Coffee and Conversation with Dino Falaschetti

Friday, April 5, 2013

PERC’s Executive Director, Dr. Dino Falaschetti, recently visited the George W. Bush Institute, where he sat down with Dr. Eric Bing to discuss how economic growth affects the environment.


Growth is GreenQ: Dino, PERC research is helping us better understand how economic growth relates to environmental quality. Is there a tradeoff between the two, or can we have both?

A: We can have both. Economic growth depends on our ability to increase productivity – that is, to make more goods and services with less inputs. Making more with less also advances environmental goals of conservation and sustainability. In this important sense, growth is green.

Q: If growth is green, then should principles for economic growth also apply to environmental amenities like water?

A: Yes! Research has long documented the importance of institutions for private property in creating economic wealth and distributing it widely. Interestingly, research also shows how property rights can improve environmental governance. As my colleagues argue in Greener than Thou, absent secure property rights, we tend to treat both our economy and environment like we treat rental cars, leaving the long-term care for someone else. The rental car companies (not the renters) clean and maintain the car, and do so because they face the benefits and costs of ownership.

To see the importance of property rights for conservation, consider the growing conflicts over scarce water resources.  Although water is vital for human welfare, we price it cheaper than dirt. The reason is that clearly defined and enforced water rights are incredibly rare; in most regions, water is an open-access resource governed by the principle of “use it or lose it.” So long as property rights are lacking for water resources, water users will not face the full consequences of their consumption, and water scarcity will only worsen.

Good news also exists. Entrepreneurs are creating water markets, and these markets have improved on rationing mechanisms like water-use-restrictions. Anglers and boaters on Oregon’s John Day River, for example, are contracting with farmers and ranchers over the use of instream flows. This market-based resolution of environmental conflict is creating benefits for both agricultural and recreational interests, and improving environmental quality by strengthening incentives to efficiently irrigate.

Q: Is anyone else succeeding with this approach?

A: Yes! PERC’s Enviropreneur™ Institute, for example, has helped over 200 alumni succeed professionally by resolving environmental conflicts through contracts, property rights, and markets. Markets and the process of exchange give people with different ideas and values regarding natural resources a way to cooperate rather than fight. When cooperation supplants conflict, gains from trade emerge.

HabiHut of Belgrade, Montana is also empowering environmental entrepreneurs, even where economic institutions fall short of ideals. HabiHut sells water filtration kiosks to entrepreneurs in Nairobi, Kenya. Because the kiosks are portable, they can avoid political red tape that frequently discourages entrepreneurial ideas from going to market. And it’s not only the entrepreneurs who are benefiting from access to such technology. Indeed, water quality and accessibility are also improving, as are local economic conditions. Before these businesses could start so freely, community residents often spent hours trying to find drinkable water and paid six times the price that entrepreneurs now charge.

Q: What stops environmental market solutions from emerging more broadly?

A:  In a word, politics.

Command and control approaches to governing economies and ecologies have a poor track record. But these approaches don’t fail for everyone. Rather, they persist by enriching an influential few at the expense of many.

By offering more productive incentives to individuals, and tapping local information in an inherently complex world, property rights and markets do better when measured against the objectives of economic performance and environmental quality. PERC has been a leader for more than thirty years in pushing environmental governance in this direction despite political interests in inefficiency.

Through 20 years of experience in business, policy, and academic research and teaching, Dino Falaschetti (PhD, MBA, CPA) managed Fortune 100 audit-engagements and corporate finance operations, created insightful business analytics and litigation support strategies, and helped develop productive policies for the White House and state legislatures...
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