Property – Donald Marron

Water Funds: Coase in South America (and New York)

Rivers often create important resource conflicts. Downstream cities want clean water to drink. Upstream residents want to make a living, but that sometimes damages water quality. In the highlands above Quito, Ecuador, for example, residents often convert land to farming and ranching; that allows them to raise valuable crops and livestock, but weakens the land’s ability to naturally cleanse water before it flows downstream.

How can we solve this problem? One response would be for a central government to enact laws and regulations that force the upstream folks to take better care of the watershed. Such laws can play an important role in improving water quality, but they raise several practical concerns. For example, regulatory burdens may place undue economic burdens on upstream residents. And the laws and regulations may be hard to enforce, particularly if local communities view them as an unwelcome burden.

Another strategy is for the downstream water users to pay the upstream residents for keeping the water clean. Such payments can make protecting the watershed into a profit center for upstream communities and can encourage them to accept rigorous approaches to monitoring and enforcement. (In the economics literature, this approach is often distributed as Coasian, in honor of Ronald Coase, who emphasized it in his work.)

Last week Esther and I dined with some officials of the Nature Conservancy (TNC) and learned that they are encouraging exactly this approach to water conservation in South America. TNC is helping create water funds:

Water users pay into the funds in exchange for the product they receive — fresh, clean water. The funds, in turn, pay for forest conservation along rivers, streams and lakes, to ensure that safe drinking water flows out of users’ faucets every time they turn on the tap.

Some water funds pay for community-wide reforestation projects in villages upstream from major urban centers, like Quito, Ecuador, and Bogotá, Colombia. In other cases, like in Brazil’s Atlantic Forest, municipalities collect fees from water users and make direct payments to farmers and ranchers who protect and restore riverside forests on their land through water producer initiatives.

“These ‘water producers,’ as we call them, are being fairly compensated for a product they’re providing to people downstream in Rio de Janeiro and São Paulo: fresh water,” explains Fernando Veiga, Fernando Veiga, Environmental Services Manager for the Conservancy’s Atlantic Forest and Central Savannas Conservation Program in Brazil. “They’re receiving $32 per acre, per year, for keeping their riverside forests standing.”

TNC has an informative interactive graphic that illustrates how it works in the headwaters above Quito. (Note to TNC: the graphic would be even better if it involved less clicking.)

Perhaps needless to say, this idea is not unique to South America. New York City, for example, has been pursuing a related approach, buying up buffer land around the upstate reservoirs that supply the city.

How to Defeat the Lionfish? Use Your Knife and Fork

As regular readers know, I am intrigued by animals in weird places (voles in the Rose Garden, grey whales in the Mediterranean) and quirky discussions of property rights (guacamole, overhead bins, snow shoveling, office lunches). So imagine my delight when I opened the Food section of the Washington Post to discover an issue that brings them together: the battle against the lionfish.

The beautiful, venomous lionfish is native to the Indo-Pacific, but back in 1985 it started showing up in a weird place: the east coast of the United States. Today you can find the spiny critters along the eastern seaboard, through the Caribbean, down to Belize, and over to the Azores. That’s bad news since the lionfish often crowds out (or consumes) native species.

So what to do? According to Wikipedia, some places have offered bounties for killing them (but, one hopes, not enough to induce breeding and importing) or have established kill-on-sight policies. Another strategy, as the WaPo reports, is to move them down a notch on the food chain:

Federal officials have joined with chefs, spear fishermen and seafood distributors to launch a bold campaign: Eat lionfish until it no longer exists outside its native habitat.

The genius of this approach is that it harnesses a classic economic pathology–the tragedy of the commons–to serve a greater good. No one has any property rights to these interlopers, so all we need to do is create enough market demand for their tasty flesh. Once that reaches critical mass, we can sit back and watch fishermen and -women overfish the Atlantic lionfish into oblivion. Or so goes the theory.

I wish them good luck–and look forward to seeing Atlantic lionfish on the menu soon. I am skeptical, however, that it will actually work. But if it does, maybe the seafood alliance could then turn their attention to the new Potomac snakeheads?

Ultra Trouble for the Ultra Low Cost Airline?

Last week Spirit Airlines announced that it would start charging fees for carry-on bags this summer. Spirit described the benefits of this move as follows:

“In addition to lowering fares even further, this will reduce the number of carry-on bags, which will improve inflight safety and efficiency by speeding up the boarding and deplaning process, all of which ultimately improve the overall customer experience,” says Spirit’s Chief Operating Officer Ken McKenzie. “Bring less; pay less. It’s simple.”

As I’ve noted in previous posts, carry-on bags have become a problem on many flights. With advances in roll-aboard technology and in the face of new fees for checked luggage, more passengers are bringing baggage on board, sometimes overwhelming the capacity of the overheads. Airlines need to find a solution to that problem. Spirit’s fees are one possible answer.

I’m sure Spirit expected that some passengers and passenger advocates would object to these fees. I wonder, however, whether the airline ever suspected that it would incur the wrath of Washington?

Over the weekend, New York Senator Chuck Schumer denounced the proposed fees and sent a letter to Treasury Secretary Tim Geithner asking that he stop them. He’s also threatening legislation to prohibit them.

If you are like me, your first reaction should be to wonder why the Treasury Secretary–rather than, say, the Transportation Secretary–is the lucky recipient of Schumer’s letter. This being the middle of April, however, the answer shouldn’t surprise you: taxes, specifically the taxes that are levied on airline tickets (but not on some other fees associated with flying). The narrow issue is whether the carry-on fees should be subject to the tax. The broader issue is whether carry-on fees should be allowed separate from the ticket price.

Meanwhile, the Transportation Secretary, Ray LaHood, wasted no time in denouncing the proposed fees as well, saying:

I think it’s a bit outrageous that an airline is going to charge someone to carry on a bag and put it in the overhead. And I’ve told our people to try and figure out a way to mitigate that. I think it’s ridiculous.

So watch out Spirit Airlines; your experiment in pricing scarce overhead capacity may not be welcome in Washington, even if it does lead to lower fares and faster boarding.

P.S. The tempest over the baggage fees is temporarily overshadowing a much more interesting and important issue: the transparency and intelligibility of airline fees. Secretary LaHood touches on this in the interview linked to above, as does this article over at Philly.com’s Philadelphia Business Today. Given the panoply of fees and taxes on air travel–thanks both to the government and to the airlines–there’s a real question about whether consumers understand the full costs of flying when they make their purchasing decisions. And some airlines–most notably Spirit with its “penny” and “$9” fares–seem to be playing on that.

Spirit Airlines Combats the Tragedy of the Overhead Bin

As any frequent flyer knows, the competition for overhead space is tight. As I noted a few months ago (“The Warped Economics of Carry-On Luggage“), the situation has only become worse since airlines started charging fees for checked luggage. Budget-conscious travelers caught on quick and started carrying on more of their luggage.

In economic terms, the basic problem is a lack of property rights to overhead space. Without those rights, there is a tragedy of the commons as travelers try to grab space before their fellow travelers (just as some guacamole eaters compete for appetizers). Particularly egregious? The passenger in row 35 who brings on two over-sized roller bags and stows them in the overheads around row 15. No, I’m not bitter.

One solution to this problem would be to create property rights to overhead space. But that would be hard to operationalize.

Another possibility–which Spirit Airlines announced today–would be to charge for carry-ons. Spirit announced:

In order to continue reducing fares even further and offering customers the option of paying only for the services they want and use rather than subsidizing the choices of others, the low fare industry innovator is also progressing to the next phase of unbundling with the introduction of a charge to carry on a bag and be boarded first onto the airplane.

The carry on fee ranges from $20 to $45, the same or more than the fees for a single checked bag (fees for multiple bags may be higher). Personal items (i.e., the things you put under your seat) remain free.

Note how Spirit frames this as helping the airline reduce fares. In the future, I hope some enterprising economist studies the different bag pricing approaches that the airlines use to see to what extent higher bag fees–checked or carry on–translate into lower fares and either more or less crowded overhead compartments.

The Tragedy of the Guacamole

One of the themes of this blog is that economics is everywhere in daily life. Property rights, for example, are at the heart of everyday battles over overhead bins, shoveled-out parking spaces, and food in shared refrigerators.

Continuing in that vein, a friend recently sent me a link to an amusing piece about sharing guacamole. I hesitate to link to it, since this is a family oriented blog, and the piece is decidedly R-rated and NSFW. So I will hide the link under the fold. The basic set-up is that a sort-of-advice columnist named Chris provides humorous answers to reader questions.

In slightly edited form, here’s the bit about sharing guacamole:

[Dear] Chris: My fiancée makes amazing Guacamole, but it leads to the following problem: she only makes one bowl of it, which we then share. The issue is, I like to utilize small amounts of Guac on each chip in order to maximize the amount of time I get to enjoy the sweet green stuff, while she likes to heap massive amounts on each chip, in an effort to eat less chips (which […] I find laughable). This drives me crazy as I always end up with the short end of the Guac stick, and so lately I have been separating the Guac into two equally-sized bowls once she’s made it, in an effort to preserve my fair share. She thinks this qualifies as me being [a jerk] and says I “must have failed sharing in Kindergarten”, but on the contrary, I think it’s her poor sharing that’s lead to the whole situation.

[Dear Letter-Writer:] Well, the obvious solution here is for her to make MORE guac. The other solution? Ask her the recipe, and then begin making it yourself. As head chef of the household, you are in full control of when that guacamole will be presented for consumption. I cook for my wife because it allows me the freedom to eat half of what I’ve made before it even reaches the table.

Furthermore, the strategy of using less guac per chip is fatally flawed. It’s guacamole. All guac is first come, first serve. You must heap as much guac onto one chip as humanly possible (as your fiancée does), only do it at a much faster rate. Think guacamole isn’t a race? IT IS. The faster you eat, the more you get. That’s how it works. And it’s a crucial strategy to exploit when dealing with guacamole, nachos, pizza, wings, and other shared food. Do not hesitate. Don’t even […] chew. You inhale […] until there’s nothing left for her. That’s what I do.

If you were out to eat with your guy friends at a Mexican restaurant, and you ordered guacamole for all to share, would you get [mad] at your friends for digging in too quickly? [Heck] NO. That guac is chum, and you are the sharks. ATTACK ATTACK ATTACK. Never play defense with appetizers.

There you have it, the world’s best explanation of the tragedy of the commons. Garrett Hardin eat your heart out. Let’s just hope we never find ourselves at a Mexican restaurant with Chris.

The letter-writer deserves kudos for endorsing the standard (and effective) economist solution to this problem: well-defined property rights. And his fiancée? Maybe she’s a fan of recent Nobel Laureate Elinor Ostrom.

Continue reading “The Tragedy of the Guacamole”

Enforcing Property Rights: Snowmageddon Edition

In case you hadn’t heard: the DC area was socked with a boatload of snow over the weekend. We got 27 inches here in Bethesda, and many areas received comparable amounts (pay no attention to the official measure at National Airport which is mysteriously low at 18 inches).

The Washington Post reports on some of the etiquette questions that the snow has created. Being an economist, however, I would describe them as property rights questions. For example, what are your rights if you dig out a parking space?

Boston has codified its citizens’ right to benefit from their backbreaking snow-clearing labor; a city law says that if you dig out your car in a snow emergency, a lawn chair or trash can renders the spot yours for at least two days while you’re away at work. In Chicago, blocking a parking spot is illegal, but city officials acknowledge an informal rule of dibs if you’ve done the digging.

“I know this is public property, but if you spent hours laboring, I mean, come on, I think you have the right to say that is my spot,” said Tanya Barbour, who spent two hours Sunday shoveling free her silver Ford Expedition in the 1500 block of T Street NW. “If someone had clearly taken the time to shovel it out, I would not take that spot because I would not want that done to me.”

Across the District and in the Maryland suburbs Monday, many were not relying on Barbour’s honor system. Some used Boston-style markers — lawn chairs, recycling bins, orange cones, a mattress, even two bar stools with a Swiffer on top — to try to save spots along residential streets.

Keith Green, 37, said he’s heard too many scary stories to slip into a spot someone has blocked off. After the 1996 storm, a man was killed outside New York after a dispute over a shoveled parking spot. In Philadelphia in 2000, it happened again. In South Boston, a handful of assaults, slashed tires and other cases of vandalism end up in District Court each year after drivers are perceived to have broken the code.

In the District, said city transportation spokesman John Lisle, blocking spots is illegal. “We would hope people would work together and clear out several spaces instead of just one, but you can’t block a space,” he said.

In Chicago, Matt Smith, a spokesman for the Streets and Sanitation Department, said the lesson from a more snow-savvy city is that although “staking out a spot may save your space temporarily, it’s bound to create problems with your neighbors.”