Coase was right – the one graph version

I recently came across two indices, which are measuring two on the surface unrelated things – property rights and environmental standards across different countries.

However, anybody who ever read Ronald Coase would know that according to Coase the best way to manage externalities (read pollution) is to have well-defined property rights. Note I am simplifying Coase’s message a lot here, but nonetheless this is basically at the core of what some have called Free Market Environmentalism.

The first index is the International Property Rights Index (IPRI) published by the Property Rights Alliance. The IPRI rank different countries according to the level of protection of property rights.

The second index is the Environmental Performance Index (EPI), which “ranks how well countries perform on high-priority environmental issues in two broad policy areas: protection of human health from environmental harm and protection of ecosystems.” EPI “is a joint project between the Yale Center for Environmental Law & Policy (YCELP) and the Center for International Earth Science Information Network (CIESIN) at Columbia University, in collaboration with the World Economic Forum and support from the Samuel Family Foundation and the McCall MacBain Foundation. “

This is what we get when we plot the two indices against each other.


So there you go. The one graph version of Free Market Environmentalism – if you are concerned about the environment you should really primarily concern yourself about the protection of property rights…Unfortunately that is unlikely to be on the mind of most of the policy makers who are meeting in Paris these days to discuss global climate change.

PS you can find the data here.

Update: Some have suggested that this is a spurious correlation caused by the fact that high environmental standards and the level of protection of property rights both are positively correlated with income levels. That is partly right, BUT not fully right. I have tested this by estimating EPI as a function of BOTH property right and GDP/capita. Even doing this property rights comes out as being a (very) significant determinate of environmental standards. A high GDP is not enough – property rights need to be protected as well.


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  1. What clearly defined property right are we missing that would enable a free market response to CO2?

    • Abir Mandal

       /  December 6, 2015

      This is like asking how the free market would respond to kittens. Some government agency claiming that CO2 is harmful does not make it so.

      • Ok, but like, for the sake of argument, assume CO2 actually is harmful and tell me how property rights can deal with the harm.

  2. Environmental Performance Index (EPI)…“ranks how well countries perform on high-priority environmental issues in two broad policy areas: protection of human health from environmental harm and protection of ecosystems.” CO2 isn’t harmful to humans or ecosystems.

    • Jim Tolbert

       /  December 5, 2015

      capitalistraoder1, we can all have our own opinions, but we can not have our own facts. All of the National Academies of Sciences from all G-8 countries and all BRICS countries disagree with you. CO2 does capture heat in our atmosphere; increasing CO2 does increase the heat retained, changing climates; and this does impact people, ecosystems and economies.

      • Abir Mandal

         /  December 6, 2015

        CO2 can absorb IR in 2 narrow ranges comprising 4% of the entire IR spectra. It is virtually impossible for human made CO2 to be responsible for more than 1.6% of all expected warming over the century, irrespective of what the National Science Institutes of the G8 countries say. Governments lie.

      • Jim Tolbert

         /  December 8, 2015

        Abir, it does not matter the percent of the entire IR spectra, it matters how much IR being emitted by the earth surface with an average temperature around 255K. The IR absorption band around 15 um is an important band. If I read your statement right, you are saying you know the answer and you don’t care what National Academies or major science organizations such as American Association for the Advancement of Science or the American Meteorological Association state that the science and data support. If you are looking for an introduction to this, you might pick up the text Atmospheric Science by John Wallace and Peter Hobbs.

  3. Jim Tolbert

     /  December 5, 2015

    If there is a correlation of Environmental Performance Index (EPI) with both the International Property Rights Index (IPRI) and GDP/capita, it may be interesting to explore that solid property rights may be a causal variable in evaluating GDP/capita. The IPRI may be a contributing causal variable to BOTH.
    Lawrence – I really like your question. Since future generations can not have standing TODAY for damages emitting fossil fuels will have on them; and since the CO2 emissions are spread among so many people and businesses, it is not reasonable to expect future people to sue current people to stop the problem. What we can do though, is to use the principles involved and put some of this COST back into the purchase of fossil fuels for uses that emit CO2. This is a carbon tax or carbon fee. With costs inserted into these transactions, people will make more appropriate, free market choices. The current system is really not a “free market” for fossil fuels, since all of the people impacted are not involved in setting the price for the transaction of buying and selling these fuels.

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