ABSTRACT
The last three decades have seen a greatly expanded role for the government in the protection of environmental quality and the management of environmental resources. Environmental policymaking is essentially the design of rules to govern the use of property when that use has the potential to impact others. When one party’s use of property has a direct negative impact on others, two fundamental issues arise. First, these negative impacts generally lead to conflicts or disputes that must somehow be resolved, where the resolution of the dispute will ultimately affect the well-being or welfare of the parties. Second, the potential for resource misallocation exists-depending on the rules governing property use, the party engaging in the potentially harmful use may not consider the full costs of that activity (including the costs imposed on others) when deciding whether and how much of the activity to undertake. The first issue concerns the allocation of property rights across individuals, while the second concerns the allocation of resources across alternative uses. Although in some cases these two allocation problems are separable, in others the allocation of property rights will have implications not only for welfare distribution but also for the allocation of resources and hence for the aggregate amount of “wealth” generated by the soci-ety’s resources. Whether independent or not, in the context of environmental protection the fundamental relationship between the government and property hinges on two functions: the allocation and protection of property rights, and the design of rules governing use of property that create incentives for resources to be allocated efficiently.
