Let prices do the job

Dr Eric Crampton
Insights Newsletter
9 June, 2017

You do not need prices in a land of plenty. Prices are a wonderful way of coordinating competing demands on scarce resources. They emerge, along with property rights, when scarcity starts to matter.

And scarcity is starting to matter for a lot of the things that tourists like in New Zealand.

Prior to European colonisation, Canadian beaver and other furred animals were so abundant relative to local demand that there was no need to use property rights to maintain trapping grounds. But as economist Harold Demsetz’s classic 1967 work showed, when demand increased and scarcity developed, indigenous Algonkians and Iroquois developed property rights over hunting grounds.

Freedom camping spots near Tekapo or road access at the Tongariro Crossing are a bit like that. When trans-Pacific travel was prohibitively expensive, those amenities were under little pressure. So there was then little point in enforcing property rights over those spots, or using prices. But that is no longer the case.

This week’s Christchurch Press reports on growing Kiwi complaints about pressure from international tourists. Those complaints are perfectly understandable, but the problem is not the tourists. The problem is New Zealand’s refusal to use prices to ration access to scarce amenities. 

Tourism offers plentiful opportunities not only to showcase New Zealand to the world, but also to improve a host of local amenities for the benefit of both tourists and Kiwis. But it cannot do that under current settings.

International tourists currently contribute over a billion dollars in GST. If more of the tourists’ contribution to the government’s coffers turned into better facilities in the places tourists go, pressure on those places would ease, making a better experience for locals and tourists alike.

Turning back to Canada, access to National Parks requires an annual pass – you hang it from the car’s rear-view mirror. The system works well enough that, when Canada celebrated its 150th anniversary with free annual park passes, the government drew some complaint. While some Canadians liked the free passes, others rightly worried about the resulting congestion and the implicit cost to the government.

Using prices to manage scarcity, with higher prices for foreign visitors than for domestic residents, would not only help ease congestion. It would also provide the funding needed to improve those facilities.

We just have to be willing to let prices do the work. 

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