Sackett V. EPA

In August Business Week (linked in title) reported on a couple (Mike and Chantell Sackett) that purchased a piece of property in 2005. The couple hoped to build their dream home on the plot, which was located in a Residentially zoned area and surrounded by other houses. Business Week reports that after the Sacketts had begun digging they were approached by the EPA and told that they had to immediately stop construction, there land was deemed to be a wetland and protected under the law; if this was not completed they were to rack up sum $32,000 per day construction continued. Two Federal Courts turned down the Sakketts because the EPA had not asked to enforce the fine and no ruling could be made. However, the Supreme Court agreed to hear their case. Other background info is available in the article.

When I read this article I thought WWRCD? (What would Ronald Coase do?).

The article struck a nerve for me. It turned farmers and shepherds into real people and the government. Essentially, the government is using its monopoly on force to give itself the property rights to, and therefore rights to potential damages on, the "wetland" around and on the Sacketts' plot. There are two things that stick out in this assertion. (1) Its use of monopoly power and (2) property rights and solutions. I focus first, and mainly, on this second point.

Lets think for a moment what would happen if the EPA were not a government agency but a private business ( EPA Inc.) and EPA Inc. owned the surrounding land. According to Coase, the Sacketts would be allowed to build on their property but EPA Inc. would have their own tool bag full of property rights. WWRCD? It would seem that the Sacketts would be liable for damages on EPA Inc.’s property. Upon showing the degree and nature of the damages that ‘spill over’ from the Sackett residence to EPA Inc.’s property an internal equilibrium could be found. The Sackett’s could agree to implement the proper cleansing procedures to ensure that no damage leaves the property, or agree to pay EPA Inc. the necessary amount to proceed with cleaning. The Public Good that is the wetland, owned by EPA Inc. would not be harmed under such an agreement and the Sacketts would be able to build their dream home. In essence, the two parties would internalize the externality. Well-defined property rights see the day done and a positive sum game is established. The Sacketts live in their home (+), and the wetlands remain undamaged(+) (assumed there are any damages).

However, what happens when the EPA (as we know it) attempts to define property in the way that it does: The Sacketts have rights to the physical plot, but the EPA controls the “public” aspect of the property i.e the wetlandness of the property. There now seem to be two possible outcomes. (1) The Supreme Court rules in favor of the EPA (government) and the Sacketts pay all the accrued fines, cannot build their home and face a potential criminal suit (---), but the wetland is saved (+)or (2) The Supreme Court Rules in favor of the Sacketts they build their home (+), but the wetlands are potentially damaged (-)(though I’m not convinced) by the residence. It seems to be a zero sum game either way, if not a negative one.

A question is how I will respond to the first point I wanted to address. Is the $32,000/day fine and criminal charges the result of equilibrium, or is the government able to gain economic rent by using its monopoly on force to increase the price?

What do you think (about everything especially the first point made)?

Also, as of yesterday, the Supreme Court opened the case to petitioners. LOOK!