An Online Market for Easements?

AN ONLINE MARKET FOR EASEMENTS?

Ganga Prasad G. Rao
http://myprofile.cos.com/gangar


At the rate land is gobbled up by the rich, commercial establishments and real estate companies, (and looking at the exponent on the price projection) you might be excused for putting up your neighbor's land for sale and running away with the proceeds to Tonga! But seriously, in a land of a billion people, land is increasingly scarce. After all, we need land for roads, parking spaces, parks, cinema 'complexes', stadiums, malls, offices, palatial bungalows, cottages, hotels, entertainment parks – the list is endless. Look what suburban sprawl did to the US. If we followed them, there would be no rural hinterland to talk about. Even as things stand, our forest cover and our bio-diversity is being raped by an economy that only cares for GDP growth and profits at the bourses. If things continue at this pace, India will be one vast stretch of concrete interspersed with asphalt from Kargil to Kanyakumari!

Now, I am no tree hugger who would brave beheading for the cause of the environment. But, we as a nation can do more than piously recite the statistics bemoaning the loss of forest cover and bio-diversity. One of the primary tasks facing the nation is to conserve its natural heritage. We simply cannot afford to turn our green hinterlands in to SEZs where factories dump waste because the land was provided free with a 15 year tax holiday to top it. A country with a declining forest cover and disappearing fauna must pro-actively put aside land away from 'development' at the hands of our marauders. While issuing a fiat to reserve land around parks and forests would be straightforward, it would not be necessarily efficient. Land parcels are often not available contiguously or at the same time. Besides, the question of compensating owners is likely to embroil such policies in to failure.

Let us explore a market-based alternative, as sketchy and tentative as it may be. To begin with, let's propose an externality in the sense that capitalist development of land ignores the value of environmental services and passive WTP values associated with undeveloped land. Left unattended, the situation will take a turn for the worse, eventually resulting in the extermination of forest cover, and the flora and fauna contained in it. To counter this eventuality, we presume the government issues a funded mandate to increase the green cover from, say, 15% to 30% over a period of two decades. This mandate is implemented annually thru an 'conservation easement subsidy vouchers' scheme that provides subsidy for purchase of easements. The government issues a certain amount of vouchers to each state which in turn distributes it among its various districts. The district authority calls competitive bids for the vouchers. Those participating – real estate firms, individuals, national parks, conservation groups, environmental trusts and organizations bid for the subsidy vouchers. The authority issues conservation easement-cum rezoning vouchers in order of increasing subsidy bids limited by its subsidy budget. Bid winners receive the subsidy when they provide proof of land/easement purchase.

At this point, we have a demand for easements derived from the mandate, and a formal means to provide subsidy to the initial participants in the conservation easements market. What is necessary now is an online market for trading these easements across various classes of market players – commercial developers, speculators, investors, environmental trusts, national parks, conservation groups and so on. The online easements market could run parallely or as part of a traditional real estate market that trades land parcels much like one trades shares. (Easements will remain easements as long as they are traded in the easements market. A developer who seeks to purchase and convert easement for development must have it re-zoned before moving it to the 'land' section of the online market.). Easement and land prices will reflect their supply and demand as perceived by various participants in the market and their intentions/objectives. Higher demand for land development will boost easement prices, providing the necessary incentive for land holders to offer their land as easements. The scheme provides for inter-spatial, and even inter-parcel land-easement arbitrage. Thus, the market provides a dynamic equilibrium between easement prices and prices of commercial land parcels. Such arbitrage between multiple uses for easements and land is on one hand likely to reveal the shadow values associated with unpriced/unappreciated uses/services of land, and on the other bring about a dynamic equilibrium that equates marginal values across parcels of easements and land across space and time.

The 'easement voucher cum online easement–land market' could enable the nation to achieve its green cover goal flexibly at a much lower cost and at an earlier date with the voluntary participation from all stakeholders.