Neighborhood Effects
In Hayek’s writings, the phenomenon of “neighborhood effects” provides a key source of reservations in applying the foregoing analysis to the environmental domain (1960, 316 and 319; 1981, 43-46).7 We have already seen that Hayek’s expectations of market functionality are tied to the idea that individuals must bear the consequences of their actions. Yet in environmental contexts, the conditions for such accountability are sometimes absent. Individuals can sometimes benefit from imposing burdens on others or face personal losses as a result of publicly beneficial actions. In cases like these, market incentives can fail to drive individuals to act with sensitivity to broader economic needs (1981, 43).
In the previous section, we briefly discussed the possibility of resolving such problems through the extension of property rights and legal institutions. Yet Hayek does not expect that such resolutions will always be available. One reason is that certain resource systems have features that make it difficult to incorporate them into effective patterns of property ownership. “Fugitive resources,” which cannot be assigned to particular individuals prior to consumptive appropriation, provide an illustrative example. When it comes to resources like fish, water, and oil, Hayek writes, “no individual exploiter will have an interest in conserving, since what he does not take will be taken by others” (1960, 319). He notes that in some cases it will be possible to improve market functionality by redrawing property boundaries so that “the units of property are of such size that at least all the more important effects of any one owner’s actions are reflected in the value of his own property” (319). But when this cannot be done to a sufficient degree, he concedes, “we must resort to alternative forms of regulation” (319).
Similar problems arise in the context of air and water pollution. Here, too, Hayek suspects that property rights will not always suffice to yield favorable outcomes, as “calculation by the individuals which takes into account only the effects upon their protected domain will not secure that balancing of costs and benefits which will in general be achieved where . . . the owner alone will experience the effects” (1981,43). In such cases Hayek again allows that public intervention may be warranted, though he insists that replacing market coordination with political direction is in many respects an “inferior method” of providing citizens what they desire (46).
A different kind of issue emerges when individuals stand to benefit their neighbors through actions that would produce little gain for themselves. Hayek observes that “it is either technically impossible, or would be prohibitively costly, to confine certain services to particular persons, so that these services can be provided only for all (or at least will be provided more cheaply and effectively if they are provided for all)” (1981, 44). He continues:
In many instances the rendering of such services could bring no gain to those who do so, and they will therefore not be provided by the market. These are the collective or public goods proper, for the provision of which it will be necessary to devise some method other than that of sale to the individual user. (44)
Hayek does not immediately conclude from the existence of public goods that governmental involvement is warranted. For he observes that in many historical contexts citizens have managed to organize themselves to provide these goods on their own (1960, 109 and 324; 1981, 50). But he nevertheless acknowledges that in large communities where the benefits from public goods would be broadly dispersed, the most practicable way to secure these goods will often be for each citizen “to agree to be compelled, provided this compulsion is also applied to others” (1981,44). In the category of collective goods that might call for public assistance Hayek includes the provision of environmental amenities, recreation opportunities, natural parks, and nature reservations, as well as the preservation of natural beauty, historic sites, and places of scientific interest (1960, 324).8
