Monday, October 24, 2011

Stinging Externalities

What do beekeeping and backyard farming have in common? They are both considered agricultural uses of land and are prohibited by zoning laws in many cities. In the case of Port Washington, Wisconsin one family has been told by the city they must remove the bees from their property because it violates local zoning laws. Those who support the cities verdict believe they are being protected from the possible danger that bees pose to the community. I think they've watched "Swarmed" one too many times; not only are honey bees generally non-aggressive, but they are absolutely necessary for pollination of everything ranging from crop fields to flower gardens.

Zoning puts limitations on the private use of land in order to promote the general welfare of the community, but in the case of prohibiting the agricultural use of land within the urban area of the city, is it really accomplishing this mission? Undoubtedly there are externalities associated with using land for agricultural purposes, from farming, to raising livestock (including bees), but that does not necessarily mean these activities should be prohibited. Using zoning to regulate bee keeping assumes the free market would not adequately regulate this sort of activity by itself and that the negative externalities exceed the positive ones.

First, I want to address bee keeping in terms of how I think the market would regulate it in the absence of zoning. In the absence of zoning, individual communities would be free to create their own covenants to regulate what sort of activity they found acceptable. Since it was a neighbor that brought the issue before city council, any neighbors of would-be-beekeepers could voice their opinions and concerns about a neighbor conducting those sort of activities. Each community would be unique and if there were people who objected to living near someone who kept bees, they would definitely have the option of living in a neighborhood where beekeeping was not allowed. If bees were considered a nuisance, it is likely that the property value around them would adjust accordingly downward; if they were considered beneficial by most people, it's possible that property values near the bees would increase. As it turns out, increases or decreases in property values surrounding beekeeping locations are considered externalities, and according to the third axiom of urban economics, externalities cause inefficiencies.

The number and type of externalities associated with beekeeping is the second topic I want to address. Bees can pose a danger to anyone who is allergic to them, a nuisance to those living near them, and a cause of distress to parents whose children may come in close contact with the hives. On the other hand, honey bees are generally docile, provide honey (a salable good and allergy preventative), and pollinate many plants withing a mile to two mile radius. With the natural honey bee population on the decline, privately maintained hives have become even more essential to pollination than they ever have been in the past. In the absence of their largest natural pollinator, it is likely that hundreds of plants would die off. Any externalities are considered inefficient regardless of whether they are positive or negative, but in order to determine how to internalize the externalities, it is necessary to determine whether the net effect is positive or negative.

Regardless of whether zoning remains in place or communities are left to determine what they feel are and are not acceptable practices, externalities still need to be internalized either through a tax or subsidy. It would be very difficult to determine without further research whether the net effect of bee keeping on the community is positive or negative, so I will address both possibilities. Assuming that it is negative, beekeepers should have a tax of some sort imposed upon them. Several options exist for taxing beekeeping. One option is to levy a one time tax at the time the bees are brought onto the property. Another option would be to charge a yearly tax based on the yearly peak bee population of a beekeeper's hive. However, if it were the case that the net effect was positive, it would be necessary to somehow subsidize the beekeepers, possibly paying a subsidy also based on the peak bee population.

It is hardly imaginable that banning bees completely from urban areas is the economically efficient way of managing beekeeping within city limits. Taking zoning out of the picture would likely result in communities instituting covenants that either allowed or disallowed beekeeping and individuals would adjust their housing decisions according to personal preference and weighing other factors like commuting cost of the location. In addition, beekeepers must either compensate the community for the external costs associated with the bees or be compensated by the community for the benefit of the bees through a tax or subsidy respectively. Hopefully, by privatizing zoning and internalizing the effects of externalities, cities like Port Washington will reach the economically efficient level of beekeeping.


Larry Eubanks said...

(1) "Hardly imaginable" could be changed to "the efficient quantity of bees will be greater than zero."

(2) The efficiency response to negative externality is to impose a tax at the relevant margin. You also suggest compensation. But, if you compensate people who bear the externality you will not get an efficient allocation because you will encourage people, at the margin, to change their behavior and choose to locate where they will experience the external cost.

Alexis deYoung said...

Thank you Larry. That makes a lot of sense. I appreciate you correcting my thought process about that.