Sometimes an apparently mundane local issue contains more economic issues than meet the eye. Take a story in this newspaper last Sunday on the controversy over a proposed gravel pit in Dakota County.
On the surface, it is simple: The landowner wants to get some economic benefit from his property by mining gravel from it. This is common practice in rural areas, a use of land that historically was assumed an automatic legal right, just like farming.
Nearby homeowners, particularly those who live on streets and roads where gravel trucks would drive, oppose the idea. They do not want the noise, dust, traffic dangers or other nuisances connected with mining or trucking gravel.
This seems a bread-and-butter dispute over land use, one of hundreds of such disputes that arise in an expanding metropolitan area like ours. There are two sets of property owners with conflicting objectives. The conflict will be resolved through a lawsuit, the local political process or some bureaucratic ruling.
What is not visible on the surface is that society as a whole has an interest in this dispute. Aggregates such as gravel, sand and crushed rock are the largest material in producing concrete. Concrete is necessary for myriad types of construction. If you use a road or sidewalk, house, apartment building, school, hospital, church or commercial building, you are using concrete. Even though few households buy concrete directly, virtually everyone benefits from it.
The cost of aggregates is an important factor in the cost of concrete. More-expensive concrete means more-expensive houses, offices, and other buildings and higher taxes to build a given amount of streets and roads.
Gravel is plentiful in Minnesota but heavy and expensive to transport. Mining gravel well outside the city minimizes the nuisance to nearby homeowners, but it also means that the resulting high transport cost will boost prices for the final products. Society as a whole will get fewer goods containing concrete.
Moreover, transporting gravel longer distances means more trucks on the road in a metro area where traffic congestion is already a problem. Every additional 20 miles of hauling means that some truck will be on some road for up to an hour. Dump trucks and concrete trucks are already a major component of traffic. Such trucks also burn large amounts of fuel and emit many times more pollutants than a passenger automobile.
Thus, society as a whole does pay costs in the form of higher-cost construction, traffic congestion and pollution when land-use conflicts drive aggregate production farther out into the country. A small group of homeowners benefits from reduced nuisances, but this increases out-of-pocket costs, congestion and pollution for a larger portion of the general public.
Mancur Olsen examined this general set of problems in his 1965 book, “The Logic of Collective Action.” Olsen argued that society as a whole will suffer when the costs and benefits of some activity affect different groups asymmetrically. A small group that is hurt in a substantial way has large incentives to sue or lobby to stop the activity. A much larger group of people, each of whom benefits from the activity in a small way, does not act to keep the activity. The benefit to any one individual is not great enough to warrant making the effort. This is true even when the sum of small benefits to many, many people far outweigh the sum of costs to an affected few.
This is probably true in the Dakota County gravel-mining case. Relatively few will benefit from driving mining farther out in the country. But those few will each benefit quite a bit. Millions will be hurt, but each only in a very small way. Few, if any, of those hurt will react.
Ronald Coase, the Nobel Prize-winning economist, argued for well-defined property rights. It doesn’t matter whether the law says that nearby property owners can veto gravel mining or that gravel pit owners can proceed over the objections of neighbors. As long as the rules are clear, resources will be used efficiently.
When the rules are not clear, however, as appears to be the case in Minnesota, resources inevitably are wasted, either in political and legal jockeying or in the inefficiencies engendered by uncertainty. Society gets fewer goods and services .
A third economist who examined the issue was the Prussian farm manager, Johann von Thünen. He identified the relationships between the value of a product at its point of use, the distance it must be transported and the value of the land on which it is produced. Even though he died in 1850, von Thünen explained perfectly how producing gravel in different locations would affect consumers and taxpayers. When it comes to economics, there are not many new ideas under the sun.
© 2005 Edward Lotterman
Chanarambie Consulting, Inc.