Yasuni, A Natural Treasure On Top of a Pool of Money

Ecuador’s economy is highly reliant on oil obtained from Amazonian lands. One of the national reserves is the Yasuní, considered one of the most bio diverse places on earth. In 2007 an issue arose when one of the biggest oil reserves the country has ever had, was found underneath the Yasuni. Thus two options were presented, destroy a biologically diverse area, or extract around 800 million barrels of oil equating a value of $3.6 billion. The President Rafael Correa reached out for international support, by proposing organizations and countries to cooperate and pay Ecuador for not extracting this natural resource. Since Ecuador is a third world country, in need of financial support for government expenses, it cannot afford loosing this much money. After six years of negotiations, no consensus was reached, and Ecuador started the oil drill.

This situation can be related to Coase’s theory of social cost. Just as the rancher’s cattle inflicted damage over the farmers crops, the oil procedure from the state will damage the biodiversity from the environment. Besides the destruction happening, the issue is the lack of clear property rights for biodiversity, since it is a purely public good. Nevertheless, this does not mean that by drilling the oil people will not be affected, because many value natural resources and the air will be contaminated. Anyone who has some value over these, will incur a damage. Thus, if the oil is drilled a negative externality will be imposed on all the people that are connected towards this good. So what is the efficient solution? According to Coase, assuming no transaction costs, this can be found through bargaining. Bargaining was the President's intention, asking countries to compensate for the damage incur, in exchange of not using this resource. Some were interested, but the transaction costs were too high, the biggest one being the free rider problem, which lead to a failed bargain. If someone agreed to help, other affected countries would still be benefited despite their contribution, because this is a purely public good with no excludability nor rivalry. Thus, at the end, no solution was obtained, without reaching efficiency, which shows a big problem with public goods of how efficiency is not always possible.