Columbus Day and the Risks of Exploration

Although Columbus is criticized for the exploitation, enslavement, and suffering associated with European colonization, his voyages offer an instructive example of the risks of investing in exploration. In 1492, Spain's monarchs financed an expedition to find a commercially valuable route to Asia, uncertain whether Columbus would succeed—or even return. But there was another risk: would he be able to claim the rewards of a successful voyage? The

Five centuries later, companies exploring the ocean floor face similar uncertainties. ABC News reports that some companies hope to recover valuable nickel, cobalt, and other minerals from the deep ocean. But collecting minerals thousands of meters underwater is technically difficult and commercial profitability remains unproven. In August, NOAA announced that it had advanced its review of an application by The Metals Company to explore and commercially recover minerals from the Pacific seabed. Even if the technology works, property rights remain uncertain. The United States has its own permitting process, but the International Seabed Authority maintains that mining in international waters requires authorization under its international framework.

Both ventures illustrate two distinct risks of exploration: the technology may fail, and even if it succeeds, (perhaps because it succeeds) the claim to the rewards may fail. The expected return on investment depends on both probabilities. Property rights are valuable only to the extent that they can be enforced.