Warm-up Brainstorm some key characteristics of a market economy: Prices act as signals Diverse products, lots of choices Factors of production privately owned Efficient use of resources Minimal intervention by the government

Clearly Defined Property Rights

Environmental Protection Mysteries Why are there so few pheasants & so many chickens? Why are native wild salmon declining in population & wild ducks increasing? Why might paper recycling actually result in fewer trees and forests? Why do hunters over-hunt? Why do fishermen over-fish?

Fishing Game You will be fishermen (err..fisherpeople) The fish you catch provide the income that gives your family food, shelter, & clothing It is crucial to catch fish 1st round 30 seconds 1 Fish = 1 Candy 2nd round 30 seconds 1 Fish = 2 Candy Any Questions?

Tragedy of the Commons Garrett Hardin. Science. 1968. Pastureland and the Cows. Examples City parks School cafeteria Freeways Open Range in the wild west Wild salmon populations in the Northwest US African elephant North American Bison

Fishing Game…Again You will be fishermen The fish you catch provide the income that gives your family food, shelter, & clothing This time you will have property rights It is crucial to catch fish 1st round 30 seconds 1 Fish = 1 Candy 2nd round 30 seconds 1 Fish = 2 Candy Any Questions?

3 Possible Responses to the Tragedy 1. Moral Suasion – a public relations (PR) campaign to convince people to pollute less, preserve habitat, protect species 2. Regulation/command – establish rules against poaching, hunting, polluting, “destroying” habitat; then impose fines and/or imprisonment on those who don’t comply

Responses to the Tragedy 3. The Economic Solution …create incentives which will get people to behave in more environmentally friendly ways Establish property rights, through pollution credits, ownership of habitat, even ownership of certain animals. The assumption is that people will see it is in their self-interest to pollute less, preserve habitat, species.

The Rhino in South Africa

Lessons Learned People Respond to Incentives Individuals and Societies Face Tradeoffs & Must Make Choices Choice Involves Cost –Opportunity Cost Rational People Think at the Margin Government policies can sometimes improve market outcomes— well-defined, enforced, and marketable property rights are essential