Problems with Public Resource Management

June 23, 2014

Developing and preserving America's natural resources is difficult under public management, explains Michael Stroup, senior fellow at the National Center for Policy Analysis.

Private citizens with clearly-defined property rights are incentivized to protect their property, develop it wisely and improve its value. This is not the case with public resources -- whether waters or land -- as both users and managers of such resources are detached from the effects of good and bad decision making.

Stroup explains why public managers of our nation's natural resources lack the effective incentives that private managers, with private property rights, have:

  • Public-sector managers do not enjoy the full benefits of good development decisions. In fact, it is considered unethical for such managers to profit or gain from public resource use.
  • Similarly, public managers do not bear the full costs of poor decision making, which lowers the value of a resource. They are insulated from the effects of bad decisions, as costs are shared by the taxpaying public.
  • Public resource managers are less likely to innovate, as the minimal rewards from innovation are outweighed by the costs and risks.
  • Public sector managers are less likely to compare benefits and costs accurately, as their development decisions are not directly linked to rewards or penalties. Generally, public managers underestimate costs and overstate benefits.

Similarly, users of common resources -- such as oceans -- are not held accountable for how their use ultimately affects the resource's market value. For example, if a fish supply is dwindling, a private owner might cut back on his harvest to keep the fish from being depleted. On the other hand, users of public waters who perceive this problem know that cutting down on their harvests will only hurt themselves, as other fishermen will continue to harvest the fish. Without ownership rights and the accountability that comes from those property rights, resources can suffer.

With this in mind, Stroup notes that nations benefit when the government allows for privatization of common use resource development. For example, many countries have successfully developed fishing systems that use individual transferable quotas (ITQs), tradable property rights that encourage conservation, investment and efficient resource use.

Source: Michael D. Stroup, "Economics of the 2014-2015 Debate Topic: Developing Ocean Resources," National Center for Policy Analysis, June 2014.

 

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