ABSTRACT
Economic analysis in general and natural resource economics in particular have approached resource policy as if there is a "socially efficient" allocation of resources that will be reached when scientific managers understand the relevant trade-offs and act to achieve the efficient solution. Most natural resource and environmental policy has been premised on the assumption that markets are responsible for resource misallocation and environmental degradation and that centralized, political processes can correct the problems. Economists have tried to use computer modeling techniques to simulate the market allocation of natural resources. Traditional thinking about natural resource and environmental policy ignores the most basic economic tenet: incentives matter. Where market transactions fail to occur for natural resources and environmental amenities, it is usually because the costs of measuring and monitoring resource use are high. Imagination is crucial to free market environmentalism, because it is in the areas where property rights are evolving that resource allocation problems occur.
