Environmental concerns often ignore geo-political borders. Problems that previously were dealt with by one nation and its government now involve scores of nations and their governments. At one time, policymakers focused predominantly on local matters, where pollutants might simply cross the boundary of two neighbors' backyards, or interstate problems, such as air and water pollution that could be handled within a nation or two. Now, however, policymakers are faced with international problems, such as the extinction of species, and global problems, such as ozone depletion and global warming.
Local environmental concerns are best understood and resolved in a framework initially developed by Nobel laureate Ronald H. Coase, wherein these concerns are viewed as a competition over conflicting uses for scarce resources.(1) In this context, air pollution by a factory is simply a use of air that conflicts with others' enjoyment of that resource. So, the question then becomes: which user has a right to the air?(2) Conflicting uses, such as in the air pollution example, can be resolved through bargaining if well-defined property rights specify who has the right to use the resources and therein derive value from them.(3)
The main question this article addresses is whether the Coasean property rights solution to environmental problems can be used as effectively on the international level as it has been used on the local level. Specifically, the authors pose the following two questions: (1) can effective property rights be created under international law, and (2) can and should such property rights be created top-down instead of bottom-up? In this article, "top-down" means government-mandated property rights, and "bottom-up" means customary, common law property rights that are formed over time when conflicts over resource use arise.
In addressing these questions, this article first contrasts the Coasean view of conflicting resource use with the Pigouvian view of externalities. It then considers the importance of time- and place-specific information in the evolution of property rights to determine how they are established. Then, the article contrasts bottom-up property rights with the prospect of developing effective top-down property rights and provides examples of both. Acknowledging that transaction costs may thwart privatization of the global commons (e.g., the global atmosphere), it then addresses the limits of top-down solutions and offers policy suggestions that build on property rights and the rule of law.
II. TWO VIEWS OF THE COMMONS: PIGOU VS. COASE
Following A. C. Pigou,(4) the dominant policy approach for solving environmental problems has been to use government's power to tax and regulate.(5) Government intervention is seen as justified when externalities exist. The term "externality" refers to an economic concept asserting that inefficiencies result when costs incurred and benefits received by individuals involved in an economic transaction or activity do not incorporate all the costs and benefits to society.(6) Therefore, a transaction that seems efficient to the individual parties to a transaction may really be inefficient from the viewpoint of society because of the existence of externalities.(7) Negative externalities are present when a portion of the costs of an economic transaction are imposed on others outside of that transaction without their consent. According to this reasoning, negative externalities result in overproduction or over-use of resources, because resource users do not bear the full costs associated with their activities.(8) This problem can turn into a "tragedy of the commons" when every user of a commons receives the full marginal benefit from their use, but bears only a portion of the marginal cost.(9)
Coase, however, offered a different approach to the problem of social cost.(10) Coase did not think in terms of externalities, but rather considered pollution and clean air (or water, forests, wildlife habitat) as conflicting or alternative resource uses for which there is competition. …