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Author Topic: Libertarianism and externalities  (Read 6430 times)
jon_smark
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June 20, 2011, 11:21:59 PM
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There's a fair amount of libertarians on this forum, so I guess this question is not completely out of place here: how does libertarianism handle the problem of externalities?  I'm thinking in particular of problems such as acid rain (some of the younger ones may not remember this, but it used to be a serious problem in Europe and the US back in the 70s and 80s, though the situation has largely improved since the introduction of strong regulations on sulfur emissions from power plants), or a more contemporary example like CO2 emissions and their role in anthropogenic global warming.

Feel free to point me to some external resource that you feel presents a good libertarian solution to this problem.  I'm genuinely curious.
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June 21, 2011, 12:34:05 AM
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There's a fair amount of libertarians on this forum, so I guess this question is not completely out of place here: how does libertarianism handle the problem of externalities?  I'm thinking in particular of problems such as acid rain (some of the younger ones may not remember this, but it used to be a serious problem in Europe and the US back in the 70s and 80s, though the situation has largely improved since the introduction of strong regulations on sulfur emissions from power plants), or a more contemporary example like CO2 emissions and their role in anthropogenic global warming.

Feel free to point me to some external resource that you feel presents a good libertarian solution to this problem.  I'm genuinely curious.


If you pump out pollution that damages my property, then you're liable for that.

See Walter Block as he has done a lot of writing on this subject: http://www.walterblock.com/wp-content/uploads/publications/misallocations_externalities.pdf
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June 21, 2011, 06:37:38 AM
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There's a fair amount of libertarians on this forum, so I guess this question is not completely out of place here: how does libertarianism handle the problem of externalities?  I'm thinking in particular of problems such as acid rain (some of the younger ones may not remember this, but it used to be a serious problem in Europe and the US back in the 70s and 80s, though the situation has largely improved since the introduction of strong regulations on sulfur emissions from power plants), or a more contemporary example like CO2 emissions and their role in anthropogenic global warming.

Feel free to point me to some external resource that you feel presents a good libertarian solution to this problem.  I'm genuinely curious.


In addition to what bitcoin4cash has linked I want to point that when pollution started to be an issue in the USa people naturally went to the courts to sue the ones that were polluting their property. And the courts where handeling it. Its common sense. But the government got in the middle, took away the environmental property rights from the people, promising it would regulate and take care of it. The regulatory system has obviously lead to a corporate takeover. If environmental property rights were applied the BP gulf oil fiasco would have never happened (and even in the case it would have happened BP woold be bankrupt now and the people compensated).
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June 21, 2011, 11:09:22 AM
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Thanks for the replies, guys.

So essentially the libertarian solution to the problem of externalities is to make use of the legal system.  I agree this can work in cases where this a clear delineation of the infringer and the victim -- for example if an oil company pollutes my property.  However, how would you handle cases that transcend national boundaries, and/or the victim is the globe as a whole?  Acid rain was a classic example of the first case: sulfur emissions from power plants in one country would cause acid rain to fall in countries downwind.  I reckon this could still be solved using the legal system, though it would require a transnational legal system that all nations would be bound to.  Anyway, I'm glad that libertarians also agree that we do need strong transnational institutions (like a World Court).
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June 21, 2011, 11:45:36 AM
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Thanks for the replies, guys.

So essentially the libertarian solution to the problem of externalities is to make use of the legal system.  I agree this can work in cases where this a clear delineation of the infringer and the victim -- for example if an oil company pollutes my property.  However, how would you handle cases that transcend national boundaries, and/or the victim is the globe as a whole?  Acid rain was a classic example of the first case: sulfur emissions from power plants in one country would cause acid rain to fall in countries downwind.  I reckon this could still be solved using the legal system, though it would require a transnational legal system that all nations would be bound to.  Anyway, I'm glad that libertarians also agree that we do need strong transnational institutions (like a World Court).

Well, yes and no. You dont need a World Court to have global justice. In fact, you need to not have a World Court to have justice at all. Any centrallized system is created to abuse, and a centrallized court is no different. Different districts or judicial companies can opperate and agree in collaboration and competition and solve the global issues.

Regarding problems like acid rain and sulfur emissions, it is true that this are difficult problems to solve, but they are also difficult using other methods. They are difficult because they involve a lot of people. The best way to go about it would be to form associations so people could so together.
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June 21, 2011, 12:19:12 PM
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Thanks for the replies, guys.

So essentially the libertarian solution to the problem of externalities is to make use of the legal system.  I agree this can work in cases where this a clear delineation of the infringer and the victim -- for example if an oil company pollutes my property.  However, how would you handle cases that transcend national boundaries, and/or the victim is the globe as a whole?  Acid rain was a classic example of the first case: sulfur emissions from power plants in one country would cause acid rain to fall in countries downwind.  I reckon this could still be solved using the legal system, though it would require a transnational legal system that all nations would be bound to.  Anyway, I'm glad that libertarians also agree that we do need strong transnational institutions (like a World Court).


The idea of a world court isn't a bad idea per se. A hypothetical free world would be stateless so there would be no national boundaries or institutions like the present day UN. If there would be any significant free areas where there is (at least reasonably "libertarian") private law and enough defense capabilities, I think that government worldwide would be pretty swiftly abolished. I think libertarians shy away from making pie in the sky promises because of how politicians act but I also think that the prosperity from free migration and free enterprise would be pretty astounding. Any still existing states or polluters who want to play by different rules would just be treated like any other criminal organization.

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June 21, 2011, 04:26:38 PM
 #7

You also have to look at the current world situation:

Who are the worst polluters?

Who are the best, environmentally?

Turns out, the more free market a country is, the fewer polluting companies there are. Go figure, people don't like companies that piss in their pools.

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June 25, 2011, 12:26:55 AM
 #8

There's a fair amount of libertarians on this forum, so I guess this question is not completely out of place here: how does libertarianism handle the problem of externalities?  I'm thinking in particular of problems such as acid rain (some of the younger ones may not remember this, but it used to be a serious problem in Europe and the US back in the 70s and 80s, though the situation has largely improved since the introduction of strong regulations on sulfur emissions from power plants), or a more contemporary example like CO2 emissions and their role in anthropogenic global warming.

Feel free to point me to some external resource that you feel presents a good libertarian solution to this problem.  I'm genuinely curious.


jon_smark, I just wrote a relatively long post answering some concerns as to how a free market peer-to-peer court/legal system could handle negative externalities such as pollution:

http://forum.bitcoin.org/index.php?topic=17426.msg277907#msg277907

Basically, pollution is a form of trespass on your property, and therefore polluters can be sued for legitimate damage to your property.

"We will not find a solution to political problems in cryptography, but we can win a major battle in the arms race and gain a new territory of freedom for several years.

Governments are good at cutting off the heads of a centrally controlled networks, but pure P2P networks are holding their own."
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June 25, 2011, 12:33:52 AM
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Basically, pollution is a form of trespass on your property, and therefore polluters can be sued for legitimate damage to your property.
That doesn't work very well. What happens is some guy spends millions of dollars building a factory and then someone buys land right near him and then specifically puts in something that will suffer absurdly high amounts of damages. He can then blackmail the factory owner into paying him to not use the land.

Damages from pollution are not due to the polluter alone. They are due to the relationship between the polluter and the thing damaged. See 'The Problem of Social Cost' by Ronald Coase. It's surprisingly readable.

The short answer to how Libertarianism deals with externalities is "not very well, they're a very hard problem for any system". Whether it will handle them better than other systems depends on how well you think Libertarianism will work overall. (Prosperity makes externalities easier to handle.)

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June 25, 2011, 12:39:37 AM
 #10

Basically, pollution is a form of trespass on your property, and therefore polluters can be sued for legitimate damage to your property.
That doesn't work very well. What happens is some guy spends millions of dollars building a factory and then someone buys land right near him and then specifically puts in something that will suffer absurdly high amounts of damages. He can then blackmail the factory owner into paying him to not use the land.

Well now this gets more complicated.  The issue here depends on whether that land next to the factory was previously unowned or not.  Provided that the factory owner was the first one to construct his factory on the unowned land, he may have gained rights to pollute the neighboring land assuming it was legitimately homesteaded.

"We will not find a solution to political problems in cryptography, but we can win a major battle in the arms race and gain a new territory of freedom for several years.

Governments are good at cutting off the heads of a centrally controlled networks, but pure P2P networks are holding their own."
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June 25, 2011, 12:49:31 AM
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Well now this gets more complicated.  The issue here depends on whether that land next to the factory was previously unowned or not.  Provided that the factory owner was the first one to construct his factory on the unowned land, he may have gained rights to pollute the neighboring land assuming it was legitimately homesteaded.
Right, that's the problem. "The polluter pays for his damages" seems really simple and elegant (the Pigouvian system). You almost think, "oh, it's that easy!" Well, it's not, Coase rained on that parade. And the idea that someone who pollutes might acquire the right to pollute and then some guy can't use his property the way he always wanted to down the road is much less intuitively appealing.

Normally, you get rights to someone else's land through usage that is directly adverse to them. It has to be something a person would see, know about, and choose to ignore. But pollution can be invisible. And the idea that someone might gain free reign to pollute simply by nobody noticing is not very attractive.

Again, it's a hard problem. No system known (other than pure authoritarianism with a dictator who really hates externalities) handles it well.

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June 25, 2011, 12:51:55 AM
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Well now this gets more complicated.  The issue here depends on whether that land next to the factory was previously unowned or not.  Provided that the factory owner was the first one to construct his factory on the unowned land, he may have gained rights to pollute the neighboring land assuming it was legitimately homesteaded.
Right, that's the problem. "The polluter pays for his damages" seems really simple and elegant. You almost thing, "oh, it's that easy!" Well, it's not. The idea that someone who pollutes might acquire the right to pollute and then some guy can't use his property the way he always wanted to down the road is much less intuitively appealing.

Normally, you get rights to someone else's land through usage that is directly adverse to them. It has to be something a person would see, know about, and choose to ignore. But pollution can be invisible. And the idea that someone might gain free reign to pollute simply by nobody noticing is not very attractive.

Again, it's a hard problem. No system known (other than pure authoritarianism with a dictator who really hates externalities) handles it well.

I was referring to the fact that in that case, the polluter may have legitimately homesteaded pollution rights to that neighboring land.  I can't predict what a free market peer-to-peer legal system would rule in this particular example, of course.

"We will not find a solution to political problems in cryptography, but we can win a major battle in the arms race and gain a new territory of freedom for several years.

Governments are good at cutting off the heads of a centrally controlled networks, but pure P2P networks are holding their own."
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June 25, 2011, 12:55:54 AM
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I was referring to the fact that in that case, the polluter may have legitimately homesteaded pollution rights to that neighboring land.  I can't predict what a free market peer-to-peer legal system would rule in this particular example, of course.
Exactly. It might evolve rules that handle these cases well. Or it might not. Personally, I think that it's such a hard problem that the legal system won't do a very good job of handling it. Whether non-legal consensual approaches (whether based on community action, reputation, boycott, or whatever) will work well -- I don't know.

My general answer to the question is that other systems don't handle externalities well, so even if Libertarianism doesn't either, that's not a very good argument against it. (Unless someone claims it will lead to a perfect paradise.)

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June 25, 2011, 01:01:42 AM
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See 'The Problem of Social Cost' by Ronald Coase. It's surprisingly readable.

IMHO libertarians rely too much on the Coase theorem. It's only meant to apply to cases where transaction costs are effectively zero, which is rarely the case (Bitcoin excluded Grin).
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June 25, 2011, 01:03:13 AM
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See 'The Problem of Social Cost' by Ronald Coase. It's surprisingly readable.

IMHO libertarians rely too much on the Coase theorem. It's only meant to apply to cases where transaction costs are effectively zero, which is rarely the case (Bitcoin excluded Grin).
I agree. But I'm only citing it to point out the problem. The problem gets worse when transaction costs are higher.

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June 25, 2011, 03:18:35 AM
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I was referring to the fact that in that case, the polluter may have legitimately homesteaded pollution rights to that neighboring land.  I can't predict what a free market peer-to-peer legal system would rule in this particular example, of course.
Exactly. It might evolve rules that handle these cases well. Or it might not. Personally, I think that it's such a hard problem that the legal system won't do a very good job of handling it. Whether non-legal consensual approaches (whether based on community action, reputation, boycott, or whatever) will work well -- I don't know.

It is hard to say.  I don't think market-anarchists claim to create a perfect world, but rather they simply think that competing peer-to-peer dispute resolution agencies where law arises through a common law-like mechanism is preferable to monopolistic top-down hierarchical legal systems (ala USA) where law is enacted by legislative fiat.  It is strange how people commonly accept that competition areas such as biological evolution, business, sports, etc. will produce desirable outcomes, but, for some reason people have been conditioned to assume that competition in such fundamental areas such as security and law is unfathomable.  Market-anarchists simply extend competition to these essential areas.

My general answer to the question is that other systems don't handle externalities well, so even if Libertarianism doesn't either, that's not a very good argument against it. (Unless someone claims it will lead to a perfect paradise.)

I actually tend to have the same view.  I am reminded of a David Friedman (anarcho-capitalist son of minarchist economist Milton Friedman) lecture on the related topic of market failure.  His argument is that while market-failure may admittedly exist in a free-market, there is even worse market-failure in the "political-economy" due to the concept of rational ignorance.  The tl;dr summary is basically that both voters, interest groups, lobbyists, and politicians are not exactly incentivized to understand the effects of their policies on the public good.  Each entity in this "political market" is just incentivized to do the "best" thing for themselves, which may not be the best policy for the 300million people making up the public.  He gives a great and entertaining speech just on this topic on youtube: "David Friedman's speech on market failure @ the 2010 Free State Project Liberty Forum : Part 3/7"

(update: for those of you who are ambitious readers, please check out Chapter 18 "Market Failure" of David Friedman's book on Price Theory http://www.daviddfriedman.com/Academic/Price_Theory/PThy_Chapter_18/PThy_Chap_18.html where he talks about the market failure of voting under the header "PUBLIC GOODS AND EXTERNALITIES")

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Governments are good at cutting off the heads of a centrally controlled networks, but pure P2P networks are holding their own."
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June 25, 2011, 03:36:45 AM
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I actually tend to have the same view.  I am reminded of a David Friedman (anarcho-capitalist son of minarchist economist Milton Friedman) lecture on the related topic of market failure.  His argument is that while market-failure may admittedly exist in a free-market, there is even worse market-failure in the "political-economy" due to the concept of rational ignorance.  The tl;dr summary is basically that both voters, interest groups, lobbyists, and politicians are not exactly incentivized to understand the effects of their policies on the public good.
And even when they do understand the effects of their policies on the public good, they're highly incentivized to convince others that what's good for them is good for everyone.

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June 25, 2011, 03:51:03 AM
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I actually tend to have the same view.  I am reminded of a David Friedman (anarcho-capitalist son of minarchist economist Milton Friedman) lecture on the related topic of market failure.  His argument is that while market-failure may admittedly exist in a free-market, there is even worse market-failure in the "political-economy" due to the concept of rational ignorance.  The tl;dr summary is basically that both voters, interest groups, lobbyists, and politicians are not exactly incentivized to understand the effects of their policies on the public good.
And even when they do understand the effects of their policies on the public good, they're highly incentivized to convince others that what's good for them is good for everyone.

Yeah!  Double-Wammy.  Cheesy  And it gets worse, since voters and politicians aren't held legally liable for damages caused by their policies.

"We will not find a solution to political problems in cryptography, but we can win a major battle in the arms race and gain a new territory of freedom for several years.

Governments are good at cutting off the heads of a centrally controlled networks, but pure P2P networks are holding their own."
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June 25, 2011, 12:05:59 PM
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Okay, you intend to solve these disputes through legal means. As far as I know libertaniasm is either minarchism or anarcho-capitalism. Thus the government, which is the main way of reinforcing laws is considerably weaker than currently. How do think that you can a) produce sufficent laws b)reinforce them under libertarian system?
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June 25, 2011, 01:22:22 PM
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Okay, you intend to solve these disputes through legal means. As far as I know libertaniasm is either minarchism or anarcho-capitalism. Thus the government, which is the main way of reinforcing laws is considerably weaker than currently. How do think that you can a) produce sufficent laws b)reinforce them under libertarian system?

Exactly.


And, as I asked in another thread, what prevents the people with money (which, will be the people polluting) from controlling the privatized legal system and making their polluting completely ok? 

Even if the privatized legal system remains perfectly neutral and immune to influence (nearly impossible), under what authority and with what force are the decisions enforced?

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