Dr. Tanja MihaličFaculty of EconomicsUniversity of Ljubljana50th Anniversary of the Faculty of Economics International Conference18.-19. September 1996Ljubljana

File:50let96/50letang.dot/30.7.96

CONCESSIONS TO NATURAL GOODS IN COUNTRIES IN TRANSITIONBASED ON A CASE OF THE TOURIST INDUSTRY

Key wordsConcessions, natural goods, valorization of natural goods, tourism, tourism/tourist rent,

environmental rent, negative external effects, transition, economic development, environmental management.

SummaryNowadays most of economists share the opinion that environmental protection and

economic growth are not essentially contradictory. With a transfer of economic thinking or market mechanisms to the area of environmental goods - based on property rights - this integration is possible. Modern market economies are based on formal property rights which facilitate the transfer of resources to their highest-valued use.

Countries in transition will have to develop mechanisms to make their markets work and adjust the economic development to the (natural) environmental protection. Concession granting to natural goods is one possible way.

For the reason that natural goods are part of tourism supply, they can be valorized from the side of the tourist enterprises on the tourism market. Tourist enterprises valorizing natural goods of better environmental quality, ceteris paribus, can set a higher price.

If natural goods are to be considered as free public goods, tourist enterprises valorize them to their own benefit, on the basis of the difference between the total revenue, production costs and profit. This results in the usurpation of the revenue from “selling natural attractions” from the side of tourist enterprises. Valorization value of natural goods through tourist demand is shown by the increases revenue due to producer, consumer and environmental rent and negative external costs.

Due to the above mentioned elements of tourist revenue this article structures the total revenue of the tourist company into production costs, environmental costs (in form of environmental taxes), tourist producer rent, tourist environmental rent and profit. With this model the impacts of the tourism concession granting on the development are studied.

1. INTRODUCTION

Nowadays most of economists share the opinion that environmental protection and

economic growth are not essentially contradictory. There is no doubt that negative economic growth

would only lead to a higher degree of poverty and thus the possibility of preventing environmental and

other catastrophes would be even smaller. Therefore “environmental protection should constitute an

integral part of the development process” (Frost, 1993, p.57-58). With a transfer of economic thinking

or market mechanisms to the area of environmental goods this integration is possible.

Different values of economic growth rates that were reached in the past, or which are

being reached today by more or less market-oriented economies, have divided the world into developed

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and undeveloped countries. Some economists believe that the property rights are the basic reason for

such division of the world (Sotto, 1993, p.8), and herewith the basic reason for achieving various

values of economic growth rate and different values of gross domestic product. Property rights are a

precondition for a market to function. The difference between developed and underdeveloped

countries is not, that the former have markets and the latter do not. Modern market economies generate

growth because widespread, formal property rights permit massive, low-cost exchange and facilitate

the transfer of resources to their highest-valued use (Sotto, 1993, p.8).

Therefore countries in transition have to adopt legislation that will allow the

establishment of property rights to natural goods so that they could efficiently be included in the

economic processes. If there is no formal owner the planning horizon is shorter and the use and

exploitation of natural goods is less productive. In effect no one is responsible for the environmental

protection and management.

Due to the above mentioned economic and environmental factors, the countries in

transition try to speed up their process of privatization. Although allocation of environmental goods

should be carried out by market mechanisms, intervention by the state is unavoidable. Granting of

concessions is one possible way of making natural goods available on the market as soon as possible.

Very slow adoption of laws in this area and herewith a slow introduction of concession relationships

into practice, result in very high costs and a lower revenue of the state and local communities. The slow

transition to the management of natural goods extends the speculation period, restrains the development

of market mechanisms and enables privatization of the existing monopolies of natural goods in the

form of a private profit. Inevitably the prospect of environmental damage is increased.

2. THE TERM CONCESSION

Originally the word concession (lat. concessio derived from concedere = permit, allow)1

referred to land. The holder of a concession (a country) was given and guaranteed economic power and

sovereignty of a particular territory or was even given the right to build trade routes, military bases and

trade ports. Concession to public services was developed at the beginning of 20th century (Grilc,

Juhart, 1991, p.13). In the developed countries the concessions enabled “privatization” of public

services which in the past were only a domain of the state (distribution of gas, water, electricity). Public

service efficiency was increased and the government maintained the regulation role.2 Concession

granted for the exploitation of mines, forests or rivers was known in the Middle Ages (Popov, 1991,

p.3). The range of activities which are granted concessions to natural goods is unlimited and tourist

activities are among them. In history there are known to have been some cases of granted rights to

mineral and thermal waters for tourist business purposes (Grilc, Juhart, 1991, p.15). Lately concessions

1 There are a variety of definitions of the term concession. The following are most common: 1. a formal right to use an area for a particular purpose, yielded by the state; 2. a territory to which a right is given 3. a right of exclusive sale of a certain product, gained by the producer; 4. permission to a tax payer to pay lower taxes with the purpose of encouraging export, employment etc. (tax concession) (Adam, 1990, p.98, Collin, 1987, p.58); 5. yield of exclusive right to a natural good (Gabler, 1988, p.2976). 2 Regardless of the distribution criteria, Grilc and Juhart point out the following concessions: trade concession, license concession, franchise concession, real estate concession etc. (Grilc, Juhart,1991, p.15).

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have been given for tourist activities in national parks (Pauly, 1996, Yosemite News, 1996), for

artificial snow coverage of ski-runs, for the utilization of areas as ski tracks etc.

2.1. Concessions to natural goods

These concessions refer to natural goods that are a very heterogeneous group (see Figure

A1 in Appendix).3

They can be stock and flow natural elements (for example mineral ores, water), natural

national assets (for example, state owned parks) and non-expandable natural resources (natural

treasure) (for instance, stalagmites and stalactites in caves, parts of the natural and cultural

environment). The concession to a natural elements refers to the right of economic exploitation of a

renewable or a non-renewable natural resource. The concession to a natural treasure shall concern the

right to its management, use or exploitation, whereas the right to exploitation does not apply to the

natural national asset (The Environmental Protection Act, 1993, Art.21).

Concessions are granted for economic exploitation, management and use of natural

goods. In this context the definition of the concession is a relevant one, especially with regard to the

exclusive right to a public good for a particular activity (Gabler, 1988, p.2976), which in our case is the

tourist activity. Concessions are given by the owner of a natural resource (hereafter “the grantor”) as a

repayment right for a stated period of time and under the stated conditions. In distinction from public

service concessions (these services are in most cases additionally subsidized by the state), the fiscal-

economic benefits of concessions to natural goods are usually in favour of the grantor (Popov, 1991,

p.4).

Apart from the above mentioned financial interest, the reason for the interest of the

government in giving concessions to natural goods lies in the unrenewability and relative scarcity

(monopoly) of natural goods. As natural goods are owned by the whole community, there is always

public interest in their maintenance and protection. This of course does not exclude the interest in their

valorization. Governments have a responsibility to enable economic valorization of natural goods under

the terms and conditions which are considered to be of wider interest to the community of present and

future generations. Their responsibility is also to provide environmental management, while fulfilling

the difficult task of maintaining economic development (Frost, 1993, p.70).

3. VALORIZATION OF NATURAL GOODS IN TOURISM

Tourist countries, regions, places and tourist companies located in such areas, promote

natural public attractions as beautiful countryside, karst caves, beaches, clean water, etc. Payment for

the “consumption” of natural goods is included in the (“higher”) price of tourist services which

emanates from greater tourist demand because of the attractiveness of the natural goods. Reduction in

the value of natural goods due to tourist exploitation and pollution, may be categorized as negative

3 Concessions to public service management are regulated by the separate acts (Zakon o zavodih, 1991 in Zakon o gopodarskih javnih službah, 1993) concessions to management, use and exploitation of natural goods are regulated by the Environmental Protection Act (1993).

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external effects. This may be considered as social costs which are not included in the financial

statement of the tourist enterprise. In practice this can be seen as visual pollution of the countryside

because of inappropriate tourist utilization of the area, pollution of water and other forms of

degradation of the environment such as noise, congestion, destruction of flora and fauna etc.

Figure 1: Tourist Supply

Source: According to Kaspar, 1991, p.64-67 and Fischer, 1985, p.38.

The above mentioned definition of the theory of public goods in tourism is sufficient as

long as we insist on the fact that natural goods in tourism are part of tourist supply (Figure 1) and that

they are valorized indirectly, through (“higher”) prices of tourist services. Provision of tourist services

(for example: accommodation services, catering services etc.) under the common term tourist

superstructure usually refers to the setting up of a general and tourist infrastructure (roads, hotels,

promenades). Both the tourist superstructure and infrastructure are complementary and valorization of

natural goods in tourism is only possible if both of them exist. However, each of them uses and utilizes

the natural environment or natural goods. Since natural goods are usually at everyone’s disposal

(public), they have no price, and are available free of charge, companies realize part of their income

through their valorization. If property rights to natural goods are not determined, this part of income

belongs to the company, which in the past succeeded in usurping the use of some public good (for

example sea, beaches, karst caves etc.). It is an established fact that the companies themselves are not

willing to admit that they use and exploit natural goods and thus cause social costs (negative external

effects) and may lead to a greater private income on account of exploitation and destruction of natural

attractions. Property rights to these goods is a precondition for a market-based solution to the allocation

problem of natural resources.

If natural goods can be valorized as part of the tourist company income generated by a

performed tourist activity, and if the owner of natural goods is known, it is quite obvious that the

owner wants to have this part of the income for himself. As natural goods are destroyed because of

some economic activities, it is also obvious that financial sources must be provided for their

protection. The owner of natural goods needs to act as a guardian of the natural goods and should be

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TOURIST SUPPLY

I

Natural attractions (natural goods)

Socio-cultural attractions

General infrastructure

II

Tourist infrastructure

Tourist superstructure

interested in their protection, which is also connected with certain costs. Although the economic

success of tourist companies depends on the quality (attractiveness, purity) of natural goods, the

companies are not willing to take responsibility for the costs, especially not those related to the

abolition of environmental degradation which was caused in the past and the consequences of such

environmental damage.4

3.1. Forms of natural goods valorization

If natural goods are to be considered as free public goods, tourist enterprises valorize

them to their own benefit, on the basis of the difference between the total revenue and production costs

(including normal profit). This results from the usurpation of the income from selling natural

attractions and the differences in the environmental quality of the “usurped” attractions when the

exploitation costs and the costs of environmental pollution or destruction are not calculated.

3.1.1. Tourist producer rent

Valorization value of natural goods through tourist demand is shown by the tourist rent.

The amount of the tourist rent equals the entrepreneur’s income because of the production factor of the

natural good whose supply is limited. This is the economic rent that belongs to a supplier of any

production factor which has a limited supply (Samuelson, 1995, p.243). The tourist-rent size is

determined by the value of a tourist product, related to the natural good. If there is no ownership of

natural attractions or if the natural goods are public goods that can be exploited by everybody free of

charge, the rent is collected by the producer of tourist services. In the opposite case it belongs to the

owner.

The size of the (tourist) economic rent on the basis of public goods depends on the

elasticity of the supply curve of public goods. The more inelastic the supply the greater the economic

rent, ceteris paribus. If there is a limited number of karst caves, square kilometers of sea coast and

river banks, etc. the supply will be limited. In an extreme situation, with a totally inelastic supply curve

in case of monopolistic public goods, the rent depends exclusively on the amount of demand and as a

whole belongs to the owner of the natural good. Supply of the owner can exist even if there is no

demand and the economic rent is zero.

The economic rent based on the exploitation (valorization) of natural goods is realized

by the company through the above described functioning of market mechanism. By granting to

companies the exclusive right to the management, exploitation and use of the natural goods, the state

also enables them a monopoly. Part of the company profit is generated through the economic or

monopoly tourist rent. This part of the profit belongs to the owner himself since he is the owner of a

natural good. Therefore, in a market-based determination of the concession value, it is considered that

the concessionaire pays this amount to the grantor.

4 There is a paradoxical situation in tourism: tourism that needs a high quality environment at the same time also destroys it. A long-term and sustainable development of tourism requires preservation and protection of the quality environment. In the opposite case the tourist demand moves in the direction to environmentally more attractive (less polluted) destinations.

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3.1.2. Tourist consumer rent

Tourist enterprise operating on the basis of concession to natural goods through the

whole year, does not succeed in valorizing natural goods for the period of the whole year because the

tourist demand varies from season to season. In the non-seasonal period the producer’s rent turns

negative and changes into the consumer rent. Out of season the tourist enterprise often has a loss and

the prices are set below the total costs per unit, in order to minimize the loss which would be created

due to a too low demand out of season, even if the company stops operating for a certain period. The

difference between the tourist service price and the unit costs is the consumer rent. A decreased

demand out of season is a result of decreased attractiveness (quality) of natural attractions to the

consumer in certain months of the year. The source to cover the loss outside the season is the surplus

earned during the season. From the owner’s viewpoint it is reasonable to grant concessions to natural

goods utilized by tourist enterprises only if the difference between the rent of the producer and the

consumer is positive and can be collected by the owner. In case the difference is negative and the

concession refers to a natural good which is national natural treasure and therefore the state is

interested in making it available to visitors, a negative value of the concession may be reasonable. In

this case the loss in dealing with concessions would probably be covered from the budget (financing

certain activities, subsidies, tax relief etc.).

3.1.3. Environmental rent

A hotel, located by the sea realizes the location rent on the account of a higher selling

price in comparison to a hotel located further inland. Two functionally similar hotels on the coast can

have different selling prices if the sea near the hotel A is clean and suitable for swimming and the sea

of the hotel B is polluted and not suitable for swimming. In this case the hotel A puts into effect the

environmental rent, which is formed because of better environmental quality 5 (Mihalič, 1995, p.17).

Empirical research on tourist demand has shown that attractiveness of the countryside and other factors

of natural environment, like pure air, unpolluted waters and peacefulness, are very important for the

choice of destination (Tschurtschenthaler, 1986, p.117). Tourist demand is sensitive to the quality of

the natural environment (environmental elasticity)6. Tourist enterprises valorizing natural goods of

better environmental quality, ceteris paribus, achieve a higher rent, because they can set a higher price.

This additional surplus earned on the basis of environmental elasticity of tourist demand is called

environmental rent. This rent should belong to the owner of the unspoiled environment or to the

“creator," i.e. the investor in the quality improvement of the environment. Even if the company (or

anybody else) invests in the reduction of the burden to the environment, it should be entitled to the rent

earned on this basis.

Existence of a positive environmental rent could be denied, if it is assumed that the

owner of a natural good is entitled to the rent based on the ownership of the environmentally flawless

5 The term ecological (environmental) quality refers to the quality of (natural) attractions of a tourist place, which can be made worse by the man’s activity.6 Because of the blossoming of the Adriatic sea in the year 1989 the number of tourist accommodation in Rimini (Italy) decreased by almost 50% (Becheri, 1990, p.230).

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natural good.7 In many countries in transition this would not be possible. The state, as the owner of

natural goods, has taken over the resources that are quite often in a very bad environmental condition.

There arises a question, related to the environmental rent (in this case it can be considered as negative),

as to who is going to pay the rehabilitation costs of the natural goods. Probably it would not be possible

to put into effect the principle of the damage causer referred to the past, as in this case the culprits of

the negative external effects in the past should also be known.

The anticipated environmental rent, which would be collected by the future investor (this

could be the state) for investments in the quality improvement of the environment, would solve the

accumulation problem for this kind of investments as well as the problem of the time difference

between the starting point of the investment and its first results or the time when the environmental rent

is put into effect (for example, various kinds of environmental taxes).

3.1.4. Negative external effects

Absence of market mechanisms in the area of natural public goods leads to negative

external effects. Internal costs of companies differ from the costs paid by the society to the benefit of

the companies. Tourist enterprises that exploit and also destroy the natural environment as a

consequence of their activities are not willing to bear costs for its conservation and cleaning. A

classical way of solving the problem of negative external effects are ecological or environmental taxes.

Another possible way is the introduction of concessions. The owner of natural goods can dictate the

exploitation and usage of the natural resources through a concession deed and thus reduce negative

external effects or even insist on their abolition.

Negative external effects that are not included in company costs, may occur as a

fictitious higher income of the company or a tourist producer rent. If a government has not abolished

negative external effects but it claims the right to the rent on the basis of the difference between the

individual producer unit costs and market price, it should adopt the costs of the maintenance of the

environmental quality. If negative external effects are internalized into the company costs, this rent

would, in any case, be lowered by the amount of the internalized costs. The result would be the same in

both cases. Therefore concession granting does not exclude ecological taxes and other instruments of

ecological policy for the internalization of external effects. Furthermore, a private company is entitled

to internalization of eventual positive external effects that are caused by its functioning.

4. IMPACT OF CONCESSIONS TO NATURAL GOODS ON THE ENVIRONMENTAL PROTECTION AND ECONOMIC DEVELOPMENT IN TRANSITION

The purpose of granting concessions to natural goods is to speed up economic

development and assure preservation and protection of the natural environment. In the countries in

transition granting of concessions is confronted with difficulties. These are mostly related to: 1.

7 This can be the economic diferential rent I, if it is assumed, that natural goods of the same group are of different quality. It can be differential rent II, if for a higher quality of a natural good additional investments are required. In this case the investor’s entitlement to the effects of the investments can be explained with the theory of positive external effects.

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problems of legislation (adoption of legislation is too slow), 2. ownership, 3. information and 4.

quality of natural goods.

4.1. Legislation problem

In countries in transition changes are gradually introduced with adoption of regulations

and rules. In Slovenia the concession to natural goods was legalized with The Environmental

Protection Act (1993); a more detailed clarification of natural goods (except water as a natural

resource) will be introduced by other laws (Kovačič, 1994, p.6). Three years after the adoption of the

Environmental Protection Act there are still no regulations which would allow granting concessions to

natural assets, natural treasures and natural resources (except water).

4.2. Ownership problem

Land and many buildings that were set up for the purpose of valorizing natural goods,

are already in private hands or are being privatized. Thus in the countries in transition various subjects

can be involved in the process of concession granting. There is the state or local community as a

concession grantor. A concessionaire is an enterprise that provides services to which a concession is

granted. The concessionaire can also be owner of the real estate involved in the activity he performs. 8

A third person may be the owner of real estate.

The reason for the distinction between the two subjects lies in the fact that real estate is

connected to area (location) and is therefore immobile, while the concessionaires can change. The latter

is necessary if we want to achieve a market-based price determination of the concession for certain

activities. The problem can be avoided if the state buys the real estate and thus becomes its owner. Yet

this probably would not be a good solution with regard to the buildings of tourist infrastructure, which

are subject to valorization of natural attractions, as it is assumed that the state is a bad manager.

The problem of real estate can be solved in many ways.9 The grantor is allowed to buy

out all the fixed property which refers to concession granting. In the case of a buyout there are two

possible buying processes: either money can be used, or a free-of-charge concession is given to the ex-

owner for a certain period of time. When the concession contract expires the grantor becomes owner

of the real estate.

4.2.1. Free-of-charge concession to natural resources

8 Land as a natural resource is not mentioned separately because it can be part of a public natural asset, and “thus it is impossible and irrational to deal with it separately” (Dekleva et all, 1993, p.329). “For example, in many countries surface rights are distinct from mineral rights and the government retains the mineral rights even though the land is privately owned” (Gaudet et all, 1995, p.715).9 The Environmental Protection Act (1993) allows expropriation of the real estate and gives the state a preemption right if the real estate is situated on a territory which has a status of a protected natural treasure (Article 20). According to this act water, minerals or mineral ores, wildlife, fish and other wild water flora and fauna in open waters and fishing seas is the property of the state (Article 17). The property on the national assets and non-expendable natural resources will be defined by other acts (Kovačič, 1996, p.38). In Croatia preemption is based on automatic concession and tax reconciliation with the investment value (Velkavrh, 1996, p.259).

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In the transition period free concession may solve the problems related to the ownership

of real estate. With free-of-charge concessions the rights of the grantor and the real estate value of the

concessionaire can be reconciled. When the length of time of free-of-charge concessions is calculated

the real estate value on a certain day10 and the interest payments for the time of financing should be

considered. A further question arises regarding whether the tourist rent that was collected by the

company on the basis of a right to natural goods, should also be determined. In theory the question of

reduction in the valorization value of natural goods made by the exploiter in the past, also arises.

When the period of free concession expires the state could freely look for the best

concessionaire. In this manner competition would be created in the demand for concession and the

market price of the concession could be formed .

4.2.2. Priority and exclusive right of granting concession to natural goods

The problem of a free-of- charge concession given to the existing exploiter of a natural

good refers to the priority or even exclusive right to concession. The Slovene Environmental Protection

Act determines a market-based concession granting with a public tender except when the concession is

locally conditioned.11 Local conditioning is related to the owner of real estate which is needed for a

certain business activity connected with the exploitation of a natural good.

The state may yield real estate ownership to the present owner and give him the

concession to use and manage the place. If the real estate owner is one person, the manager or

performer of the activity another, two concessions should be given: one to utilize the real estate

location and another to perform the activity. For instance, the relationship between the real estate

owner and concessionaire in terms of performing for instance catering activity, should be ratified with

a contract. A possible solution would be also sub-concessions. Such examples can be found in national

parks, where a national park organization is first granted a concession of managing the park and then it

itself enters into a concession contract on individual activities (for example: climbing, catering

industry etc.) (Yosemite News, 1996).

4.3. Information problem

The model assumes that the information about the company’s total costs and the normal

profit, which enables the concessionaire an (average) efficient performance according to the invested

capital, is available.12

In practice only the company knows the real operating costs. It is assumed that countries

in transition have no mechanisms to calculate the size of the tourist rent, so they calculate it indirectly -

as a surplus of a normal profit which is required by the company itself. As the company has a certain

10 A different way of assessing the company value is economically unjustifiable. Suggestions that the past investments in real estate need to be assessed and then discounted to the present value are not market-oriented. The assessed value of the real estate on a certain day may differ from the value of the real estate investments, expressed in prices on the same day. In case of a sound investment (on average) and an appropriate maintenance of the real estate in the past, the two values should be equal. 11 Or if the right to exploitation, management or use of a natural good has already been determined by a legal act (Zakon o spremembah in dopolnitvah Zakona o varstvu okolja, 1996, Art.111a).12 More about see Gerard et all, 1995, p.716-741.

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influence on the operating costs and herewith on the size of the reported profit, the competition of the

potential concessionaires would lead to cost minimization and an increase in (the reported) profit.

As valorization of natural goods requires different kinds of invested capital that vary

from case to case, also the size of the capital has to be considered (profit on capital). The grantor of the

concession cannot claim possession to an equal percentage of the total revenue earned for different

activities (for instance: tourist guiding in a national park, catering industry).

On the market natural goods are valorized on the basis of a higher total income, which is

realized by the tourist company because of the presence of the natural attractions. Total income and

profit growth do not always move in the same direction (for example: diminishing returns, exaggerated

costs). Therefore it would be better if the concession value depended on the total income and not profit.

Total income is also a better indicator of the volume of business, which is often a critical category if

protection of natural goods is concerned. An increased volume of business (for instance number of

visitors) means a greater exploitation or destruction of environment. This is a problem of negative

external effects and environmental rent again.

4.4. Problem of environmental quality

Environmental quality is explained in the chapter on environmental rent. When a natural

good is so polluted, that it can not be valorized in a tourist sense, the repayment concessions of

performing a tourist activity cannot be granted because a tourist rent does not exist. So an agreement

can be made that only those natural attractions can be given repayment concessions, whose

environmental quality satisfies certain standards, which enable their tourist valorization. Various

mechanisms can be introduced to speed up the cleaning of the environment for the purpose of (future)

tourist valorization.13

4.5. A model

In the model it is assumed that the countries in transition grant the first concessions to

natural goods mostly to companies which already have valorized these resources and have also made

certain investments into them (priority and exclusive right to the concession granting conditioned by

the real estate ownership). It is assumed that the grantor has solved the problem of asymmetrical

information with the mechanisms which prevent the costs exaggeration by the concessionaire. The

model also takes into consideration the assumption that the quality of natural goods can be poor and

therefore investments into the improvement of the environmental quality will be needed as only in this

way a full valorization is possible.

In the model (Figure 2) it is assumed that the operating costs of the company are 50 units

(without environmental taxes and charges to the owner of natural goods) and that 20 profit units stand

for normal profit according to the invested capital. Costs and at least a normal profit are therefore fixed

categories. In the first phase, when the owner of natural resources does not exist and the resources are

usurped by private companies, their profit is also made on the basis of the quasi ownership of the

13 There are quite a few examples. Also in Slovenia there are projects, which try, with help of tourist development and because of it, to clean the natural environment which was very degraded in the past (the lake - Šaleško jezero).

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goods in the amount of 50 units. When for instance the state appears as the owner of environment it

requires a share of the company profit above the normal one for itself. In our case this amounts to 30

units. If the state moves the negative external costs or the environmental costs caused by the company

directly to the company, for instance with environmental taxes T (in the model this is 10 units), this

increases the costs of the company. Since the entrepreneur still insists on a normal profit on the

invested capital, the state will get only 20 units. If the environmental rent is also included in the model,

then only 10 units are left to the owner on the basis of his property rights, except in the case that the

owner himself invests in the quality improvement of the environment.

Figure 2: Structuring the total revenue of tourist enterprise

Step TC PF R T ER TR

I 50 50 - - - 100

II 50 20 30 - - 100

III 50 20 20 10 - 100

IV 50 20 10 10 10 100

Legend:TC - total costs of the tourist service production, chargeable to the company (without costs of degradation or destruction of the environment, without contributions to the owner of natural goods)PF - profit which remains in the companyR - rent on the basis of the title to ownership of a natural good, which belongs to the owner of the natural goodT - pollution costs, internalized negative effects (for example, environmental taxes or charges imposed on pollution of the environment caused by the company; according to the ‘polluter’s should pay’ principle they are chargeable to the company; payment for pollution certificates, environmental book-keeping etc.)ER - environmental rent belonging to the investor for the improvement of the environmental quality (may also be anticipated environmental rent, for example, environmental tax for a particular purpose)TR - total revenue

In the model the concession granting to pre-existing exploiters of natural goods does not

affect the economic growth immediately, yet it does have an influence on the improvement of the

environmental quality, maintenance of the environmental quality and reallocation of the income share

from companies to the state. In the model the current situation is assumed, i.e. the invested capital and

operating costs of the company. Thus, in countries in transition concessions will probably be granted

on the basis of priority or even exclusive rights to the present users of natural goods. The first impact

on the economic development will be the structural changes in the economy as a result of investments

into environmental industry and in the long term a higher valorization value from the exploitation of

natural goods will be assured.

The dynamic model of a market-based determination of the concession value assumes

competition between the potential concessionaires, various sizes of investment inputs and costs, and

varied productivity. In this respect, the percentage structure in Figure 1 could change to the benefit of

an increased share of the grantor and a decrease in the cost share. Such market-based granting of

concessions would have a positive effect on the economic growth. The same effect may be achieved

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through economic exploitation of natural goods which would appear on the market for the first time

and would start to be valorized.

5. CONCLUSION

Countries in transition will have to develop mechanisms to adjust the economic

development to the (natural) environmental protection and to abolish the consequences of the pre-

established environmental damage.

Concession granting to natural goods is one possible way. The market-based

determination of the payment to be made for a concession on the basis of ownership to natural goods

should include the valorization of natural goods as a value element which takes place on a tourist

market in the form of a higher price of products and services due to a higher tourist demand whose

reason and cause is the presence of natural attractions. In countries in transition, where the natural

goods have been valorized indirectly on the market, introduction of repayment concessions on the basis

of priority and exclusive rights to concession granting to the present real estate quasi owner, would

improve protection and maintenance of the natural environment. As far as natural goods are

concerned, a market model of granting concessions through a public tender or auction would enable a

more efficient economic exploitation of resources and capital. It would also connect the management of

the environment with the economic growth. Introduction of a rent (also in form of an anticipated

environmental rent) on the basis of a different category of environmental quality, would encourage

investments in environmental quality, speed up the structural changes and increase the valorization

value of natural goods and the rate of economic growth.

REFERENCES

Adam J.H. (1990): Dictionary of Business English. - Essex, Longman York Press.Becheri E (1990): Rimini and Co. - the end of a legend? Dealing with the algae affect. - Tourism Management, Vol. 11, No. 3, p.229-235.Collin P.H. (1986): English Business Dictionary. - Beccles, William Clowes.Dekleva J. et all. (1993): Zemljiška politika kot inštrument izvajanja prostorskih planov. Faza I: lastninjenje zemljišč. - Ljubljana, Urbanistični inštitut Republike Slovenije.The Environmental Protection Act (1993). - Ljubljana, Ministry of the Environment and Regional Planning. Frost F. (1993): Greening and Growing - The Role of Government. - Journal of General Management, Vol. 18, No. 4, p. 57-78.Gabler Wirtschafts-Lexikon (1988). - Wiesbaden, Gabler Verlag.Grilc P., Juhart M. (1991).: Koncesijsko razmerje in koncesijska podgodba. - Pravnik revija za pravno teorijo in prakso, Vol. 46, No. 1-2, p.13-27.Humboldt-Wirtschafts-Lexikon (1988). - München, Humboldt-Taschenbuchverlag Jacobi KG.Kovačič A. (1994): Novi predpisi v praksi. - Pravna praksa, No. 15, p. 7.Kovačič A. (1996): Koncesije na vodah. - Koncesije na naravnih dobrinah. Gradivo za posvet. - Ljubljana, Institut za pravo, GIZ gozdarstva Slovenije, p. 37-43.Mihalič T. (1995): Ekonomija okolja v turizmu. - Ljubljana, Zbirka EF Maksime.Pauly T. (1996): Pacific Northwest Regional Report. - Internet, March, 7th.

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Popov D. (1991): Neka aktuelna pitanja razvoja koncesija prirodnog bogastva i dobara u opštoj upotrebi. - Privredno pravni priručnik, No. 1-2, p.3-10.Samuelson P. A., Nordhaus W.D. (1985): Economics. - New York, McGraw-Hill, Inc.Sotto H. (1993): The missing ingredient. - The Economist, 11.9.1993, p. 8-10.Tschurtschenthaler P., et all (1981): Die Berücksichtigung externer Effekte in der Fremdenverkehrswirtschaft. - Jahrbuch für Fremdenverkehr 28/29, p. 93-135.Yosemite News (1996). - Internet, March, 13th.Velkaverh G. (1996): Koncesije na morskem dobru. - Ljubljana, Institut za pravo, p. 23-35.Wahrig G. (1991): Deutsches Wörterbuch. - München, Bertelsmann Lexikon Verlag.Woll A. (1991): Wirtschaftslexikon. - München, R. Oldenbourg Verlag.Zakon o gospodarskih javnih službah (1993). - Ljubljana, Uradni list Republike Slovenije, No. 32.Zakon o spremembah in dopolnitvah Zakona o varstvu okolja (1996). - Ljubljana, Uradni list Republike Slovenije, No. 1.Zakon o zavodih (1991): Ljubljana, Uradni list Republike Slovenije, No. 12.

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APENDIX

Figure A1: Natural Goods

Source: The Environmental Protection Act, 1993, Art. 5, 17 and 21.

14

NATURAL GOODS

NON-EXPENDABLE NATURAL RESOURCES

Concessions for:– management– use- economic exploitation

STOCK AND FLOWNATURAL ELEMENTS

Non-renewableRenewable

Concessions for:– economic

exploitation

NATURAL NATIONAL ASSET

Concessions for:– management– use