Fracking: The Upside of Concentrated Beneficiaries
By David Henderson
It’s actually an upside of property rights.
When explaining why various subsidy programs, tariffs, import quotas, and domestic restrictions on entry into various industries and occupations exist, public choice economists lean heavily on the concentrated benefits/dispersed costs paradigm. The idea is that the beneficiaries of such regulations and subsidies tend to be concentrated–they are in the industry, for example, so each of them stands to gain thousands or tens of thousands of dollars annually–and the losers are dispersed. The losers tend to be taxpayers who will pay, say, $100 or less annually each for a given subsidy or consumers who will pay, say, $30 more annually for the good whose imports are restricted. The paradigm isn’t perfect but it explains a lot.
But occasionally there is an upside to the fact of concentrated beneficiaries: they are a ready-to-go group that can quickly organize to fight off a restriction that causes losses.
So what happens when there isn’t a concentrated group of beneficiaries? It’s harder to overturn the restriction.
We’re seeing that play out right now in Britain with fracking. And it compares neatly with the United States.
First, the United States. In the United States, landowners tend to own the oil and mineral rights beneath their land. So if there is oil to be gotten, landowners have a strong incentive to fight off a government that wants to restrict it. It’s not a sure thing. There’s private ownership in New York and yet New York’s government has banned fracking. But in Pennsylvania, by contrast, the state government has not banned fracking and many individual Pennsylvanians are getting wealthy as a result.
Now, Britain. There’s a move to allow fracking in Britain, but it’s not clear that it will succeed. Why? A recent Wall Street Journal article on the issue (Selina Williams, “U.K. Panel to Decide on Fracking,” June 23) gives one of the reasons:
British residents don’t have the same incentives to support fracking as U.S. landowners, who generally own mineral rights on their property. In the U.K., such resources are owned by the state.
U.K. economist Tim Worstall wrote me the following:
A tiny clarification on mineral rights in the UK. Generally mineral rights are held by the landowner (although they are separable, as are hunting and fishing rights etc). Except for gold and silver (this has long been “Crown” property) and fossil fuels, oil, gas and coal. Those last three stem from legislation of 1934…..that is Crown ownership stems from then.
One can imagine an interesting counterfactual: would the Industrial Revolution ever have happened if coal had been state owned back then?