Re: AltInst: Marketable Wetlands

At 04:17 PM 5/12/98 -0700, you wrote:
>>Permit wetlands owners to sell annual wetlands-support coupons,
>>based upon the size of the property and its suitability as a
>>nursery habitat. Shrimpers could buy the coupons, and redeem
>>them with the State fisheries licensing agency in return for a
>>discount on their commercial fishing licenses.
>
>Robin Hanson states
>A direct subsidy of wetlands, based also on size and suitability,
>would create the same incentives to preserve wetlands, while avoiding
>transaction costs of exchanging coupons. The coupons seems like
>useless make-work.
>
I disagree. Direct subsidies (ie government payments) such as with the
farm program have a tendency to create significant bureaucracies, system
gaming (for example people were paid to take land out of circulation but
then put twice as much fertizer onto their remaining land), as well as the
creating enormous budgetary conflicts.

Direct subsidies fail to take into account the underlying optimization
problem that comes from central planning models. For example, let us
assume that there are four kinds of wetlands:

1. Land with marginal development value and significant ecological value

2. Land with high development value and significant ecological value

3. Land with marginal development value and marginal ecological value.

4. Land with high development value and marginal ecological value

Clearly, the coupon system works best in situation #1. The cost is
relatively low and the general benefits quite high. Thd difficulty of
raising money for situation #2 might be substantial. However, it would be
offset by avoiding the costs resulting from diverting money into
alternatives #3 and #4.

The problem with any central planning direct subsidy model is that while it
might do a better (and when compared to the current "takings" appoach,
fairer model); it is very hard to prevent diverting significant funds into
alternatives #3 and #4. We need only look at other programs such as
synfuel, gasohol, and Superfund to realize how easily subsidy programs can
become pure boondoggles.

This is not to say that the coupon model might not present opportunities
for fraud and misrepresentation. However, I think it is easier to address
those concerns than to try to figure out ways for the owners of alternative
#3 and #4 from organizing politically to ensure they get the bulk of the
direct subsidies.

George L. O'Brien

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Received on Thu May 14 12:39:55 1998