Land Use Externalities: Mechanism Design for the Allocation of Environmental Resources

This paper explores the possibility of mechanism design for the allocation of environmental resources. In particular, it deals with the competing interests of the “forest industry” and “environmentalists” for three possible land uses; “intensive forestry,” “nonintensive forestry,” and “wilderness.” Constraints imposed by the finite amount of land available and the reluctance of the environmentalists to use monetary valuation techniques can be overcome by using a modified version of the Groves mechanism to determine the preferences of each group and thereby to determine the socially optimal allocation.