12/15/2006

The Sky is the Limit?

Recently I have learned that the sky is no longer the limit. Air (space) is being traded between large companies in New York City. The space above skyscrapers is limited, so particular restrictions have been placed on the height of buildings in that area. Also, with regards also to the pollution rights that are being traded, there is money to be made and lost in new markets. My economic take is that these rights, which on the surface appear to be different, are actually a good thing. I would just like to make one point on the particular subject of selling rights, more especially for small businesses who are barely making it. One example that I read, was a small business who was asked to cut back it's level of pollution production by X amount over the next couple of years. In order to meet these demands the small company will need to invest a large amount of money in scrubbers that will clean up the pollution being released by the company. It could not afford this type of investment on its own; however, because it had extra pollution credits it was able to sell these credits to a larger company that needed more pollution rights. I see these markets as helping the smaller businesses to become more competitive. It helps in this way, to level the playing field a little more and offer more investment opportunities to these smaller companies who would not have the opportunity otherwise.

5 comments:

Dr. Tufte said...

Excellent post.

Economists have learned that when there is too much of a bad thing, the underlying problem is usually a lack of property rights. There's too much air traffic over NYC because the air space is free for the taking; there's too much pollution because once it leaves the smokestack it doesn't belong to anyone any more.

Tradeable rights are a way of assigning property rights in a way that is transferrable.

And ... you're right: these are a boon to small businesses because they allow them the flexibility they need to make the best choices.

econstudent said...

One question that comes to my mind about this issue is, what will happen to those churches that have already lost their air rights?

I can imagine that there are some churches already completely surrounded by skyscrapers because they were oblivious to air rights. So should it be their right to demand payment by those who already have the air space?

Just for fun

In 1946 the U.S. Supreme Court in U.S. v. Causby, stated that, you've got air rights only insofar as they're essential to the use and enjoyment of your land. This means you can’t just demand payment for airplanes flying in “your airspace”.

Dr. Tufte said...

The big picture here is not whether or not a church (or other organization) has exercised their rights or not, but rather that the establishment of property rights in situations where they were not obvious is a good thing to do before there are problems.

puracara said...

There has been at least one church that has sold its air rights for millions of dollars.
This actually allowed the church to continue as it was facing hard financial situations.


PS This may have been talked about once in Professor Johnsons class but I am not for sure just in case i can't find its source.

Dr. Tufte said...

I'm familiar with that story ...