How and Why to Privatize Federal Lands · 2019-12-31 · mum; there must be broad participation in...

Fully a third of the land area of the UnitedStates is owned by the federal government.Although many Americans support the preserva-tion of those lands, analysts on the left and theright agree that the federal government has donean exceedingly poor job of stewarding thoseresources. Indeed, the failure of socialism is asevident in the realm of resource economics as itis in other areas of the economy.

Four criteria should guide reform efforts:land should be allocated to the highest-valueduse; transaction costs should be kept to a mini-mum; there must be broad participation in thedivestiture process; and “squatters’ rights”should be protected. Unfortunately, the landreform proposals on the table today fail to meetsome or all of those criteria.

Accordingly, we offer a blueprint for auc-

tioning off all public lands over 20 to 40 years.Both environmental quality and economic effi-ciency would be enhanced by private ratherthan public ownership. Land would be auc-tioned not for dollars but for public land sharecertificates (analogous to no par value stockcertificates) distributed equally to allAmericans. Those certificates could be freelytransferred at any time during the divestitureperiod and would not expire until after thefinal auction. Land would be partitioned intotracts or primary units, and corresponding toeach tract would be a set of distinct, separable,elemental deed rights. Any individual with adocumented claim to rights defined by thosedeeds, however, would be assigned the appro-priate deed or deeds. Once divested, tract deedrights would be freely transferable.

How and Why to Privatize Federal Lands

by Terry L. Anderson, Vernon L. Smith, and Emily Simmons

___________________________________________________________________________________

Terry L. Anderson is director of the Political Economy Research Center in Bozeman, Montana, and a senior fel-low at the Hoover Institution. Vernon L. Smith is professor of economics at the University of Arizona. EmilySimmons was a research fellow at PERC.

Executive Summary

No. 363 November 9, 1999

Introduction

Americans have entrusted the NationalPark Service, the U.S. Forest Service, and theBureau of Land Management with some ofthe most treasured and highest-valued landin the United States as well as some of theleast desirable properties on the continent.1

Approximately 630 million acres, or nearlyone-third of the land area of the UnitedStates, are owned by the federal government.Most of that land is located in the West. Overone-half of the land area of Idaho, Nevada,Oregon, and Utah belongs to the federal gov-ernment. Nevada, the extreme case, is 79 per-cent federally owned. It is indeed odd that, ina society that rejects socialism, such a clearlysocialist resource policy survives with suchwidespread public support.

Public land management, however, doesnot always deliver what the citizens expecteither for the treasury or for the environ-ment. It is remarkable that the federal gov-ernment actually loses money in the courseof managing federal land assets estimated tobe worth billions. Moreover, the federal gov-ernment has a poor record of ecological stew-ardship. The argument that federal agentsare better land managers than are privateowners is not only suspect in theory; it isdubious in fact.

Given that record, we might expectnumerous proposals to move public landsinto private hands, but such efforts haveproven politically elusive. One reason for thedifficulty in broaching the subject politicallyis the widespread, but dubious, belief that thefederal government is more likely to preserveenvironmental amenities than are privateowners. Another is that those who feed at thepublic trough are unwilling to give up theirfree lunches. Finally, and perhaps mostimportant, is the difficulty in drafting adivestment plan that can appease all the spe-cial-interest groups that consider themselvesstakeholders in the public lands and that canmobilize support from the much broaderelectorate.

This study briefly surveys the federal gov-

ernment’s track record as a resource ownerand finds pervasive economic and ecologicalmismanagement of the federal estate. Wethen discuss how policymakers might best goabout remedying the problem by privatizingfederal land. We establish four important cri-teria for reform plans and suggest an innova-tive, politically realistic blueprint for divesti-ture. Moving from public to private owner-ship with the right sort of divestment blue-print is easier than many people might think.

The EconomicMismanagement of

Public LandsWhile most of the public supports federal

land management as a means of protectingthe environment, few people remember thatpublic ownership was originally justified oneconomic, not ecological, grounds. The U.S.Forest Service, for instance, was establishedto apply scientific principles to the economicmanagement of timber resources that werethought to be inefficiently managed by theprivate sector.2 Its original charge was to “fur-nish a continuous supply of timber for theuse and necessities of the United States.”3

Gifford Pinchot, founder and first chief ofthe Forest Service, argued, for instance, that“conservation stands for the same kind ofpractical common-sense management of thiscountry by the people that every businessman stands for in the handling of his ownbusiness.”4 In fact, Pinchot opposed NewYork State’s preservationist management ofthe Adirondack Park because it was a waste ofgood timber.5

However, we have learned since theProgressive Era that public ownership ofassets is less economically efficient than pri-vate ownership. As Table 1 shows for fiscalyears 1994, 1995, and 1996, the three mainland-management agencies ran large deficitsin every year with a total deficit in FY96exceeding $2 billion. Those aggregate lossescame from lands managed by the three agen-cies and valued at $150 billion in 1995.6

2

Public land man-agement does not

always deliverwhat the citizensexpect either for

the treasury or forthe environment.The federal gov-

ernment actuallyloses money in

the course ofmanaging federal

land assets esti-mated to be

worth billions.

Table 1Balance Sheet for Federal Land-Management Agencies

Timber Grazing Minerals Recreation

National Park Service1994

Receipts $0 $0 $0 $75,688,000Expenditures $0 $0 $0 $1,365,749,000Total $0 $0 $0 $(1,290,061,000)

1995Receipts $0 $0 $0 $80,513,000Expenditures $0 $0 $0 $1,285,122,000Total $0 $0 $0 $(1,204,609,000)

1996Receipts $0 $0 $0 $77,771,000Expendditures $0 $0 $0 $1,315,468,000Total $0 $0 $0 $(1,237,697,000)

U.S. Forest Service1994

Receipts $932,516,000 $11,056,000 $16,817,000 $47,895,000Expenditures $1,206,685,000 $48,727,000 $33,017,000 $395,653,000Total $(274,169,000) $(37,671,000) $(16,200,000) $(347,758,000)

1995Receipts $701,774,000 $8,756,000 $20,663,000 $46,627,000Expenditures $769,688,000 $19,622,000 $38,932,000 $359,492,000Total $(67,914,000) $(10,866,000) $(18,269,000) $(312,865,000)


Bureau of Land Management1994

Receipts $59,455,339 $18,817,624 $34,294,539 $2,062,252Expenditures $95,748,131 $54,274,000 $91,176,000 $39,818,809Total $(36,292,792) $(35,456,376) $(56,881,461) $(37,756,557)



Sources: NPS recreation is from written communication from James Giammo, chief, NPS Budget Team, April 25, 1997. FSexpenditures and receipts are from Forest Service 1995–97 Statement of Obligation, National Forest System Funding, andStatement of Receipts and Budget Explanatory Notes 1998, notes 180, 196. BLM expenditures are from Budget Justifications1996–98. BLM receipts are from Public Land Statistics 1996–97, statement of receipts by source; and telephone and writtencommunication with Alice Sonne, BLM accountant, Denver.

3

Since the fall of the iron curtain, there canbe little doubt about why this is occurring. Asdid the bureaucracies of Eastern Europe,land-management agencies face conflictingpolicy goals, political pressures, perverseincentives, and poorly defined propertyrights. Managers are far removed from theactual costs and benefits associated withtheir actions, and the result is poor resourceeconomics and stewardship. Instead of seek-ing profit, public managers seek larger bud-gets, more personnel, and expanded power.Instead of producing the goods that are mosthighly valued by users, managers produce thegoods demanded by politically powerful spe-cial interests. Rather than face and chargemarket prices determined by supply anddemand, managers face and set prices deter-mined by politics, which usually equate tolow or zero prices for those in political con-trol. Not surprisingly, low receipts and highoperating costs combine to create hugedeficits for the federal land-managementagencies.

Consider Randal O’Toole’s findings ofdeficit spending by each agency. In 1995 theForest Service managed 192 million acresworth $100 billion. The agency returned only$465 million to the treasury and spent $2.4billion for a net loss of $1.9 billion. In thesame year the BLM managed 220 millionacres worth $25 billion. It returned $134 mil-lion to the treasury and incurred costs of over$1 billion for a net loss of $913 million. Andthe National Park Service netted a loss of $1.3billion on an 87-million-acre asset worth $25billion. Expenditures were $1.3 billion, andreceipts were a paltry $1 million.7

The deficits from federal land manage-ment are often blamed on subsidies to thecompanies that produce commodities on thefederal estate, but the blame is misplaced. Forexample, it is not the sale of timber for below-market prices but excessive expenses thatcause the losses related to timber production.Timber sales are supposed to be made atcompetitive auction to give the governmentthe maximum price. There have been numer-ous allegations of collusion in the bidding

process, but the Justice Department has wononly a handful of cases. The one economicstudy that finds some evidence of collusionconcludes that receipts are reduced by 7.9percent when collusion occurs.8

A quick glance at Table 1 reveals thatreduced receipts are not the problem; federalland deficits are mainly due to bloated costs.Federal land managers have few incentives tocut the administrative and road costs that areroutinely higher than revenues.

A recent study by the Political EconomyResearch Center comparing national andstate forests illustrates what efficient landmanagement could mean.9 For every dollarthe Forest Service spent between 1994 and1996, it took in only 30 cents. State landmanagement in 10 western states, on theother hand, netted $5.56 for every dollarspent. The Forest Service averaged 200employees per acre while the states averagedonly 40 employees per acre. Between 1988and 1991, the state of Montana spent about$65 per thousand board feet of harvest toadminister its timber program. During thesame period, national forests spent about$140 per thousand board feet. A mile of roadin national forests costs about $50,000, butin state forests the cost is only $5,000.

The costs of compliance with planningand environmental laws alone often exceedthe value of the timber, as this example sug-gests. The La Manga timber sale in theCarson National Forest in New Mexico origi-nally was to have been 4.2 million board feetwith an estimated value of about $718,000.After obtaining new information, including aplan by the Fish and Wildlife Service to recov-er the threatened Mexican spotted owl, theForest Service reduced the volume of timberto 2.4 million board feet with an estimatedvalue of about $411,000. At the same time,the Forest Service spent $300,000 on envi-ronmental analysis and $400,000 respondingto legal challenges, reanalyzing the sale area,and updating the information.1 0Not surpris-ingly, the sale lost money.

In the case of grazing on federal lands, it isnot clear whether ranchers are receiving for-

Federal landdeficits are main-ly due to bloated

costs. Federalland managers

have few incen-tives to cut theadministrativeand road costs

that are routinelyhigher than

revenues.

4

age at fees below market value,11 but it is clearthat excessive costs are the dominant cause ofthe grazing deficits. In FY96 BLM rangelandmanagement costs totaled $59 million, butthe government collected less than $15 mil-lion in grazing fees. Fees would have toincrease four times to make them cover costs,and few observers would argue that such anincrease would be realistic.

Although small in terms of employment,acreage, and value of output, mining on fed-eral lands produces the highest return peracre to the treasury. Despite its profitability,the BLM and Forest Service do not promotemining activity. Instead, by withdrawing land,imposing regulatory restrictions, and causingdelays, the agencies discourage the only landuse that returns a profit to the treasury.1 2

Recreation is not usually mentioned byenvironmentalist groups that criticize poorfederal land management, perhaps becausethis activity generates large subsidies for theirconstituents. Many people assume that recre-ation is a low-cost use of federal land com-pared to commodity production, but noth-ing could be further from the truth. As seenin Table 1, recreation losses on the federalestate often exceed losses from other activi-ties, especially if losses to the National ParkService are included.

National parks generate the largest lossesof all federal lands. That is mainly becausepark managers have had little or no incentiveto collect fees even in popular parks whererevenues could be significant. In 1994Yellowstone National Park led in losses withrevenues of slightly less than $4 million andexpenses of $18 million. With 3,046,000 vis-its and 67,366,000 visitor hours in 1994, thepark lost $4.68 per visit or $0.21 per visitorhour. In 1994 only two national park units,Montezuma Castle Monument in Arizonaand Arches National Park in Utah, made aprofit.1 3 To give an idea of how large therecreational subsidies currently are, formerPark Service director James Ridenour esti-mated that “it would take a 10-fold increase[in entry fees] to even get close to covering theoperating costs of our present parks.”1 4

The EcologicalMismanagement of

Federal LandsPerhaps the pain of such great economic

losses would be lessened if public lands wereecologically healthy, but perverse economicincentives inherent to public bureaucraciesalso lead to perverse ecological results. Thisclearly suggests that the challenge of improv-ing the ecological state of public lands is lessa matter of choosing the right policies thanof changing the institutional arrangements.

Unfortunately, documenting the ecologi-cal health of federal lands is an uncertainbusiness. That is because the very definitionof ecological health is hotly contested withinthe environmental community,1 5 and thereare few if any objective, analytical yardsticksof environmental health. Still, the informa-tion available strongly suggests that the fed-eral government has been a less than compe-tent ecological manager.16 As Hope Babcock,a former official at the National AudubonSociety and currently a law professor atGeorgetown University, acknowledges: “Fewwould assert that the historical institutionalparadigm for managing the nation’s publiclands has protected the natural resource val-ues of those lands or provided an harmo-nious framework for resolving conflicts overtheir use. Unless a dramatic change in thefederalism structure for the management ofpublic lands is made, the conflict over theiruse and management will continue to blightthe future of these lands, just as it has marredtheir past.”1 7

A U.S. General Accounting Office inquiryinto U.S. Forest Service and BLM planningfor the period February 1988 to August 1990,for instance, found that the agencies were notmeeting objectives for sustaining wildlife.Fifty-one Forest Service and BLM plans con-taining 1,130 wildlife-related action itemswere to have been implemented, but 39 per-cent had not been started, 22 percent werepartially completed, 33 percent were fullycompleted, and 6 percent had unknown sta-tus. GAO also found that 60 percent of the

5

The informationavailable stronglysuggests that thefederal govern-ment has been aless than compe-tent ecologicalmanager.

BLM’s grazing allotments were in less thansatisfactory condition because of overgrazingand that the agency was doing nothing tocorrect the problem.1 8

Examinations of the state of federalforests have likewise not been kind. A 1995report of the Forest Policy Center concludedthat, because of perverse institutional incen-tives, “the majority of forest health problemsin the [inland West] region exist on publiclands” and that “the entire forest systems areso far out of normal ecological range that vir-tually every element in the system is affected,and may be at risk.”1 9 There are at least 39million acres of federal forest land that are atextreme risk of catastrophic wildfire.20

Photographs published in a PoliticalEconomy Research Center report clearlyshow the ecological consequences of federalmismanagement of our national forests.2 1

Degradation in national parks, the “crownjewels” of the federal estate, is even morerevealing. The mission of the National ParkService is unambiguous: to protect the envi-ronmental health of sensitive ecosystems.The Park Service’s charge is

to promote and regulate the use ofthe . . . national parks . . . which pur-pose is to conserve the scenery andthe natural and historic objects andthe wild life therein and to providefor the enjoyment of the same insuch manner and by such means aswill leave them unimpaired for theenjoyment of future generations.22

But an increasing number of ecologistsare questioning whether that mission isbeing accomplished. Charles Kay of UtahState University, who does independentresearch on the Yellowstone ecosystem, is onesuch ecologist. His numerous publicationson the ecological health of Yellowstone docu-ment destruction, not preservation, withinthe park.2 3According to Kay, the Yellowstonerange is overpopulated by elk and bisonresulting in the starvation of thousands ofelk, an overgrazed range, the destruction of

plant communities, the elimination of criti-cal habitat, and a serious decline in biodiver-sity. The starving elk and bison have repeat-edly browsed willow communities and aspenstands on the northern range, causing a 95percent decline in tall willows and aspenssince the establishment of the park anddestruction of critical riparian and foresthabitat. Because of the elimination of willowsand aspens, beaver are no longer able to findfood and dam-building materials on thenorthern range and, therefore, have ceasedfulfilling their past ecological role in thestructuring of the Yellowstone ecosystem.According to Oregon State University hydrol-ogist Robert Beschta, the damage to theriparian plain system of the Lamar River“could take centuries to repair.”2 4

According to ecologist Karl Hess Jr., RockyMountain National Park also faces seriousthreats to ecological health under “naturalregulation” management. Hess describes thedramatic decline of aspens, willows, wetmeadows, and dry grasslands on the winterrange and ascribes the damage to overgrazingby elk. As in Yellowstone, beaver have ceasedperforming their ecological role withinRocky Mountain National Park. “The con-tinuously expanding herd of elk has impov-erished some of the biologically richest andmost diverse ecosystems in the park.”2 5 Theoverabundance of elk coupled with the evengreater destructive force of fire suppressionhas worked to seriously threaten diversity “asmeasured in the richness, mixture, and dis-persion of species and communities.”2 6 Hessconcludes that the destruction in RockyMountain National Park is the result of“institutional flight from responsibility andthe accountability vacuum that has formedin its wake.”2 7

Parks closer to urban centers face greaterthreats from humans. For example, GreatSmoky Mountains National Park inTennessee boasts not only the natural vaporsthat gave the park its name but air pollutionfrom automobiles as well. The exhaust hangsheavy along the treetops, making the treesmore susceptible to disease and clouding the

6

The Yellowstonerange is overpop-ulated by elk and

bison resulting inthe starvation of

thousands of elk,an overgrazed

range, thedestruction of

plant communi-ties, the elimina-

tion of criticalhabitat, and a

serious decline inbiodiversity.

vistas. Instead of decreasing automobilenumbers, however, the National Park Servicefaces an incentive to increase the number ofvisitors and, therefore, its operating budget.Fredericksburg and Spotsylvania NationalMilitary Parks are threatened by develop-ment along their borders. Apartments withlittle open space line the park boundary, andchildren build tree houses and destroy natur-al features. Writing in National Geographic,John Mitchell said: “Parks were created ‘forthe enjoyment of future generations.’ Formany, that 78-year-old promise is eroding.”2 8

In general, the National Park Service facesa tension between preservation andtourism.29 In the past, numbers of visitorshave driven budgets determined by politi-cians who control purse strings. Now, underthe Fee Demonstration Program, the agencycan retain up to 80 percent of fees collected atcertain sites. In either case, there is an incen-tive to attract more visitors with little regardto overcrowding.

In his book The National Parks Compromised,Ridenour decried the impact of “park barrelpolitics” on the nation’s treasures. He states,“The government has just not taken care ofthese beautiful treasures.” Consider hisdescription of a visit he made during histenure to Sequoia National Park:

I noticed water running down thepavement and upon closer look, Inoticed toilet paper. The old sewersystem was overloaded and the pipeswere clogged up. I couldn’t believe it;here we were trying to set the envi-ronmental standard for the nationand we were in blatant violation ofthe standards ourselves.3 0

Can there be any doubt that the federalgovernment is not managing our lands well?Some degree of environmental deteriorationof national forests and rangelands is perhapsto be expected. After all, federal managers areat least nominally required to facilitatenonenvironmental uses of those lands.31 Butfailure to adequately protect the national

parks from degradation indicates that, evenwhen given the direct and unambiguouscharge of conserving and protecting environ-mental quality, the federal government is notup to the job.

Policy Criteria forPrivatization

Given the economic and environmentalcosts of operating the federal estate, the timehas come to reconsider proposals for privati-zation that were considered in the 1980s.Private ownership offers an alternative tobusiness as usual in Washington by gettingthe incentives right for both the treasury andthe environment. Privately owned forests andgrazing lands cannot and do not operate yearto year in the red. Privately owned (and evenstate-owned) parks raise revenue sufficient tomaintain the parks and produce a profit. Andthere is growing evidence that “enviro-capi-talists” can produce environmental ameni-ties, especially if they do not have to competewith below-cost public substitutes.3 2

An advantage of private land manage-ment is that it promotes conservation of aresource valued slightly by most but highlyby a few. That stands in sharp contrast to thepublic sector, where conservation is political-ly dictated and those without political clouthave little voice. Rosalie Edge and her HawkMountain Sanctuary Association are anexample of private initiative to conserve inthe face of great public opposition.3 3 TheHawk Mountain Sanctuary Association, cre-ated in 1938 to maintain the HawkMountain Sanctuary, is a private, member-supported, nonprofit organization designedto protect raptors that were considered pestsand vermin at the time of the association’sconception. The internationally known sanc-tuary thrives today as a conservation, educa-tional, and research center.

Furthermore, privatization allows for win-win outcomes in the environmental arena.Currently, one group’s win is by necessityanother group’s loss, and the dynamics of the

7

Private owner-ship offers analternative tobusiness as usualin Washington bygetting the incen-tives right forboth the treasuryand the environ-ment.

political process guarantee that a win is onlytemporary. When the political winds shift,the battle will be fought again. Never is theoutcome final. Although that process keepsmany people employed, the result is continu-ous economic losses and environmentaldegradation.

The idea that there must be a better way tomanage the federal estate is nothing new inpolicy circles. Especially in the 1980s, variousgroups involved in the Sagebrush Rebellioncalled for divestiture of federal lands at leastto the states if not to individuals.34 TheSagebrush Rebellion led to the proposal thatfederal lands be transferred to the states,which would then lease them or otherwisepermit private access to them on terms deter-mined by the state political environment. InAlaska, where the state income tax wasrepealed, a serious effort is being made tofind a way to ensure that the state transfers tothe people all income-producing resources. Anumber of plans have been discussed, such asestablishing a pass-through corporation orirrevocable trust that would own all of theroyalties or mineral rights on state lands anddistribute shares of stock to each Alaskan.Another would devise a subsidized leasingsystem that would allow even those Alaskansof modest means to participate. Still anotheridea, which would give the rights directly toindividual Alaskans, would involve a giantlottery in which every Alaskan would have achance, based on the luck of the draw, to owna valuable piece of property, including bothsurface and subsurface rights or only subsur-face rights.

If divestiture is ever to move forward, a firststep will be to develop criteria for evaluatingalternative divestiture plans. Of the many cri-teria that might be used, we suggest four.

Criterion 1: Land Should Be Allocated tothe Highest-Valued Use

Land whose value is greatest in timberproduction alone should not be used forgrazing. Land whose value is greatest whenwater and surface rights are separated shouldbe represented by a property rights system

under which deeds to surface rights andwater rights are separable and marketable.Similarly, remote wilderness areas on whichlogging or mining is too costly should be pre-served from such uses, and land whose “high-est value” is for recreational or aestheticappreciation should likewise be dedicated tothose ends.

This criterion is met by a well-defined sys-tem of alienable, separable, private propertyrights, which permit all potential gains fromexchange in markets to provide incentives forthe allocation and reallocation of land-userights to those functions that are perceived tocommand the highest value.

Criterion 2: Low Transactions CostsGiven a choice between two divestiture

plans, both capable of satisfying the first cri-terion, the preferred alternative should be theone for which the transaction costs to theparticipants are lowest. Hence, followingdivestiture, if Plan A requires more secondarymarket exchange than Plan B, then Plan Bwould be preferable.

Criterion 3: Broad Participation inDivestiture Proceedings

Since our concern is with resources nowheld in the public domain, which in principlebelongs to all citizens, it is desirable to permitthe broadest possible participation in anydivestiture proceedings. If public landsbelong to all citizens, then all citizens have alegitimate claim to share directly in thewealth created by divestiture. Note that thisdoes not mean that every citizen need begiven an ownership right to some tract ofpublic land.

Criterion 4: Recognition of Squatters’Rights

Variously misguided or now obsolete pub-lic policies may have created de facto partialrights in public lands. For example, grazingpermits have been issued by the BLM and theU.S. Forest Service, and many have beenrenewed or sold, sometimes along withadjoining private land. Consequently, the

A well-definedsystem of alien-able, separable,

private propertyrights would per-

mit all potentialgains from

exchange in mar-kets to provide

incentives for theallocation andreallocation of

land-use rights tothose functions

that are perceivedto have the high-

est value.

8

value of those permits has been capitalizedinto the price of home-base ranches.3 5

Similarly, ground water rights have been cap-italized in the price of adjoining land underthe common or statutory law “rule of cap-ture” that governs riparian rights in manystates. Perhaps the simplest procedure fordealing with these cases, which has alreadybeen followed in practice, is to recognizesquatters’ rights officially by a recorded,transferable deed. All remaining land rights(for example, rights not previously appropri-ated, de facto) would be part of the divesti-ture plan.

The first of these four criteria is by far themost essential, not so much because efficien-cy per se should be the paramount objectivebut because efficiency is achieved by a processor atmosphere that encourages a search forand comparison of alternatives. It is thatexploratory process, motivated by reward,that encourages innovation and permits thebest resource use to be discovered and imple-mented where knowledge is imperfect. Thus,price and allocation theory (efficiency) can-not be validly separated from informationand search theory.

Privatizing Public Lands:Some Historical Programs

and Current ProposalsTo provide some perspective on the

divestiture criteria, it is useful to brieflyexamine some historical programs and someof the recent proposals to privatize rights topublic land.

The Homestead ActIt is worth emphasizing that the

Homestead Act of 1862, our most impor-tant divestiture program for opening theAmerican West (288 million acres, or 13percent of the United States, were ultimate-ly transferred to private owners under theact)3 6did not meet the above criteria. Underthe act, title to 160 acres of land could beacquired by adult citizens who paid $1.25

per acre, “proved” cultivation, and residedfor five years on the land. Since land is nothomogeneous, the fixed supply priceencouraged misallocation by underpricingmore-valuable tracts and delaying thedivestiture of less-valuable tracts.Cultivation and residency requirementspresupposed that the land was to be usedfor agriculture and that residency was agood screening rule for land allocation.Since land use and the efficacy of residencyare matters for the market to determine, theHomestead Act violated Criteria 1 and 2.Since homesteaded land was freely alien-able, however, Criterion 1 ultimately wassatisfied through the added costs of sec-ondary exchange. The presumption that allland available under the Homestead Actshould be cultivated is evident in theattempt by Congress to prevent “misuse” ofthe act by requiring homesteaders to “swearthat the land was intended for actual settle-ment and cultivation and that entries werenot being made for any other person.”3 7

The Resource ActsAlthough legislation had provided for

the privatization of land for agriculturalpurposes and for mining (via the MiningAct of 1866 and subsequent mining acts),Congress made no specific provision fortimberlands until the Timber and StoneAct in 1878. Prior to that date, private tim-ber holdings were acquired under lawsallowing cash or scrip sales, or fraudulentlyunder the homestead and preemption laws.Any risks associated with fraud were unnec-essary, artificial additions to the transac-tion costs of privatizing public lands. Sinceenforcement was nil, however, the damagewas probably slight.

Similarly, the Mining Act of 1866 and itssuccessors did not satisfy the above criteria.As in the Homestead Act, rules requiredthat a piece of land (in this case, the lode) be“worked” before it could qualify as a min-ing claim and title could be obtained. Sincethose claims were alienable, Criterion 1 wassatisfied by secondary exchange.

9

Since our concernis with resourcesnow held in thepublic domain,which in princi-ple belongs to allcitizens, it isdesirable to per-mit the broadestpossible partici-pation in anydivestiture pro-ceedings.

The history ofgovernmental

land managementand leasing poli-

cies does notinspire confi-

dence in theproposition that

the politicalprocess can even

come close toemulating sophis-

ticated marketproperty rights

processes.

The Squatters’ ActsConcerning Criterion 4, it should be

noted that recognizing full squatters’ rightsby deed has many implementation limita-tions. Where such rights have not been clear-ly established by administrative records,there will be an incentive to claim those priorrights and invest in proving or acquiringthem, which is a deadweight loss. The prob-lems of squatters on public land in the late18th century eluded all attempts to control itby force and eventually gave way to a series ofpreemption acts beginning in 1830. Thoseacts recognized the preferential right ofsquatters to purchase land, includingimprovements, at $1.25 per acre. It is possiblethat some variety of preferential purchaseright would be appropriate as an alternativeto Criterion 4 for certain present-day privateuses of the public lands.

Extension of the Federal LeasingProgram

An alternative to complete divestiture ofthe public lands is simply to extend, and per-haps strengthen, the federal leasing programas it now applies to offshore oil exploration,timber harvesting on forest lands, grazingrights, and recreational sites. The major prob-lem with quasi-divestiture via an extension ofleasing is that lease terms would be influ-enced, if not governed, by political rather thanby market processes. This provides incentivesfor the potential holders of leased grazingrights, cutting-planting rights, wilderness userights, and so forth to lobby for favorableterms, such as grandfather rights, road subsi-dies for easier access to leased tracts, and therelaxation of controls on overgrazing.Likewise, it invites interest groups that arehostile to the commercial use of public landsto obstruct the leasing process by raising ahost of burdensome bureaucratic obstacles.3 8

The fact that leasing is widely used in theprivate sector does not imply that it can beused efficiently in the public sector. Privateleasing contracts are immensely variable increating property rights arrangements thatfine-tune resource use to the preferences of

both demanders and suppliers. Suppliershave an incentive to conserve capital valueand, therefore, to negotiate arrangementsthat limit demanders’ ability to overuseresources. Where such arrangements are notfeasible (e.g., because of monitoring costs),there is an incentive to sell rather than leasethe land to user-owners. Hence, the own-or-lease decision is itself a market-disciplineddecision with infeasible lease arrangementsfailing to survive. Private landowners wholease their property are not pressured into a“land of many uses” political philosophy,which we suspect is a euphemism for com-mon property mismanagement. Private own-ers have an incentive to see that property isleased, when feasible, to its highest-valueduses, net of deterioration costs.

The history of governmental land manage-ment and leasing policies does not inspire con-fidence in the proposition that the politicalprocess can even come close to emulatingsophisticated market property rights processes.

Long-Term Leasing with PullbackModifications

Marion Clawson suggested an innovativenew public institution that could make theincreased leasing of federal land politicallyfeasible.3 9 Under Clawson’s proposal, anyorganization or individual could make appli-cation to lease a tract of land for any purposesatisfying the applicable law. Within a limitedtime after an application was filed, any otherperson or organization could file a so-calledpullback application for some part of theland area specified in the original applica-tion. The pullback applicant would have tomeet the same terms that apply to the origi-nal applicant. Thus, a forestry firm mightapply for cutting-replanting rights on a tractof Forest Service land, and the AudubonSociety might file a pullback for one-third ofthe tract to be preserved as a wildlife refuge.Alternatively, or in addition, Kampgroundsof America might file to pull back a sectionfor a commercial campground. The idea is toforce various competing potential users tobargain with each other.

10

This is a thoughtful proposal, which, aswe interpret it, has the following constructivefeatures:

• It would attempt to substitute econom-ic for bureaucratic criteria in the evalua-tion and allocation of public land forand to competing uses.

• It seeks to increase the incentive to con-serve replenishable resources throughdecentralized management and controlover public lands.

• It would promote the economic develop-ment of land for recreational wildernessand natural resource extraction and har-vesting purposes in a manner thatwould attempt to balance those conflict-ing uses through the lease challenge(pullback) procedure, forcing the con-flicting interests of various groups to bereconciled through bargaining.

• It attempts to channel more environ-mentalist-controlled income into thedirect control, management, and preser-vation of wilderness resources. Thesocial objectives of environmentalistgroups would have to be translated intoa willingness to pay for preservation.

The proposal does, however, contain anumber of defects that would prevent orlimit the achievement of those desirableobjectives. First, the present public land-management bureaucracy is likely to pressfor as much control as possible over leaseterms, by adding detailed monitoring provi-sions, for example. Bureaucrats will wantsuch controls to reflect their employment-creating and budget-maximizing needs, andthose criteria will not be equivalent to thecost-constrained incentives owners face tomanage the resource in a way that maximizesits net capital value. Bureaucrats are not evil,but they will consciously or unconsciouslylook out for their own interests.

Second, whatever compromise on controlover lease terms ultimately prevails, bureau-crats can be expected to implement andenforce those provisions to maximize their

own benefits, not those of a surrogate owner.Third, a provision that allows one party to

intervene and acquire for its own purposessome portion of a tract that another partyhas attempted to lease (provided that the sec-ond party meets the lease terms of the first) isunnecessarily complicated. The bargainingamong and the strategic positioning of themultiple parties (including, perhaps, the leas-ing agency of the national government)would lead to high transaction costs, a dead-weight loss directly attributable to the insti-tution. A cleaner, lower-cost means of intro-ducing the disciplinary function of the mar-ket is to allow “challenging” parties to simplybid away the rights sought by the first, or any,party.

It seems likely that the simplest way to dothat is by holding a competitive auction of thevarious lease rights that are associated withthe land’s use. What is needed is a meanswhereby each party can express its willingnessto pay to use or prevent the use of particularland rights, rather than a pullback procedure.“Different groups interested in the use of fed-eral lands would be free to compete againsteach other.”4 0This sounds like a full-employ-ment program for lawyers. The problem is notthe creation of conflict among interestgroups but efficient allocation. This requiresthat wants—now expressible only in terms ofpolitical power—be expressed in terms of will-ingness to pay (bids).

Fourth, a more fundamental design defectis the proposal’s attempt to specify a detailedstructure of price and quantity controls: roy-alties of 12.5 percent for oil and gas and 5percent of gross output for metals; therequirement that only forestland whose pro-ductivity is 85 or more cubic feet per acre beavailable for lease; the requirement that tim-ber be purchased at prices that reflect presentstumpage prices for sawtimber and pulp-wood, discounted as might be appropriate;per acre grazing rents equal to the value (mar-ket?) of one pound of beef; the provision thatlocal governments may rent up to 15 percentof the federal land in their districts at $1 peracre plus all costs; and so on. Those provi-

11

The simplest wayto introduce mar-ket discipline isto hold a compet-itive auction ofthe various leaserights that areassociated withthe land’s use.

sions would substitute a regulatory maze forthe current land-management bureaucracy.It is not necessary or even feasible to try tocontrol both prices and use patterns as speci-fied in the leases. Given the lease terms (prop-erty rights of lessee), prices could be deter-mined at auction.

Finally, a fundamental problem with theproposed institution is that it does not solvethe lease-or-own allocation problem. Asnoted above, certain land uses may not beeconomically viable under lease contracts. Afree market provides incentives to use leasearrangements only if there are net gains fromexchange.

Overall, the proposal is a valuable effort tomodify existing institutions and to introducesome of the discipline of the market whereessentially none exists. But the discipline ofthe market requires a market wherein eachalternative, such as harvesting trees, mustpass the test of opportunity cost. (Is theSierra Club, perhaps in coalition with Friendsof the Earth, willing to bid more thanPotlatch Forests to control the timber rightson a given acreage?) In this regard, it is par-ticularly important that the resources of theconflicting groups be used to signal valuesand, thereby, to resolve the conflict in favorof the highest-valued use rather than be dis-sipated in a costly legal bargaining contest.

Land Transfers to the StatesA number of policy analysts have flirted

with the idea of transferring most of the feder-al estate to state governments.41 There is someevidence that state governments are more effi-cient land managers than are federal agents,42

and there is certainly something to be said forallowing multiple experiments in land-man-agement practices and local control over localresources. But a close examination of stateland-management practices by ecologicaleconomist Randal O’Toole found that

state governments are no better man-agers than are federal bureaucrats.They are just as economically ineffi-cient, ecologically short-sighted, and

politically driven as their federalcounterparts. Moreover, the beliefthat states would be more inclined toprivatize public land is generallyunsupported. In fact, state govern-ments have been rapidly expanding—not divesting—their land estates, andthere is little reason to believe that(with the possible exception of a fewstates) federal land transferred totheir jurisdictions would be passedon to private citizens.

The fundamental problem is, notfederal incompetence, but the politi-cal allocation of natural resources tofavored constituencies, which subsi-dizes some at the expense of othersand inflicts harm on both the eco-logical system and the economy as awhole. Transferring land to the stateswill only change the venue of thosepolitical manipulations.4 3

Some observers have pointed out thatstate land-management trusts (arrangementswherein state land managers are chargedwith managing public resources for the pur-poses of securing funding for public educa-tion) have a solid track record of economical-ly competent and ecologically sensitive man-agement of public lands.4 4 Whether stateswould incorporate federal lands into suchtrusts, however, is an open question.

Public-Private Land Trusts Another suggested divestiture plan would

transfer federal lands into public-privatetrusts modeled after various state land trusts.This proposal has the following features:

• Trusts would be funded out of the netincome generated by their lands, not out ofgross income or tax dollars. That wouldminimize political attempts to microman-age the land and provide ample incentivesfor efficient management.

• Trust managers would be free to marketresources and to charge whatever theywished for resource access. That would

12

State land-man-agement trusts

have a solid trackrecord of eco-

nomically compe-tent and ecologi-

cally sensitivemanagement of

public lands.Whether states

would incorpo-rate federal lands

into such trusts,however, is an

open question.

lead to charges that roughly approxi-mated fair market value. It would alsoensure a level playing field so that allresource users could compete with oneanother in the marketplace rather thanin court or the political system.

• A share of trust user fees would be dedi-cated to a separate trust fund to be usedto protect biodiversity and endangeredspecies. The managers of the secondtrust fund would be able to give trustmanagers incentives to protect sensitiveecosystems. One model might be thestate of Washington’s system for com-pensating its trust beneficiaries by “buy-ing” timber and not cutting it.4 5

While such a plan would meet the firsttwo criteria for public land divestiture, itwould, however, be vulnerable to criticismbased on the final two criteria, namely thatthere be broad participation in divestitureproceedings and that squatters’ rights befully recognized in the transition.

Land Sales for Government RevenueHistorically, much of the original stock of

public land in the United States was priva-tized by land sales to raise government rev-enue. The government’s taxing power wasnarrowly limited until late in the 19th centu-ry, and the intensity of the colonial tax revoltmeant that any attempt by the states or theContinental Congress to raise money by tax-ation to prosecute the Revolutionary Warwould have raised questions about whomight be the real enemy. That anti-taxationmood persisted long after the Revolutionand, coupled with the fact that state and fed-eral governments were rich in land, made itall but certain that the public lands would beviewed as a major source of—or as a directsubstitute for—government revenue. Conse-quently, during the Revolution the statesoffered land bounties to attract enlistees, andthe Continental Congress did not hesitate topromise land it did not have (until statesceded the land to the United States begin-ning in 1784)46 to obtain enlistments.

Bounties continued to be offered duringthe Indian Wars (many of the bounty landswere claimed by the Indians and could not besettled) and the War of 1812. When it becameapparent that there was not enough land setaside to satisfy those claims, in 1830Congress authorized claimants to land in theVirginia Military Tract to exchange theirbounty warrants for Revolutionary War scrip(land office money), which could be used topurchase land in Ohio, Indiana, and Illinois.Bounty lands and scrip continued to beoffered in the 19th century, in 1847 to enlist-ees in the Mexican War4 7 and under theMorrill Act of 1862.48 Under that act, whichset up the land grant colleges of agricultureand mechanical arts, the states in which nopublic land was available (mainly in the East,the South, and the Midwest) were given scripin lieu of the land that was granted toWestern states.49 In addition to scrip andbounty sales, cash and credit sales were com-mon throughout the 19th century.5 0

Current proposals to privatize publiclands tend to emphasize cash sales for gov-ernment revenue: “Probably the best way (totransfer ownership) would be to sell the landsto the highest bidders and use the returns topay off the national debt and to reducetaxes.”5 1These proposals meet Criteria 1 and2 and would certainly be acceptable to peopleconcerned about the perpetual mismanage-ment of the public lands. However, they failto meet the broad participation criterion.

Moreover, there is good reason tooppose schemes that would direct revenuetoward the federal government rather thanthe individual. First, given congressionaland bureaucratic behavior, it is not obviousthat the proceeds from cash sales would beused either to reduce taxes or to retire thedebt. More likely they would be viewed as apolitically unconstrained bonanza to bespent by Congress for all the usual pet proj-ects. There is at least a modicum of disci-pline in requiring legislatures to vote eitherdeficits or new taxes to finance any increasein spending programs. Second, if the pro-ceeds were used to reduce taxes or the debt,

13

There is good rea-son to opposeschemes thatwould direct rev-enue toward thefederal govern-ment rather thanthe individual.

that would limit or rule out any direct ben-efits to those citizens who pay little or notaxes during the divestiture period. Third,divestiture is less likely to be politicallyacceptable if it is perceived as a programwhose benefits are not widely shared by thepopulation, and any serious program mustbe politically practical.

A New Proposal: AuctioningRights to Public Lands

The following proposal consists of manyprovisions defining the extent, procedures,and process of divestiture of the public lands.These provisions stem from the objective ofsatisfying the evaluation criteria outlinedabove. Although somewhat detailed for pur-poses of discussion and debate, they areoffered not as a final set of divestiture provi-sions but in an effort to encourage discussionand to suggest a new approach to the publicland policy debate that has plagued theRepublic since its inception.

For purposes of discussion, the proposalcan be divided into eight separate provisions.

Provision 1: The Scale and Scope ofDivestiture

All federal lands would be divested oversome reasonable but definite and limitedhorizon, say 20, 30, or 40 years. Divestedwould be all BLM, Forest Service, NationalPark, National Monument, National Recrea-tional Area, continental shelf, deep sea bed,and military lands52 to which the federal orstate governments have jurisdictional claim.

Provision 2: Land Partitions All such lands would be partitioned into

tracts or primary units (e.g., quarter sec-tions) as seems appropriate to the topogra-phy and certain classifications of land.Thus, land near urban areas might be parti-tioned into relatively small tracts, whilevery large tracts might be appropriate forthe deep sea bed. Similarly, a tract might bedefined by certain “natural” historical

boundaries that would remain intact, suchas the Grand Canyon or Canyon LandsNational Park. Since the auction proce-dures described in Provision 8 allow themarket, as expressed in individual bids, todetermine the grouping of primary tractsinto ownership parcels, it is better to err onthe small side in defining those elementalunits of land.

Provision 3: Deed RightsCorresponding to each tract of land

would be a set of distinct, separable, ele-mental deed rights appropriate for eachtract. Those deeds could distinguish miner-al, oil and gas, water, grazing, timber, recre-ational use, wilderness use, and surface orother rights not otherwise specified (e.g.,agriculture). Again, within limits, too muchdetail is better than not enough. In specialcases, certain land-use restrictive covenantscould be written permanently into a deed.Thus, the surface rights to the GrandCanyon might be permanently restricted tothe use of the surface for recreational andwilderness purposes. Owners of subsurfacerights could be enjoined from exercisingsuch rights without the consent of theowner of surface rights, as is now commonin property deeds. In such cases, for exam-ple, the owner of coal rights could notextract coal without a contractual agree-ment with the owner of surface rights. Ifthe Audubon Society owned the surfacerights to a tract, then it could negotiatewhatever restrictions it pleased on thedevelopment of oil and gas resources,including prohibition of development.

Provision 4: TransferabilityOnce divested, these tract deed rights

would be freely transferable, individually orin any combination, by bequest, sale, assign-ment, lease, and so forth, as alienable privateproperty. The purpose of subdividing rightsby different land uses is to allow markets tofine-tune allocations to tastes and use values.The bidding procedure outlined in Provision8 will allow deed rights within and across

14

If the AudubonSociety owned thesurface rights to a

tract, then itcould negotiate

whatever restric-tions it pleased on

the developmentof oil and gas

resources, includ-ing prohibition of

development.

tracts to be packaged in accordance with thewillingness to pay expressed by the bids.Alienability allows secondary marketexchange to repackage tract deed rights inresponse to changes in information and eco-nomic or social conditions.

Provision 5: Acknowledgement ofExisting Rights

Any individual with a documented his-torical claim to rights defined by one ormore of the deeds would be assigned theappropriate deed or deeds. Thus, an estab-lished holder of BLM or Forest Service graz-ing rights would be permanently deededthose rights. For example, suppose a ranch-er has been granted permits to graze cattleon a 10,000-acre tract of BLM land inreturn for an annual rental fee. This ranch-er would be assigned a deeded right to thisarrangement, that is, to graze the 10,000acres in return for the payment of the rentalfee to whoever might be the subsequent pri-vate owner of the surface rights to thistract.5 3

This has two purposes: (1) it preventsrights that have in some sense been legiti-mately acquired and subsequently acted onin the past from being arbitrarily expropriat-ed, and (2) it converts an uncertain and per-haps poorly defined right into a well-defined,certain right. Consequently, it has the effectof changing the users’ incentives for hus-banding or otherwise maintaining the capitalvalue of the right.

BLM lands now subject to overgrazing, forinstance, would no longer be overgrazedunless that was the choice of the individualholder of the deeded grazing rights, whowould now bear the full cost of any decline inthe land’s capital value. Under the BLM per-mit system, individuals may be poorly moti-vated to manage pasture resources efficiently,since the permits can be withdrawn or subject-ed to new restrictions. If the individual who isassigned the grazing rights deed desires fulltitle to the land, he is free to bid at auction forthe remaining deed rights. Alternatively, hemay offer to sell his grazing rights deed at any

time after the initial divestiture.As already noted, where squatters’ rights

are sufficiently uncertain, poorly defined, orinadequately documented, it is questionablewhether they should even be recognized bypre-auction deed assignment. If it is thoughtthat squatters should be given preferentialpurchase rights, rather than deeded rights,then one possible procedure is to allow suchindividuals the right to acquire title ahead ofthe winning bidder at the ruling auctionprice under Provision 8 below.

Provision 6: Block Sales All tracts and the deed rights associated

with them would be assembled into blocks.At regular intervals, say once a year or everysix months, the deed rights for one block ofelemental tracts would be put up for sale ina sealed-bid auction. Each auction shouldbe preceded, well in advance, by an officialdescription of each tract and the corre-sponding conveyance instruments so thatall interested parties can prepare their bids.

Provision 7: Public Land ShareCertificates

Bids would be denominated not in moneybut in public land share certificates, analo-gous to no par value stock certificates. Unlikethe Revolutionary War scrip, they would notbe denominated in acres; and unlike theMexican War scrip, they would not bedenominated in dollars.

These certificates would be issued all atonce by the government well in advance ofthe first land auction and would beredeemable only in land at auction. Eachcitizen might be granted 10 certificates, sothere would be about 2 billion shares out-standing. The certificates could be freelyexchanged, assigned, or bequeathed at anytime over the entire divestiture period, andthey would not expire until after the finalauction.

To facilitate a continuous market in cer-tificates, they could be listed for trading onstock and commodity exchanges, whichwould then be free to create futures or

15

Any individualwith a document-ed historicalclaim to rightsdefined by one ormore of the deedswould beassigned theappropriate deedor deeds.

options markets in public land shares.Consequently, bidders for land at auctionwould always know from the current mar-ket price of a share what would be the dol-lar equivalent of a given bid in shares. Ifshares were selling for $100, for instance, abid of two and a half certificates for themineral rights to a particular tract of landwould be equivalent to $250.

Public land deeds won at auction wouldbe paid for by surrendering certificates,which could be bought in the open marketby winning bidders either before or afterthe auction. With an ongoing options mar-ket, bidders could always hedge their bids atauction by buying an equivalent quantity ofcertificate options and then exercising theoptions only if their bids were accepted.5 4

Provision 8: Combinatorial Auctions The auction procedure would corre-

spond to what has been called a “combina-torial” auction.5 5 Each bidder would be freeto bid on any right or any combination ofrights for one or more tracts. He might bidfor all the deed rights for a given tract, onlythe surface rights, only the oil and gasrights, or some combination of those.

The winning bidders would be deter-mined by computing5 6 those bid combina-tions that maximize the total economic sur-plus for the offered block of tract rights.This procedure permits elementary deedrights to be assigned to those package com-binations valued most highly by the market(collection of bidders). Thus if the mineralrights to a particular combination of 10tracts are more valuable to at least one bid-der than are the component tract mineralrights to any collection of bidders, the high-est combination bid for the 10 tracts wouldexceed the sum of the highest bids for thecomponent tracts, and the combination bidwould win. Similarly, if a particular combi-nation of rights, say surface and grazingrights, were more valuable in combinationthan separated, the highest combinationbid would win over the sum of the highestseparate bids.

Another feature of this procedure is thatit would extend the principle of the secondprice sealed-bid auction5 7 to the combina-torial action and thereby increase the incen-tive of each individual to submit bids equalto his or her maximum willingness to pay.Only if all bidders bid their maximum will-ingness to pay will land rights be awardedto those who value them most.

The above proposal would recognizeeach citizen’s right to share in the wealthcreated by privatizing the public lands.Individuals without competence or interestin the productive use of any of the auc-tioned rights would be free to sell their ini-tial assignment of share certificates in theopen market. Oil companies, forest productcompanies, home builders, ranchers, farm-ers, outdoor recreation companies, privateindividuals, environmentalists, and envi-ronmental organizations would be free topurchase share certificates or receive themby donation or bequest. Environmentalgroups, such as the Sierra Club, Friends ofthe Earth, and the Audubon Society,instead of dissipating their resources inpolitical action and lobbying for conserva-tionist policies on public lands, could pur-chase certificates in the open market andactively campaign for the American peopleto donate their certificates to preservation-ist funds. Those certificates could bepooled and used to bid for the surface orother rights to any tracts the environmentalgroups chose. They could then managethose tracts as they saw fit. Similarly, tim-ber or oil companies could bid for theseresource rights only or bid for them in com-bination with surface rights.

By awarding rights singly or in combina-tions to those uses that command the high-est willingness to pay, the auction marketwould determine the most efficient way, ini-tially, to separate or combine elementaryland-use rights. As new information or con-ditions affecting land-use potential becameavailable, secondary exchange could recom-bine or further subdivide combinations ofland-use rights.

16

Public land deedswon at auction

would be paid forby surrendering

certificates, whichcould be boughtin the open mar-

ket by winningbidders either

before or after theauction.

Amenity Resources: WhatShould We Do about the

Grand Canyon?The “crown jewels” of the federal estate (the

national parks, wilderness areas, and particu-larly scenic forestlands) make up at most 10 to20 percent of the public lands.58 Must they beput “off limits” to private owners?

Potential models for the private owner-ship and management of amenity resourcesare provided by private organizations such asthe Nature Conservancy and the directpreservation programs of the NationalAudubon Society. The Nature Conservancy,with 900,000 members, has purchased,leased, or obtained easements to approxi-mately 10.5 million acres of land in theUnited States and 60 million acres world-wide. It currently manages approximately 1.2million acres and hires managers and useslocal volunteers for the stewardship of 1,500private preserves.5 9 The National AudubonSociety, with 550,000 members, controls250,000 acres including 100 sanctuaries andnature centers.60 On the society’s 23,000-acreRainey Wildlife Sanctuary, oil companieshave drilled several producing gas wells andranchers graze cattle under rental contractsnegotiated with the society.6 1Local conserva-tion organizations have likewise played a fre-quently unappreciated but important role inpreserving sensitive ecosystems.6 2

What special provisions, if any, should thedivestiture plan make for the Grand Canyonand similar national parks, monuments,forests, and wilderness areas? One possibilitywould be to specify no restrictions at all,except perhaps to define tract size for surfacerights to the current boundaries for someparcels. Thus the surface rights to GrandCanyon National Park or YellowstoneNational Park, as these parks are now definedby the U.S. Geological Survey boundaries,would be kept intact. All other rights wouldbe represented by deeds to elemental tracts,as appropriate. For example, the unit mightbe a 640-acre section, with mineral, oil andgas, and timber (or grazing) rights to each

section identified by a separate deed. Exceptwhere leases for those resources have alreadybeen granted, the winners of deeded rightswould have to obtain permission from (con-tract with) the owner of the surface rightsbefore timber could be cut, wells could bedrilled, or minerals could be mined.

Under this arrangement the owner of thesurface rights to the Grand Canyon, whetherit was the Nature Conservancy or AtlanticRichfield, would have an incentive to seekdonations or charge visitor fees, or both, tomanage the scenic resources of the GrandCanyon. As a consequence, willingness to pay(or donate) to preserve these scenic resourceswould become a factor in preservation—a fac-tor not now present in public land-manage-ment policy. The greater the willingness topay for preservation, the greater the incentiveof a private owner to negotiate restrictions onthe development of subsurface, grazing, ortimber rights. Thus slant drilling from out-side the park might be negotiated, where fea-sible, and timber cutting might be permittedunder a program of replacement plantingand selective cutting or where it did not inter-fere with amenity values. A slightly morerestrictive alternative would be to prohibitbids that combined surface rights with any ofthe other rights. That would force a separa-tion in the ownership of surface and otherrights so that the development of the lattercould proceed only by contract with theowner of surface rights.

Under either approach environmentalgroups interested in managing amenityresources would have an incentive to concen-trate their bids on surface rights. Radicalenvironmental groups desiring to “lock up”petroleum or mineral resources could biddirectly for those subsurface rights againstcommercial enterprises for the purpose ofpreventing development of those resources.Anyone uninterested in exploiting land foreconomic gain would have the right to “lock-up” any resource.

More restrictive procedures might include

• allowing only qualified environmental

17

Potential modelsfor the privateownership andmanagement ofamenity resourcesare provided byprivate organiza-tions such as theNatureConservancy andthe NationalAudubon Society.

organizations to bid on the surfacerights to the national parks and wilder-ness areas;

• employing restrictive covenants to limitthe uses of national park or wildernesslands; thus surface rights could berestricted to scenic or wilderness uses,suitably defined, as is now done in pri-vate deeds; and

• combining all extractive resource rightswith surface rights and including acovenant prohibiting all development ofthose resources and requiring the landto be preserved as wilderness.

Those restrictions, however, set a danger-ous precedent by giving special privileges toparticular groups that would be chosen bybureaucratic criteria. Although we have nodoubt that a mix of ownership of scenicresources by the Audubon Society, the NatureConservancy, and other such groups wouldvastly improve upon the National ParkService, we think rigging the outcome of auc-tions is unwise. Those organizations and theirpolicies have evolved in an environment inwhich they have had to compete with com-mercial enterprises for land acquisitions.They have flourished under this discipline (asof 1994, the 21 largest U.S. environmentalorganizations had a collective annual budgetof approximately $736 million and 14 millionmembers),6 3and there is no a priori reason tosuppose that they need be given any preferen-tial rights over commercial enterprises.

Moreover, we think covenants would bevery unwise as part of a general policy ofdivestiture of amenity resources. Owners ofsurface rights are free to follow developmentpolicies that are as restrictive as they please.But such owners have earned that right bypaying the opportunity cost of the land, thatis, by bidding more than other potential own-ers who would have followed less restrictivepolicies. Similarly, any winning bidder at auc-tion should be free to resell the land with hisown restrictive covenant provisions. Such anowner, having paid the opportunity cost,would be free to impose a capital loss on him-

self by limiting his resale market with arestrictive covenant. There is a vast differencebetween a government auction of certainpublic lands with restrictive covenantsattached and the Nature Conservancy’s buy-ing land in the open market (or acquiring itby voluntary gifts) and then reselling or leas-ing it with restrictive covenants. The latter isa market-disciplined decision whose cost isborne privately, while the former is not disci-plined by an opportunity cost test, and thecost is borne publicly.

Common Pool Resources:Deeds to Water, Oil, Gas,

and FishThe surface boundary of land tracts is suf-

ficient in most circumstances to provide well-defined property rights to cultivation, grass,timber, subsurface minerals, wildlife refugeor habitat, wilderness, and recreationalresources. But surface boundaries are inade-quate for defining rights to resources thatmigrate across or under such boundaries.The economic objective in defining propertyrights is to limit the quantitative extent of therights to particular resources.

Hence, to say that a person has grazingrights to a section of land means that he hasthe right to fence it and consume as much ofthe grass as he chooses, subject to the limita-tions of his contract with the owner of sur-face rights. A timber right gives a person sim-ilar control over all timber growing withincertain boundaries. In each of those cases, thequantity of the resource to which he has aright is whatever quantity he finds growingwithin his land boundary. Note that in thosecases the resource quantity or quality neednot be certain for the right to be well defined.The market is entirely competent to discountfor uncertainty. Also note that the moment aperson crosses beyond his boundaries tograze or log, he is poaching on the preserve ofhis neighbor, who would have clearly definedrights under our proposal.

But if fish swim and water, oil, and gas

18

Surface bound-aries are inade-

quate for definingrights to

resources thatmigrate across or

under thoseboundaries.

flow under gravity or pressure, surfaceboundaries no longer delineate the quantita-tive extent of the resource and no longerdefine exclusion. What is needed in thesecases is a property right defined in units ofthe resource itself. This principle has alreadybeen applied to cattle, parakeets, and dogs;but fish, water, and oil seem destined to takea little longer.

In many cases, it is feasible to create deed-ed rights to migratory resources. Consider,for example, the water supply for Tucson,Arizona. The city is located in a basin con-taining a natural subsurface aquifer estimat-ed to hold 20 million to 40 million acre-feetof water. All of Tucson’s water is pumpedfrom deep wells drilled into this aquifer.According to 1975 estimates, the naturalrecharge rate was 75,000 acre-feet per yearand the consumption rate was about 225,000acre-feet per year.6 4 Anyone with a surfaceright to land has been free to drill into thiswater supply and start pumping. In additionto city and county water authority wells, indi-vidual residences; the University of Arizona;and surrounding farms, horse ranches, man-ufacturers, and mining companies own pri-vate wells that pump from this commonwater stock. Periodically, these wells have tobe deepened as the water level declines. Thecity and county water authorities charge onlyfor the cost of drilling, pumping, distribut-ing, and managing this water system. Thewater itself is free.

To establish property rights to groundwater, we propose that the county issue waterdeed certificates for 30 million acre-feet ofwater.65 Those deeds could be issued in pro-portion to the surface area held by landown-ers but with adjustments for land used forresidences, irrigated agriculture, mining, andindustry. If feasible, adjustments could bemade in proportion to a base period rate ofwater consumption. The objective would beto recognize squatters’ rights to water, sincethe price of land has already capitalized theright to pump water freely.

Deeds could be issued in convenientdenominations of 1, 5, 10, or fractional acre-

feet of water. Any part of the rights conveyedby those deeds could be bought, sold,assigned, or bequeathed by contracts separa-ble from contracts for the transfer of realproperty. Water deed transfers could berecorded in county or water authority recordsin the same manner as transfers of real prop-erty. That would allow existing institutionalprocedures that have stood the test of time tobe extended to water rights. Water deedprices would be freely negotiable to facilitatea continuous market in rights to draw on theexisting stock of water. All pumps would bemetered on farms, ranches, mines, factories,or municipalities, as is now the case for met-ropolitan area residences. Each user wouldreceive a monthly bill for the cost of pump-ing, distribution, and management (exclud-ing private well owners who bear this costdirectly) and a monthly bill denominated infractions of an acre-foot of deed certificatesto be surrendered for all water consumed(including that taken from private wells).

Every few years, depending on cost, therecharge of water to the aquifer could be esti-mated, or perhaps the aquifer stock reesti-mated, and the outstanding stock of deedcertificates adjusted by a stock dividend tomaintain equality between the stock of waterand total claims on water. Alternatively, andperhaps more simply, one could adjust theredemption exchange rate for deed certifi-cates. For example, if after 10 years theaquifer had experienced an 11 percentincrease in inventory, then the redemptioncharge would be reduced so that the con-sumption of 10 acre-feet of water wouldrequire the surrender of only nine acre-feet ofdeed certificates. In this way, the exchangerate between certificates and metered wateruse could be adjusted to balance the demandfor and supply of water as an asset.

This property rights system could also beapplied to a common property lake or oceanfishery in which it is feasible to estimate thestock of fish and meter the catch. Fishermenwould own deeds to live fish, which would besurrendered as the fish were harvested, andwould be free to use any technology (now

19

This propertyrights systemcould be appliedto a commonproperty lake orocean fishery inwhich it is feasi-ble to estimatethe stock of fishand meter thecatch.

extensively regulated to control catch rates)they pleased. Regular stock dividends oradjustments in the exchange rate betweendeeds to fish and fish consumed could beused to compensate for growth in the fishstock or variations due to other factors.

Similarly, rights to discovered oil and gasin petroleum reservoirs could be assigned inthe form of freely marketable and transfer-able deeds based on the estimated size andextent of the reservoir stock.6 6 The owner ofthe oil and gas rights on a tract of land with aproven well need not drill additional wells toexercise the right to oil and gas. Instead, theowner might sell his oil deed certificates tothe owner of an adjoining tract on whichdrilling may be less costly or to a neighborwho has already drilled an efficient numberof producing wells. The idea is to create aproperty rights system in which the value ofoil reservoir stocks can be captured withoutproducing oil for the market. In this way thedecision to drill wells or to produce fromexisting wells can be based on the profitabili-ty of those activities rather than on a concernthat others will capture any oil that is notrecovered.

Conclusion

The divestiture proposal in this paper ischaracterized by the following principal fea-tures. First, it is fair in the sense that all citi-zens would share equally in the value of the628 million acres of federal land that wouldbe capitalized into the market price of landshare certificates, and all would benefit fromthe productive opportunities created bydivestiture.

Second, elementary property rights aredefined by deeds to the various functionaluses of unit tracts of land. The size of owner-ship parcels and the manner in which userights to the land were combined into pack-ages of ownership rights would be deter-mined by the market in the primary auctionby a combinatorial sealed-bid mechanism,and subsequently by exchanges that could

separate or repackage tracts and rights inresponse to changing information and eco-nomic conditions.

Third, the expropriation of squatters’rights already recognized by the government(for example, outstanding BLM grazing per-mits) is avoided by deed assignment to thoseindividuals. This aspect of the plan woulddiscourage opposition to divestiture fromindividuals who rightly feel they have somereal economic stake in the present system.

Fourth, the bidding mechanism providesan incentive for combination bids to expressmaximum willingness to pay, by guarantee-ing that except in rare cases (for example, tiedbids) the winning bidders will pay prices thatare less than the amounts bid. The effect is tomaximize allocative efficiency.

Fifth, the proposal provides opportunitiesand incentives for environmentalists andtheir organizations to participate directly inthe ownership and management of amenityresources by bidding for the surface rights topark and wilderness lands. Present federallaws that restrict certain parcels of land tospecified economic uses (such as timber har-vesting or mining) would be abolished.

Finally, in the case of certain commonpool resources such as ground water andfisheries, we propose that the appropriategovernmental unit issue deeded certificaterights to unrecovered ground water and tolive fish by species. These transferable andmarketable certificates would then be surren-dered in payment for extracted water or forlanded fish. Equality between the stock ofoutstanding certificate claims and the esti-mated stock of the resource could be main-tained by periodic adjustment of the surren-der terms of certificates to reflect updatedestimates of the resource stock. This proce-dure, in effect, creates exclusive marketableproperty rights in common propertyresources, which allows the natural scarcityof such resources to determine their pricesand thereby discipline the individual owner’sdecision to extract the resource.

Many individuals and groups may opposethe divestiture of public lands because they

20

Rights to discov-ered oil and gas in

petroleum reser-voirs could be

assigned in theform of freely

marketable andtransferable deeds

based on the esti-mated size and

extent of thereservoir stock.

believe that only the government can betrusted to preserve and beautify such lands.6 7

This view receives intellectual support fromeconomists who perpetuate the myth thatthe theory of market failure in the presenceof public goods implies, ipso facto, the needfor government production, ownership, andmanagement of such goods. But this is a nonsequitur, since the same economic logic leadsto the theory of government failure in pro-viding public goods through majority ruleand bureaucratic processes.68 Even a publiclands supporter such as resource economistJohn Loomis of Colorado State Universityacknowledges that “despite the best of inten-tions by managers, politicians often imposeinefficiencies to benefit their local con-stituencies. These inefficiencies are not onlyeconomically unsound, they are environmen-tally unsound.”6 9

Other individuals and groups may opposedivestiture, though they strongly disapproveof public land-management policies, becausethey hope to change those policies directlywithin existing institutions. We think bothviews are naive in their assessment of the real-ity of public land management and of theefficacy of resource allocation and manage-ment through political processes.

The proposal outlined in this paper isunlikely to be received with favor, initially,by environmentalists or by many econo-mists with well-intentioned concern for theexistence of “public good” externalities inamenity resource use. We share the con-cerns of both groups, but we think it is timeto get beyond superficial market failuretheorems that ignore the role of propertyrights and institutions in a market econo-my. For economists, the problem is to iden-tify those property right characteristics thathave allowed private markets to succeed, todevelop some principles of the relationshipbetween property rights and market effi-ciency, and to ask how and at what costthose principles can be applied to publicresource allocation problems.

For environmentalists, it is important toget beyond the visceral misidentification of

government with the proper stewardship andhusbanding of such resources. It is alsoimportant to realize that the public manage-ment of lands, which is subjected to a spec-trum of conflicting political interests, createscommon property–like incentives to over-graze grassland, overcut some forests (butundercut others), or overcrowd many parks.And where public land management encoun-ters weakly organized political opposition,the budget-expanding incentives of govern-ment agencies tend to dominate policy deter-mination. That is particularly evident in the80-year history of large dam construction bythe Bureau of Reclamation and the ArmyCorps of Engineers. No private power com-pany, no consortium of such companies, andno industrial combine would have wasted itscapital by flooding 186 miles of the ColoradoRiver from Glen Canyon to Cataract Canyonthen followed with a downstream proposalto flood Marble Canyon and Grand Canyonbehind two great new dams.

Neither is it an efficient use of environ-mentalist resources to carry out political bat-tles aimed at preventing environmentaldegradation at the hand of the government.Everyone would benefit if the funds andeffort expended by environmental groupswere diverted from political action to thedirect acquisition and management ofamenity resources. Similar benefits wouldresult if the expenditures by oil, forest prod-uct, and ranching and mining interests toinfluence the leasing policies of public land-management agencies were channeled intothe direct acquisition and development ofsubsurface, grazing, and timber resources.

The premise of this paper is that land useshould be depoliticized and determined byeconomic criteria operating through marketsin which the various functional uses of landare recognized in the form of elemental prop-erty rights. Where public lands have alreadybeen set aside as primitive, wilderness, or parkareas, a case can be made for keeping the sur-face rights intact. Just as environmental orga-nizations such as the Nature Conservancyand the National Audubon Society have

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The public man-agement of lands,which is subject-ed to a spectrumof conflictingpolitical interests,creates commonproperty–likeincentives toovergraze grass-land, overcutsome forests, orovercrowd manyparks.

acquired private land in competition withother users, it can be expected that environ-mental organizations, by diverting funds nowspent on political action and by launchingnew fundraising efforts for direct land acqui-sition, would be able to bid successfully formany of these public lands. If the rights topublic lands can be divested as we suggest, allowners and users will face the opportunitycost of their actions so that both the treasuryand the environment will benefit.

Notes1. John Loomis, a defender of public ownership ofland and professor of agricultural and resourceeconomics at Colorado State University, contendsthat much of the land in the federal estate is therebecause “the lands were so unproductive in pro-ducing commodities that the government couldnot even give them away to railroads, homestead-ers, ranchers, or miners.” John Loomis, “EconomicRationales for Continued Ownership of Land,”Presentation at the conference “ChallengingFederal Ownership and Management: PublicLands and Public Benefits,” Natural ResourcesLaw Center, University of Colorado School of Law,Boulder, October 11–13, 1995.

2. See generally Roger Sedjo, “Forest Resources:Resilient and Serviceable,” in America’s RenewableResources: Historic Trends and Current Challenges, ed.Kenneth Frederick and Roger Sedjo (Washington:Resources for the Future, 1991), pp. 88–91.

3. Policy statement of the Forest Reserve OrganicAdministration Act of 1897, as amended. Cited inFrederick Cubbage, Jay O’Laughlin, and CharlesBullock III, Forest Resource Policy (New York: JohnWiley & Sons, 1993), p. 19.

4. Gifford Pinchot, The Fight for Conservation (Seat-tle: University of Washington Press, 1967), pp.79–80, cited in Karl Hess Jr., Visions upon the Land:Man and Nature on the Western Range (Washington:Island Press, 1992), p. 77.

5. Robert Nelson, “How and Why to Transfer BLMLands to the States,” Competitive EnterpriseInstitute, Washington, January 1996, p. 25.

6. Randal O’Toole, “Run Them Like Businesses:Natural Resource Agencies in an Era of FederalLimits,” July 1997, http://www.ti.org/~rot/business.html.

7. Ibid., Table 1.

8. Laura H. Baldwin, Robert C. Marshall, andJean-Francois Richard, “Bidder Collusion atForest Service Timber Sales,” Journal of PoliticalEconomy 105, no. 4 (August 1997): 657–99.

9. Holly Lippke Fretwell, Forests: Do We Get WhatWe Pay For? (Bozeman, Mont.: Political EconomyResearch Center, 1999), pp. 1, 5. See also DonaldLeal, “Making Money on Timber Sales: A Federaland State Comparison,” in Multiple Conflicts overMultiple Uses, ed. Terry Anderson (Bozeman, Mont.:Political Economy Research Center, 1994), pp. 8–9.

10. U.S. General Accounting Office, “ForestService Decision-Making: A Framework forImproving Performance,” GAO /RECD-97-71,1997, p. 29.

11. See Karl Hess Jr. and Jerry Holechek, “Beyondthe Grazing Fee: An Agenda for RangelandReform,” Cato Institute Policy Analysis no. 234,July 13, 1995.

12. David Gerard, “The Mining Law of 1872:Digging a Little Deeper,” PERC Policy Series PS-11, December 1997.

13. Randal O’Toole, 1994 Park Data, July 1997,http://www.ti.org/~rot/nps94data.html.

14. James Ridenour, “Our National Parks: TheSlide towards Mediocrity,” Presentation at theconference “Challenging Federal Ownership andManagement: Public Lands and Private Benefits.”

15. For an overview of the uncertainties withinthe field, see K. S. Shrader-Frechette and E. D.McCoy, Method in Ecology (New York: CambridgeUniversity Press, 1993).

16. U.S. General Accounting Office, “ForestService Decision-Making,” p. 32. That degrada-tion need not occur on public lands is demon-strated by the management of state forests thatactually earn a profit. An environmental qualityaudit, requested by the Montana legislature andperformed by the Forestry Division, concludedthat the state does a better job of protectingwatersheds from the impact of logging than doesthe Forest Service. See Bill Schultz, MontanaForestry Best Management Practices ImplementationMonitoring (Missoula: Montana Department ofState Lands, 1992).

17. Hope Babcock, “State Primacy, FederalConsistency, or Collaborative Management: CanCooperative Federalism Models from Other LawsSave Our Public Lands?” Presentation at the con-ference “Challenging Federal Ownership andManagement: Public Lands and Private Benefits.”

18. U.S. General Accounting Office, “Rangeland

22

Land use shouldbe depoliticizedand determined

by economic crite-ria operating

through marketsin which the vari-

ous functionaluses of land are

recognized in theform of elemental

property rights.

Management: More Emphasis Needed onDeclining and Overstocked Grazing Allotments,”GAO/RCED-88-80, 1988.

19. Lance Clark and R. Neil Sampson, Forest EcosystemHealth in the Inland West: A Science and Policy Reader(Washington: Forest Policy Center, American Forests,1995), pp. 2, 5, cited in Nelson, “How and Why toTransfer BLM Lands to the States,” p. 4.

20. U.S. General Accounting Office, “WesternNational Forests: A Cohesive Strategy Is Neededto Address Catastrophic Wildfire Threats,”GAO/RCED-99-65, 1999, p. 29.

21. Fretwell.

22. Organic Act, 16 U.S.C.A. 1, 1 (1916).

23. Charles Kay, “The Yellowstone Dilemma: Part 1,”Bugle 1, no. 1 (1984): 30–33; idem, “Yellowstone’sNorthern Elk Herd: A Critical Evaluation of the ‘NaturalRegulation’ Paradigm,” Ph.D. diss., Utah StateUniversity, Logan, 1990; idem, “Aspen Seedlings inRecently Burned Areas in Grand Teton and YellowstoneNational Parks,” Northwest Science,no. 67 (1993): 94–104;idem, “The Impact of Native Ungulates and Beaver onRiparian Communities in the Intermountain West,”Natural Resources and Environmental Issues, no. 1 (1994):23–44; idem, “Browsing by Native Ungulates: Effects onShrub and Seed Production in the Greater YellowstoneEcosystem,” Proceedings of the Wildland Shrub andArid Land Restoration Symposium, in U.S. Forest ServiceGeneral Technical Report, ed. B. A. Roundy et al., INT-315,1995, pp. 310–20; idem, “Viewpoint: UngulateHerbivory, Willows, and Political Ecology in Yellow-stone,” Journal of Range Management, no. 50 (1997):139–45; and idem, “Yellowstone: Ecological Malprac-tice,” PERC Report 15, no. 2 (June 1997): 1–39.

24. Quoted in ibid., p. 30.

25. Karl Hess Jr., Rocky Times in Rocky MountainNational Park (Niwot: University Press of Colorado,1993), p. 33.

26. Ibid., p. 60.

27. Ibid., p. 97.

28. John Mitchell, “Our National Parks: Legacy atRisk,” National Geographic, October 1994, p. 54.

29. Michael Jeffrey, “Public Lands Reform: A ReluctantLeap into the Abyss,” Virginia Environmental Law Journal16 (1996): 79–143; and Dennis Herman, “LovingThem to Death: Legal Controls on the Type and Scaleof Development in the National Parks,” StanfordEnvironmental Law Journal, no. 11 (1992): 3–67.

30. James Ridenour, The National Parks Compromised:

Pork Barrel Politics and America’s Treasures(Merrillville, Ind.: ICS Books, 1994), p. 108.

31. The Multiple-Use Sustained Yield Act of 1960says: “It is the policy of the Congress that thenational forests are established and shall beadministered for outdoor recreation, range, tim-ber, watershed, and wildlife and fish purposes.‘Multiple Use’ means the management of all thevarious renewable surface resources of the nation-al forests so they are utilized in the combinationthat will best meet the needs of the American peo-ple.” Quoted in Cubbage, O’Laughlin, andBullock, p. 19.

32. Terry Anderson and Donald Leal, Enviro-Capitalists: Doing Good While Doing Well (Lanham,Md.: Rowman & Littlefield, 1997).

33. Ibid., pp. 44–46.

34. Robert Nelson, Public Lands and Private Rights:The Failure of Scientific Management (Lanham, Md.:Rowman & Littlefield, 1995).

35. Nelson, “How and Why to Transfer BLMLands to the States,” p. 4.

36. Paul W. Gates, History of Public Land LawDevelopment (Washington: Government PrintingOffice, 1968), p. 395.

37. Ibid., p. 67.

38. See Richard Gordon and Peter VanDoren,“Two Cheers for the 1872 Mining Law,” CatoInstitute Policy Analysis no. 300, April 9, 1998,pp. 18–21.

39. Marion Clawson, The Federal Lands Revisited(Baltimore: Resources for the Future, 1983), pp.200–224.

40. Ibid., p. 216.

41. See, for instance, Nelson, “How and Why toTransfer BLM Lands to the States.”

42. Ibid., pp. 24–32; and Leal.

43. Randal O’Toole, “Should Congress TransferFederal Lands to the States?” Cato Institute PolicyAnalysis no. 276, July 3, 1997, p. 1.

44. Jon Souder and Sally Fairfax, State Trust Lands(Lawrence: University of Kansas Press, 1995). See alsoTerry L. Anderson and Holly Lippke Fretwell, “ATrust for Grand Staircase–Escalante,” PERC PolicyStudy PS-16, Bozeman, Mont., 1999.

45. For a full discussion of how such a plan might

23

work, see O’Toole, “Run Them Like Businesses.”

46. Gates, p. 515.

47. Ibid., pp. 270–73.

48. Ibid., p. 438.

49. Ibid.

50. See, for example, Gates, pp. 501–17; and “Landfor Sale,” Editorial, Wall Street Journal, January 25,1982, p. 22.

51. Charles Batten, “Toward a Free Market in ForestResources,” Cato Journal 1, no. 2 (Fall 1981): 515.

52. The government can lease back military reser-vations at market rates. If all governmental facili-ties had to pay opportunity costs, the true cost ofsuch facilities would be included in current bud-gets, and land rentals could discipline facilitylocation decisions. With that discipline, moredefense might be obtained from a given budget byrelocating bases that now occupy prime land sites.

53. Since rental fees have been increasing overtime, some provision for increases should perhapsbe made. One possibility is for the obligations ofthe holder of the grazing rights deed to includeprovision for rent to be adjusted for inflation eachyear. Alternatively, and less mechanically, the deedterms might make some provision for reopeningnegotiations on the lease terms every five years.We assume that provisions for changing fees arealready part of the permit agreement betweenranchers and government agencies. If so, thesecontract provisions would be written into thegrazing rights deed. The operating rule in recog-nizing “squatters’ rights” should be to include inthe deed no more and no less than those rightsand obligations that are now part of what is therecognized practice or legal arrangement betweenthe agency and the squatter, or permit holder.Should the deeded grazing rights be held in per-petuity? It they are, this would seem to maximizethe incentive of the deed holder to maintain capi-tal value by good range management practices.

54. An alternative to Provision 7 as a means ofreducing the transactions costs associated withthe issuance of (and maintenance of a market in)land shares: Instead of issuing land share certifi-cates for bidding, let the bids be denominated inU.S. currency. The proceeds of each auctionwould then be deposited in a mutual fund to beshared equally by all citizens. Each citizen wouldbe free to “cash out” of the fund at any time.However, if this procedure is to take full advan-tage of the discipline of the market, fund sharecertificates should be issued in advance and be

fully transferable and could even be listed on thestock exchanges. But if this is done, these specialmutual fund shares become equivalent to oursuggested public land shares, that is, each will rep-resent the same ultimate capital value and willdiscount the same stream of future auction out-comes. One difference is that the mutual fundwould have to be managed by someone (also therewould be transactions costs in acquiring themutual fund portfolio), but if there is a market inmutual fund shares, such management would besubjected to some market discipline. One of theauthors (Smith) has argued elsewhere that thefact that holding company (closed-end mutualfund) shares tend to sell for less than the marketvalue of their investment portfolio suggests thatthe market discounts the value of anything thatpasses through an extra layer of such manage-ment. See Vernon L. Smith, “The Measurement ofCapital,” in Measuring the Nation’s Wealth, Studies inIncome and Wealth, ed. John Kendrick, vol. 29 (NewYork: National Bureau of Economic Research,1964), pp. 343–44.

The mutual fund, with marketable shares,might have greater popular appeal by virtue of itsgreater familiarity.

55. See S. J. Rassenti, V. L. Smith, and R. L. Bulfin,“A Combinatorial Mechanism for Airport TimeSlot Allocation,” Bell Journal of Economics, Autumn1982.

56. Algorithms for this computation have beendeveloped by S. J. Rassenti, “01 Decision Problemswith Multiple Resource Constraints: Algorithmsand Applications,” Ph.D. diss., University ofArizona, 1981.

57. See William Vickrey, “Counterspeculation,Auctions, and Competitive Sealed Tenders,”Journal of Finance, March 16, 1961, pp. 837.

58. Nelson, “How and Why to Transfer BLM Landto the States,” p. 14.

59. Information from the Nature Conservancy,http://www.tnc.org/welcome/about/about.htm.

60. Information from the National AudubonSociety, http://www.audubon.org/.

61. Jonathan Adler, “Balancing Oil Interests andEcology,” Detroit News, July 19, 1991.

62. The Center for Private Conservation, a projectof the Competitive Enterprise Institute inWashington, D.C., has documented dozens ofcases of local conservationists’ banding together toprotect sensitive ecosystems from development.For an index of those studies, see http://www.cei.org/cpc/index.html.

24

63. Data for 1993–94 from Jonathan Adler,Environmentalism at the Crossroads (Washington:Capital Research Center, 1995), pp. 147–238.

64. See James L. Barr and David E. Pingry,“Rational Water Pricing in the Tucson Basin,”Arizona Review, no. 25 (October 1976): 112.

65. See Vernon L. Smith, “Water Deeds: AProposed Solution to the Water Valuation Prob-lem,” Arizona Review, no. 26 (January 1977): 710.

66. Note the need to distinguish between rights toundiscovered oil and gas, which include explo-ration rights, and rights to draw on discovered oiland gas reservoirs whose size and extent have beenestimated. A knotty problem, which we will notattempt to treat in this proposal, is the processwhereby rights to undiscovered oil and gas get

converted into deeded rights after an oil or gasstrike. What is needed is a way of extending thedefinition of traditional oil and gas rights in landto include descriptions of how those rightsbecome rights to share in discovered commonproperty reservoirs.

67. For a compelling rejoinder to that argument,see John Chant, Donald McFetridge, and DouglasSmith, “The Economics of the ConserverSociety,” in Economics and the Environment: AReconciliation, ed. Walter Block (Vancouver: FraserInstitute, 1989), pp. 1–93.

68. See further Richard Gordon, “The Case forPublic Lands Privatization,” Cato Institute PolicyAnalysis, 1999, forthcoming.

69. Loomis.

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Published by the Cato Institute, Policy Analysis is a regular series evaluating government policies and offer-ing proposals for reform. Nothing in Policy Analysis should be construed as necessarily reflecting the viewsof the Cato Institute or as an attempt to aid or hinder the passage of any bill before congress. Contact theCato Institute for reprint permission. Additional copies of Policy Analysis are $6.00 each ($3.00 each for fiveor more). To order, or for a complete listing of available studies, write the Cato Institute, 1000 MassachusettsAve., N.W., Washington, D.C. 20001, call toll free 1-800-767-1241 (noon - 9 p.m. eastern time), fax (202) 842-3490, or visit our website at www.cato.org.

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