When Do Too Many Good Economic Instruments Become Bad Legal Policy?

Abstract

Environmental property interests will inevitably be fundamental components of any 'environmental economy', and as such their creation is an important area of policy innovation. A key argument in favour of property approaches to environmental protection and restoration is the expectation that a market/property rights approach can achieve environmental goals efficiently, provide new sources of funds, and allow industry to find cost-effective ways of reducing environmental harms. It is also argued that strongly defined private property rights-based approaches minimise the risk of the potential 'tragedy of the commons'. Exclusive, secure and transferable property rights (as far as practicable) arguably ensure the resource ends up being put to the highest value use. However, the proliferation of environmental market instruments and incentive programmes has the potential to create legal complexities for which our existing property governance system may be insufficiently prepared. We are rapidly approaching a time when this propagation may in itself cause significant governance and economic problems. These include the risk of misallocation and over-payment for conservation and restoration of environments through an excess of entrepreneurial zeal meeting an insufficiency of governance capacity, and undermining of the key features of the Torrens system for tracking legal interests in real property. This paper argues both for the creation of new tradeable fractions of the environment, and the integration of these instruments into a streamlined and simple legal and institutional structure. We believe this is not a matter of trading off between the proliferation of interests and instruments, and complexity. We also believe that there is unfulfilled opportunity for public and philanthropic investment in environmental property resources. The challenge for property law in the twenty first century that we identify is one of facilitating entrepreneurship for the environment by unbundling, whilst at the same time ensuring that this process does not result in excessive transaction costs arising from poor institutional coordination.