Tuesday, February 3, 2009

On free choice and planning in natural resource management

Aren’t economists often seen as the defenders of free choice and are they not sceptical about any intervention or planning that could hamper that choice? When one picks up a textbook on the subject this might easily be your first conclusion. However, further developments in the discipline have pointed out that focusing only on either planning or markets is untenable. This post will attempt to point out some of the bridges between free choice and planning within the context of natural and environmental resource management.

The first important concept is that of external effects or externalities. These negative or positive effects of certain economic activities are not accounted for in market prices. An example of a negative effect could be air or water pollution, while an example of a positive effect is that private research could lead to new general knowledge. Policy adjustments are often necessary, especially to internalise negative impacts, which, ceteris paribus, would ultimately lead to better-informed choices. 

Another important development in economic theory is the contributions of neo-institutional economics. The focus here is on the rules and contracts that guide exchange. In this view the market, or any other institution for that matter, is just one way of exchange and could be efficient, but should be measured according to the costs of performing such transactions. The focus is not on a choice between planning or market frameworks, but on the relative costs of keeping such institutions intact. 

The third, and least developed concept in economic theory, is one related to the burgeoning sciences of systems theory, complexity theory and chaos theory. With the holistic focus on the interrelationships between objects, rather than on objects themselves, the contribution of this subject field for our purpose lies in the emphasis on continuous feedback from the system under study. The ex post planning of complex systems is almost a contradiction in terms, one which will only make sense if applied in a process of experiential learning

These three concepts are important when evaluating the importance of  theories on economy-environment interactions for planning purposes. The fact is that the tension between the amount and type of planning, and the amount and type of free choice differ on deep philosophical grounds. Even the views of scholars within the subject field of economics and the environment (including environmental economics, ecological economics, neo-institutional economics and other more peripheral approaches) differ vastly on the relative roles they would like to assign to free choice and to planning. 

Without going into the details of such a debate, it would possibly be valuable to point out some environmental issues where such a debate will continue to flourish:

  • The economic value of open spaces in urban environments
  • The prioritisation of alternative environmental planning options
  • The economic assessment of environmental policies and plans
  • The economic valuation of alternative land uses in applications such as city planning, rural development or spatial development initiatives (SDIs)
  • The planning of an international or national trading system for carbon credits

In all these examples, some will argue that more planning means more economic costs, while others will continue to argue that more individual choice means more potential for anarchy, and thus failure to reach environmental objectives. It can be foreseen that this debate will reach an academic stalemate if not guided by a learning process that facilitates such interactions. The context of natural and environmental resource management will be an important factor in determining the best mix between planning and markets.

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