The Public Interest

The free market and the environment

Jane S. Shaw & Richard L. Stroup

Fall 1989

CONVENTIONAL economic wisdom, in a theory first propounded by Nobel laureate Paul Samuelson, holds that the unregulated market cannot be expected to protect the environment. In this theory, dean air and water are “public goods” whose value is not well reflected by market processes.  Potential polluters do not consider the social costs of their actions, but only the costs to themselves; in addition, since efforts to maintain a clean environment benefit even those who do not help fund them, each individual faces a strong temptation to avoid footing the bill. Similarly, when markets cannot immediately reflect the benefits of preserving biotic diversity or of saving individual species, private landowners may not be willing to pay for socially beneficial preservation. In the absence of government intervention, the argument goes, the environment will therefore be insufficiently protected.

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