Natural Resource Tax

Written on May 24, 2008. Written by .

Alaskan Oil Pipeline (Photo courtesy of rickz)

Alaskan Oil Pipeline
Is it right to distribute oil profits communally?
Photo courtesy of rickz

I think privatizing resources makes a lot of sense in most cases. It is much easier to settle disputes over who gets to build a house on a piece of land if only one person owns it, for just one example. But are there some resources that should remain communal? I hadn’t given much thought to this question until I read in a book called “Just Work” that a portion of Alaskan oil profits are distributed communally to the state’s citizens.

Is this right? Well, I decided to do a thought experiment to see if this could made sense in a world where all land was privately owned. It might seem natural that everyone should own the resources that lay under their land, and so there would be no fair way of taxing it. But what if there was a huge oil deposit at the center of the earth? (Just assume the core isn’t molten for the sake of argument.) If someone dug down to the center, they could claim that they own it because it is under their land. But clearly it is under everybody’s land, so everyone else could argue that they don’t want their resources stolen.

Couldn’t we just let it be a free for all? That would certainly work, but it might not be ideal. Consider a simpler example of a small group of people on a desert island. If each person picks a coconut off a tree whenever they get hungry, then everything works out fine. But if one person runs around in the middle of the night and collects all the coconuts on the island, problems could arise if his property rights are respected. He could effectively enslave everyone else by denying them food if they don’t comply. This problem would be ameliorated if the community agreed to require half of all harvested coconuts to be donated to a pool that was then evenly distributed. Then there is still a good incentive to be a harvester, but not enough to encourage strip-mining the island.

It seems to me that a fair solution to the oil problem would be to tax the exploitation of such resources and distribute the profits communally, just as in the island example. Of course the tax rate should be chosen so as to encourage development by leaving a sufficient profit incentive to compensate for the cost of digging and processing. An interesting question to think about is whether real estate is sufficiently different to justify complete privatization (i.e. untaxed ownership).

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