1 74 The Political Economy of Resource Use 



or avoidance, or for both reasons. If lack of knowledge is the explana- 

 tion, there is no particular reason for believing that governmental 

 intervention is the remedy. This observation would appear to be par- 

 ticularly relevant to external economies that may be associated with 

 the process of economic development where lack of foresight may be 

 the critical factor shared in common by private and public agencies-^** 

 On the other hand, the interrelationships may be well known but 

 technological or institutional considerations may prevent their being 

 taken into account. This seems to be particularly relevant in the nat- 

 ural resource area. 



Outside the natural resource field, say in manufacturing operations, 

 an awareness of external economies may rather easily lead to appro- 

 priate private action. If, for example, in the petro-chemical field an 

 expansion of one process brings economies in the operation of others, 

 combination or integration may bring these economies within the con- 

 trol of management. This happens all the time in manufacture. The 

 legal and economic characteristics of business firms, the organization 

 of the capital market, and the similarity of different manufacturing 

 processes make the capture of many external economies relatively 

 easy. 



We may imagine, it is true, a wheat farmer, whose yields are being 

 reduced by forestry operations on surrounding hillsides, taking action 

 by acquiring all the agricultural property in the valley together with 

 the surrounding forested hillsides, and so conducting his joint farming- 

 forestry operations as to take full account of their interdependencies. 

 It is, however, distinctly difficult to do so. The size and organization 

 of the typical agricultural unit, the characteristics of agricultural credit, 

 and the differences in the production and marketing operations in- 

 volved, all militate against such action. It may be simpler and more 

 effective to handle this and other similar situations that exist within a 

 wide geographical area by public regulation of cutting practices. These 

 regulations may hold private forestry operations somewhat short of 

 the limits to which they would otherwise proceed under the spur of 

 profit maximization, but may also prevent serious diseconomies that 

 private foresters would not ordinarily take into account. 



-'> Cf. J. A. Stockfisch, "External Economies, Investment and Foresight," 

 Journal of Political Economy, October 1955. 



