THIS is my last lecture as a professor at UW. I end my career with the course I began 25 years ago at Indiana University, The Political Economy of Environmental Policy. Throughout my career, I have advocated environmental policies based on incentives, not commands

I helped create an environmental paradigm that views economies as ecosystems. Both adapt to changing conditions and widely dispersed information. Both involve complex webs of individuals linked into a whole greater than the sum of its parts. My approach is an alternative to the traditional green model, which assumes that if we only love nature enough, select good managers, and give them enough authority, we can protect our environment. The traditional model is fatally flawed. When people set out to govern by love, they end by ruling through force and fear.

While environmental values are important guides for behavior, I stress the importance of information, incentives and institutional design. These are the pillars of a new field of political economy, the New Resource Economics (NRE).

The NRE approach emphasizes property rights, market incentives and the constructive potential of voluntary cooperation. These concepts help us understand how economic progress can be harmonized with liberty and environmental quality. The NRE's strong ethical and philosophical foundations build on the classical liberal ideals of America's founders, especially Jefferson and Madison.

The NRE draws heavily on the analytic leverage of microeconomic theory leavened with Austrian economics, public-choice economics, and property-rights theory. Taken together, these schools of thought yield several general principles for environmental management:

1. Liberty and individual responsibility are fundamental to a constructive and harmonious social order. Social order fosters prosperity, and since demand for environmental quality increases with wealth, environmentalists have a stake in promoting prosperity.

2. There is no one perfect system for economic and social coordination. Markets, governments and private nonprofit organizations each have predictable benefits and flaws. When advocating specific environmental reforms, we should consider each of these systems, focusing upon the information and incentives each produces.

3. Economies are like ecosystems. The most basic law of each states that everything is interrelated: It is impossible to do just one thing. In economies as in ecosystems, human actions have effects beyond those intended.

4. Individuals are self-interested. When evaluating a decision, they first ask: "How will this decision affect me and the things I value?" The welfare of others, especially relatives and friends, is normally considered, but self-interest influences perceptions of problems, alternatives, and solutions.

5. Incentives influence decisions. Individuals weigh the relative costs and benefits of competing alternatives. As the costs to the decision-maker of choosing a particular option increase, that option becomes less attractive.

6. Decision-makers generally conserve only the resources over which they have control and for which they face responsibility. When the decision-maker is insulated from the costs of his/her actions, or denied access to the benefits, problems usually follow. For example, when pollution is "free," it is overproduced, and when regulations are free to the regulator, they too are overproduced.

7. Information is costly in terms of time, effort and money. Individuals stop acquiring additional information when its expected value is less than the burden of acquisition. Hence, voters are relatively ill-informed about most policy issues. To the individual, both the costs of ignorance and benefits of knowledge are lower in public than in private decisions.

8. Legal and economic institutions differ greatly in the quality of information and type of incentives they generate. When institutions hold individuals accountable for their actions, economic progress and environmental quality are complements, not competitors.

9. Increases in efficiency give us greater value from equal or fewer resources. Otherwise, nothing of value is free. For example, to have wilderness areas we give up the opportunity for development. Although I often find this "trade-off" worthwhile, it is intellectually irresponsible to deny that opportunities are forgone when we declare a parcel of land to be wilderness.

10. Scarce goods must be rationed and the rationing system we select affects the amount there is to ration. This is why institutional design is so important. Political allocation exacerbates scarcity while eroding ethics. Markets economize on love and goodwill while fostering efficiency.

As Aldo Leopold explained in "The Land Ethic," environmental values are important. But values and good intentions will not suffice. When considering reform, focus on the information and incentives generated by the proposed institutions. In the policy arena, an understanding of political economy is indispensable in achieving our environmental goals.