Allocative Efficiency and Property Rights in Ecological Economics: Why We Need to Distinguish Between Man-Made Capital and Natural Resources

This chapter explains why, in economics regarding property rights, we should distinguish between man-made products and natural (nature-made) resources as first discussed by Henry George. In conventional economic thinking, private property rights are indispensable in the achievement of allocative efficiency, regardless of the nature of the goods. Also, according to conventional economic understanding, one way to avoid the overexploitation of freely accessible resources (open access regimes) could be by privatizing these resources. This argument is based on the idea that only market goods (excludable and subject to competition) can be efficiently allocated by the market. The sale of significant parts of Chilean forests to private companies in the 1980’s was based on this economic concept. This chapter challenges this classic view, providing arguments for why allocative efficiency can really only be achieved if private property rights exist for man-made products only, but not for natural resources.