If Hayek and Coase Were Environmentalists: Linking Economics and Ecology

Modern environmentalism and neoclassical economics have much in common, but unfortunately the commonalities too often cloud how markets and the environment can be productively linked. The commonalities most often focus on the conditions for equilibrium in ecosystems and economies and on how human action thwarts both systems from achieving equilibrium. A more realistic link between the two disciplines should focus on the dynamic nature of ecosystems and economies. That link depends on property rights and markets to harness entrepreneurship for the purpose of connecting human demand on nature's bounty with dynamic natural forces. The purpose of this Article is to provide a way of reconciling environmentalism and markets. It criticizes the equilibrium approach to ecology and economics because it misses the dynamic connection between nature and human action.1 A better alternative for linking ecology with economics builds on the teachings of Nobel laureates Friedrich Hayek and Ronald Coase regarding the role of prices, property rights, and transaction costs in guiding human action.