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POLITICS AND PROPERTY IN NATURAL RESOURCES

Published online by Cambridge University Press:  24 June 2009

Andrew P. Morriss
Andrew P. Morriss
Affiliation:
Law, University of Illinois
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Abstract

Modern discussions of natural resources focus on increasing public control over extractive industries proposing measures that range from increasing the public's share of the gain via royalties and taxes to regulating extractive activities to prevent environmental problems to outright expropriation of private investments. This article argues that such efforts are counterproductive because the fundamental economic problem of natural resources is producing the knowledge necessary to locate and extract resource deposits. The public benefit comes from enabling the use of the resources and the increased economic activity their discovery produces rather than from royalties or expropriation. The key question in designing natural resource laws is thus their effects on the incentive to discover and manage resources. Private property rights in natural resources are the best way to provide such incentives. Fortunately, the combination of property rights and tort law principles (trespass and nuisance) enables property rights to solve environmental problems related to natural resource extraction as well.

Type
Research Article
Information
Social Philosophy and Policy , Volume 26 , Issue 2 , July 2009 , pp. 53 - 94
Copyright
Copyright © Social Philosophy and Policy Foundation 2009

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References

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56 Sometimes natural resource rights holders can use their superior knowledge to avoid losses in renegotiations. For example, when São Tomé and Principe renegotiated its oil contracts with ExxonMobil, the company agreed to a substantial reduction in the rights it held. By the time of the renegotiation, however, “the company had enough geological information to know where the best [exploration] blocks were, so although ExxonMobil ceded a lot on paper, its concession was probably far less than it might seem.” Shaxson, Poisoned Wells, 159.

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61 See Morriss, Andrew P., Meiners, Roger E., and Dorchak, Andrew, “Between a Hard Rock and a Hard Place: Politics, Midnight Regulations, and Mining,” Administrative Law Review 55 (2003): 551, 567–68Google Scholar (describing how Westerners have used the Senate to protect the mining industry against “Eastern” interests.). Redistributive efforts to amend the General Mining Law have focused on changing the “free” grant of mineral rights to include royalties to the federal treasury, auctions of rights, and other measures designed to produce revenue in which the states without mineral resources could then gain a share. The regional nature of the conflict goes back to the first major federal mining law in 1866, with Easterners seeking federal revenue from the new mineral deposits and Westerners seeking free access to promote their states' economies. See Mayer, Carl J. and Riley, George A., Public Domain, Private Dominion (San Francisco: Sierra Club Books, 1985), 48–53Google Scholar (recounting the debate). As a regional, capital-intensive industry, mining has few employees to use as a basis for political support. For example, hard rock mining, which excludes coal mining and nonmetal mining such as gravel and clay, had its largest employment numbers in 1916, when it employed just under one-half of one percent of the labor force. Even if we add in the coal mining industry, which employed just over four times the number of men as the hard rock mines, the mining workforce at that time employed no more than 5 percent of the labor force. Historical Statistics of the United States: Colonial Times to 1970, Part 1 (1975), 608. Today, hard rock mining employs only 31,000 people, just one-quarter of one one-thousandth of a percent of the total labor force. Table B-12. Employees on Nonfarm Payrolls by Detailed Industry. Establishment Data, Employment, Department of Labor. See ftp://ftp.bls.gov/pub/suppl/empsit.ceseeb12.txt.

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63 Ghazvinian, Untapped, 243.

64 On environmentalism as a religion, see generally Andrew P. Morriss and Benjamin Cramer, “Disestablishing the Environment,” University of Illinois Law and Economics Working Paper LE-07-041; Nelson, Robert, How Much Is God Worth? (Washington, DC: Competitive Enterprise Institute, 1996)Google Scholar; and Crichton, Michael, “Remarks to the Commonwealth Club, San Francisco, September 15, 2003,” http://www.whitehouse.gov/OMB/inforeg/2003iq/122.pdfGoogle Scholar.

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66 This can be seen as well in some of the popular commentary on ANWR. See, e.g., Hogan, Tim, “Time to Protect the Arctic Refuge for Good,” Boulder (Colorado) Daily Camera (April 15, 2007): “[T]he Arctic National Wildlife Refuge has become a symbol of and a testimony to the restraint the American people have exercised on behalf of wild nature.”Google Scholar

67 Berry, Thomas, The Dream of the Earth (San Francisco: Sierra Club Books, 1990), 41–42Google Scholar. Another dramatic example is the following principle put forward by the “First National People of Color Environmental Leadership Summit” in October 1991: “Environmental justice requires that we, as individuals, make personal and consumer choices to consume as little of Mother Earth's resources and to produce as little waste as possible; and make the conscious decision to challenge and reprioritize our lifestyles to insure the health of the natural world for present and future generations.” First National People of Color Environmental Leadership Summit, Principles of Environmental Justice (1991), http://gladstone.uoregon.edu/~caer/17principles.htmlGoogle Scholar. In “Disestablishing the Environment,” Morriss and Cramer describe multiple additional examples of such thinking among environmental pressure groups.

68 As Hayek says at the outset of his essay, his claim is about what the economic problem of society is: “The economic problem of society is thus not merely a problem of how to allocate ‘given’ resources—if ‘given’ is taken to mean given to a single mind which deliberately solves the problem set by these ‘data.’ It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge not given to anyone in its totality.” Hayek, “The Use of Knowledge in Society,” 519–20. It must be acknowledged that Hayek waffled somewhat on the issue of whether markets could provide sufficient environmental protection in volume 3 of Law, Legislation, and Liberty. Hayek, Friedrich A., Law, Legislation, and Liberty: The Political Order of a Free People (Chicago: University of Chicago Press, 1979), 43CrossRefGoogle Scholar.

69 Morriss, Meiners, and Dorchak, “Homesteading Rock.”

70 One solution to the incentive problem that has been proposed is to require those engaged in risky resource extraction to post bonds or buy insurance to cover the cost of any damage that might result in the future from their activities. Since a safer operation reduces the cost of the bond or insurance policy, this helps align the current site owner's incentive with the long-term interest of its neighbors.

71 Shaxson, Poisoned Wells, 39.

72 See Morriss, Meiners, and Dorchak, “Homesteading Rock.”

73 See Rasband, James S., “The Rise of Urban Archipelagos in the American West: A New Preservation Policy?” Environmental Law 31 (2001): 1, 70Google Scholar (former secretary of the interior Bruce Babbitt's agenda at Interior included assuring “a fair return to the government for the minerals in the public lands by charging a royalty and other fees”); and Leshy, John D., The Mining Law: A Study in Perpetual Motion (Washington, DC: Resources for the Future, 1987), 327–46Google Scholar.

74 Lacy, “Going with the Current,” 10-3–10-9.

75 Ibid., 10-3.

76 Ibid., 10-7.

77 Ibid., 10-9.

78 Ibid., 10-11.

79 The Case of Mines, 75 Eng.Rep. 472, 477 (Ex. 1567). A later case allowed a royal prerogative in mines of newly valuable substances (saltpetre in this case), holding that “although the invention of gunpowder was devised within time of memory … yet inasmuch as this concerns the necessary defence of the realm, [the King] shall not be driven to buy [saltpetre] in foreign parts; and foreign princes may restrain it at their pleasure, in their own dominions: and so the realm shall not have sufficient [saltpetre] for the defence of it, to the peril and hazard of it: and therefore insomuch as saltpetre is within the realm, the King may take it … for the necessary defence of the kingdom.” The Case of the King's Prerogative in Saltpetre, 77 Eng.Rep. 1294, 1295 (K.B.1606).

80 See, e.g., Act of May 20, 1785, an ordinance for disposing of lands in western territories, reserving to the United States “one third part of all gold, silver, lead and copper mines.”

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86 In this, I am following Richard Epstein's takings analysis, which would define such regulations as takings before proceeding to more difficult questions about whether or not the takings were implicitly compensated for by the benefits of the regulatory measures. See Epstein, Richard A., Takings: Private Property and the Power of Eminent Domain (Cambridge, MA: Harvard University Press, 1985)Google Scholar.

87 See Morriss, Meiners, and Dorchak, “Midnight Regulations.”

88 Ibid. There is a significant problem with oil storage tanks on residential properties, however, that is conceptually similar to the abandoned mine problem.

89 Ibid.

90 Lacy, “Going with the Current,” 10-6–10-9.

91 This bundle approximates the American version of the fee simple absolute from the mid-nineteenth century to the advent of modern public authority land-use regulation (e.g., zoning). The maximum bundle of surface rights has declined since then. See Morriss, Andrew P. and Meiners, Roger E., “The New Feudalism in Property Law: The Destructive Role of Land Use Planning,” Tulane Environmental Law Journal 14 (2000): 95Google Scholar. Some of the earlier bundles of rights labeled “fee simple absolute” in the United States, and all such bundles in Britain, would have allocated at least some of the mineral rights to the sovereign, as discussed earlier.

92 The conflicts may also exist between resource rights owners, as one person may own the “coal” rights and another person may own the other mineral rights. There is nothing to distinguish this conflict from the conflict between the surface owner and the resource owner, however.

93 See, e.g., Alspach, Christopher M., “Surface Use by the Mineral Owner: How Much Accommodation Is Required Under Current Oil and Gas Law?” Oklahoma Law Review 55 (2002): 89Google Scholar.

94 Snyder, Pamela S. and Shaw, Jane S., “PC Oil Drilling in a Wildlife Refuge,” Wall Street Journal (September 7, 1995)Google Scholar.

95 In the case of a corporate entity, of course, the shareholders have an incentive to adopt a corporate form that addresses any internal principal-agent problems. This incentive is lacking in the case of a public body.

96 Lacy, “Going with the Current,” 10-6–10-7 (quoting Boeckh, “A Dissertation on the Silver Mines of Laurion in Attica,” in The Public Economy of Athens, trans. George Cornewall Lewis, 2d ed. [1842], 645, and Rossiter W. Raymond, Mineral Resources of the States and Territories, H.R. Ex. Doc. No. 54, 40th Cong., 3d Sess. [1869], 189).

97 Shaxson, Poisoned Wells, 121 (quoting a vice president of Marathon's Equatorial Guinea subsidiary who stated that “What production profile a government wants … is determined by the security of the government. An insecure government will want the oil reserves exhausted as quickly as possible”).

98 Ghazvinian, Untapped, 103–5.

99 Collier, The Bottom Billion, 42.

100 Ghazvinian, Untapped, 66.

101 See Barzel, Yorum, Economic Analysis of Property Rights (Cambridge: Cambridge University Press, 1997)CrossRefGoogle Scholar.

102 It is worth noting, however, that many countries are advancing state-owned companies as the appropriate means to exploit oil and gas resources in particular; thus, future research may need to consider them.

103 See Morriss, Meiners, and Dorchak, “Homesteading Rock,” 24.

104 Morriss, Andrew P., “Miners, Vigilantes, and Cattlemen: Overcoming Free Rider Problems in the Private Provision of Law,” Land and Water Law Review 33 (1998): 581Google Scholar.

105 A Dutch auction is one in which the auctioneer starts at a high price and progressively lowers the price until someone accepts the auctioneer's offered price.

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108 Smith, Hampton, Merrill, Tim, and Meditz, Sandra W., “The Economy,” in Zaire: A Country Study, ed. Meditz, Sandra W. and Merrill, Tim (Baton Rouge, LA: Claitor's Law Books and Publishing, 1993), 137, 151–52Google Scholar.

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111 Meredith, The Fate of Africa, 220.

112 Ibid., 284.

113 See Thaler, Richard H., The Winner's Curse: Paradoxes and Anomalies of Economic Life (New York: Free Press, 1991)Google Scholar.

114 Kramer, Andrew, “BP Faces Environment Inquiry in Russia,” New York Times, March 22, 2008Google Scholar; and Olive, David, “Oil Firms Caught in a Squeeze Play,” thestar.com, March 31, 2008, http://www.thestar.com/comment/columnists/article/407511Google Scholar (describing BP's experience as expropriation by degrees).

115 See Epstein, Richard A., Simple Rules for a Complex World (Cambridge, MA: Harvard University Press, 1995)Google Scholar.