The first conservation land development term a legal professional should grasp is an economic one: market failure.
The Importance of Conservation Land Development Terminology
Fully grasping conservation land development terminology, such as market failure, starts with the context in which conservation land development principles are applied: the economy. The economic marketplace and government are society’s two primary mechanisms for coordinating economic activity. Conservation land development is one of the countless economic organizing principles that operate within society’s sphere of economic activity. The economic marketplace’s and the government’s operative mechanisms each play a determinative role in delivering to society both private goods and services (such as food production) and public goods and services (such as water quality).
Sometimes one mechanism is demonstrably more efficient in certain circumstances; other times, the other mechanism is demonstrably more efficient in different circumstances. In almost every instance in today’s economy, there is blended involvement by the marketplace and the government in delivering goods and services to society. In public policy making, most economic debate centers around the degree to which one mechanism is more economically efficient (or socially beneficial) for specific industries (such as green energy products) and, more generally, at the national economic level (free markets vs. large-scale government intervention).
Definition of Market Failure
The answer to the above-described debate centers on whether the economic marketplace’s operation—without government intervention—allocates economic goods and services in what is deemed to be the most socially beneficial level of output. That economic question leads to the first key conservation land development term: market failure. It is best to understand this term first because the existence of an environmental market failure provides the justification used by public policymakers for the corrective measures a government takes in the form of laws and regulations.
Market failure is an economic term used to describe a situation in which the allocation of goods and services by the operation of the marketplace’s actors, a sub-section of society, results in less than efficient economic outcomes from a society-at-large perspective. The economic marketplace is deemed economically efficient when resources used in an economy by producers and consumers are allocated to their most valuable uses in terms of economic output level and net-benefit to consumers, while waste and inefficiency are minimized. However, where actual economic output is different from the optimal amount for any reason, the market is said to experience market failure. Essentially, a market failure exists when the most socially beneficial level of economic output does not occur. Correcting a market failure brings about improved economic welfare for society.
Market failure is revealed through such economic concepts as negative environmental externalities and sub-optimal public good amenities. For instance, a public good market failure is where the marketplace fails to produce certain goods, despite such goods being needed or wanted. Public goods and externalities are key conservation land development terms that will be discussed in future posts.
For a more in-depth explanation of a market failure, I suggest starting with renowned MIT economist Francis Bator’s 1958 seminal article “The Anatomy of Market Failure.”[i]
The key takeaway, after gaining an understanding of the definition of market failure, is that the market failure concept provides the economic justification for public land use planning and regulation, as well as private land conservation.
[i] Francis Bator, The Anatomy of Market Failure, 72 Q. J. ECON. 351 (1958) (Bator explains that by market failure, “We mean the failure of a more or less idealized system of price-market institutions to sustain ‘desirable’ activities or to estop ‘undesirable’ activities.”)