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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