the open space.
The market, then, can put a price on the permanent loss of countryside – as long as property rights are properly specified. This is the insight in Ronald Coase’s paper, The problem of social cost (pdf), discussed here; every economist knows this.
Of course, there’ll be problems defining property rights properly.
And there’s a question: would villagers properly value the effect on generations to come, or would they under-price the land? I suspect this problem would be small. The strength of the green movement, the size of inheritances and the opposition to inheritance taxes all suggest people do care a lot about future generations. Plus, of course, the endowment effect leads people to overvalue what they have – which would create a bias to conserving open spaces.
However, Camilla has not even considered these issues.
I mention this not to criticize her – she’s one of our better columnists (faint praise, admittedly). I do so because her ignorance of Coase reflects badly upon all of us.
It reflects a misunderstanding of what economics is about. Today’s dead trees are full of economists prognosticating on the macroeconomics of the Pre-Budget Report (I can’t be bothered to read or link). But that’s not the proper purpose of economics – it’s just what economists do to get money off idiots.
The proper purpose of economics is to consider how resources can be better allocated. And Camilla’s piece shows that economists are failing to bring these considerations to the public’s attention.

 

Comments

[Mark EJ]

"Imagine the residents of a village were given (partial) ownership of the open spaces around their villages"

This sounds very like the system of common land in England before the enclosures. The word common land should not be mistaken with commons (as in the "tragedy of..."), because frequently rights of access to land were fragmented and multidimensional: right to harvest, right to graze after harvest etc.

I believe such a system could be recreated through the laws of contract without any change in the UK property rights regime, bar the freeing of planning laws which I explain below.

Firstly, village residents would have to pay land owners for certain contractual rights over the land owners' land, for example the right to veto any proposed developments. The payment could be guaranteed through a trust and written into land title by way of easement for perpetuity.

Village residents could sell this right if they wanted to.

Currently this would be extremely expensive - as an acre of land in the south east fetches approximately GBP 1 million - and villagers would have to match this in their purchase of any rights. However, if planning restrictions were freed, the value of land would decrease as supply would increase massively.

Would this idea work? Am I missing something? Is there a prisoner's dilemma issue, or would the value of individual rights be worth so little and the environmental gain (if measured in a money metric) so large that investment in such rights would be a no-brainer?

[dsquared]

Chris, Camilla Cavendish is explicitly talking about "generations of teenagers" here, so Coasian bargaining can't work. The Coase Theorem requires a full set of markets and in dealing with the future there is a clear missing market problem; there is no TARDIS for the generations of future teenagers to use to send money back in time to pay us for not paving over their fields. Assuming bequest motives or endowment effects isn't going to do the work of actual Coasian negotiation.

[AntiCitizenOne]

> "The market has no morality."

The general public has no morality is what she is saying.

[chris strange]

I don't know about dealing with the value that people from the future place on landscape, but the market is perfectly capable of dealing with preserving it for the people of the present should enough want it to.

As an example I give you Pentire in Cornwall, now owned by the National Trust. The Trust owns it because the people who live near there raised the money to buy it specifically to preserve it's beauty. It's former owner planned to sell it for building. The money they where willing to pay to preserve it was greater than the money that a developer was willing to pay to develop it.

[mat]

I like the common land proposal. It's not something purely historical. There's a modern-day precedent - the market for air rights in Manhattan. The residents of one co-op building frequently purchase the airspace over neighbouring buildings to protect their views. And we're talking about buildings with hundreds or thousands of residents.

[Laurent GUERBY]

"get money off idiots."

You aren't a communist, aren't you?

:)

[Econocrazy]

"The proper purpose of economics is to consider how resources can be better allocated."

Says who? Maybe a socialist bureaucrat might concur. I argue that the purpose of economics is to understand how the world works. When one gains such valuable insight, s/he chooses how to allocate their own resources -- whether it be an "optimal" or "inefficient" allocation should be irrelevant to the economist.

[Phil]

Mark:

"Currently this would be extremely expensive - as an acre of land in the south east fetches approximately GBP 1 million - and villagers would have to match this in their purchase of any rights. However, if planning restrictions were freed, the value of land would decrease as supply would increase massively.

Would this idea work? Am I missing something?"

What's in it for the villagers?

[ChrisA]

The comment about markets being unable to allocate fairly is just part of the snobbishness about commerce that developed in Britain post the first industrial revolution when the old aristocrary was anxious to distance itself from the new rich. This has persisted to today, to the great disbenefit of Britain. It is not really to do with ignorance of economics.

When I hear those sorts of comments I always wonder what is the alternative being suggested, usually it is something much less fair.

[Eric H]

If "the market" is not good at determining this, then neither is the non-market alternative. I know of no way for future teenagers to send in their absentee ballots. Since there is also a Tragedy of the Anti-commons, it generally is much harder for the populace to reverse layers of legislation than it is for a single property owner (even a small committee) to reverse his own decision(s).

[Mark EJ]

Phil,

"What's in it for the villagers?"

The possibility to prevent surrounding lands being sold for development.

Many people placea a value on open space and traditional landscapes, and may well pay for their preservation.

Property developers frequently benefit from a failure to include the significant negative externalities associated with land development in land acquisition costs.

And having recently had my view destroyed and a valuable patch of south-east biodiversity chewed up - I feel thoroughly fed-up with the current state of affairs.